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

Saturday, June 20, 2015

week ending Jun 20

A bloated US Federal Reserve prepares to shape up - Amid another wave of feverish speculation about US interest rates Janet Yellen, chairwoman of the US Federal Reserve, confirmed on Wednesday what most observers suspected: US central bank will not raise the crucial Federal funds rate this month. But she also suggested that the Fed hopes to act soon, possibly as early as September (assuming, that is, that events in Greece do not create a wider crisis). Little wonder, then, that market traders are now braced for a sticky summer; the Fed has not raised rates for almost a decade. As investors watch the calendar, they should not lose sight of something else: namely that rate rises are not the only hot issue on the Fed’s agenda right now. Far from it. Behind the scenes, a second argument is under way about how the Fed will unwind the extraordinary technical experiments it has launched since 2008. And, while this second discussion may not appear as thrilling as the speculation about dates, it too could end up being crucial. There are at least two important issues at stake. The first is the question of what the Fed plans to do with the assets sitting on its balance sheet. Until the onset of the 2008 financial crisis, these totalled about $1tn, mostly in the form of government bonds. The balance sheet has since increased to more than $4tn. The Fed has indicated that it plans to shrink that bloated balance sheet to a more normal size within a decade. And, when the US central bank does so, it could use this process as a second tactic to raise rates, alongside the usual rise in the Fed funds rate. After all, if it were to sell the bonds it holds, this would cause prices to fall — and yields to rise (in effect reversing what happened during quantitative easing). However, Fed officials seem divided on whether this would be a good idea. Most of those at senior level seem very wary of taking this second route since the realm of activist balance sheet management sits in something of an intellectual vacuum.

What Happened The Last Time The Fed's Balance Sheet Hit 25% Of GDP -- Ever since the Fed launched its unprecedented, unsterilized debt monetization rampage known as quantitative easing, coupled with seven years zero interest rates, there has been much confusion about how the Fed will achieve two gargantuan tasks: i) hike rates, and ii) reduce the amount of holdings on its balance sheet. The quandary, according to conventional wisdom, is magnified because something like this "has never been done before."  Conventional wisdom is wrong: something like this has been done before; the reason why nobody wants to talk about it is because it ended in epic disaster. The chart below shows the Fed's balance sheet expressed as a % of GDP: it has grown from its long-term "normal" 5% to just over 25%. As the following chart below shows, the Fed's response to the first (not to be confused with the current) great depression was, drumroll, identical. Whereas the Fed's balance sheet expressed as a % of GDP was humming along nicely largely at just over 5% in the period ever since the Fed was created in 1913, things got promptly out of control when the Great Depression hit in 1929. At that point the Fed's balance sheet grew from 5% to just shy of 25% at its peak. Maybe there is a reason why some call the current period the second great depression...As we showed yesterday, what happened next was that a little over a year after the Fed hiked rates for the first time, the Dow Jones tumbled, plunged by 50% in March 1938.   In other words, from the first rate hike by a Fed whose balance sheet as a % of GDP was nearly identical to the current one, to the start of World War II: less than three years.

FOMC Statement: No Change in Policy, Economy Expands Moderately -- FOMC Statement:  Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

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

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

Fed Cuts 2015 Growth Outlook, Officials Still Favor 2015 Rate Rise - Federal Reserve officials cut their estimates of 2015 growth in new forecasts that also continued to show most officials favoring one to two interest rate increases this year. The projections show a strong majority of Fed officials continue to believe they’ll lift interest rates this year from the near zero levels they’ve occupied since the end of 2008. Fifteen of 17 officials hold that view, while two expect to hold off on rate increases until next year. That matches what officials said in projections released in March. The Fed’s outlook for the economy and monetary policy was released Wednesday along with the announcement of the outcome of the interest-rate setting Federal Open Market Committee. Central bankers matched widely held expectations and left their short-term interest rate target unchanged at near zero, as they continued to prepare the way for interest rate rises. A number of Fed officials have been making the case that when they do begin raising rates, it’s likely that they’ll do so slowly. The latest forecasts affirm that outlook, and are little changed from what officials thought likely in March. The median expectation for the Fed’s short-term rate target at the end of this year still stands at 0.625%. The end-2016 forecast is for a 1.625% rate, while the median expected interest rate target for the close of 2017 stands at 2.875%. Longer run, officials expect their short-term rate target to stand at 3.750%, matching March’s view. In the forecasts, Fed officials’ so-called central tendency for growth this year ranged between 1.8% and 2.0%, from the 2.3% to 2.7% rise they predicted in March. For 2016, the economy is seen growing by 2.4% to 2.7%, in line with March’s estimate, while 2017 growth is forecast to range between 2.1% and 2.5%. The economy’s long-run growth rate was left at a 2.0% to 2.3% increase. The cut in the Fed’s growth estimates was no surprise. First quarter U.S. growth was last reported at a 0.7% decline, and data for the second quarter has raised questions about whether activity picked up much from the start of the year. There’s an active debate among central bankers how much of that weakness owed to the terrible winter weather seen over much of the nation, and how much might be due to deeper issues in the economy.

Fed, in Shift, Expects Slower Increase in Interest Rates - — The era of easy money is not ending yet.The Federal Reserve indicated on Wednesday, following a meeting of its policy committee, that it plans to raise interest rates even more slowly than its officials had previously predicted.The Fed still plans to start raising rates before the end of the year. Janet L. Yellen, the Fed’s chairwoman, said that growth had rebounded after a difficult winter, and that the Fed was simply waiting to make sure the economy was finally ready for higher rates. But she emphasized that even after rate hikes began, borrowing costs would remain low for years.“It’s not an ironclad guarantee, but we anticipate that that’s something that will be appropriate later this year,” Ms. Yellen said at a news conference on Wednesday, referring to raising rates above zero for the first time since December 2008. For years, Fed officials said they expected to begin the process in June, but they are now delaying at least until September in part because economic growth has once again disappointed. In a retreat that has become a ritual for the overly optimistic central bank, officials said in a new round of economic forecasts published Wednesday that they expected the economy to grow this year by 1.8 percent to 2 percent. In March, they predicted growth of 2.3 percent to 2.7 percent.

Fed Policy Makers Stay United For a Fourth Straight Meeting - The Federal Reserve kept its harmonious streak going Wednesday by issuing a fourth consecutive unanimous policy statement. The 10-0 vote by the rate-setting Federal Open Market Committee followed identical consensus at the January, March and April policy meetings. The Fed has avoided a formal dissent this year in its longest stretch of unanimity since 2011. Going into this week’s meeting, two policy makers in particular were seen as potential dissenters. Richmond Fed President Jeffrey Lacker had leaned toward a June rate rise earlier in the year. Meanwhile, Chicago Fed President Charles Evans is a staunch opponent of raising rates this year and was believed to be ready to dissent if the Fed got closer to a rate rise. That didn’t happen, either. The votes of these two officials suggests hawks may be cautious about rates while taking stock of recent economic weakness, while doves are happy that the Fed hasn’t taken much more of a step toward raising rates. More broadly, the unanimous vote suggests the central bank is in a holding pattern when it comes to deciding on rate rises.

Broad Decline In "Dot Plots" Suggest Fed Rate Hike Confidence Shaky --  While virtually every single word change from the June statement compared to the April document shows a Fed that is increasingly more confident in the economy, the reason why the dollar has encountered a sudden air pocket following the Fed release is not due to the statement but what is in the Fed's projection materials, where the Fed unambiguously cut its 2015 GDP central tendency forecast from 2.3%-2.7% in March to just 1.8%-2.0%, coupled with a pick up in the unemployment rate from 5.0%-5.2% to 5.2%-5.3%, suggesting quite implicitly that while on one hand the Fed is more optimistic, when it comes to quantitative metrics it just got that much more bearish. But nowhere is the Fed's ambivalence more evident than in the latest dot, or dart as we call them, plots of where every single FOMC member expects the Fed Funds rate at the end of 2015 and 2016. The wholesale drop in FF expectations is quite clear and suggest that while 15 people said said it was time to hike rates in 2015 (vs 2 in 2016), their conviction is that much lower.  2015 dot plot:

Yellen Leaves Key Details of Fed Exit Plans a Mystery -- What’s hazier than the timing of the Federal Reserve’s first interest-rate increase? Key details of some of tools and strategies it will use to help shepherd borrowing costs higher some day. In a news conference following Wednesday’s Federal Open Market Committee meeting, Chairwoman Janet Yellen was asked about two important things: When the Fed will stop taking active steps to keep the size of its $4.5 trillion portfolio of bonds and cash steady, and how large a program designed to set a floor underneath short-term interest rates will be. Currently, the Fed takes money it gets from maturing bonds it owns and uses it to buy new securities to keep its holdings steady. This reinvestment process is ongoing despite the end of bigger efforts that saw the central bank buy Treasurys and mortgages to increase the Fed’s balance sheet and provide stimulus to the economy. The end of this reinvestment process will cause the Fed’s balance sheet to begin shrinking. It will also be a definite step toward boosting borrowing conditions. The central bank has said the reinvestment process will end some time after rate increases begin, but it has never defined the interval or mechanics of ending the reinvestments. The Fed also plans to support the interest-rate increase process with a program that takes in cash from eligible money funds and banks, known as reverse repurchase agreements. The rate offered for these de facto loans of money to the Fed is supposed to set a floor underneath short-term interest rates. The Fed intends these so-called reverse repos to be temporary, but very large at the start. How large no one quite knows. And after Ms. Yellen’s news conference, answers remain elusive. Asked how large the first phase of the reverse repo effort might be in an actual cycle of raising rates, she replied the Fed “has an intention to make sure that they are available… in large quantity at liftoff to ensure that we have a smooth liftoff.

Fed’s Williams: Fed Should Raise Rates Twice This Year -  The first Federal Reserve official to speak in the wake of this week’s central bank monetary policy meeting said Friday the Fed should raise interest rates twice this year. “We are getting closer and closer to the time to raise rates,” Federal Reserve Bank of San Francisco President John Williams told reporters following a hometown speech. “My own forecast would be to raise rates two times this year, if the economy performs as I expect.” He added he would like to see those initial increases at 25 basis points each. As he has on many occasions, Mr. Williams cautioned that whatever happens with a policy that now has short-term rates pegged at near-zero levels will be driven by how the economy performs. And while he is upbeat about the outlook for growth and hiring, he said there are still reasons to be cautious about raising the cost of borrowing in the U.S. economy right now. “My own view is there are still significant headwinds to this economy,” he told reporters. In the text of remarks delivered Friday, Mr. Williams also said he was wary of acting before gathering more evidence that “inflation’s trajectory is on the desired path.” “Until I have more confidence that inflation will be moving back to 2%, I’ll continue to be in wait-and-see mode regarding raising interest rates,” he said. But Mr. Williams also cautioned that “every [Federal Open Market Committee] meeting is on the table” when it comes to deciding on changing interest rates.

Fed’s Mester: Economy Could Deal With Quarter-Point Rate Rise Now - Federal Reserve Bank of Cleveland President Loretta Mester said raising rates right now wouldn’t be a problem for the economy as a whole. “I think the economy can support a 25-basis-point increase in interest rates. However, I also understand the argument that getting a little more confirming data” before taking action “is reasonable as well,” the official told reporters after a speech in Pittsburgh on Friday. “I’m probably a little more optimistic about economic developments” relative to some, and if events play out as expected “we are going to start to move rates up this year,” she said, although she added it’s “hard to determine at this point how many rate increases” will happen in 2015. Ms. Mester also cautioned that too much emphasis is placed on the timing of the central bank’s first move, saying more attention should be paid the gradual path of rate rises most central bankers believe is likely. Ms. Mester’s comments came in response to questions after a speech on community development. The official was one of the first to speak since this week’s meeting of the monetary-policy setting Federal Open Market Committee. Then, officials maintained short-term rates at near zero levels.

How Productivity Growth Could Change the Fed’s Rate Path - The U.S. could be in for a stretch of low productivity growth, which would have the counterintuitive effect of tightening the labor market, raising wages and forcing Federal Reserve officials to raise rates more rapidly than they otherwise would, says a new analysis from a trio of Deutsche Bank economists. But higher wages would also push up inflation, which means we would hit the central bank’s 2% inflation target sooner than anticipated. That, the economists note, would likely mean that the Fed would end up with a slightly lower federal funds rate than anticipated, once the process of tightening is completed. “An outlook for slower productivity growth, if correct, has conflicting implications for markets depending on the time horizon considered: slower productivity growth likely means an earlier and more rapid ascent of fed funds rate during the initial stage of normalization, while at the same time arguing for a lower terminal fed funds rate,” argue Deutsche Bank economists. The report suggests Fed policy makers may have taken an overly rosy view of future productivity growth. The central bank’s March projections assumed annual inflation-adjusted growth of slightly above 2%, in line with the trend over the past three years. But they also anticipate the decrease in unemployment will moderate or stall. That would imply a significant bump in productivity. A separate report from the consulting firm IHS on Tuesday anticipated long-term growth in the U.S. of 2.3% a year. The Fed is set to release updated economic projections Wednesday afternoon. “To hold unemployment unchanged in the face of 2.5% GDP growth and no change in labor-force participation, nonfarm business productivity would have to be growing at nearly 2% annual rate, more than a full percentage point above its recent pace,” the Deutsche Bank economists write.

Key Measures Show Low Inflation in May -- 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 May. The 16% trimmed-mean Consumer Price Index also rose 0.1% (1.4% 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 0.4% (5.5% annualized rate) in May. The CPI less food and energy rose 0.1% (1.8% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for May here. Motor fuel was up sharply!

With The Spread Between CPI And PCE Blowing Out The Most Since 2009, Is The Fed Making A Big Mistake -- With a small possibility that later today the Fed may hike rates for the first time in nearly a decade, and if not today then in 65 days (per the Bank of America countdown to the repeat of the "Ghost of 1937") at the September 17 meeting on which consensus has congregated as the historic rate hike day, there is one particular chart that if not readers, then certainly the Fed, should focus on: the near historic difference between the two primary inflation measures, core CPI and the Fed's preferred, core PCE... This in turn begs the question: if the Fed, as it has repeatedly hinted, indeed intends to hike rates at a time when Core PCE is running the lowest in nearly four years, will the Fed make a grave mistake which impacts if not so much the people (after all the welfare of the vast majority of the US population has never been a consideration of the Fed) but of those corporations and banks whose existence and prosperity is the primary directive behind the Fed's very existence. Here is Bank of America commenting on the ongoing divergence between the two inflationary series: In our view, there is a sizable risk the Fed is underestimating the size and persistence of the inflation gap. The only inflation measure that has shown any recent upside has been core CPI, which continues to diverge from the Fed’s preferred core PCE measure (Chart 3). Core PPI (excluding volatile trade services) and import prices of consumer goods fell in May. Earlier in the year, Yellen said inflation need not rise to start the hiking cycle, it just cannot fall. When she spoke, core PCE inflation was 1.4%; the most recent reading is 1.2%.

Wage Increases Do Not Signal Impending Inflation - Carola Binder -- When the FOMC meets over the next two days, they will surely be looking for signs of impending inflation. Even though actual inflation is below target, any hint that pressure is building will be seized upon by more hawkish committee members as impetus for an earlier rate rise. The relatively strong May jobs report and uptick in nominal wage inflation are likely to draw attention in this respect.  Hopefully the FOMC members are aware of new research by two of the Fed's own economists, Ekaterina Peneva and Jeremy Rudd, on the passthrough (or lack thereof) of labor costs to price inflation. The research, which fails to find an important role for labor costs in driving inflation movements, casts doubts on wage-based explanations of inflation dynamics in recent years. They conclude that "price inflation now responds less persistently to changes in real activity or costs; at the same time, the joint dynamics of inflation and compensation no longer manifest the type of wage–price spiral that was evident in earlier decades." Peneva and Rudd use a time-varying parameter/stochastic volatility VAR framework which lets them see how core inflation responds to a shock to the growth rate of labor costs at different times. The figure below shows how the response has varied over the past few decades. In 1975 and 1985, a rise in labor cost growth was followed by a rise in core inflation, but in recent decades, both before and after the Great Recession, there is no such response:

GDP Forecasts: The Latest from the WSJ Economists and the Fed - Today's FOMC statement informs us that: Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. Below is a snapshot of a table from the Fed's website. It includes forecasts for GDP, Unemployment and Headline and Core PCE Inflation. But for now, we'll just focus on GDP. The yellow highlights focus on the latest forecasts for 2015 annual GDP (the central tendency and range) and the "Longer run" expectation for the next 5-6 years. Earlier this month the Wall Street Journal did its monthly survey of economists on a variety of economic metrics, including of course GDP. Sixty-six of the 72 economists solicited participated. Here is a look at the range of forecasts for 2015 annual GDP. We've calculated the median (middle), mean (average) and mode (most frequent). We've also documented the range of Fed forecasts in today's projections.  As we can see, the median and mode matched the top of the Fed's central tendency. The mean was a tad higher at 2.1%, which is accounted for by optimistic skew of the survey responses.Here is a look at the WSJ responses for the longer run. Here the median, mean and mode spread out. The mode, 11 of the 52 responses remains at 2%. The mean rises to 2.3 percent, and the median response was 2.4%.Of course, we're still in the early stages of accumulating 2015 GDP numbers. Even though we're well into the second quarter, the BEA's next release will be its Third Estimate of Q1 GDP. As for Q2, here's a look at the latest WSJ survey results.We'll close with a snapshot of the latest Atlanta Fed GDPNow™ forecast for Q2, at 1.9% as of June 16th.

Memo to Fed: Let the Economy Overheat - WSJ: The Federal Reserve signaled Wednesday, with some trepidation, that it remains on track to raise interest rates later this year. Ordinarily, with unemployment now approaching levels associated with an economy at full strength, the case for raising rates would be open and shut: the Fed would not want unemployment to drop so far that the economy overheats and inflation takes off. But these are not ordinary times. An overheating economy right now would be welcome: It would help nudge inflation back to more normal levels, restore some of the long-term growth potential lost since the financial crisis, and boost ordinary workers’ wages more effectively than remedies such as big increase in the minimum wage, which can reduce employment for the low-skilled. While low rates may be fueling speculation in financial markets, that threat doesn’t yet outweigh the many benefits. Fed Chairwoman Janet Yellen acknowledged the dilemma, noting that moving too early will derail the recovery, while moving too late will cause inflation to overshoot. There are, of course, risks to keeping rates low. Let’s consider them in turn. It will raise inflation. This would be a worry if inflation were too high; but it is running at 1.2%, excluding food and energy, according to the Fed’s preferred measure, well below its 2% target. This is a problem because lower inflation, all else being equal, means lower interest rates, and if the economy heads into the next recession with inflation too low, the Fed might not have enough room to cut interest rates by much. Letting the economy overheat makes it more likely inflation will move back to target, and it would be better to head into the next recession with inflation a bit above 2% instead of below.

Yellen: Strong Dollar Will Be Persistent Drag on U.S. Economy - The strong dollar will continue to be a drag on U.S. exports, inflation and the broader economy for some time to come, Federal Reserve Chairwoman Janet Yellen said Wednesday. “I think we have seen that it’s had a negative effect on net exports and so served as a something of a drag on the economy, and probably that drag is going to continue for some time to come,” Ms. Yellen told reporters at a news conference after a meeting of the Federal Open Market Committee. A stronger dollar makes U.S. exports more expensive for foreign customers—and makes imports cheaper for U.S. consumers and businesses. Ms. Yellen added that “import prices for non-oil imports continue to fall, and I think that’s serving to push down core inflation a little bit. Eventually I expect that impact to ebb, but it is a factor affecting the outlook.” U.S. inflation has undershot the Fed’s 2% annual target for three years. Still, the strong dollar won’t derail the overall U.S. economic expansion, Ms. Yellen said. “In spite of the appreciation of the dollar,” she said, the Fed “obviously thinks that the economy is likely to do well enough to call, likely call, for some tightening later this year.”

Unresolved Allegations of Criminal Insider Trading Leaks from the Fed -- Yves Smith - A segment on yesterday’s Boom/Bust program, starting a 22:30, discusses the still-open inspector general criminal investigation into leaks from the Fed. As Ed Harrison recounts, the Fed had set up limits on meetings with officials in 2011 because former Fed staffers were profiting from these relationships. ProPublica broke the story. Huffington Post provides a summary: The shocking leak constituted a serious breach of protocol at the normally secretive FOMC, the central bank’s main policymaking body. In October 2012, one day before the scheduled release of minutes from the Fed’s September 2012 meeting, elite clients of Medley Global Advisors, a political and economic policy intelligence firm, received valuable information about a coming innovation to the Fed’s long-established quantitative easing program. Quantitative easing attempts to stimulate the economy by keeping borrowing costs so low that businesses and households are induced to spend and invest.Medley clients were sent a newsletter informing them of specific actions the Fed had contemplated at the meeting, such as tying the future direction of short-term interest rates to a 6.5 percent unemployment rate. The numeric thresholds of the Fed’s new policy were not publicly revealed until December 2012.   To make matters worse, an internal investigation was hidden from Congress. Huffington Post again:  ….According to the person interviewed in the inspector general’s investigation, who spoke on the condition of anonymity, the probe included rounds of interviews conducted in 2013 and 2014. The IG, which acts as an in-house auditor but is supposed to remain independent of the central bank, has reported neither the inquiry nor the results in any of its regular semi-annual reports to Congress, which are publicly available. These reports serve as the unit’s accounting of its activities and enable the legislative branch to perform its oversight of the Fed….

Today Financial Journalism Suffered An Epic Failure -- Earlier today we reported about a very sad development for the freedom of speech, or at least the illusion thereof, when one of, if not the best, critical Federal Reserve reporter in the mainstream media, WSJ's Pedro da Costa, found he was no longer "invited" to the Fed's quarterly press conference. His transgression: daring to ask Yellen some very uncomfortable questions during the March 2015 press conference. To wit: Pedro da Costa with Dow Jones Newswires. I guess I have two follow-ups, one with regard to Craig’s question. So, before the IG’s investigation, according to Republican Congressman Hensarling’s letter to your office, he says that, “It is my understanding that although the Federal Reserve’s General Counsel was initially involved in this investigation, the inquiry was dropped at the request of several members of the FOMC.” Now, that predates the IG. I want to know if you could tell us who are these members of the FOMC who struck down this investigation? And doesn’t not revealing these facts kind of go directly against the sort of transparency and accountability that you’re trying to bring to the central YELLEN. That is an allegation that I don’t believe has any basis in fact. I’m not going to go into the details, but I don’t know where that piece of information could possibly have come from.As it turns out, the allegation did have "basis in fact" because two months after this exchange, we learned that not only was there a parallel investigation into the Fed's leaks in addition to the Hensarling subpoena, a criminal one by the Department of Justice at that, but that the Fed had indeed declined to comply with the subpoena as Pedro suggested. (more)

WSJ Economists' June Forecasts for 10-Year Yields and the Fed Funds Rate - This afternoon the Fed will release the FOMC Minutes for its May meeting followed by Chair Yellen's press conference. In advance of the Fed information, let's take a quick look at a couple of items in the June Wall Street Journal survey of economists, starting with where the Federal Reserve is headed with the Fed Funds Rate, which is currently holding steady at 13 percent. The June survey was sent to 72 economists, with responses received from 66, although the individual respondents didn't necessarily reply to all questions. Here is a table showing the economists' expectations for the Fed Funds Rate — Low, Median (middle), Average (aka Mean) and High — at six-month intervals from June 2015 to December 2017. Here is the equivalent table showing the forecasts for the 10-year Treasury Note yield, which closed yesterday at 2.32 percent.Since a picture is worth a thousand words, here's a short visual essay illustrating the forecast averages for the two series, rounded to one decimal.Economic indicators this year have been a mixed bag. The most popular headline employment numbers (new nonfarm jobs and the unemployment rate) have been encouraging. In contrast, Industrial Production and Retail Sales have been weak. Real Personal Income has been staggering a bit over the past three months.Meanwhile, the economists in the latest WSJ survey have made little change over the past three months in their collective views on rates. Below are the same column charts for the May and April surveys.

China Dumps Record $120 Billion In US Treasurys In Two Month Via Belgium -- Those who have been following the saga of "Belgium's" US Treasury holdings learned last month that the "mysterious buyer" behind Belgium's Euroclear was, as some speculated, China all along. Nowhere was this more evident than when showing an overlay of China and Belgium's combined TSY holdings versus China's forex reserves.  This is what we concluded last month:

  • "Belgium" is, or rather, was a front for China: either SAFE, CIC, or the PBOC itself.
  • That Belgium's holdings, after soaring as high as $381 billion a year ago, have since tumbled back to only $2532 billon as China has dumped the bulk of its Euroclear custody holdings, and that once this number is back to its historical level of around $170-$180 billion, "Belgium" will again be just Belgium.
  • China's foreign reserves tumbled and this was offset by a the biggest quarterly drop in Chinese pro-forma treasury holdings, which dropped by a record $72 billion in the month of March, and a record $113 billion for the quarter.

It wasn't precisely clear just why China, which had historically used UK-based offshore banks to transact in US paper in addition to the mainland, would pick Belgium or why it chose to hide its transactions in such a crude way, however the recent accelerated capital outflow from China manifesting in a plunge in Chinese forex reserves, coupled with a record monthly liquidation intotal Chinese holdings, exposed just where China was trading.

90 Days: Treasury Says Debt Has Been Frozen at $18,112,975,000,000 - The portion of the federal debt that is subject to a legal limit set by Congress closed Thursday, June 11, at $18,112,975,000,000, according to the latest Daily Treasury Statement, which was published at 4:00 p.m. on Friday.  That, according to the Treasury's statements, makes 90 straight days the debt subject to the limit has been frozen at $18,112,975,000,000.  $18,112,975,000,000 is about $25 million below the current legal debt limit of $18,113,000,080,959.35. The Daily Treasury Statement for March 13 was the first to show the federal debt subject to the limit closing the day at $18,112,975,000,000. Every Daily Treasury Statement since then has reported the same thing: the debt closing the day at $18,112,975,000,000. Every Daily Treasury Statement since Monday, March 16, has reported the debt beginning and ending each day at $18,112,975,000,000.  Table III-C on the Daily Treasury Statement for June 11 says the debt began the month of June at $18,112,975,000,000, began the day of June 11 at $18,112,975,000,000, and closed the day of June 11 at $18,112,975,000,000.

Congress paddles toward a shutdown | TheHill: Congress is slowly paddling toward a government shutdown. The fight over government spending that has dominated much of the decade, calmed for two years because of a bipartisan deal, is roaring back to life.  Democrats are adamant that Republicans back off their plans to increase defense spending without doing the same for nondefense programs. They argue the GOP is using a budget gimmick to funnel more money to the Pentagon without raising spending limits on healthcare and social welfare programs. To try to force the party’s hand, Senate Democrats say they will block every annual spending bill unless Republicans agree to a budget summit. Republicans, for their part, say they have no intention of caving to Democratic demands. Senate Majority Leader Mitch McConnell (R-Ky.) and Speaker John Boehner (R-Ohio) say they won’t convene a budget summit and warn Democrats could earn the wrath of voters by blocking bills to fund the military. Unless someone blinks, none of the 12 annual spending bills will be approved by this summer — leaving Congress on the brink of a shutdown in late September.

CBO sees U.S. deficit doubling by 2040, slower interest rate rise - The U.S. budget deficit will more than double as a share of economic output by 2040 if current tax and spending laws remain unchanged, congressional forecasters said on Tuesday. The Congressional Budget Office said, however, it now believes the nation's debt will grow more slowly than it projected last year on views that interest rates will be lower than earlier forecast. The CBO said that based on its normal scoring methods, the 2040 deficit will reach 5.9 percent of gross domestic product, compared to 2.7 percent this year and 3.8 percent in 2025. By contrast, the deficit reached nearly 10 percent of GDP in 2009 during the depths of the financial crisis. "Mainly because of the aging of the population and rising healthcare costs, the extended baseline projections show revenues that fall well short of spending over the long term, producing a substantial imbalance in the federal budget," the CBO said in the report. The CBO said U.S. debt held by the public in 2040 will reach 103 percent of GDP, up from 74 percent currently but slightly below the 106 percent it predicted last year for 2039. That's because it has lowered its long-term forecast for 10-year Treasury note yields to 2.0 percent from 2.3 percent, to conform with private market expectations. The agency, which is now under the management of Republican-appointed director Keith Hall, also included debt and deficit forecasts that take into account the economic feedback of an increasing federal debt load, which will slow long-term growth by crowding out savings and capital investment.

TPP Update: What Happened in the House -- Last Friday, the U.S. House of Representatives voted on two bills that would profoundly affect the Obama administration’s ability to move ahead with negotiations on the Trans-Pacific Partnership (TPP) with limited legislative interference. The House voted on Trade Promotion Authority (TPA, a topic I covered earlier after the Senate Finance Committee introduced it) and Trade Adjustment Assistance (TAA) separately. The former passed (219 yeas, 211 nays) while the latter failed (126 yeas, 302 nays). After Friday’s votes, headlines across the U.S. media emphasized the extent to which the Obama administration was handed a major defeat on trade—the New York Times headline read “House Rejects Trade Measure,” the Washington Post noted that “House Democrats rebuff Obama on trade,” and Vox ran a headline noting that “Barack Obama just had his worst day in Congress.” But wait! As I said, Trade Promotion Authority—the legislation that would allow the president to negotiate a TPP and present it “as is” to Congress, without an opportunity for legislative amendments—passed. Why then was Friday’s outcome such a setback for the administration? The answer to this has to do with how the Senate voted on TPA and how the House considered the same issue. The Senate voted through TPA and TAA as part of a single package. The House, however, voted on the measures separately. TPA did pass, but it won’t go to Obama’s desk to be signed into law without TAA’s passage. TPA and TAA are split along partisan lines as well. Republicans overwhelmingly support TPA while Democrats, concerned about the TPP’s negative distortionary effects on American workers, are against it.  Republicans had always thought the TAA was unnecessary, but why would Democrats overwhelmingly vote down legislation that they supported? The answer to that question lies in the simple procedural issue that without both TPA and TAA passing the House as they did in the Senate, nothing ends up on Obama’s desk to be signed into law. Basically, because Democrats knew passing TAA would end up abetting the administration’s bid to acquire “fast track” trade promotion authority and eventually ease negotiations on the TPP, they voted against TAA.

Democrats Betray Obama On Trade Deal, Guess He’s Done Being President Now --Looks like President Barry H. Bamz is officially in lame duck season, because on Friday, House Democrats stabbed him right in the back — they also betrayed, rejected, revolted, and rebelled! — blocking a bill to allow him to make super top secret trade deals with other countries. (That’s how trade deals are made, apparently. In secret. Because of sensitive things we humble folk couldn’t possibly understand and don’t need to know, yay for  transparency.)  House Democrats rebuffed a dramatic personal appeal from President Obama on Friday, torpedoing his ambitious push to expand his trade negotiating power — and, quite likely, his chance to secure a legacy-defining trade accord spanning the Pacific Ocean. In a remarkable rejection of a president they have resolutely backed, House Democrats voted to kill assistance to workers displaced by global trade, a program their party created and has stood by for four decades. By doing so, they brought down legislation granting the president trade promotion authority — the power to negotiate trade deals that cannot be amended or filibustered by Congress — before it could even come to a final vote. Drama! Even House Minority Leader Nancy Pelosi opposed the bill, which is strange and weird and makes us go HUH because she’s usually quite happy to help President Obama git ‘r done. With votes. From Democrats. Even sucktastic votes like extending Bush tax cuts, GRRRRR. Why, Pelosi, why have you turned on your own president?!? Because according to dirty lefty liberal hippies, the Trade Adjustment Assistance provision in the bill does not adequately fund programs to retrain workers whose jobs get outsourced to other countries that are not America, because that’s also how trade deals work. And the Republican-controlled Senate cooked up a nifty way to “offset” the cost of teaching those workers how to do other jobs. This is one of those absurd Republican rules, that the government is only allowed to spend money on a thing — like job training programs, or hurricane disaster relief — if it cuts funding for some other thing. Obviously, this does not apply when Republicans want to spend money on war, toys for the Pentagon, or abstinence-only education, because those things are important. So what unimportant program can spare $700 million? Medicare, of course. So in a strange turn of events, Democrats were calling Obama the jobs-killer who doesn’t care about old people, and Republicans were the ones saying #StandWithObama and if you don’t, you’re basically a Nazi: “Goebbels would be very proud of them,”

What Happened to the Trade Deal? -  With the House defeat Friday of the fast-track trade package, largely thanks to Democratic votes, it appears that President Barack Obama may no longer be either with members of his own Party. Mr. Obama, no fan of the glad-handing and arm-twisting that are such important parts of legislating, nevertheless pulled out all the stops on this one. Thursday night he made an appearance at the annual congressional baseball game (won by Democrats for the seventh consecutive year) and Friday morning he visited the Capitol to make an eleventh-hour pitch to House Democrats on behalf of the 12-nation Pacific trade pact. But relations between the White House and congressional Democrats have been fraying for some time, and it appears his efforts were perceived as too little too late. Worse, the president’s remarks on Capitol Hill, including admonishing Democrats to “play it straight” with their votes, may have actually cost him some votes. Politico quoted Democrat Peter DeFazio of Oregon saying he felt Mr. Obama “tried to guilt people and impugn their integrity” in that meeting and he was “insulted” by the approach. The president’s chilly and sometimes dismissive demeanor, which can often come across as arrogance, obviously didn’t serve him well in this instance. Mr. Obama was never the kind of leader that inspired fear in his supporters, but there was a time in his first term when Democrats loved him enough to go to the mat for him and even risk losing their seats over the health-care vote. That’s all gone now. The health care overhaul was something the liberal wing of the Democratic Party wanted badly, but that same constituency opposes trade deals, which they think have cost U.S. jobs.  Uncertainty over the benefits of free trade and concern about what has happened to U.S. manufacturing in the past two decades is a feeling not only held by the left. It spans party and political ideology as several recent polls have shown. (More on that here and here.)

Obama Fights to Save Trade Bill - WSJ -- A deep Democratic divide over President Barack Obama’s ambitions to expand trade in the Pacific clouded prospects this week for reviving key legislation after the House dealt it a stinging setback and Hillary Clinton expressed her own qualms Sunday from the campaign trail. Obama administration officials maintained Sunday that they still expected Congress would find a way to pass legislation expanding Mr. Obama’s trade-negotiating powers as the U.S. tries to wrap up a sweeping deal with 11 other countries around the Pacific. House Republican leaders said the burden would rest with the president to shore up support for his trade agenda after Democrats defected late last week, despite a burst of last-minute lobbying by Mr. Obama himself. But the Democrats, skeptical of how the Pacific trade deal is being negotiated as well as its potential repercussions for U.S. workers, said Sunday they saw little reason yet to loosen their opposition to a package of trade measures stalled in the House.The House on Friday took up the trade bill, which would give Mr. Obama and his successors the ability to submit trade deals to Congress for an up-or-down vote, with no amendments. Democrats rejected a workers-aid program, known as Trade Adjustment Assistance, or TAA, that is a key component of the bill, in order to halt the full legislation’s progress. “Nothing has changed since last week,” Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee and a critic of the trade negotiations, said Sunday. “Democrats oppose using TAA as a bargaining chip to pass a flawed fast-track bill.”

Labor’s Might Seen in Failure of Trade Deal as Unions Allied to Thwart It — Depleted by decades of diminishing reach and struggling to respond to recent anti-union laws, the labor movement has nonetheless found a way to assert itself politically by wreaking havoc on President Obama’s trade agenda, a top priority of his final years in office. On Friday, stiff labor opposition helped derail a measure necessary to clear a path for an up-or-down vote on a sweeping trade deal that the White House is negotiating with 11 other nations bordering the Pacific Ocean.  “Labor worked on this long and hard,” Representative Gregory Meeks, a Queens Democrat sympathetic to the emerging deal, known as the Trans-Pacific Partnership (T.P.P.), said on the eve of the vote. “If labor was neutral on this issue, and members were allowed to just make a decision on their own, this bill would not have a problem in passing.” While a broad coalition of unions and liberal activists can claim credit for beating back the president’s favored legislation, the key to labor’s display of force in Congress, according to supporters and opponents of the trade deal, was the movement’s unusual cohesion across various sectors of the economy — including public employees and service workers not directly affected by foreign competition. Labor leaders and their rank and file feared that, whatever the overall benefits to the economy, the emerging deal would accelerate the loss of blue-collar jobs that pay well. “The pay levels people would have to compete with are obscene,” said Larry Cohen, a former Communications Workers of America president, who led the coalition. There is evidence that freer trade has reduced the incomes of those without college degrees. Since March, according to the A.F.L.-C.I.O., union members have held 650 events opposing the legislation. They have made about 160,000 phone calls to members of Congress and written more than 20,000 letters. The federation also produced digital ads, which have received more than 30 million views, aimed at several dozen members of Congress.

Republicans may try a revote this week on defeated trade bill. But reversal will be a steep climb -- The stunning legislative upset on fast-track trade policy engineered by House Democrats Friday could be up for a rematch this week. But nobody is saying how the 3-1 rejection of the Trade Adjustment Assistance (TAA) bill can be turned around. That would require moving more than 80 Democrats from the no to yes column unless the GOP leadership can move large numbers of Republicans to switch their votes.  Without some major changes, neither seems likely. And making major changes runs a serious risk of spurring representatives who have already voted in favor of TAA to vote against any rewritten version. Passing a revision would also require going back to the Senate for a revote. There, any House changes made in the Senate language might turn off Republicans, Democrats or both. Yet without changes, what can GOP leaders do to motivate a reversal of Friday's overwhelmingly negative line-up?  But it's wise to expect the unexpected since Friday's outcome certainly was. Although it appears the odds are against it, last week's win could well be temporary. A TAA revote is required because of the way the trade package has been structured. After TAA was defeated, the House went immediately ahead and approved fast-track legislation—known officially as Trade Promotion Authority. This would restrict Congress only to voting yay or nay without amendment any trade agreement negotiated by the executive branch in the next six years. But the way it's now set up, TAA and TPA must both be passed in order to be sent to the White House for the president's signature. And there is going to be a lot of pressure not to budge pouring in from the same ad hoc anti-fast-track coalition whose pressure made Friday's win possible.

RIP TPP?  - My answer to the question I pose in my title is “no.” The Trans-Pacific Partnership (TPP) is far from dead and can only be defeated by heroic efforts by a broad coalition of Americans dedicated to the interests of our Nation and its people and willing to pay the price to oppose the triumph of corporate interests. The focus of this column, however, is on the New York Times’ coverage of Friday’s vote on a key component of President Obama and the Republican leadership’s efforts to make the TPP law.  The reasons to defeat TPP have nothing to do with political party. The NYT, however, treated Friday’s House vote against TPP almost entirely in partisan political terms. Indeed, the paper’s coverage focused almost exclusively on Democrats and its perspective was almost entirely that of President Obama’s framing of the issues. The NYT ignored the majority bipartisan opposition to TPP based on the harm it would cause to our people and sovereignty, the obscene manner in which it was drafted in secret by corporate interests, and the indefensible manner in which it presented to Congress without any meaningful opportunity to (a) know the deal terms, (b) know which corporate interests had secretly drafted the terms for their personal benefit, or (c) vote down even the worst examples of corporate abuses. Instead, the NYT “analysis” (initially) entitled its column: “Washington Dysfunction, With a Twist: Democrats Desert Their President.” That is a remarkable title, particularly for a supposed news story rather than an op ed. The NYT writers’ advocacy for TPP is so extreme that they redefined “democracy” as “dysfunction.” The NYT story is so poor that it did not even provide the reader with the vote count on the trade adjustment bill. The Washington Post provides that information. The key roll call came on a measure to grant financial aid to displaced workers, with 144 Democrats linking arms with 158 Republicans in a rout that left the overall package of trade bills stalled.

Is TPP in peril? - Probably not. But at the moment, the fate of the Trans-Pacific Partnership (TPP) rests on the shoulders of just 28 House Democrats who voted for Trade Promotion Authority (TPA) on Friday 12 June 2015.   Japan and Canada have stated publicly, and other TPP countries have stated privately, that they will not put their best offers on the table until Congress enacts TPA, as this Authority would prevent Congress from picking apart the final bargain.  In May 2015, the Senate passed its TPA bill which – at the insistence of Senator Ron Wyden (D-OR), ranking member of the Senate Finance Committee, and other Democrats – also renewed a programme that assists US workers displaced by trade (the Trade Adjustment Assistance programme). The Senate Republicans disdained the adjustment assistance as “just another entitlement”, but they accepted TAA in the TPA bill for the greater good of reaching TPP. House Republicans hold a more visceral contempt for TAA. To placate this group, House Speaker John Boehner (R-OH) and House Ways and Means Committee Chairman Paul Ryan (R-WI) invoked the unusual procedure of “dividing the question”. Retaining the same language as the Senate TPA bill, they permitted House members to vote separately on the TPA and TAA parts, with the understanding that both parts needed affirmative votes for the bill to reach President Obama’s desk. Realising that many fellow Republicans would vote against TAA, the two leaders counted on Democrats to pass the TAA part. Of the 40 House Democrats who voted for TAA, 28 voted for the TPA part; together with 191 Republicans, the TPA part passed 219-211. But without the TAA part the entire House bill goes nowhere. Speaker Boehner will call for a “reconsideration” vote on TAA this week. Over the weekend, the US Chamber of Commerce and the Business Roundtable might have succeeded in beating sense into the 150-odd Republicans who voted against TAA. If so, the House bill – identical to the Senate TPA bill – will reach President Obama. The stage will be set for the next big Congressional drama: ratification of TPP, probably in October or November, just prior to the APEC Summit in the Philippines.

Is TPP Dead? What does Hillary think?  --After the U.S. House of Representatives voted last Friday to kill "fast-track" to give Obama authorization to pass a major and secretive trade agreement, presidential contender Hillary Clinton may yet have another opportunity to give the American people her open and honest opinion on the TPP trade agreement. Or she may (again) take a "wait-and-see" approach to test the winds of public opinion. Or, to appease her corporate backers, she may just say nothing at all — or she might say something with a wink and a nod to her biggest campaign donors. Michael Wessel, who once worked as a senior policy advisor for Bill Clinton, recently wrote in Politico: I’ve read Obama’s secret trade deal. Elizabeth Warren is right to be concerned: A spokesperson for Hillary Clinton had said: “She will be watching closely to see what is being done to crack down on currency manipulation, improve labor rights, protect the environment and health, promote transparency and open new opportunities for our small businesses to export overseas. As she warned in her book Hard Choices, we shouldn’t be giving special rights to corporations at the expense of workers and consumers." So after plugging Hillary's book, are the American people to assume than someone who is running for the President of the United States doesn't even know the details of a major trade deal that is currently being debated — a trade deal encompassing 40% of the global economy? All we know so far about Hillary's opinion on TPP is that "trade is good". But all other presidential contenders (on BOTH sides of the political aisle) have already weighed in on the issue.

Clinton says drug firms that benefit from deal should offer discounts - Reuters: Democratic presidential front-runner Hillary Clinton said drug companies that would benefit from a Pacific trade pact should sell their products to the U.S. government at a discount in her strongest comments yet on an issue that has divided her party. Clinton's comments amount to an implicit rebuke of President Barack Obama's efforts to secure the Trans-Pacific Partnership (TPP) and a nod toward liberal critics of the deal as she campaigns to win the Democratic nomination for the November 2016 presidential election. Democrats in Congress rejected a related trade package on Friday despite a personal plea from the president. Clinton has faced pressure from the left and the right to take a stand on the pact. "I have held my peace because I thought it was important for the Congress to have a full debate without thrusting presidential politics and candidates into it," she said at a campaign stop in Burlington, Iowa. "But now I think the president and his team could have the chance to drive a harder bargain." Clinton did not say whether she would support or reject the deal. But she criticized several aspects of the agreement, which has drawn strong opposition from labor unions, environmentalists and other liberal interest groups. She said that U.S. drug companies that stand to boost foreign sales from the deal should be required to give bulk discounts to government programs like the Medicare health plan for the elderly.

US looks to reassure partners after trade rebuff - Barack Obama has dispatched a senior international negotiator to reassure trading partners concerned that Congress will block an ambitious Pacific Rim trade pact seen as central to US leadership in the region. Mike Froman, the US trade representative, embarked on a round of calls to his fellow trade ministers after Democrats in the House of Representatives rebelled and blocked a package of trade bills on Friday. Those bills are vital to concluding the Trans-Pacific Partnership, which the president has cast as a necessary boost to the US economy and a response to China’s influence in the Pacific Rim. “Getting this done is important to US leadership in this region,” Mr Froman, the lead US negotiator on the TPP, told the Financial Times on Monday. Mr Obama last week secured the backing of a majority of members of the House of Representatives for the so-called “fast-track” authority he needs to close the negotiations for the TPP. But in a rebuke of their president, Democrats blocked the bill from becoming law by voting down an associated programme to help workers who lose their jobs as a result of trade and globalisation. Critics in the president’s party argue that the TPP would perpetuate mistakes made in past trade deals that they say have hollowed out US manufacturing, leading to stagnant middle class wages and greater inequality. The revolt has left in limbo the fate of the TPP, which would cover 40 per cent of the global economy, and that of less advanced transatlantic negotiations with the EU. The US, Japan and the 10 other countries involved in the TPP now face having to rescue negotiations that had been close to concluding after five years of hard work.

Payback: Boehner hits back at GOP defectors on trade vote --   House GOP leaders booted three conservative members off the whip team for voting against a procedural rule last week that structured how a trade package was brought to the floor. Majority Whip Steve Scalise (R-La.) informed Reps. Cynthia Lummis (Wyo.), Steve Pearce (N.M.) and Trent Franks (Ariz.) on Monday that they were no longer a part of the GOP’s vote-counting operation, a source close to the whip team confirmed. And leadership may not be done with defectors just yet. Boehner (R-Ohio) and his allies could strip gavels from a handful of subcommittee chairmen who voted against the trade rule as well. “That is probably the next near-term thing,” said a GOP lawmaker who is close to leadership. Four of the roughly three-dozen Republicans who voted against the trade rule are subcommittee chairmen on the influential Oversight and Financial Services panels: Reps. Scott Garrett (N.J.), Mark Meadows (N.C.), Jim Jordan (Ohio) and Lummis. Franks is chairman of a Judiciary subcommittee. Three others, Reps. Louie Gohmert (Texas), John Fleming (La.) and Jim Bridenstine (Okla.), hold subcommittee chairmanships on the Science and Natural Resources committees.

Rescuing the Free-Trade Deals - Lawrence Summers: “Perhaps success can be achieved if the TPP’s advocates can acknowledge that rather than being a model… …this debate should lead to careful reflection on… trade agreements in America’s international economic strategy…. First, the era of agreements that achieve freer trade in the classic sense is essentially over…. What we call trade agreements are in fact agreements on the protection of investments and the achievement of regulatory harmonization…. There may well be substantial gains to be had from such agreements, but this needs to be considered on the merits area by area. A reflexive presumption in favor of free trade should not be used to justify further agreements…. Second, there needs to be a balancing of the political costs of legislating trade agreements against those of other forms of internationalism. If a small fraction of the U.S. political capital that has been devoted to the Trans-Pacific Partnership had instead gone to support reform of the International Monetary Fund and adequate funding for international financial institutions and the United Nations, these objectives could have been attained–and with greater benefits….  Third, there needs to be careful consideration going forward of the ramifications of trade agreements that include some countries while excluding others…. Fourth… a generation ago… trade agreements that encouraged the adoption of market institutions in developing economies and enhanced those countries’ access to the industrial economies were crucial to creating a truly global economy. Today, we have such an economy…. Our challenge now is less to increase globalization than to make the globalization we have work for our citizens…. Trade diplomacy… must be only one component of a broader approach that has as primary stakeholders not just global companies but also those concerned with economic equity, protection of the environment, opportunities for workers to migrate and financial stability…

TPP Panic: Playing the China Card -- Stung by the sudden derailment in the House of Representatives of their rush to pass the Trans-Pacific Partnership (TPP), the Washington establishment has wasted no time in warning us of the terrifying menace of a rising China, should the trade deal not be put back on track next week.  Echoing previous remarks by the president, House Speaker John Boehner warned “we’re allowing and inviting China to go right on setting the rules of the world economy.” Pro-TPP Democratic Congressman Jim Hines (D-Conn.) said that Friday’s vote, “told the world that we prefer that China set the rules and values that govern trade in the Pacific.”  These remarks are both fatuous and revealing of how weak the case for the TPP is, even among its own promoters.  As a matter of obvious fact, the rules of the world economy within which the Chinese have been taking the United States to the economic cleaners were not set in China. They were set in Washington, DC by our own American policymakers and fixers who in one way or another were, and still are, are in the pay of multinational corporate investors. Under Ronald Reagan, the two Bushes, Bill Clinton and now Barack Obama the United States government designed and imposed the global model of  “free trade” which promoted the shift of investment from the United States to parts of the world where labor is cheap, the environment is unprotected, and the public interest is even more up for sale than it is here.

To Call Trade Deal ‘Nafta on Steroids’ Picks the Wrong Target - Greg Ip - President Barack Obama’s push for a 12-nation Pacific trade deal stalled stalled last week on surprisingly stiff opposition from Democrats, many of whom have cited the U.S. trade pact with Mexico as proof of all that can go wrong with free trade.  In labeling the Trans-Pacific PartnershipNafta on steroids,” though, critics may have picked the wrong target. It is not the two-decade-old Nafta but China’s accession to the World Trade Organization in 2001 that offers the cautionary tale to legislators who must vote again once this week on whether to give Mr. Obama authority to complete the TPP. With both Mexico and China, the U.S. hoped not just to benefit from increased exports, but to encourage liberal reforms in that country and strengthen geopolitical relations. Of the two, Nafta came closer to filling that promise. Critics note that the U.S. went from a small surplus with Mexico in 1994 to a deficit of $30 billion, or 0.3% of total economic output, in 2000. But that had little to do with Nafta. The year after it went into effect, Mexico suffered a severe financial crisis, and the peso crashed. The depreciation and ensuing recession caused Mexican imports to plunge. Once the peso stabilized and Mexico emerged from recession, the surplus persisted, but against the backdrop of large, and growing, two-way trade. Cross-border investment and supply chains grew significantly. Nafta did cost some workers jobs or pay, but on net, both countries were better off as a result, though it is difficult to prove given the diversity of influences on both countries’ growth, the small size of Mexican trade relative to U.S. and the many obstacles to development Mexico’s poorer households still face. Gary Hufbauer and Jeffrey Schott of the the Peterson Institute think the U.S. gained 100,000 jobs per year thanks to increased North American trade from 1993 to 2003, though this may not all be due to Nafta. Some workers did suffer: A study by John McLaren of the University of Virginia found that wages grew much more slowly in parts of the U.S. that lost protection against Mexican imports than those locations that had no such protection to start with.

TPP Explained (In Comic Book Cartoons) -- Via EconomixComix

How Obama's "Trade" Deals Are Designed To End Democracy -- U.S. President Barack Obama has for years been negotiating with European and Asian nations — but excluding Russia and China, since he is aiming to defeat them in his war to extend the American empire (i.e, to extend the global control by America’s aristocracy) — three international ‘trade’ deals (TTP, TTIP, & TISA), each one of which contains a section (called ISDS) that would end important aspects of the sovereignty of each signatory nation, by setting up an international panel composed solely of corporate lawyers to serve as ‘arbitrators’ deciding cases brought before this panel to hear lawsuits by international corporations accusing a given signatory nation of violating that corporation’s ‘rights’ by its trying to legislate regulations that are prohibited under the ’trade’ agreement, such as by increasing the given nation’s penalties for fraud, or by lowering the amount of a given toxic substance that the nation allows in its foods, or by increasing the percentage of the nation’s energy that comes from renewable sources, or by penalizing corporations for hiring people to kill labor union organizers — i.e., by any regulatory change that benefits the public at the expense of the given corporations' profits. (No similar and countervailing power for nations to sue international corporations is included in this: the ‘rights’ of ‘investors’ — but really of only the top stockholders in international corporations — are placed higher than the rights of any signatory nation.)  This provision, whose full name is “Investor State Dispute Resolution” grants a one-sided benefit to the controlling stockholders in international corporations, by enabling them to bring these lawsuits to this panel of lawyers, whose careers will consist of their serving international corporations, sometimes as ‘arbitrators’ in these panels, and sometimes as lawyers who more-overtly represent one or more of those corporations, but also serving these corporations in other capacities, such as via being appointed by them to head a tax-exempt foundation to which international corporations ‘donate’ and so to turn what would otherwise be PR expenses into corporate tax-deductions. In other words: to be an ‘arbitrator’ on these panels can produce an extremely lucrative career. These are in no way democratic legal proceedings; they’re the exact opposite, an international conquest of democracy, by international corporations. This “ISDS” sounds deceptively non-partisan, but it's really a grant to the controlling international investors giving them a 'right' against the taxpayers in each of the signatory nations, a ‘right’ to sue, essentially, those taxpayers; and ISDS includes no countervailing ‘right’ to those taxpayers, to sue those international corporations; it’s an entirely one-sided provision, and it even removes the authority of the democratically elected national government to adjudicate the matter. It even removes the appeals-court system: once a decision is reached by the ‘arbitrating’ panel, it is final, it cannot be appealed. And no nation may present a challenge to the constitutionality of the ‘arbitrators’ decision. These treaties, if signed, will override the signatory nation’s constitution, on those matters.

"ISDS Provisions in TPP Violate Article III of the U.S. Constitution" --There's a growing recognition within the legal community that the ISDS provisions of treaties like NAFTA, TPP, many trade agreements already signed and almost all agreements going forward ... may well be unconstitutional. That is, they violate protections offered to citizens by important articles of the Constitution — for example, Article III, which establishes the judicial branch of the U.S. government, assigns its powers and establishes the right of trial by jury: The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;—.. In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the supreme Court shall have original Jurisdiction. In all the other Cases before mentioned, the supreme Court shall have appellate Jurisdiction, both as to Law and Fact, with such Exceptions, and under such Regulations as the Congress shall make...What Do Constitutional Lawyers Say About ISDS? ISDS is shorthand for "Investor-State Dispute Settlement" provisions in current trade "agreements" — these are carefully not called treaties, apparently as an attempt to bypass the Treaty Clause of the U.S. Constitution, which mandates that treaties be ratified by a two-thirds vote of the Senate: [The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur. ISDS provisions are described more fully below.

House Republicans Seek Time to Rescue Obama’s Trade Agenda - The Obama administration and Republican leaders don’t have a plan to resurrect the president’s trade agenda and are giving themselves until the end of next month to find a way to overcome resistance from congressional Democrats. House Republican leaders and President Barack Obama’s spokesman insisted that they will win passage of negotiating authority that Obama says he needs to wrap up a free-trade accord central to his strategy in Asia. “We’re still looking for a path forward,” White House press secretary Josh Earnest told reporters on Tuesday. “There’s not a specific one that we’ve endorsed at this stage.” Earnest said the decision by House leaders to postpone until July 30 another vote on worker-assistance legislation, which is linked to passage of fast-track trade negotiating authority, was a “prudent” move. House Speaker John Boehner said no decisions have been made on the next steps. The defeat of the assistance program in the House Friday amid a rebellion by Obama’s fellow Democrats has forced an unusual collaboration between the White House and congressional Republicans. The vote, which prevented the fast-track bill from reaching the president’s desk, threatens a trade deal being negotiated by Obama with 11 Pacific-area countries known as the Trans-Pacific Partnership. It also risks weakening Obama’s hand in dealing with Congress on other priorities, including a prospective nuclear deal with Iran. Obama spoke Monday with Boehner of Ohio about how to move forward, the White House said without providing details, and Obama’s chief of staff, Denis McDonough, was in contact with Senate Majority Leader Mitch McConnell over the weekend.

Joe Firestone: TPP – Fast Track, the Next Rounds In Congress  --The roll call 126-302 vote (Roll call 361) defeating the Trade Adjustment Assistance (TAA) bill was a result worth a little celebrating on Friday, since it was a very decisive victory on that particular vote, and also stopped the Trade Promotion Authority (TPA) fast track bill from being sent to the President’s desk for signature. If the vote on TAA hadn’t failed, it would have been far more difficult (I don’t say impossible as many do) to defeat all manner of “free trade” agreements (aka multinational sovereignty agreements), including the currently scheduled Trans-Pacific Partnership (TPP), Trans-Atlantic Trade and Investment Partnership (TTIP), and the Trade in Services (TiSA) agreements over the next year or so.   Everything we know about these agreements is that they would have been a disaster for all but an extremely small segment of the people of the United States. So, we ought to be overjoyed that, for now, fast-track is stalled in the House, and may get pigeon-holed there for quite some time to come, if the re-vote on TAA fails. Our first job is to defeat the TAA in the House. It is unlikely that things will end there, but if we don’t, then the House’s package created by the Republican leadership, becomes law, including, most importantly, the TPA, will reach the President’s desk where he will, joyfully, sign it.  On the other hand, if the TAA, isn’t approved in the re-vote, then the House is likely to try to work out a compromise with the Senate to align their differing TPA bills and then return the result to each of the Houses for a vote on the compromise. So, first of all, what is the likelihood, that the TAA bill will be approved in the House?  Since, on Friday, the TAA was perceived as the key vote on both the TAA and the TPA, why was roll call 361 so decisively against both, while roll call 362, on the TPA alone was narrowly in favor of the TPA?  In other words, why were these votes so at variance with each other? No post-mortem I’ve seen has really considered this carefully, and tried to explain it. But plainly, one’s explanation has to be the foundation for projecting how any re-vote in the House on the TAA/TPA is likely to come out.

GOP plots new approach to trade bill - (CNN) Republican leaders on Capitol Hill are hoping they have a way to pass President Barack Obama's stalled free trade package by overcoming opposition from his own party. It's unclear whether it will work, but GOP sources say they are considering a plan that would pass without the sweeteners designed to attract recalcitrant Democrats. House Speaker John Boehner and Senate Majority Leader Mitch McConnell met Tuesday to discuss how to advance a package of trade bills that Republicans largely support, even as Obama's own party rebukes him. The plan to attract some Democratic support collapsed late last week and leaders are now looking for a procedural out that would push the measure through. Obama has spoken by phone with both Boehner and McConnell this week, and both said they're looking for ways to grant the President the authority that U.S. negotiators say is crucial to completing the massive Trans-Pacific Partnership trade agreement. "It's still my hope that we can achieve what we set out to achieve together, which is to get a six-year trade promotion authority bill in place," McConnell said.

GOP Leadership's Latest Obamatrade Ploy Revealed: Small Business Tax Hike That Violates GOP’s Anti-Tax Pledge: Establishment Republicans desperately trying to secure the passage of Trade Promotion Authority (TPA), which would give President Obama fast-track authority to secure congressional approval of at least three secretive trade deals, are now willing to increase taxes on small businesses in a way that would violate a pledge almost every Republican Congressman has taken when elected into office. To secure final passage through Congress of a package that would include TPA fast-track authority—which would ensure finalization of the secretive Trans Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (T-TIP) and Trade in Services Agreement (TiSA), among other deals—the House would need to pass the Trade Adjustment Assistance (TAA) package that was necessary for Senate passage of TPA. The House voted TAA down 302-126 with widespread bipartisan opposition to last week, but House Ways and Means Committee chairman Rep. Paul Ryan (R-WI) and his allies in House GOP leadership have pledged that they will try to pass it again early next week. The vote would potentially be on Monday, but more likely on Tuesday—and if there is no vote by Tuesday, it’s unlikely that Ryan will be able to succeed in his ploy to revive TPA.

Failure of Obama’s Trans-Pacific Trade Deal Could Hurt U.S. Influence in Asia - — With President Obama’s trade agenda in jeopardy in Congress, the nations of Asia are weighing the potential impact of a failed deal on local jobs and exports, but also something else: American influence in the region.For many here, the defeat of a sweeping trade and investment pact being negotiated between the United States and 11 other Pacific Rim nations would weaken Washington’s already strained claim to leadership in Asia and undermine a commitment by Mr. Obama to devote more attention and resources to a group of countries contending with the growing power of China.Congress rejected legislation on Friday that is crucial to completing the trade deal, the Trans-Pacific Partnership, throwing its future — and its potential to bind together countries friendly to American interests — into doubt.“If this collapses, Pacific Rim countries will be aghast,” said Shunpei Takemori, a professor at Keio University in Japan, the largest economy in the would-be trade zone after the United States. “China is pushing, and if the U.S. just stands aside, it would be a tragedy.”The White House and its Republican free-trade allies in Congress are searching for ways to revive a bill that would extend aid to workers displaced by global trade agreements. By rejecting that measure on Friday, Mr. Obama’s fellow Democrats in the House effectively scuttled legislation granting him the power to negotiate trade deals that cannot be amended or filibustered by Congress.Without such trade promotion authority, analysts in the region said, it may be impossible for Mr. Obama to persuade governments to make the concessions needed to close a deal that would affect 40 percent of the global economy.

Trade rebuff fuels doubts on Obama bid to counter rising China - In his State of the Union address in January, President Barack Obama left little doubt that his pursuit of a landmark Asia-Pacific trade pact was aimed at countering Beijing’s rising influence in the region. “China wants to write the rules … Why would we let that happen?” he asked. Obama now has the response he did not want: A congressional rebuff to his legacy-defining trade agenda has dealt a humiliating blow - at least for now - to his effort to reassure Asian allies of U.S. engagement, and could allow China to expand its clout at Washington’s expense. The vote on Friday to sidetrack a bill vital to Obama’s proposed 12-nation Trans-Pacific Partnership (TPP) threatens to derail the economic centerpiece of Obama's vaunted “Asia pivot,” widely seen as intended to face down the growing competitive threat from China. At a time of heightened tensions over Beijing’s increased assertiveness in the South China Sea and its expanding economic influence across the Pacific Rim, the setback has already added to regional allies' doubts over U.S. leadership. "The history of East Asia and Asia-Pacific is being rewritten," Singapore's Foreign Minister K. Shanmugam told an American audience in Washington on Tuesday. "You are not in the driver's seat right now."

Obama, Boehner abandon plans for Tuesday trade vote -  President Obama and his momentary Republican allies in Congress mulled several difficult choices Monday for rescuing trade legislation into which the president has invested a massive amount of political capital in the hope of completing a 12-nation trade deal across the Pacific Rim. After successful Democratic efforts to block the president’s trade package, Obama and House Speaker John A. Boehner (R-Ohio) spoke by phone and consulted their respective top lieutenants as they tried to find a path to success, according to senior aides. Their first call was to abandon plans for a second vote Tuesday on a piece of legislation that must also pass for the entire package to advance to Obama’s desk. Given the grim outcome for Obama of the first vote on Friday — 302 against and 126 in favor — they stood no chance for turning nearly 100 votes in four days. Instead, Boehner decided to impose a temporary rule that, if approved Tuesday, will allow him until July 30 to bring up the trade debate at any time for a do-over of the stalled companion legislation to the trade package. If successful, Boehner will have bought an additional six weeks to find a way out of the mess.

House Moves to Delay Action on Trade Bill for 6 Weeks - In an extraordinary twist that perhaps only a lame duck president can relish, President Obama has largely jettisoned his plan to lure House Democrats to get his trade agenda through Congress, and instead is now working closely with Republican leaders. After weeks of wooing, pleading with and occasionally berating members of his own party in the hope that they would get behind what could be his last major economic policy achievement, Democrats delivered a mortifying defeat to his trade package on the House floor last Friday, sparking a change in strategy.  Obama has now turned his focus to House Speaker John A. Boehner and Senator Mitch McConnell, the majority leader, to find a legislative strategy that would preserve trade promotion authority, which would give the president accelerated power to negotiate the broader Trans-Pacific Partnership accord with 11 other nations from Japan to Chile.“The speaker and I have spoken with the president about the way forward on trade,” Mr. McConnell told reporters on Tuesday. “It’s still my hope that we can achieve what we’ve set out to achieve together, which is to get a six-year trade promotion authority bill in place that will advantage the next occupant of the White House as well as this one..”The current strategy being considered by lawmakers is to bring up the fast-track bill by itself in the House, with the hope that enough Republicans — perhaps animated by the idea of delivering a blow to Representative Nancy Pelosi, Democrat of California and the minority leader, who led the charge against the administration on the House floor last week — would vote to pass it. “What you saw on the floor on Friday was an expression of concern of the American people,” Ms. Pelosi said in an interview on CNBC. “We are representatives. That is our title and that is our job description.” If the House passes fast track alone, then the Senate would tuck the worker assistance bill into a noncontroversial trade measure, a nonreciprocal trade preference program with some African countries that has been largely approved in both chambers but for some tweaks, and send it back to the House for final passage. This would complete the package while maintaining the provisions both parties want.

House Will Move Thursday On Clean Fast-Track Bill -- House Republicans plan to breathe new life into President Barack Obama's trade agenda on Thursday by bringing up a stand-alone bill to give the president expedited authority to speed major trade deals through Congress. The new strategy from GOP leadership comes nearly a week after House Democrats handed the president a crippling defeat, stalling trade legislation in the chamber and leaving Obama and Republicans scrambling to find a way forward. Matt Sparks, a spokesman for House Majority Leader Kevin McCarthy (R-Calif.), confirmed on Wednesday that GOP leadership's plan was to bring the new version of the so-called fast-track bill to the floor on Thursday. Led by House Minority Leader Nancy Pelosi (D-Calif.), Democrats on Friday killed legislation funding Trade Adjustment Assistance, which helps workers displaced by trade deals, in order to stall the fast-track bill and derail the president's agenda. Now, Republicans plan to bring stand-alone legislation that will grant Obama fast-track authority while excluding the controversial TAA funding. The fast-track bill, also known as Trade Promotion Authority, already passed both the Senate and House, but its fate relied on the House passing TAA along with it. That didn't happen thanks to Democrats' revolt on Friday, forcing Republicans to find a new route. To move a clean fast-track bill, the House Rules Committee attached the legislation Wednesday evening to a firefighter and police retirement bill sent over by the Senate. Once the clean TPA bill is sent back to the Senate, it will be up to the upper chamber to handle TAA independently.

House passes trade authority bill - (CNN)The House on Thursday voted to advance legislation to give President Barack Obama fast track authority to negotiate a mammoth Pacific trade deal, reviving the prospects for Obama to achieve a key element of his agenda. The bill, known as TPA, passed by a razor-thin 10 vote margin, with 28 Democrats joining all but 50 Republicans to send the bill to the Senate. The Senate is expected to vote next week on the legislation, when it is also expected to take up a trade assistance measure aimed at winning over Democrats in a separate vote. Thursday's vote came less than a week after House Democrats, in a stunning rebuke to the President, torpedoed the legislation by voting down the trade assistance bill that was tethered to TPA. Now, House and Senate Republican leaders will look to pass both components in separate votes to give Obama the authority and confidence to negotiate a free trade agreement with a dozen countries on the Pacific Rim.

U.S. House win revives Obama's Pacific trade pact (Reuters) - U.S. lawmakers narrowly approved legislation key to securing a hallmark Pacific trade deal on Thursday, partly reversing a defeat less than a week before, in a boost to President Barack Obama's goal of strengthening U.S. economic ties with Asia. The House of Representatives voted 218 to 208 to give the White House authority to close trade deals such as the 12-nation Trans-Pacific Partnership (TPP), which encompasses 40 percent of the global economy and is close to completion. But the bill, a stripped-down version of legislation which failed at a vote last week, must now go back to the Senate for approval, where a vote is likely next week. The House has been wrestling for weeks with fast-track authority, which lets lawmakers set negotiating objectives for trade deals, such as the TPP, but restricts them to a yes-or-no vote on the finished agreement. Democrats last week dramatically rejected a personal appeal from Obama to back legislation central to his hallmark Pacific Rim trade deal by voting down a companion measure to renew an expiring program to help workers hurt by trade.

House revives Obama’s trade agenda with passage of fast track bill - The House resurrected the centerpiece of President Obama’s trade agenda Thursday, six days after his fellow Democrats dealt him a dramatic setback that spurned a months-long lobbying effort on the president’s part. Thursday’s 218-to-208 vote to grant Obama “fast track” authority to negotiate trade deals — including the controversial 12-nation Trans-Pacific Partnership — is a win for the president, but it is not yet a victory. It is the first in a complicated series of moves to get around a blockade set up by liberal House Democrats against the president’s trade agenda. The original plan was complicated enough — four separate bills, two of them packaged in one piece for the Senate, but then split apart for House consideration into four votes. Since that initial path blew up last week, Obama’s supporters have crafted an exponentially more difficult bridge to revive and approve the trade legislation. “This is a 60-yard field goal, into the wind. So, good luck, it may work,” said Sen. Lindsey O. Graham (R-S.C.), a deep skeptic of the new process who nevertheless supports the effort. “You’re trying to create a cocktail here with a little margin for error, no margin for error. But, anyway, I’m willing to give it a whirl.” Said House Speaker John A. Boehner (R-Ohio) shortly before the vote: “I’m confident that we’re in a pretty good place.” The prospects for success hinge on a commodity that is on the verge of extinction in Washington these days: trust. Republicans must trust Democrats, and Democrats must trust Democrats, and most of all they must put their faith in Obama to back up his commitments made in the past week.

Obama, GOP revive fast-track bill --  President Obama and GOP leaders in both chambers are inching toward a deal to save the White House trade agenda. Republican leaders announced the House will vote Thursday on giving Obama fast-track authority, less than a week after a failed vote left the president’s agenda in tatters. Obama and Speaker John Boehner (R-Ohio) both sought to win over pro-trade Democrats, Boehner holding a meeting with House Democrats on Tuesday and Obama conferencing with pro-trade Senate Democrats at the White House on Wednesday. Boehner, Obama and Senate Majority Leader Mitch McConnell (R-Ky.) are seeking to persuade them to buy into the plan crafted by GOP leaders to save fast-track, also known as trade promotion authority (TPA), which would allow the White House to complete a sweeping trans-Pacific trade deal under negotiation. Under the plan, Congress would first approve fast-track and later deal with legislation granting aid to workers displaced by trade, a program known as Trade Adjustment Assistance (TAA). “We are committed to ensuring both TPA and TAA get votes in the House and Senate and are sent to the president for signature,” Boehner and McConnell pledged in a joint statement Wednesday afternoon. The tricky part is that pro-trade Democrats in the House and Senate would need to support fast-track on the promise that the TAA bill would be dealt with later.

House approves fast-track 218-208, sending bill to Senate -- The House on Thursday took the first step toward resuscitating the White House’s trade agenda by passing legislation granting President Obama fast-track authority. The bill now goes to the Senate, where the White House and GOP leaders are seeking to strike a deal with pro-trade Democrats. The House vote was 218-208, with 28 Democrats voting for it. This is the second time in a week the House has voted to approve the controversial fast-track bill. On Friday, the House voted 219-211 in favor of fast-track, which would make it easier for Obama to complete a sweeping trans-Pacific trade deal. In last week’s vote, the House GOP paired the fast-track bill with a measure known as Trade Adjustment Assistance (TAA) that gives aid to workers displaced by trade. Both measures needed to be approved in separate votes for the entire package to move forward. House Democrats have historically favored TAA, but they voted against it on Friday to kill fast-track, which is deeply opposed by unions and other liberal groups. The White House still wants both measures to reach Obama’s desk, but is now advancing a different strategy that would see the two bills move separately.

Obama's Pacific trade pact revived in U.S. House, heads to Senate -The U.S. House of Representatives on Thursday reversed course, approving "fast-track" legislation central to President Barack Obama's trade deal with Pacific Rim nations and sending it back to the Senate. The close vote in the House, which last week rejected a related bill, kept alive Obama's goal of bolstering U.S. ties with Asia through a 12-nation Trans-Pacific Partnership (TPP), the economic element of a foreign policy shift aimed in part at countering the rising influence of China. The House voted 218-208 to give Obama the fast-track authority to speed trade deals, including the TPP, to conclusion with reduced interference from Congress. The TPP would encompass 40 percent of the global economy and is close to completion. But the outlook in the Senate for fast-track, seen by Japan as crucial to sealing the deal on TPP, was uncertain. Senate aides said support among Democrats hinged on another trade issue, the Export-Import Bank, which may have to close at month's end. The House's vote was its second in less than a week on fast-track, which would restrict lawmakers to a yes-or-no vote on trade deals. Democrats last week blocked it by voting down a companion measure to extend aid for workers hurt by trade. That was a slap in the face to Obama, who urged his fellow Democrats to support fast-track and the worker assistance program, despite skepticism among Democrats close to labor unions about the impact of trade deals on U.S. jobs. In an unusual alliance, the president and Republican House Speaker John Boehner turned last Friday's loss into a win by excising the worker aid program that was voted down by the House. That neutralized the ability of some Democrats' to use it to stymie fast-track, and capitalized on support from a bloc of 28 pro-trade Democrats.

28 Democrats just voted to Offshore more Jobs -- Earlier the Huffington Post had reported that after a clean fast-track bill is passed and sent to the Senate, Senate Majority Leader Mitch McConnell (R-Ky) will then attach TAA to another bill, the African Growth and Opportunity Act — a separate trade bill involving African countries.  And with "Power Africa", could make another potential "emerging market" for cheap labor and a great source for much more crony capitalism.  Then it happened: US News and World Report says that Boehner and McConnell struck a compromise to link TAA with the bill extending the African Growth and Opportunity Act (AGOA) for 10 years. Slightly different versions of the African trade bill had passed both houses of Congress overwhelmingly earlier this year, but supporters fear adding TAA to it could make it much harder reach a compromise to send to the president because Republicans overwhelmingly oppose it.  AGOA may be caught up in the controversy around other trade legislation that has nothing to do with AGOA — and Rep. Karen Bass (D-Calif.) urged her colleagues in a letter Wednesday: “The Senate should follow its initial instinct and approve the version of AGOA that the House passed this month so it can go to President Obama for his signature in order to benefit American businesses and the American workers whose jobs rely on it.” ["American workers whose jobs rely on it?"]The GOP-led House of Representatives started over on the fast-track bill, passing a fresh bill to give President Barack Obama sweeping powers to negotiate massive international agreements. The measure would grant Obama and the next president what's known as Trade Promotion Authority (TPA), allowing the White House to fast-track through Congress a string of enormous trade pacts, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TiSA) — covering well over half the global economy. The House had voted 218 to 208 for the bill, with 28 Democrats in favor and 50 Republicans opposed. The new strategy came after days of phone calls, meetings and intense planning with the White House, the Senate GOP and House Republicans.

Pacific pact would kill U.S. jobs - Lori Wallach -- Whether Congress delegates away its constitutional authority over trade and agrees to "fast track" the 12-nation Trans-Pacific Partnership (TPP) will affect each of us directly.The only U.S. government projection of TPP's outcomes concluded it would result in 0% economic growth. This has led many economists who supported past trade deals to oppose TPP. But TPP would make it easier for corporations to offshore American jobs. TPP is almost complete after years of closed-door negotiations. The Obama administration refuses to release the text. But thanks to WikiLeaks, we know it includes offshoring incentives that make it easier for firms to relocate to low-wage countries. These terms were also in the North American Free Trade Agreement, a deal that cost more than 700,000 American jobs. Even if TPP does not kill your job, it will undermine Americans' wages by pitting us in competition against Vietnamese workers making less than 60 cents an hour. The wages of all workers with similar skill levels decline when Americans losing better-paying manufacturing jobs join the glut of workers competing for non-offshorable jobs.  TPP also would gut Buy American, so our tax dollars would also be offshored rather than reinvested to create jobs here. And the administration refused to include rules against currency cheating, even though several TPP countries are notorious for this practice that destroys U.S. businesses and jobs.  Consider the 2012 South Korea agreement used as the TPP template. The U.S. goods trade deficit with Korea almost doubled in the pact's first three years. This equates to more than 90,000 American jobs lost, according to the ratio the administration used to promise job gains from the deal.Indeed, job-killing trade deficits have grown more than 425% with countries we have trade agreements with, but declined 11% with those we don't.

How Does the TPP Improve People's Lives by Raising the Cost of Drugs and Making Them Pay More for Old Movies and Music?  -- Dean Baker - That's what folks are asking after reading Peter Baker's "news analysis" that told readers the Trans-Pacific Partnership (TPP): "was a way to leave behind a positive legacy abroad, one that could be measured, he hoped, by the number of lives improved rather than by the number of bodies left behind." The discussion implies that the TPP is a way to pull together the countries of East Asia as allies. However, one of the main purposes of the TPP is to create stronger and longer patent and copyright protection. This will most importantly raise the cost of prescription drugs, but the prices of many other items will also rise due to increased protection. We know that these increased protections were heavily contested by most of the other countries in the TPP due to the leaked chapters from Wikileaks which indicate where the countries disagree. It is difficult to see how making our trade partners in Asia pay more for drugs is a way to win their political allegiance. Ironically, insofar as higher drug prices keep patients from getting access to drugs, especially in developing countries, the TPP would be a policy whose impact could be measured by the number of bodies left behind.

GE’s Immelt Warns Against ‘Retreat’ on U.S. Economic Leadership - –Failure to approve trade legislation and to renew the charter of the U.S. Export-Import Bank would signal that America is “in full retreat on the global stage,” said Jeffrey Immelt, chief executive of General Electric Co. on Wednesday. Mr. Immelt predicted that Congress would ultimately pass legislation allowing President Barack Obama authority to expedite a trade deal with 11 other nations around the Pacific. House Democrats thwarted the bill last week. He also said he expected Congress to ultimately reauthorize the Ex-Im Bank, which finances U.S. exports, though not before its charter expires on June 30. “We’re out of time, essentially,” he said. “It’s very unlikely anything happens by June 30, so we’re going to have a lapse, but we’ll keep pushing.” Mr. Immelt, who spoke at a luncheon of the Economic Club of Washington, D.C., said competition with foreign companies that also have access to government financing was so intense that GE would be forced to choose between losing business contracts or relocating production overseas. GE would opt for the latter. “Good GE jobs in the United States will be moved to Canada and Europe,” he said. “That’s a mighty high price to pay for ideological purity.” The Ex-Im Bank has become a top target of conservative Republicans who believe bringing the agency down would send a broader signal about their commitment to curb corporate subsidies.

The Export-Import Bank - Mankiw - I just got back from Utah, where one of the other speakers--this one a politician rather than a nerdy academic like me--spoke about the need to reauthorize the Export-Import Bank.  What struck me is how weak the arguments were.   Three arguments for the Ex-Im Bank were given:
1. It creates jobs.  Of course it does!  If the government were to put the names of all businesses into a hat, pull out a few randomly, and give those business a per unit subsidy, those business would expand and hire more workers. That would not make it a good policy, because the wrong jobs would be created.
2. It returns money to the Treasury.  Really?  If the bank were truly a profitable venture, we could privatize it.  I bet if the government tried to sell off the Ex-Im Bank, it wouldn't get much, if anything at all.  If the Bank's activity were actually profitable, we wouldn't need a government-run bank to do it.
3. Other countries give similar subsidies to their firms. So what? If other nations engage in corporate welfare, that is no reason for the United States to follow suit in the name of a level playing field.  We don't need to import other nation's bad policies.
Maybe there are better arguments for the Export-Import Bank.  But if this is the best advocates of the Bank can do, it shouldn't be reauthorized.

Wave of Defaults, Bankruptcies Spook Bond Investors --  Investor desperation for yield, any discernible yield no matter what the risks, and blind confidence that all this will work out somehow are waning.  Now questions pop up here and there, and investors are beginning to open their eyes just a tad amid waves of defaults and bankruptcies, after years of worriless fixed-income bliss during which cheap new money made investors forgive and forget all sins of the past. But now investors are pulling big chunks of money out. For the week ended June 17, investors yanked “a whopping” $2.9 billion out of junk bond funds, according to S&P Capital IQ/ LCD’s, on top of the $2.6 billion they’d yanked out in the prior week. Those redemptions dragged down the year-to-date inflows to $3.6 billion, nearly 40% below last year at this time. But $201.5 billion remain in those funds.  Leverage-loan funds have been plagued by outflows as investors have been warned for a couple of years about their risks. Banks extend high-risk loans to over-indebted, junk-rated companies but don’t want to keep these iffy loans on their books. So they sell them to loan funds or repackage them into CLOs and then sell them. Even the Fed has gotten concerned. This week brought more of the same, with $311 million leaving leveraged-loan funds, bringing year-to-date outflows to $3.6 billion. Total fund assets are now down to $94 billion. On the investment-grade side, it didn’t look pretty either. Business Insider cited Bank of America Merrill Lynch strategists: “High grade credit funds suffered their biggest outflow this year, and double the previous week.” The biggest outflows since the Taper Tantrum in June 2013.

SEC's Mary Jo White "Embodies, Promotes Wall Street-Regulator Revolving Door Policy", New Report Finds -- U.S. Securities and Exchange Commission Chair Mary Jo White "both embodies and promotes the revolving door between government regulator and regulated industry that empowers Wall Street insiders at the expense of investors and society writ large," according to a new report by Rootstrikers, a nonprofit that pushes for campaign finance reform. As Bloomberg notes, the report, released Tuesday, criticizes White's work as a corporate defense lawyer, her recusals from some SEC enforcement cases and her propensity for hiring aides who previously worked in the industry. White let her longstanding ties to Wall Street skew her ability to police the finance industry, adding to the litany of complaints by left-leaning groups about her tenure. ... The attack increases pressure on White from Democrats who are demanding the SEC impose heftier penalties on financial firms and complete rules that have languished. White’s critics include Massachusetts Democratic Senator Elizabeth Warren, who earlier this month called her leadership “extremely disappointing.”

If Elizabeth Warren Is Already Angry at Mary Jo White, Wait Until She Hears About This --Pam and Russ Martens --Earlier this month, Senator Elizabeth Warren was so exasperated with the obstructionist role that Mary Jo White has played at the SEC that she sent her a sternly worded, 13-page letter calling her out on her serial broken promises. Now, Wall Street On Parade has uncovered a major new area of concern. For more than two years now, SEC Chair Mary Jo White has been aware that the most dangerous banks on Wall Street, which are publicly traded securities, have been engaging in “capital relief trades” with hedge funds and private equity firms to dress up the appearance of stronger capital while keeping the deteriorating assets on their books. But neither White nor her Director of Enforcement, Andrew Ceresney, have put a halt to the practice.Both White and Ceresney hail from the corporate law firm, Debevoise & Plimpton, whose clients include the biggest banks on Wall Street. White spent the bulk of the last 40 years at Debevoise and brought along Ceresney to head up enforcement when she joined the SEC. Ceresney had been with Debevoise since 2005, representing people charged with corporate crimes and securities fraud. While White and Ceresney have allowed these risky capital relief trades to proliferate in the dark, their former law firm has been gushing over the trades and drumming up business for the murky area. In a Debevoise publication sent to clients in 2013, the law firm indicated it had experience in these deals and said  they “appear to be particularly good opportunities for funds to generate revenue by providing targeted credit support, while retaining the ability to actively deploy capital as needed.”

Time to Fire Mary Jo White: SEC Covers Up for Bank Capital Accounting Scam Promoted by Her Former Firm, Debevoise -- Pam Martens and Russ Martens published a mind-boggling expose yesterday on how the SEC is refusing to stop an abuse by major banks that increases systemic risk. Large banks are continuing to fake their capital levels, via a ruse called a “capital relief trade” with hedge and pension funds. And Mary Jo White, the chairman of the SEC, is aware of this practice, which undermines the safety and soundness of financial institutions, and has done squat about it.  The Martens also charge the SEC chairman and her director of enforcement, Andrew Ceresney, with cronyism, since they both hail from the law firm Debevoise, which is an active player in this practice.  As much as there has been considerable consternation over Mary Jo White’s numerous lapses, like hiding behind the need for more data as an excuse for doing nothing about high frequency trading, her failure to secure more admissions of wrongdoing in SEC settlements, and her refusal to comply with Dodd Frank by virtue of too freely issuing waivers for mandatory sanctions, even to recidivist bad actors, this dereliction of duty is considerably more serious, because it increases systemic risk in a direct, tangible way.* One of the excuses for the weakness of Dodd Frank was that if financial firms had high enough equity levels, all the other ways of reducing risk became less important. Thus capital relief trades undermine the government’s chosen first line of defense against bank failure. From the Martens’ articleFor more than two years now, SEC Chair Mary Jo White has been aware that the most dangerous banks on Wall Street, which are publicly traded securities, have been engaging in “capital relief trades” with hedge funds and private equity firms to dress up the appearance of stronger capital while keeping the deteriorating assets on their books. But neither White nor her Director of Enforcement, Andrew Ceresney, have put a halt to the practice.  And it provides an example of how one of the weakest too big to fail banks, Citigroup, has engaged in this practice. Recall that Citi was the only one of the five largest banks to fail the stress test twice in three years and have its plans to increase dividends and buy back stock rejected.

This Is What A Volcker Rule Loophole Looks Like --After the carnage of the 2008 crash, former Federal Reserve Chairman Paul Volcker proposed a rule that would prevent banks from making short-term proprietary trades with financial instruments. In other words, no gambling allowed. This rule would become known as The Volcker Rule, and it went into partial effect on April 1, 2014. Full compliance is required by July 21, 2015. Of course, the bank lobbyists were hard at work, and numerous exceptions and loopholes were created. The definition of "financial instruments" did not include currencies, despite the fact that currencies are the basis of the modern financial system and should be considered the ultimate financial instrument. Also, banks were allowed to "hedge" their risks. As JPMorgan demonstrated in 2012, apparently, it is possible to lose $6 billion while hedging risks with credit derivatives. JPMorgan is at it again - this time, with the Swiss franc. On January 15 of this year, the Swiss Central Bank sent shockwaves around the financial world when they abruptly abandoned the 1.20 EURCHF floorThe Wall Street Journal reported that JPMorgan made up to $300 million in the ensuing trading chaos. With the FX market facing a severe shortage of liquidity, JPMorgan stepped in. However, as with any illiquid market, the dealers call the shots. Bid/ask spreads can explode, creating enormous transaction costs for anyone who has to trade. These parties included desperate retail FX brokers and small clients who were bankrupted by the Swiss central bankers. As the WSJ reported, The bank told clients it would fill orders at 1.02 francs per euro while the Swiss currency grew from 1.20 francs per euro to nearly .85 on Jan. 15, the person said. It is unclear how long the bank offered this rate to clients. By setting the fill 15% away from the last price, JPMorgan was able to lock in any gains from a long franc position instantly.

Treasury Reveals What JPMorgan Was Really Doing With London Whale Trades -The U.S. Treasury’s Office of Financial Research (OFR), the body created under the Dodd-Frank financial reform legislation to make sure another 2008 epic crash never happened again, quietly released a report last week which not only suggests another 2008-style crash is possible but that regulators will likely be blindsided again. The report, written by Jill Cetina, John McDonough, and Sriram Rajan, reveals that the big Wall Street banks are ginning up their capital measures by engaging in opaque and potentially dangerous “capital relief trades.” To illustrate how dangerous this kind of capital relief arbitrage can be, the report says that JPMorgan’s London Whale trades (which blew a $6.2 billion hole in the insured bank) was a capital relief trade. Here’s the precise language from the report: “JPMorgan Chase & Co.’s losses in the 2012 London Whale case were the result of CDS [Credit Default Swap] usage which was undertaken to obtain regulatory capital relief on positions in the trading book.” That analysis stands in stark contrast to Jamie Dimon’s testimony on the London Whale before the Senate Banking Committee on June 13, 2012. Dimon told the Committee that the London Whale trades were to “hedge the company against a systemic event, like the financial crisis or Eurozone situation. Among the largest risks we have as a bank are the potential credit losses we could incur from the loans we make.” While few people actually believed Dimon’s version of what was going on, it was more widely believed that this was simply high-risk proprietary trading that JPMorgan did not want to admit to because it was occurring in its insured bank rather than its investment bank using its own capital.

UBS Had Libor-Rigging Instruction Manual, Former Trader Claims -- Just like in the case of Goldman's first of its kind MBS settlement which unleashed over $200 billion in legal charges against the US banking system (an IRR of about 1% relative to the criminal gains) and which in turn cast all the blame on the infamous Fabrice Tourre who was the solitary scapegoat for all of Goldman's Abacus transgressions, so when it comes to Libor rigging at one of the biggest culprits, Swiss bank UBS, all the senior executives are trying to put all the blame on 35-year old Tom Hayes who is the centerpiece of the prosecution's case against Libor manipulator. The only problem: Hayes won't go down without a fight and unlike Tourre who may well have been promised a Swiss bank account with many zeroes in it on the other side, Hayes is fighting back and making it very clear that it wasn't just him who was rigging Libor. It was everyone. And everyone knew about it, from the traders on to the very top.  His proof: a Libor "manipulation" manual, presented as evidence in court. According to Bloomberg, Hayes told prosecutors in 2013 that UBS Group AG distributed "an instruction manual on fixing Libor" to suit their trading positions. The Swiss bank’s e-mailed“Guide to Publishing Libor Rates,” which was shown to jurors by prosecutors in London Thursday, included an instruction for traders to adjust their submissions depending on their “delta/fixing position.” Hayes, the first person to stand trial for allegedly manipulating the London interbank offered rate, told prosecutors the document was evidence that Libor-rigging was standard operating procedure during his time at UBS.

God's Man On Earth Tells Goldman It Isn't Doing "God's Work" -- Having explained His vision for a new world order, The Holy See unleashed some scathing remarks towards the bankers of the world in his 183-page encyclical. Appearing to address the bank that does God's work, God's man on earth stated, "Saving banks at any cost, making the public pay the price, foregoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises." Furthermore, His Holiness called out the financial sector for having outsized influence over the political process and endorsed limiting its reach. As The Wall Street Journal reports, Pope Francis dedicated a few lines of his 183-page encyclical on the environment on Thursday to the topic of the failures of banks and markets. In the Holy Father’s view, “[t]he lessons of the global financial crisis have not been assimilated” and the governments’ response to the crisis have only set up the financial system for a future panic: Saving banks at any cost, making the public pay the price, foregoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery. The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.

Court tells government it was wrong to seize AIG, but awards no money to billionaire ex-CEO - In what can only be described as a Solomonic ruling, a federal court has ruled that the Federal Reserve exceeded its powers in temporarily nationalizing insurance giant American International Group during the financial crisis of 2008, but by doing so caused no harm to AIG shareholders who had demanded as much as $38 billion dollars in compensation. The split decision will likely be appealed by both parties, likely all the way to the Supreme Court. The government will argue that Monday’s decision by Judge Thomas Wheeler of the U.S. Court of Federal Claims would set a dangerous precedent that limits the ability of government to deal with future financial crises. Shareholders, lead by former AIG chief executive Maurice “Hank” Greenberg, will claim that their right not to have 80 percent of their company seized by the government is meaningless if the government is not forced to pay a penalty for doing so. The decision, following more than three years of legal wrangling and a 37-day trial, was almost a total victory for Greenberg and his superstar attorney, David Boies. Wheeler ruled that the Fed had no power to demand an ownership share in any firm as a condition for making an emergency loan during a financial crisis, agreeing with Boies that the insurance giant was made a political scapegoat by Fed and Treasury officials and a backdoor vehicle for bailing out the world’s biggest banks, whose bailout came with much sweeter terms. Wheeler cited documents and testimony in ruling that Fed officials knew they were on shaky legal grounds in taking control of the firm. Only by creating a legal ruse, the judge found, was the Fed able circumvent the explicit wording of federal law prohibiting it from holding or trading stock in private firms.

AIG Bailout Trial Judge Rebukes Fed for Overstepping Its Powers but Awards No Damages  Yves Smith - The long-anticipated verdict in the AIG bailout trial came yesterday, and the Fed is not happy. The central bank lost the case, with Judge Thomas Wheeler ruling that the Fed had engaged in an illegal exaction. In layperson speak means it made a demand, usually for money or property, that was outside what was permitted under the law. However, Judge Wheeler concluded that he could not award damages, since Starr International, the investment vehicle that held Hank Greenberg’s AIG stock, had not suffered any economic harm, since the alternative was bankruptcy, in which case Starr’s AIG shares would have been worth nothing. We’ve embedded the ruling at the end of the post. It’s well written and crisis junkies might enjoy its findings of fact, in which Wheeler gives a reap of the drivers of the crisis and a very detailed account of the government takeover of AIG. Here was our recap of the basic issue: The Starr International v. the United States of America suit is, at its core, about whether an insolvent borrower still has the right to the protection of law. It’s thus a high-end, big-ticket replay of the same form of arguments that homeowners fighting foreclosure often tried in court to obtain a mortgage modification: we don’t dispute that we aren’t able to meet our obligations, but the party foreclosing on us needs to go through the proper steps to take possession of our house. In the mortgage borrower’s case, that meant establishing standing, as in proving that they really were the proper party to initiate the foreclosure. In the case of Starr, the AIG executive enrichment vehicle controlled by former CEO Hank Greenberg, the argument is that even though AIG was insolvent, the bailout, which included through a series of maneuvers getting control of 79.9% of AIG stock, was impermissible.We weren’t surprised by the ruling; in fact we were early to say Greenberg his attorney David Boies were likely to prevail (note we made our call when conventional wisdom was that the suit was groundless).

In A.I.G. Case, Surprise Ruling That Could End All Bailouts - For years, critics of the bailouts during the financial crisis argued that the rescue efforts weren’t harsh enough. The chief executives of failing institutions should have lost their jobs. Shareholders should have suffered more pain. Taxpayers should have received substantial compensation for the risk they took.All that did come to pass in one case: the bailout of the American International Group, the large insurer and symbol of the crisis. Yet on Monday, a judge in Washington decided that the government’s actions were too severe, and the rescue was illegal.When the Federal Reserve propped up A.I.G. in September 2008, unlike its approach with most of the big banks, it threw out the company’s chief executive and took control of 79.9 percent of the company, nearly wiping out many of its shareholders. Taxpayers got all of their money back, and then some, receiving a profit of more than $20 billion. But in a stunning ruling, Judge Thomas C. Wheeler of the United States Court of Federal Claims said on Monday that those terms were too “draconian.” In other words, he suggested taxpayers should have offered A.I.G. a more generous deal.

How Overgrown Financial Service Sectors Kill Growth - Last month, the International Monetary Fund (IMF) released a report concluding that the larger a country’s financial sector, the bigger its drain on total factor productivity and the greater the risk of economic and financial stability: …the effect of financial development on economic growth is bell-shaped: it weakens at higher levels of financial development. This weakening effect stems from financial deepening, rather than from greater access or higher efficiency. The empirical evidence also suggests that this weakening effect reflects primarily the impact of financial deepening on total factor productivity growth, rather than on capital accumulation. When it proceeds too fast, deepening financial institutions can lead to economic and financial instability. It encourages greater risk-taking and high leverage, if poorly regulated and supervised. In other words, when it comes to financial deepening, there are speed limits…  In other words, there is very little or no conflict between promoting financial stability and financial development. Better regulation is what promotes financial stability and development. This study was followed by research released earlier this month from economists Stephen Cecchetti and Enisse Kharroubi, who concluded that faster growth in finance is bad for real economic growth.

Boring banking makes a comeback - Do the almost simultaneous announcements this month of a new regime at Deutsche Bank, and an extensive restructuring at HSBC, symbolise a fundamental change in the structure of financial companies? The last two decades of the 20th century saw the rise of integrated financial conglomerates. In Britain, the trigger was the Big Bang in 1986. In the US, the separation of investment and commercial banking imposed in the 1930s by the Glass-Steagall Act was steadily eroded. The universal banks of continental Europe, seeing these trends, reinvented themselves along Anglo-Saxon lines. In Britain, the very large financial resources of retail banks meant that they were initially dominant operators, absorbing the partnerships that had dominated stockbroking, market making and investment banking. Few of these acquisitions worked out well. Despite these initial failures, dealmaking continued apace. The balance of power within financial conglomerates had changed. Dealmakers, greedier and smarter, took control. In investment banks the traders, rather than the corporate suits, were in charge. Trading was believed to be the major source of profits, and power followed. The worries of the marzipan layer were dispelled by the large bonuses that they received as part of these big corporate organisations. But Mr Weill’s triumph was the crest of the wave. Reputational issues began to dog his creation. The culture of retail banking, intrinsically bureaucratic, perhaps boring, driven by the routinisation needed to allow the accurate completion of millions of transactions every day, was incompatible with the entrepreneurial, buccaneering environment of the investment bank. The association provided opportunities for cross-selling. Informational advantages were derived from engaging in multiple roles. But the main logic was financial; the cross subsidy made possible by a passive deposit base guaranteed by the taxpayer.

Banks are Not Intermediaries of Loanable Funds – and Why This Matters - naked capitalism - Yves here. Over the years, we’ve regularly criticized economists like Bernanke and Krugman, who rely on the so-called loanable funds model, which sees banks as conduits of funds from savers to borrowers. Despite the fact that many central banks, such as the Bank of England, have stressed that that’s not how banks actually work (banks create loans, which then produce the related deposit), central banks still cling to their hoary old framework. For instance, when I saw Janet Yellen speak at an Institute of New Economic Thinking conference in May, she cringe-makingly mentioned how banks channel scarce savings to investments. Even worse, the macroeconomic models used by central banks incorporate the loanable funds point of view. This article describes what happens when you use a more realistic model of the financial system. Even though the paper is a bit stuffy, the results are clear: economies aren’t self-correcting as the traditional view would have you believe but have boom/bust cycles (the term of art is “procyclical”) and banks show the effects of policy changes much more rapidly.  Other economists who have been working to develop models that reflect the workings of the financial sector more accurately, like Steve Keen, have come to similar conclusions: that the current mainstream models, which serve as the basis for policy, present a fairy-tale story of economies that right themselves on their own, when in fact loans play a major, direct role in creating instability. It’s not an exaggeration to depict the continued reliance on known-to-be-fatally-flawed tools as malpractice.

Judge rules California owes $331 million to homeowners- A California judge has ruled the state is obligated to pay $331 million in mortgage relief funds it used to bolster its finances, but stopped short of ordering that the money be turned over to homeowners hard hit by the mortgage and foreclosure crisis. Instead, Judge Timothy Frawley of Sacramento County Superior Court in his ruling on Friday said it is up to Governor Jerry Brown and lawmakers to come up with a plan to return $331 million that was part of the $25 billion National Mortgage Settlement of 2012 when the state has money available to do so. Robert Gnaizda, general counsel for the three groups that brought the lawsuit, said now that California's budget has swung to a surplus and Brown and lawmakers are debating what to do with it, the state is in position to begin making payments. "We would be happy to work with the governor on a distribution schedule," Gnaizda said, adding that Frawley's ruling could spur other states that also held on to their proceeds from the settlement to release the money. Gnaizda said groups that sued California over the funds are seeking meetings with Brown and top Democrats and Republicans in the state Senate and Assembly on how to move forward with payments. It is not clear if that would be swept up into budget talks that are under way between Brown and lawmakers, Gnaizda said.

‘Underwater’ American homeowners still drowning in mortgage debt -  The percentage of homes underwater — where the home is worth less than the mortgage — has been dropping as the housing market has recovered, but more than 4 million U.S. homeowners owe the bank at least 20% more than their homes are worth, totaling $579 billion of so-called negative equity, according to real estate company Zillow. “Homeowners who remain underwater will likely be the toughest to free from negative equity,” says Zillow chief economist Stan Humphries. The rate of underwater homeowners is much higher among the homes with the least value, according to Zillow, which uses data from credit bureau TransUnion. More than 25% of those who own the least valuable third of homes were upside down, compared with about 8% of the most valuable third of homes. In Atlanta, 46% of low-end homeowners were underwater, compared with 10% of high-end homeowners. In Baltimore, 32% of low-end homeowners were in negative equity, compared with 9% of those who own the highest-value homes. The good news: There were 15 million homes in negative equity at the peak of the housing crisis. The national negative equity rate dropped to 15.4% of all homes with mortgages in the first quarter, down from rate 18.8% the same period last year. The rate of negative equity improved in all of the 35 largest housing markets in the first quarter of 2015, “a sign that the country is continuing to recover from the lax lending rules and subsequent housing market bust of the last decade,” the report says.

CoreLogic: "CoreLogic Reports 254,000 US Properties Regained Equity in the First Quarter of 2015"  --From CoreLogic: CoreLogic Reports 254,000 US Properties Regained Equity in the First Quarter of 2015 CoreLogic ... today released new analysis showing 254,000 properties regained equity in the first quarter of 2015, bringing the total number of mortgaged residential properties with equity at the end of Q1 2015 to approximately 44.9 million, or 90 percent of all mortgaged properties. Nationwide, borrower equity increased year over year by $694 billion in Q1 2015. The total number of mortgaged residential properties with negative equity is now at 5.1 million, or 10.2 percent of all mortgaged properties. This compares to 5.4 million homes, or 10.8 percent, that had negative equity in Q4 2014, a quarter-over-quarter decrease of 4.7 percent. Compared with 6.3 million homes, or 12.9 percent, reported for Q1 2014, the number of underwater homes has decreased year over year by 1.2 million, or 19.4 percent... Of the more than 50 million residential properties with a mortgage, approximately 9.7 million, or 19.4 percent, have less than 20 percent equity (referred to as “under-equitied”), and 1.3 million, or 2.7 percent, have less than 5 percent equity (referred to as near-negative equity). who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. ...This graph shows the break down of negative equity by state. "Nevada had the highest percentage of mortgaged residential properties in negative equity at 23.1 percent, followed by Florida (21.2 percent), Illinois (16.8 percent), Arizona (16.8 percent) and Rhode Island (15.7 percent). Combined, these five states accounted for 31.4 percent of negative equity in the U.S."

Mortgage Equity Withdrawal More Negative in Q1 2015 --The following data is calculated from the Fed's Flow of Funds data (released last week) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).  For Q1 2015, the Net Equity Extraction was minus $73 billion, or a negative 2.2% of Disposable Personal Income (DPI).  This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.  There is little actual MEW right now, this data is heavily impacted by debt cancellation - and the recent increase in foreclosures (clearing out old delinquent loans) probably pushed MEW further negative in Q1. he Fed's Flow of Funds report showed that the amount of mortgage debt outstanding decreased by $33 billion in Q1. he Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again soon.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Index up 15% YoY -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 12, 2015. ... The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 15 percent higher than the same week one year ago. “Rising rates continue to create volatility in weekly mortgage applications activity. The 10-year Treasury hit 2.5 percent last week and our survey’s 30-year fixed rate of 4.22 percent is at its highest level since October 2014. The refinance index dropped to the lowest level since January 2015 as rates continued to increase,” said Mike Fratantoni, MBA’s Chief Economist.The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.22 percent from 4.17 percent, with points increasing to 0.46 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. With higher rates, refinance activity has declined. 2014 was the lowest year for refinance activity since year 2000. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 15% higher than a year ago.

Is Getting a Mortgage Easier Than Consumers Think? -  Some lenders over the last couple years have eased requirements to get mortgages, but most Americans still think getting a loan is very difficult, according to a survey released Tuesday by Wells Fargo Home Mortgage and Ipsos Public Affairs. The survey, which had about 2,000 respondents, found that 72% think it’s a good time to buy a home versus 68% in June 2014, the last time the survey was conducted. Fewer Americans also think it’s difficult to get a loan, but those perceptions are changing very slowly. In April, 57% thought it would be very difficult to get a loan, against 61% last June. Among those with a household income below $100,000, the number of people who think getting a loan is difficult is actually increasing, the survey said. Battling potential home buyers’ perceptions about how open or shut the mortgage market is to them could be yet another barrier to home buying over coming years. Borrowers who might have tried and failed to get a loan a couple of years ago remain wary of re-approaching the market. In the past year, Wells Fargo and other lenders have eased many of the stringent requirements to get mortgages that they put in place after the crisis.

Mortgage News Daily: Mortgage Rates Near June Lows - From Matthew Graham at Mortgage News Daily: Mortgage Rates Near June Lows Mortgage rates took a few more steps in the right direction today and have now made it back to levels not seen since the beginning of June. Only the first 2 days of the month were any better. That said, the month began with a quick jump to the highest rates in more than 8 months, and they've only been falling gradually since then. Today's improvement was a bit bigger than some recent examples. In many cases, the more aggressive lenders are back to quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, though 4.125% is still slightly more prevalent. Here is a table from Mortgage News Daily:

After an Era of Ups and Downs, Home Prices Return to Sanity -- A decade ago the market was unquestionably too hot. Four years ago it was too cold. Now, by a wide range of measures, nationwide home prices look relatively normal when compared with incomes, rents and other fundamentals — and are rising at similar low, single-digit rates. In contrast to the periods of irrational optimism and pessimism, the market is settling into a balance in which buyers are comfortable spending what they can afford given their income and savings, but aren’t willing (or able to persuade lenders) to stretch beyond that. Among buyers there is neither a sense of desperation to buy now on the assumption prices will rise rapidly, nor of fear they will plummet. For a while in 2013 and early 2014, national home prices were rising at a double-digit percentage rate, which if sustained could have rapidly led housing back to its bubble-era extremes. But the reality — of caution on the part of home buyers and their lenders — soon set in. In the 12 months ended in March, the S.&P. Case-Shiller national home price index rose only 4.1 percent, not much higher than the rise in Americans’ incomes and broadly consistent with longer-term trends. “The market is coming back, but we’re not having astronomical growth,” said Thomas O’Bryant Jr., the chief executive of the Greater Tampa Association of Realtors. “We’re having the kind of growth that is going to be sustainable, and any time you have steady growth it’s much better than having bubble growth.”

Why Do We Celebrate Rising Home Prices? -- In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few. Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down. This is a rather odd way of looking at the price of a basic necessity. If the price of food were going upward at the rate of 7 or 8 percent each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education? With housing, though, increases in prices are to be lauded, we are told, even if they outpace wage growth.

Housing Starts decreased to 1.036 Million Annual Rate in May -- From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,036,000. This is 11.1 percent below the revised April estimate of 1,165,000, but is 5.1 percent above the May 2014 rate of 986,000. Single-family housing starts in May were at a rate of 680,000; this is 5.4 percent below the revised April figure of 719,000. The May rate for units in buildings with five units or more was 349,000.  Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,275,000. This is 11.8 percent above the revised April rate of 1,140,000 and is 25.4 percent above the May 2014 estimate of 1,017,000.   Single-family authorizations in May were at a rate of 683,000; this is 2.6 percent above the revised April figure of 666,000. Authorizations of units in buildings with five units or more were at a rate of 557,000 in May.  The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in May. Multi-family starts are up 2% year-over-year. Single-family starts (blue) also decreased in May and are up about 6.7% 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 below expectations of 1.090 million starts in May. However, with the upward revisions to prior months, and the surge in permits, this was another solid report.

Housing Starts Decline 11.1%, Underperform Economists' Expectations, Still Labeled "Solid"; GDPNowcast Ticks Down 0.1% -- Housing starts underperformed the Bloomberg Econoday Economists' Consensus Estimate enough for the Atlanta Fed GDPNow Forecast to give back the 0.1% it gained yesterday, yet the report is still considered "solid".  Don't let the headline fool you, the housing starts & permits report points to solid strength for the housing sector. Starts came in at a 1.036 million rate in May which is down 11.1 percent from the April rate but the April rate, which was already one for the record books, is now revised higher to 1.165 million for, and this is no misprint, a 22.1 percent gain from March. Sealing matters is another gigantic surge in permits, up 11.8 percent to 1.275 million following a 9.8 percent gain in April. Forecasters will be revising their second-quarter GDP estimates higher following today's report, not to mention their estimates for Thursday's index of leading economic indicators where permits are one of the components.  Permits are the leading indicator in the report and the latest rate is the best since way back in August 2007. The gain is centered in the Northeast followed by the Midwest. Turning to starts, the monthly step back is split between all regions with the Northeast, in contrast to permits, showing the largest percentage decrease. The housing sector is moving to the top of the economy, just as many suspected following a first quarter that was depressed by heavy weather. I do not know what economists in general will do, but I do know that contrary to Bloomberg's prediction, the Atlanta Fed's GDPNow Forecast ticked down following today's report.  The nowcast for real GDP growth ticked up to 2.0 percent after yesterday morning's industrial production release from the Federal Reserve boosted the forecasts of real investment in petroleum and natural gas well structures and motor vehicle and parts dealer inventories.  The GDP nowcast moved back down to 1.9 percent after this morning's housing starts release from the U.S. Census Bureau reduced the forecast for real residential investment growth from 8.8 percent to 6.8 percent.

Housing Starts Plunge 11% As April "Bounce" Fades, Permits Soar To 8 Year High - Following April's hope-filled spike in Housing Starts and Building Permits SAAR (and the exuberant jerk to 10 year highs in NAHB Sentiment), May data is more mixed. Housing Starts plunged 11.1% MoM (against expectations of a 4% drop) missing for the 3rd of last 4 months. Permits, on the other hand, spiked 11.8% (againmst expectations of a 3.5% drop) smashing the hope to its highest since August 2007. So - in summary - hope is soaring, reality is falling and all the hope is based on America as 'rental nation' with a record number of multi-family unit permits.

May housing is Teh Awesome! ... But ...: As between housing starts vs. permits, my preferred measure is permits, They tend to lead starts by a month or so, and they are much less volatile (about half) than starts. So, needless to say, May's housing report, released this morning, was an upside blowout -- one of the strongest month over month moves ever. Here's the graph of permits from their 2009 low: This (together with real money supply and May's real retail sales per capita) comes pretty close to a guarantee that the economy will continue to grow through the second quarter of next year. But .... don't get too excited. Here's an update of a graph I have frequently run over the last two years: housing permits YoY, divided by 100 (blue) compared with the negative of the YoY change in treasury interest rates (red): Housing tends to follow interest rates with a 6 to 12 month lag. Notice that there was a spike in permits similar to this month's back in midyear 2013, just after the "taper tantrum" started. That was caused by potential home buyers locking in mortgages in anticipation of even higher mortgage rates. In other words, some demand was stolen from future months. Let's also update the "demographic tailwind." As I have pointed out a number of times, housing is benefitting from the fact that the very large Millennial generation is reaching prime home buying age. And exactly as with Boomers 50 years ago, the first part of the housing market to benefit is apartments and condos. This next graph compares single family permits (blue) with multi-unit permits (red):It is no surprise, especially with real median asking rents at a record high, that the surge in demand is bringing forth supply. Finally, here's the most recent graph of mortgage interest rates, showing their recent spike above 4%:

Spot The Mindblowing Housing Permits Outlier -- The Census Bureau is no stranger when it comes to reporting absolute gibberish "data": recallone month ago the bureau reported the biggest housing starts print in the Northeast since June of 2008 on what many tried to "justify" as weather-deferred construction, but which will soon be revised far lower. As it turns out, that was nothing compared to the even more outrageous print that the good staffers at HUD reported in the latest, May, housing data. And while it was once again all about the Northeast, this time it wasn't starts, it was permits. Spot the outlier in housing permits among the four US census regions. Hint: at an annual change of 165.8%, it has never been higher.Here is the same ridiculous "data" only instead of Y/Y% change, we show actual permits in SAAR terms: What is most amusing is that Ron Griess of the Chart Store who brought this paranormal data point to our attention, called the Census bureau and HUD employees assured him the "data was correct." If that "data" is correct one would hate to see wrong data.

Comments on May Housing Starts - Total housing starts in May were below expectations, however, overall, including the upward revisions to March and April, starts were solid.  There was also a significant increase for permits in May (mostly for the volatile multi-family sector). However I wouldn't put too much emphasis on permits.   The last time there was a spike in multi-family permits was in June 2008, and that was just before starts collapsed! Usually more is better, but I don't expect a huge surge in multi-family starts in June - I suspect this was just permit timing and starts will be spread out over several months. 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 6.0% ahead of 2014 through May. Single family starts are running 6.7% ahead of 2014 through May. Starts for 5+ units are up 4.3% for the first five 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.Whereas multi-family starts were only up slightly in May (NSA), mutli-family completions were up 60%!  Even with the surge in permits this month, 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).

NAHB: Builder Confidence increased to 59 in June --The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 59 in June, up from 54 in May. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Hits Yearly High in June Builder confidence in the market for newly built, single-family homes in June rose five points to a level of 59 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This is the highest reading since September 2014....“The HMI indices measuring current and future sales expectations are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead,” said NAHB Chief Economist David Crowe. “At the same time, builders remain sensitive to consumers’ ability to buy a new home.”...All three HMI components posted healthy gains in June. The component gauging current sales conditions jumped seven points to 65, the index charting sales expectations in the next six months increased six points to 69, and the component measuring buyer traffic rose five points to 44. Looking at the three-month moving averages for regional HMI scores, the South and Northeast each rose three points to 60 and 44, respectively. The West posted a two-point gain to 57 while the Midwest dropped by one point to 54.

NAHB Housing Market Index: Highest Since September 2014 - National Association of Home Builders (NAHB) Housing Market Index (HMI) is a gauge of builder opinion on the relative level of current and future single-family home sales. It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales; below 50 indicates a negative outlook. The latest reading of 59, up five points from the previous month, was above the forecast of 57. Here is the opening of this morning's monthly report: Builder confidence in the market for newly built, single-family homes in June rose five points to a level of 59 on the NAHB/Wells Fargo Housing Market Index (HMI) released today. This is the highest reading since September 2014. [link to report] Here is the historical series, which dates from 1985.

Homebuilder Optimism Soars To 10 Year Highs Amid Rising Rates, Slumping Consumer Sentiment --We assume Hovnanian's CEO was not asked as part of this survey. NAHB's Sentiment index jumped the most in 2 years to its highest since November 2005. Everything in every cohort rose exuberantly on the heels of a pick up in sales. We have little color to add to this aside to note rates have been rising and just exactly what use is a self-referential confidence survey for an industry (more than any other) that is wholly reliant on confidence for its future revenue growth?  Great another bubble in homebuilder optimism...

Reasons behind homebuilder optimism -- Yesterday a report from the National Association of Home Builders showed that US homebuilders have turned rather optimistic again. Given the recent weakness in construction spending some have dismissed this survey data. Recently we did however see some signs of improving homebuilder activity in the markets as lumber futures stabilized in mid-May after months of declines. Moreover, homebuilder shares have outperformed the broader market over the last few days. And today we learned the reason for the renewed builder optimism. They are going to have a busy year, as new home construction permits spiked to levels not seen since 2007.  Does this mean US families are finally getting mortgages and buying new homes? Not exactly. While demand for new homes continues to gradually improve, it is concentrated in the "luxury" sector (larger and more expensive homes). Overall, single-family housing as percentage of the overall homebuilding activity continues to decline. Instead, most of the demand is coming from multifamily housing as the need for rental units continues to increase. This is the sector that has been boosting builder optimism and where we are about to see increased construction activity.

Many low-income Americans can’t even afford to rent - There were only 28 adequate and available to rent homes for every 100 extremely low-income renters in 2013, down from 37 in 2000, according to the Urban Institute, a nonprofit and nonpartisan organization that focuses on social and economic policy. “This gap between supply and demand leaves 72% of the country’s poorest families burdened by the high cost of housing,” it found. Extremely low-income renters are households with incomes at or below 30% of the median income in that region. Not one county in the U.S. has enough affordable housing for all these renters. Among the 100 largest counties, the number of affordable rental homes ranges from eight per 100 in Denton County, Texas, to 51 in Suffolk County, Mass. This regional disparity is partly due to federal assistance not keeping pace with population growth, says Erika Poethig, a director at the Urban Institute. Only nine of the 100 largest counties increased the number of affordable units for extremely low-income renters from 2000 to 2013. Click here to see an interactive map. Between 2000 and 2013, the number of extreme low-income renter households soared 38% from 8.2 million to 11.3 million as the Great Recession pushed more families toward the lower end of the income bracket, the report found. Among the 100 largest counties, five of the 10 counties with the smallest affordability gap are in Massachusetts. Only one—San Francisco—is outside the Northeast. “The geography of poverty is changing and federal housing policy has not kept up,” Poethig says, because the cost of living is so high in these areas. As a result, renters at this income level depend increasingly on programs run by the U.S. Department of Housing and Urban Development. Depending on the area of the country, extremely low-income translates to incomes of between approximately $12,600 and $32,800 for a family of four. Without federal housing assistance, the report found, the share of extremely low-income American households who could afford adequate housing in 2013 would have fallen to 5%.

Rent inflation shows no signs of letting up - —Landlords keep cranking up rents, with annual increases far outpacing price growth elsewhere in the economy, according to data released Thursday. Rents in May were up 3.5% from a year earlier, while a gauge for overall consumer prices showed no growth, the U.S. Labor Department reported. Rent and other shelter costs make up a substantial chunk of a consumer’s budget, and pulled up expenses over the past year. Offsetting that inflation, prices for gasoline and other energy plunged in the past 12 months. Meanwhile, prices for food rose 1.6% over the year through May, while clothing costs dropped 1.5%.Annual inflation for rents has been running faster than overall consumer-price growth for three years. Many U.S. families are unwilling or unable to buy a home, plunging homeownership to the lowest rate in a quarter of a century and giving landlords pricing power. Rising rents are squeezing already-strapped individuals and families.“Not a single county in the United States has enough affordable housing for all its extremely low-income renters,” according to a new report from the Urban Institute, a Washington-based think tank.Developers, seeing an opportunity, have ramped up their plans to construct apartments. But it will take time for units to become available, and, meanwhile, landlords will be able to keep rents high.

Fed: Q1 Household Debt Service Ratio Very Low - The Fed's Household Debt Service ratio through Q1 2015 was released this week: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations. These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.  The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income. The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR. This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:  The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Inflation Returns on Gas | The Economic Populist: The Consumer Price Index increased 0.4% for May, as gasoline increases by 10.4%.  Energy overall was up 4.3%.  Inflation without food or energy prices considered increased 0.1% for the month and was the smallest increase since last December.  Believe it or not, from a year ago overall inflation is unchanged.   CPI measures inflation, or price increases.  The flat yearly inflation is shown in the below graph as the annual decline in gasoline prices really gave a break to consumers. Core inflation, or CPI with all food and energy items removed from the index, has increased 1.7% for the last year. Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate. While all are predicting interest rates will rise, Federal Reserve Chair Janet Yellen has testified that the low inflation numbers are a a concern since increased interest rates would lower economic activity. Most in the press screamed this month means the Fed will raise interest rates, yet one can see from annual inflation it's really tame, so expect any Fed increase to be very small. Graphed below is the core inflation change from a year ago. Core CPI's monthly percentage change is graphed below. This month core inflation increased 0.1%, as shelter only increased 0.3% and hotels, motels dropped -2.0% for the month. The energy index overall increased 4.3% for the month, but is still down -16.3% from a year ago. The BLS separates out all energy costs and puts them together into one index. Gasoline by itself increased 10.4% for the month while fuel oil increased only 0.7%. For the year, gasoline has declined -25.0%, while Fuel oil has dropped -27.6%. Natural gas had no change while Electricity dropped -1.2%. From a year ago national gas prices have declined -15.4% and electricity is still very tame, with a 0.5% increase. Graphed below is the overall CPI energy index. Graphed below is the CPI gasoline index only, which shows gas prices wild ride and recent increases. Core inflation's components include shelter, transportation, medical care and anything that is not food or energy. The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels. Shelter increased 0.2% and is up 2.9% for the year. Rent increased 0.3% for the month, 3.5% for the year. Graphed below is the rent price index.

May 2015 Inflation -- It looks like CPI measures across the board took a breather this month. Year-over-Year measures are moving generally sideways. Core inflation is at 1.7%, which is a combination of Shelter inflation running at about 3% and Core-minus-Shelter inflation, running at about 1%. This has been the pattern since the mid-1990s, except for the 2003-2005 and 2012-2013 periods, which were the only periods where aggregate housing supply was expanding strongly enough and monetary policy was accommodative enough for housing inflation to fall and non-housing inflation to rise to the ostensible target of 2%. Constrictions on building in the major California and Northeastern metropolises mean that target-level monetary policy is associated with significant home price appreciation (10% and higher). It seems to me that until the large metro areas fix their housing problems, it will be difficult for monetary policy to hit our targets over the objections of those worried about home prices.

CPI Jumps 0.4% on Gasoline Prices, Still Flat From Year Ago; Debt Deflation Dynamics --The headlines on today's CPI jump of 0.4% are all over the map. If you want a slant one way or another you can find it.For example:

In reality, this is pretty much an expected jump due to rising gasoline prices. The above Bloomberg headline is all the more interesting because the Bloomberg Consensus Estimate was nearly spot on at 0.5%. Just about all the readings in the May consumer price report point to very soft price pressures with the overall monthly gain, at plus 0.4 percent, and the ex-food ex-gasoline core gain, at only plus 0.1 percent, at or near the low-end of the Econoday forecasts. The 0.4 percent overall gain may look a bit high compared with prior months including April's 0.1 percent rise, but it reflects an unsurprising jump in energy costs specifically gasoline which jumped 10.4 percent in the month. But energy prices are still very low, confirmed by the year-on-year rates which for all energy products are down 16.3 percent and for gasoline, down 25.0 percent (no misprint). But the look at the year-on-year rates shows one element of pressure, a plus 1.7 percent rate for the core. This is down from 1.8 percent in April but is still skating a bit close to the 2.0 percent hawk barrier at the Fed. The overall year-on-year rate, however, is as benign as can be at zero percent. Components of note include a second month of declines for apparel, down 0.5 percent in May after falling 0.3 percent in April which is not good news for the nation's retailers. Education & communication also fell, down 0.1 percent. Showing pressure is a 2.7 percent rise for transportation that reflects a jump in airfares. This follows, however, a 0.3 percent dip in transportation for April. Food costs and housing costs show no increase in May.

CPI Misses Despite Surge In Gasoline Prices, Core Inflation Rise Is Smallest In 2015 - Another nail in the "imminent rate hike" coffin thesis came moments ago when the BLS reported that May CPI missed both on the headline (0.4%, exp.0.5%) and on the core (0.1%, exp. 0.2%) despite a 10.4% surge in the price of gasoline. Other energy indexes were mixed, with the fuel oil index rising but the electricity index declining and the index for natural gas unchanged. The food index was unchanged for the second month in a row, as a decline in the food at home index offset an increase in the index for food away from home. At least this time, the BLS was not so naive as to try to pass the latest record rent prints as a drop in housing costs saying that "the index for all items less food and energy rose 0.1 percent in May, its smallest increase since December. The indexes for shelter, airline fares, and medical care all increased, as did the indexes for personal care, recreation, new vehicles, alcoholic beverages, and tobacco." But if you rent has you down, fear not: at least you can dress in style and buy furniture for that apartment you can't afford: "the indexes for apparel, for household furnishings and operations, and for used cars and trucks all declined in May."  The full breakdown of May's CPI:  But all eyes on gasoline which, since plunging gas prices were "unambiguously good" for consumers, then a 30% increase in the last 4 months must be unambiguously bad, right Larry Kudlow? Perhaps what is most surprising is that like Europe, so the heat map of US inflation is also quite regional, with only California seeing a jump in inflation mostly on soaring gas prices in the state. Everywhere else: deflation.

US egg prices took their highest monthly jump ever in May -- May 2015 was an historic month for US egg prices: They jumped more than 56%, the largest increase since the US Bureau of Labor Statistics started keeping track in 1937.  Wholesale prices are up over 200% since 2000.  Avian flu, first detected in December 2014, has now affected more than 47 million birds in the US, according to the USDA’s latest count. About 35 million of those birds are egg-laying hens, stoking fears of egg shortages, and causing the huge surges in prices. In response, the US will soon begin to allow the import of egg products from the Netherlands for commercial baking and processed foods, the Associated Press reported earlier this week. It will be the first time in more than ten years that the country has purchased eggs from a European country. Iowa and Minnesota have taken some of the biggest hits from avian flu, but the outbreak has spread far beyond those two major egg-producing states, all the way to California, Oregon and Washington on the West Coast. It has yet to hit the East Coast, but in North Carolina—which has an $18 billion poultry industry—officials are already taking precautionary measures, including banning all poultry shows and public sales scheduled for mid-August to mid-January, ABC reported.

Cheaper prices spur U.S. gasoline demand  -  Strong growth in demand for refined fuels such as gasoline and diesel is helping to rebalance the global oil market, according to most observers. “Recent oil market strength … stems partly from unexpectedly strong oil demand growth,” the International Energy Agency explained in its June monthly oil market report. In the first quarter of 2015, global oil consumption was 1.7 million barrels per day higher than in the prior-year period. “In particular, gasoline prices have found support from robust U.S. demand, leading to a surge in crack spreads,” according to the IEA. But if there is a consensus that demand is rising more quickly than predicted at the start of the year, there is fierce debate about whether growth is being driven by economic recovery, cheaper fuel prices or a combination of the two. And there is a mystery about why the consumption of gasoline is growing more strongly than diesel. In one camp are those, myself included, who attribute a big part of the increase in fuel demand to the sharp drop in fuel prices since the middle of 2014.  . In the other camp are those who insist consumption is largely insensitive to prices and that the increase is being driven by other factors including economic recovery and a rebound in U.S. construction.  This is the classic economists’ view that fuel demand is insensitive to price changes in the short term and is mostly driven by changes in incomes, employment and economic activity. In practice, of course, fuel demand is driven by a combination of price and income factors. Economy-related factors are generally more important in the short and medium term. But the sensitivity of fuel consumption to price shifts is not zero.

Joe Sixpack's Situation in 1Q2015: Joe Is Better Off: A Federal Reserve data release (Z.1 Flow of Funds) for 1Q2015 - which provides insight into the finances of the average household - shows a modest improvement in average household net worth. Our modeled "Joe Sixpack" - who owns a house and has a job, and essentially no other asset - is better off than he was last quarter. You may ask why this analysis is important? It looks at the financial health of the consumer - and in a consumption based economy, it measures the dynamics affecting the consumer. What is concerning is that the 35% of Americans who have no home or assets are no better off (living from paycheck to paycheck) - and have no path to consume more. This person is not modeled by this index. First, from the Z.1 Flow of Funds report, what was shown about Household Net Worth and Growth of Domestic Nonfinancial Debt. Cumulative Household net worth improved modestly, while cumulative household debt growth declined significantly.The Joe Sixpack Index is a composite index of home prices and wage income (again - Joe owns a house, has a job, and no other assets). This index was designed to measure how rich Joe should feel. The theory is that the richer Joe feels, the more Joe will spend. •The data in this index is only updated every three months, and the data was updated with the release of the Federal Reserves Z.1 Flow of Funds. •It is inflation and population adjusted. •Currently, Joe has a house that is increasing in value - and his income in inflation terms grew - so the net affect is that the index improved - and now indicates Joe feels richer than he did in the last quarter. If Joe is not feeling richer, it is unlikely spending will increase. The stage is set for greater consumer spending

LA area Port Traffic: Imports Up, Exports Down in May - 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. Perhaps traffic in May is closer to normal now. 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 up 0.2% compared to the rolling 12 months ending in April.   Outbound traffic was down 0.5% compared to 12 months ending in April. 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).

The Freight Transportation Services Index and Future Economic Growth: Six months ago I posted an article that looked at one of the very few leading economic indicators that can be used to give us a sense of the economy's direction. Rather than using trailing indicators like consumer spending, the housing market or employment that provide us with data that is already at least a month old in most cases, this indicator tells us where the economy is headed rather than where it has already been. The Transportation Services Index or TSI is the broadest measure of United States domestic transportation services and reflects real monthly changes in both passenger and freight transportation services within the U.S. It includes three components; a freight index (the freight TSI), a passenger index (the passenger TSI) and a combined or total index (total TSI). The freight component of the TSI, which includes five modes of transportation (highway, air, railway, waterway and pipeline), appears to show a very close relationship with the pattern of national economic growth. The TSI includes only domestic for-hire transportation that is operated on behalf of or by a company that provides freight or passenger transportation services to external companies for a fee. Not included is transportation in vehicles owned by private firms providing services to that firm, taxis and intercity bus services and noncommercial passenger travel which includes trips in the family car. The for-hire component constitutes roughly 60 percent of total national transportation services. Here is a table showing the data sources for the TSI:

Fed: Industrial Production decreased 0.2% in May --From the Fed: Industrial production and Capacity Utilization: Industrial production decreased 0.2 percent in May after falling 0.5 percent in April. The decline in April was larger than previously reported, but the rates of change for previous months were generally revised higher, leaving the level of the index in April slightly above its initial estimate. Manufacturing output decreased 0.2 percent in May and was little changed, on net, from its level in January. In May, the index for mining moved down 0.3 percent after declining more than 1 percent per month, on average, in the previous four months. The slower rate of decrease for mining output last month was due in part to a reduced pace of decline in the index for oil and gas well drilling and servicing. The output of utilities increased 0.2 percent in May. At 105.1 percent of its 2007 average, total industrial production in May was 1.4 percent above its year-earlier level. Capacity utilization for the industrial sector decreased 0.2 percentage point in May to 78.1 percent, a rate that is 2.0 percentage points below its long-run (1972–2014) average. This graph shows Capacity Utilization. This series is up 11.1 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.1% is 2.0% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.  The second graph shows industrial production since 1967. Industrial production decreased 0.2% in May to 105.1. This is 25.5% above the recession low, and 4.3% above the pre-recession peak.

US Industrial Output Continued To Weaken In May -  Is the US on the cusp of a new recession? The latest numbers on industrial production suggest that business-cycle risk is rising. Why, then, don’t we see confirming signals from other key indicators? Notably, payrolls are still rising at a solid pace (in year-over-year terms)—ditto for real personal consumption expenditures. The industrial sector is clearly weak, and getting weaker, but for the moment this appears to be an isolated downtrend. It could turn out to be something darker, although a broad review of the numbers suggests otherwise, based on current data.  Even industrial output has yet to slip into a formal recession signal, although it’s getting close. Based on annual changes, however, production is still rising, albeit by a soft 1.4% through May vs. the year-earlier level. (Monthly data looks considerably worse, but these short-term comparisons are too noisy to extract reliable signals in real time.)  Another month or two of sliding output would paint a considerably darker picture. Meantime, there are stronger trends elsewhere in the economy to consider. In particular, the annual trend in payrolls posted a solid 2.5% gain through May and initial jobless claims continue to anticipate more of the same in the near-term future. Meanwhile, real personal consumption expenditures are ahead by a respectable 2.7% through April vs. a year ago, and the upbeat numbers on retail sales for May imply that consumption will remain buoyant once all the numbers for last month are published. The question, then, is whether a weak industrial sector can drag down the US economy? Perhaps, but there’s not much support for this theory in terms of the published numbers to date.US Industrial Production Weakest Since January 2010, Flashes Recessionary Red Flag -- US Industrial production has missed expectations for 4 of the last 5 months (not seen outside recession) and has not seen notable MoM gains for 6 months in a row (not seen outside recession). Against expectations of a 0.3% gain, IP dropped 0.2% in May (not what the meteorconomists were hoping for). Without the over-stocking of motoro vehicles, the number would have been a total disaster as Autos rose 1.&% MoM (the only industry to gain). At 1.37% YoY growth, this is the weakest industrial production since January 2010. Minor upward revisions stalled the MoM drop streak but US factory output has now fallen YoY 6 months in a row (not seen outside recession) for the biggest drop in over 4 years. MoM it's ugly... But YoY is flashing recessionary red!

US factory output down in May, hurt by oil refining cuts — U.S. factory output slipped in May, hurt by a decline in oil refining that overshadowed solid gains by automakers. The Federal Reserve said Monday that manufacturing output declined 0.2 percent last month, as productivity has basically been flat since January. Manufacturing has been hurt the stronger dollar, higher oil prices reducing equipment orders and activity at refiners, and previously by cold winter weather at the start of the year. “Manufacturers will continue to struggle with the impact of the dollar’s rise for some time yet,” said Paul Ashworth, chief U.S. economist at Capital Economics. Overall industrial production — which also includes utilities and mining — fell 0.2 percent in May. Mining activity that covers oil and natural gas drilling tumbled for the fifth straight month, while output at utilities increased slightly. In the manufacturing category, fossil fuel refining and chemical production dropped last month, as did the food, beverage and tobacco sector. The declines reinforced the possibility of a prolonged slump as the Federal Reserve Bank of New York separately reported Monday that its Empire State manufacturing index fell to negative 2 in June. Any reading above zero indicates expansion.

May Industrial Production Down -0.2% With April Surprise -0.5% Revision --The Federal Reserve Industrial Production & Capacity Utilization report shows industrial production decreased -0.3% as gas and oil well drilling continued to decline, abet at a slower pace.  This is the seventh month in a row for no increase.  Mining for the month declined -0.3% and the previous four months contracted an entire percentage point on average.  Manufacturing also declined for the month.  The G.17 industrial production statistical release is also known as output for factories and mines. Total industrial production has now increased 1.4% from a year ago.  Currently industrial production is 5.1 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: +1.8%
  • Mining:             -0.3%
  • Utilities:           +1.3%

For the month manufacturing declined by -0.2%.  Manufacturing output is 1.3 percentage points above it's 2007 Levels and is shown in the below graph. Within manufacturing, durable goods increased 0.2% for the month and 1.8% for the year. Motor vehicles & parts increased a whopping 1.7%. Machinery increased 0.4%. Nondurable goods manufacturing was really hammered and declined by -0.7% for the month. Petroleum led the decline with a -1.6% drop but food also declined by -0.9%. Nondurable manufacturing has increased 2.3% for the year. Mining declined -0.3% and is now down -0.3% for the year, that's quite a yearly slide. 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 -7.9% and for the year is down -51.2%. This is an over 50% annual decline, just an astounding collapse.

No Rebound in Manufacturing: "Surprisingly Weak" Industrial Production Numbers; How Long Can Auto Sales Hold Up?  -- Following the rebound in consumer spending (heavily weighted to subprime auto sales), economists expected a rebound in Industrial Production.  Instead, last month was revised lower, and this month was not only negative but also lower than any economist's estimate in the Bloomberg Econoday Consensus Range. All the main numbers in today's industrial production report are below low-end forecasts with the headline at minus 0.2 in May and April revised 2 tenths lower to minus 0.5. May is the fourth negative reading in the last six months with the other readings at no change. Capacity utilization fell 2 tenths to 78.1 percent which is the lowest rate since January 2014.  The manufacturing component fell 0.2 percent in May for the third negative reading in five months. Weakness in May was concentrated in consumer goods and construction supplies, the latter a disappointing indication for the housing sector. The mining component, at minus 0.3 percent, has really been hit hard by weakness in the energy sector but, in a plus, contraction here seems to be easing. The utilities component is positive but just barely at plus 0.2 percent. Turning back to manufacturing, vehicles are actually a very big positive with a third outsized gain in a row, at plus 1.7 percent in May vs 2.0 percent and 4.0 percent in the two prior months. This reflects very strong consumer demand for cars and trucks underscoring unit vehicle sales which, in previously released data, are the strongest in 10 years. Excluding vehicles, however, the decline in May manufacturing slips another tenth to minus 0.3 percent. Another area of strength is capital goods which is showing life in the durable goods report and which here, tracked in the business equipment subcomponent, shows a 0.2 percent gain for May.

U.S. manufacturing sector said to be in a technical recession - The U.S. factory sector, ailing from the strong dollar, global weakness and lower oil prices, has slipped into a technical recession, new data released Monday show. The Federal Reserve said Monday that industrial production dropped unexpectedly in May and hasn’t increased since November. The six-month drop in output, adjusted for inflation, puts the sector in a technical recession, said Alan Tonelson, a former economist for a manufacturing trade group who now writes commentary on the sector. Industrial output sank 0.2% in May. Economists polled by MarketWatch had expected a 0.2% gain. Compared to 12 months ago, industrial production was up 1.4% — compared to 4.8% growth was recently as November.The U.S. economy is still fighting headwinds from lower oil prices and the stronger dollar, said Jennifer Lee, senior economist at BMO Capital Markets. Those headwinds will likely be highlighted by the Fed as policymakers meet Tuesday and Wednesday to set monetary policy for the next six weeks. No rate hike is expected at the meeting and the U.S. central bankers wait for signs the economy is strong enough to handle higher interest rates. Beneath the headlines, manufacturing output was down 0.2% in May after a 0.1% gain in April. Auto production has been one bright spot, rising 1.7%. Excluding autos, manufacturing was down 0.3%. Mining output declined 0.3% last month, after declining more than 1% on average over the past four months. The slower rate of decrease was in part due to a reduce pace of decline in the index for oil and gas well drilling, the Fed said.

The shallow industrial recession continues - but no signal for general growth --Several days ago May industrial production showed another decline.  The consensus in the commentary was that this was due to continued weakness in the Oil patch and strength in the dollar.  I agree.   James Picerno also had a nice, lengthy article explaining why this ongoing decline isn't enough to be a recessionary red flag.  I agree with that too.  But it is worthwhile to show why Picerno, and the consensus, are correct, by comparing the various sectors of production, and comparing the current weakness in production with past episodes of weakness. First, let's look at the sectors that make up the industrial production report.  In the graphs below they are manufacturing (red), mining (blue), and electricity (green).  Here's the overall look on the Q/Q% change for the last 20 years: What I mainly want you to notice in the above is how erratic the electricity sector is. Current readings are no more erratic. So let's take that out and just focus on mining and manufacturing: While manufacturing has shown a little weakness, the biggest difference by far is in mining -- and that's where the Oil patch weakness shows up, as well as coal and metals production for export (recall how awful rail and steel have been in the Weekly Indicators for the last 4 months). Now let's compare the present weakness with past episodes. Here is the Q/Q% change in overall industrial production in the period from 2000 to the present, ending with Q1:.i Note the decline in Q1 was less than -0.2%. That's considerably less not only than prior declines associated with recessions, but even with declines where no recession occurred. Now here is the same graphs for the 1950s and 1960s, and then the 1970s and 1980s (there was no period of weakness in the 1990s!): Again, note that the Q1 decline in industrial production was almost trivial compared with other declines whether or not associated with prior recessions. Finally, let's look at the recent m/m% change, to include April and May: So far the decline in Q2 is a little bigger than that in Q1. But still not enough to compare with past episodes of weakness that were associated with recessions. In short, this shallow industrial recession is not derailing the robust overall economy.

Empire State Manufacturing Conditions Worsen Marginally -This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at -2.0 (-1.98 to two decimals) shows a decrease from last month's 3.0, which signals a slight decline in activity. The forecast was for a reading of 6.0.  The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.  Here is the opening paragraph from the report.The June 2015 Empire State Manufacturing Survey indicates that business conditions worsened slightly for New York manufacturers. The headline general business conditions index fell five points to -2.0, its second negative reading in the past three months. The new orders index fell six points to -2.1, and the shipments index edged down to 12.0. Labor market indicators pointed to a small increase in employment levels and the average workweek. Price indexes were little changed. At 9.6, the prices paid index remained near last month’s multiyear low, and the prices received index held steady at 1.0, indicating that selling prices were flat for a second consecutive month. The index for future general business conditions retreated in June, suggesting that optimism about future business conditions waned. Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

NY Fed: Empire State Manufacturing Survey indicates "conditions worsened slightly" in June --From the NY Fed: Empire State Manufacturing Survey The June 2015 Empire State Manufacturing Survey indicates that business conditions worsened slightly for New York manufacturers. The headline general business conditions index fell five points to -2.0, its second negative reading in the past three months. The new orders index fell six points to -2.1, and the shipments index edged down to 12.0. Labor market indicators pointed to a small increase in employment levels and the average workweek...The index for future general business conditions fell for a second consecutive month. The four-point drop, to 25.8, signaled that optimism about the six-month outlook ebbed further in June. This is the first of the regional surveys for June.  The general business conditions index was below the consensus forecast of a reading of 5.9, and indicates slight contraction in June.

US Empire Fed Manufacturing Survey Plunges To Lowest Since January 2013 As Inventory Optimism Crashes By Most Ever -- Empire Fed Manufacturing has now missed expectations for 8 of the last 9 months. June's -1.98 print (against hopes for a post-weather bounce to 6.00 from 3.09) is the lowest since January 2013. With only 26% of respondents saying conditions had improved, New orders tumbled, Prices Received slid, shipments dropped and inventories fell... but employment and workweek increased? What hope for the future - less! General Business conditions 6-month ahead fell for the 2nd consecutiuve month with th emost crucial aspect being a total and utter collapse in future inventories from 3.13 to -17.31 The headline was the weakest since Jan 2013...- And future optimism is waning...The index for future general business conditions fell for a second consecutive month. The four-point drop, to 25.8, signaled that optimism about the six-month outlook ebbed further in June. The future new orders index fell eight points to 26.1, and the index for future shipments fell ten points to 22.1. The future inventories index plunged twenty points to -17.3, suggesting a widespread belief that inventory levels would decline in the months ahead. Indexes for future prices paid and received were little changed. The index for future employment declined for a third consecutive month but, at 13.5, it still suggested that manufacturers expected employment levels to rise. The capital expenditures index moved down four points to 11.5, and the technology spending index fell to -1.0. And most critically... The future inventories index plunged twenty points to -17.3, suggesting a widespread belief that inventory levels would decline in the months ahead

Philly Fed Manufacturing Survey increased to 15.2 in June  From the Philly Fed: June Manufacturing Survey Manufacturing conditions in the region improved in June, according to firms responding to this month’s Manufacturing Business Outlook Survey. Indicators for general activity, new orders, and shipments remained positive and increased over their readings in May. Employment and average work hours increased, on balance, at the reporting firms. Firms reported higher prices for raw materials and other inputs in June compared with reported price decreases in recent months. The survey’s indicators of future activity suggest that firms expect continuing growth in the manufacturing sector over the next six months.... The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 6.7 in May to 15.2 this month. This is the highest reading for the index since December ...Firms’ responses suggest modest expansion in employment in June. The percentage of firms reporting an increase in employees in June (22 percent) exceeded the percentage reporting a decrease (18 percent). The current employment index, however, fell nearly 3 points, to 3.8. Firms reported an overall modest increase in the workweek compared with a decrease last month: The workweek index increased from -5.6 to 4.7. This was above the consensus forecast of a reading of 8.0 for June.

Philly Fed Bounces But Employment Plunges & Costs Soar By Most In 42 Years! --After 6 months of dismal data, Philly Fed bounced back in June. Printing at 15.2 against expectations of 8.17. this is the biggest beat of the year but remains below levels seen over a year ago. Tis will be celebrated we are sure as heralded Yellen's big comeback but under the covers, employment tumbled and Prices-Paid exploded higher by the most since 1973... hardly a sign of strength. A bounce but some context shows it not so exuberant... Prices Paid spiked by the most since 1973!!!  Charts: Bloomberg

The greatest unknown — the impact of technology on the economy -- Economists have always recognised that the long-run growth of productivity is, in the end, almost the only thing that matters for the living standards of the population as a whole. Recently, there have been significant downgrades to consensus estimates of productivity growth which, if maintained for long, would have enormous effects on the attainable level of gross domestic product per capita.  But the future impact of technology on long-run growth is one of the great unknowns — perhaps even the greatest — in economics.An excellent example of this uncertainty occurred at the FT Business of Luxury Summit last week, in contributions from Johann Rupert and Martin Wolf. The former painted a picture of unprecedented technical advance, quoting examples from The Second Machine Age by Erik Brynjolfsson and Andrew McAfee. This book has captured the imagination by describing a future in which machine learning increases at exponential speed, rapidly replacing human skills in large parts of the economy. In a world of robot technology, driverless cars and delivery-by-drones, measured productivity growth would surely advance very quickly.  Martin Wolf, however, disagreed. He argued that the great technological advances of the 19th and 20th centuries would not be replicated in the future, so productivity growth would remain subdued, as it has been since about 2003. Sympathising with the somewhat gloomy paper published by Robert Gordon in 2012, Martin felt that the low-hanging technological fruits had already been picked, and that the period of rapid advance that ended in the early 1970s was an aberration.

Goldman Sachs and J.P. Morgan Can’t Agree Why the Economy’s Productivity Has Slumped -- Consider two common statements:

1. We live in an era of accelerating technological progress, with machines increasingly able to perform the tasks of humans.
2. In the years since the recession, despite a recovery in the number of jobs, the economy has been growing very slowly.

Both statements can’t be completely correct. If technology is really enabling more production with fewer workers, and if the number of workers is growing, then the economy’s capabilities ought to be booming. Yet when economists attempt to measure this, they find a deep productivity slump. For economists, productivity is defined as economic output per hours of work. In recent years, it’s been growing at one of the slowest rates since World War II. In fact, the only worse period for productivity was in the late 1970s and early 1980s. If the wonders of Silicon Valley are increasingly replacing humans or opening up new frontiers of production, then productivity ought to be skyrocketing, not in a historic slump. Enter two of Wall Street’s best-regarded economists: Jan Hatzius, the chief economist of Goldman Sachs, and Michael Feroli, the chief U.S. economist of J.P. Morgan Chase, with dueling views. In a research note in May, Mr. Hatzius and fellow Goldman economist Kris Dawsey argued productivity might not be so bad. They offer two key reasons the statistics may be bunk. First, that the stats miss improvements in technological quality. The price of software has only decreased slightly over the past two decades, but the quality of what’s available is much higher. Secondly, the statistics may fail to capture the value of new products. How do you measure the economic value of, say, Google? Mr. Feroli of J.P. Morgan and his fellow economist Jesse Edgerton disagree. In a research piece last week, they note these arguments have been around for so long that in 1996, the government created a commission–the Boskin Commission–to study the measurement problems of quality-change and new products.“Quality-change and new products have always been poorly measured,” they write. “One needs to demonstrate that these issues have become significantly worse in the past few years.”

America’s hiring paralysis - Last week the Labor Department offered some seemingly very good news: U.S. employers now have more job openings than ever previously recorded. There is a bounty of opportunities to be had. And yet to unemployed workers, it may not feel that way. That’s because many companies are acting like big teases. They say they want to hire, then drag their feet. In fact, the average time required to fill a job opening has also just reached an all-time high: 27.3 days, or almost a month, according to an important and underappreciated monthly data release called the DHI-DFH Mean Vacancy Duration Measure. Firms took about half as long to make a hire in mid-2009. Among the largest firms, this hiring paralysis lasts an almost comical 64 days.  It’s hard to know exactly what explains firms’ seemingly interminable indecision. One possible explanation relates to so-called “skills mismatch,” the idea that today’s workers simply don’t possess the qualifications necessary for the jobs available. . Companies themselves are indeed reporting difficulty acquiring talent. Nearly half of small and medium-size businesses with recent vacancies say they could find few or no “qualified applicants,” according to the latest monthly survey of the National Federation of Independent Business. Over the past couple of years, firms have also become increasingly likely to say that “quality of labor” is the “single most important problem” facing their businesses. I have generally been skeptical of the “skills mismatch” story, mostly because wage growth has been so pitiful during this recovery. If qualified applicants were really so scarce, businesses should be bidding up the salaries of the few hot commodities available. But Steven J. Davis , one of the creators of the vacancy duration metric, says it’s unclear how a widespread skills mismatch, if one exists, would actually affect wages. Maybe a shortage of some highly desirable skill would lead employers to bid up the price of that qualification, he says, but that same scarcity might also lead firms to instead settle “for workers who have less of [or] lower-quality versions of the desired skills.” That could, in theory, cause hourly wages to fall overall.

Can phone data detect real-time unemployment? | MIT News: If you leave your job, chances are your pattern of cellphone use will also change. Without a commute or workspace, it stands to reason, most people will make a higher portion of their calls from home — and they might make fewer calls, too. Now a study co-authored by MIT researchers shows that mobile phone data can provide rapid insight into employment levels, precisely because people’s communications patterns change when they are not working. Indeed, using a plant closing in Europe as the basis for their study, the researchers found that in the months following layoffs, the total number of calls made by laid-off individuals dropped by 51 percent compared with working residents, and by 41 percent compared with all phone users. The number of calls made by a newly unemployed worker to someone in the town where they had worked fell by 5 percentage points, and even the number of individual cellphone towers needed to transmit the calls of unemployed workers dropped by around 20 percent. “Individuals who we believe to have been laid off display fewer phone calls incoming, contact fewer people each month, and the people they are contacting are different,” says Jameson Toole, a PhD candidate in MIT’s Engineering Systems Division, and a co-author of the new paper. “People’s social behavior diminishes, and that might be one of the ways layoffs have these negative consequences. It hurts the networks that might help people find the next job.”

This Epic Chart Shows The Wages Of Nearly Every Job In America - Reddit user Dan Lin has created an epic chart that shows the mean-wage breakdown for every single profession in America tracked by the Bureau of Labor Statistics.  Most of the top wages are owned by people working in the medical field while the lowest wages are paid to people working in the food and hospitality fields. The numbers in parentheses are the mean wages, in thousands. The different shapes show the range of salaries available in that field. Here’s the top 20 fields followed by the much harder to read chart.

Jobs and Wages Grew in Nearly Every Large U.S. County in 2014 - Employment and wages grew in the vast majority of large U.S counties last year, underscoring the job market’s momentum through much of 2014. More than 94% of large U.S. counties reported employment gains through December compared with a year earlier, and 98% saw average weekly wages increase, the Labor Department said Wednesday. The 339 largest U.S. counties have 75,000 workers or more. Last year’s gains are consistent with an economy that was adding jobs at a robust pace. The U.S. added an average 260,000 jobs a month in 2014—a pace that has since slowed—and the national unemployment rate dropping by a full percentage point during the year, to 5.6% in December. The average weekly wage in the U.S. increased 3.5% last year, growing to $1,035 by the end of 2014. The data also continued to show the strongest growth in energy-producing counties. Employment in Weld, Colo., and Midland, Texas, grew by 8% each, the most of anywhere in the country, thanks to big increases in natural resources and mining jobs related to the oil sector. Wages in Midland also grew 9% last year. Employment also grew strongly in Adams, Colo., Lee, Fla., and Williamson, Tenn., in December from a year earlier. Atlantic, N.J., had the largest percentage decrease in employment, down 5%. Wages grew the most in Benton, Ark., the county home of Wal-Mart, which posted a 9.9% gain in wages, and a 5.5% increase in payrolls. Employment declined in only 17 of the largest counties, while wages fell in seven of them.

Seen That Job Listing for a While? It’s No Coincidence - WSJ: For the past 18 years, Tom Gimbel, a recruiter in Chicago, has helped thousands of people find jobs in accounting, finance and human resources. Lately, the process has been slowing down as candidates go through more interviews, more screenings, more tests. “What’s really dragged it down quite a bit is technology,” . “So many companies are using technology portals and databases with their people.” They may be getting better hires out of the process, but they are definitely moving more slowly, he said. The U.S. currently has 5.4 million job openings—the most since the current record-keeping system began in 2000—but the number of people getting hired has yet to fully recover from the recession, according to the Labor Department. Two pieces of new research show that Mr. Gimbel’s anecdotal impression is correct: Across the economy, the time it takes to fill jobs is lengthening. The lethargic hiring process has prolonged the already-slow pace of labor-market healing that has beset the U.S. in the six years since the recession officially ended.Stephen Davis, an economist at the University of Chicago, found that as of April the average job sat vacant for 27.3 days before being filled, nearly double the 15.3 days it took to fill a job in mid-2009. Mr. Davis’s research, published regularly as the DHI Hiring Indicators report, shows that the rise has occurred across industries, regions and firms of different sizes.

Jobs and Industries Where It Takes the Longest to Get Hired - In today’s Wall Street Journal we looked at the economy-wide trend of job postings that take longer and longer to get filled. So where does it take the longest to get hired? DHI Hiring Indicators provides a breakdown, by industry, of how many working days it takes to fill a job opening. As a general rule of thumb, higher-skilled and more technical industries take somewhat longer, with health care and financial services topping the list. (That’s no surprise: You probably wouldn’t really want a five-minute hiring process for your cardiologist.) By contrast, retail and hospitality jobs are typically filled within a month, and construction jobs often take just about two weeks. The economy’s shift toward higher-skilled industries does not explain the rising length of job vacancies. From the industries where hiring takes the longest, such as health care, to those that are quickest, such as construction, the length of time it takes to actually fill those vacancies is already at, or rising toward, new records. Part of this, no doubt, reflects a tighter labor market, where it’s harder for companies in many industries to find talented workers. But in much of the country, the U.S. economy is hardly roaring–many other measures of the labor market’s health have yet to recover to their prerecession levels–suggesting that economic health is not the entire explanation for the length of job vacancies. Of course, even within industries there’s tremendous variation in how long it takes to fill an open job. Andrew Chamberlain, the chief economist of the job-information website Glassdoor, compiled a list of which occupations have the longest and shortest interview processes. (Occupations with information from at least 30 people are included–a small sample size–so some of these figures may have large margins of error.)

US skills gap becoming more acute -  Job openings in the United States rose to new multi-year highs in recent months. By the looks of this one could conclude that there is no slack in US labor markets. But as we know, that's not yet the case.The NFIB small business survey shows US businesses increasingly struggling to find "quality labor" as the labor force skills gap becomes acute.Percentage of small businesses with unfilled job openings is now above the pre-recession levels. To be sure, those trying to hire are getting dozens of applications. But the applicants lack the skills businesses are looking for. We can see more evidence of the skills mismatch in the latest US Beveridge curve that shows that the number of unemployed and "marginally attached" workers is much higher for the same number of job openings than prior to the recession.    With all those discouraged workers who had left the labor force, shouldn't all these openings be filled quickly? They are not. That's because those without work are usually not the people businesses are looking for. Prior to the recession a great deal of the unskilled labor was absorbed in housing-related industries such as construction. Didn't finish college? No problem - there is a well-paying construction job waiting for you. But those jobs disappeared with the end of the credit bubble. One area where the skills gap is especially pronounced is manufacturing. Modern manufacturing often utilizes specialized equipment and various forms of automation that require training and experience. However after years of offshoring, the US has gutted its manufacturing base, creating a large deficit of skilled manufacturing workers. The skills gap therefore is likely to persist for years to come, creating a material drag on economic growth.

BLS: Twenty-Five States had Unemployment Rate Increases in May - From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were little changed in May. Twenty-five states had unemployment rate increases from April, 9 states and the District of Columbia had decreases, and 16 states had no change, the U.S. Bureau of Labor Statistics reported today.... Nebraska had the lowest jobless rate in May, 2.6 percent. West Virginia had the highest rate among the states, 7.2 percent. The District of Columbia had a rate of 7.3 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The yellow squares are the lowest unemployment rate per state since 1976. The states are ranked by the highest current unemployment rate. West Virginia, at 7.2%, had the highest state unemployment rate although D.C was higher. The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate at or above 11% (red). Currently no state has an unemployment rate at or above 8% (light blue); Only two states (West Virginia and Nevada) and D.C. are still at or above 7% (dark blue).

Steady-as-She-Goes for Most State Labor Markets in May --The Bureau of Labor Statistics’ May State Employment and Unemployment report showed most states continued on the generally positive—albeit somewhat unremarkable—track they’ve been on for the past year. Since May of 2014, all but one state (West Virginia) have added jobs, and unemployment has fallen in all but five states: Louisiana, North Dakota, South Carolina, South Dakota, and West Virginia. The only slight dark spot in recent trends is that, as with last month’s report, it appears the well of jobs from the oil and gas boom seems to be drying up. In states where growth from the boom has been explosive (North Dakota, Oklahoma), this slowdown still leaves them well ahead of the pack. From February 2015 to May 2015, 38 states and the District of Columbia added jobs. Nevada (+1.3 percent), Rhode Island (+1.3 percent), and Maine (+1.0 percent) had the largest percentage gains. All three of these states showed some acceleration in job growth in recent months, although none of the three has yet to recover all the jobs they lost in the Recession. From February to May, 11 states lost jobs, with the biggest percentage losses occurring in North Dakota (-1.8 percent), Wyoming (-1.3 percent), and Oklahoma (0.6 percent). For the country as a whole, employment grew by 0.4 percent over the same period. Unemployment fell in 25 states from February to May, with Washington (-0.9 ppt), Tennessee (-0.8 ppt), and Indiana (-0.8 ppt) experiencing the largest reductions. Washington state and the broader Pacific Region have had impressive labor market improvements over the past year, as Pacific states have increased employment and reduced unemployment faster than any other region of the country.

After Energy-Job Losses, Texas Jobs Boom in May - Employment bounced back in Texas last month following recent losses, a sign that the state is weathering the slowdown in the energy industry, the Labor Department said Friday. By contrast, in North Dakota, which is also heavily reliant on energy production, employment continues to fall as the state grapples with a slowdown in energy prices. Texas added 33,200 jobs in May, the third-largest month-over-month employment increase in the country, the department said. Just two months ago, in March, Texas saw 25,400 jobs disappear. The state’s unemployment rate stands at 4.3%, down from 5.1% in May 2014. The national unemployment rate was 5.5% in May, according to the Labor Department. Since its last oil-related boom and bust cycle three decades ago, Texas has sought to diversify its economy. Much of the state’s growth has taken place in the Dallas-Fort Worth area and around San Antonio, two regions that have expanded their tech sectors. It’s a different story in North Dakota. The state saw a massive rampup in energy production in recent years as new technologies made oil and gas extraction easier. Between October 2008 and February of this year, North Dakota boasted the lowest state unemployment rate in the nation, the Labor Department said. Nebraska now has the lowest unemployment rate at 2.6%.

Will the Elevated Share of Part-Time Workers Last? - Atlanta Fed's macroblog - There seems to be mounting evidence that at least part of the elevated share of part-time employment in the economy is here to stay. We have some insights to offer based on a recent survey of our business contacts. Why are we interested? A higher part-time share of employment isn't necessarily a bad thing, if people are doing so voluntarily. Unfortunately, the elevated share is concentrated among people who would prefer to be working full-time. Using the average rate of decline over the past five years, the part-time for economic reasons (PTER) share of employment is projected to reach its prerecession average in about 10 years. This is significantly slower than the decline in the unemployment rate, whose trajectory suggests a much sooner arrival—in around a year. The deviation raises an important policy question for measuring the amount of slack there is beyond what the unemployment rate suggests, and ultimately the extent to which policy can effectively reduce it. Researchers (here, here, and here) have pointed to factors such as industry shifts in the economy, changing workforce demographics, rising health care costs, and the Affordable Care Act as potentially important drivers of this shift. But we can glean only so much information from data. When a gap develops, we generally turn to our business contacts who are participating members in our Regional Economic Information Network (REIN) to fill in the missing information. According to our contacts, the relative cost of full-time employees remains the most important reason for having a higher share of part-time employees than before the recession, which is the same response we received in last summer's survey on the same topic. Lack of strong enough sales growth to justify conversion of part-time to full-time workers came in as a close second. The chart below summarizes the reasons our business contacts gave in the July 2014 and the May 2015 surveys. The question was asked only of those who currently have a higher share of part-time workers than they did before the recession. The chart shows the results for all respondents, whether they responded to one or both surveys. When we limited our analysis to only those who responded to both surveys, the results were the same.

Inflation Ate the Average Worker’s Raise in May -- The average U.S. worker got a raise in May. And inflation gobbled it up. Inflation-adjusted average hourly earnings fell 0.1% from April, the Labor Department said on Thursday, the latest reminder of paltry wage gains for many Americans.  The dip followed a 0.3% bump in pay that was offset by a 0.4% rise in the consumer-price index.  Real average hourly earnings have been flat or fallen for four straight months, though the picture is a little brighter when measuring from a year earlier. From May 2014 to May 2015, they were up 2.2%. The Federal Reserve is watching inflation and wages–among many indicators–as it weighs the first increase for its benchmark interest rate since 2006. The central bank on Wednesday said it would leave interest rates unchanged while it awaits signs of firming inflation and further improvement in the labor market. Data out Thursday offer hope on both fronts. The consumer-price index rose the most in more than two years in May. And initial claims for jobless benefits, a measure of layoffs, remained at a level consistent with steady job growth. There also have been some indications wages are picking up.“Wage increases are still running at a low level, but there have been some tentative signs that wage growth is picking up,” Fed Chairwoman Janet Yellen said Wednesday. “We’ve seen an increase in the growth rate of the employment-cost index and a mild uptick in the growth of average hourly earnings.” But numbers on real hourly and weekly earnings show how higher inflation can cancel out those mild wage gains. Higher gasoline prices were the big reason inflation-adjusted average hourly earnings barely budged from the prior month. But oil is still a lot cheaper than a year ago, hence the divergence between the monthly and annual measures.

About Those Rising Wages: Real Hourly Earnings Drop To Lowest In 2015 - When the "expert" weathermen advocates of a Fed rate hike (because it "proves the economy is getting better") are cornered, their cop out excuse is that "wage growth is just around the corner", and then the promptly point to soaring labor costs, which as we showed have nothing to do with actual wages and everything to do with even more soaring healthcare costs incurred by employers courtesy of Obamacare.  What they don't touch on is facts, which as we have shown before are bad because not only isnominal wage growth for over 80% of the labor force barely above recession levels, and in a clear downtrend...... and they certainly don't discuss real, i.e. net of in/deflation hourly earnings, which in May just dropped to $10.53, indicating zero real wage growth and in fact, the lowest real wage number of 2015.

The True Cost of Low Prices is Exploited Workers - The true costs of goods and services is a secondary issue to stagnant and exploitative wages: The cost of certain goods might go up, but more people would be able to afford them with better compensation. The current price of low-cost goods and services in the United States is low-income, exploited workers living in poverty. But the country as a whole isn’t broke, only its workers are — while corporations and C.E.O.s are richer than ever.   Employers steal billions in wages from their workers every year because of a lack of will and/or government resources to adequately enforce labor standards. Meanwhile, the powerful lobbies work to effectively disempower workers by convincing legislatures to water down collective bargaining rights and weaken unions.  Corporations can also outsource work to countries with even weaker labor standards. But for the many jobs that can’t be outsourced, employers hire workers who lack a lawful immigration status. Undocumented immigrants — who make up 5 percent of the labor force — aren’t fully protected by U.S. labor standards and can’t complain about unpaid wages and substandard working conditions because their employer can get them deported. Unsurprisingly, they earn far less than citizens. Meanwhile, some businesses hire workers with a temporary immigration status (“guestworkers”) and spend millions lobbying for new and expanded guestworker programs. High unemployment and flat wages in low-wage occupations suggest employers don’t need guestworkers to fill labor shortages, but they hire them because guestworkers become instantly deportable when fired and aren’t protected from retaliation or allowed to switch jobs if they have an abusive employer.

What a Leaked Training Video Reveals About Walmart's Anti-Union Efforts - One former Walmart store manager tells the story that after discovering a pro-union flyer in his store’s men’s room, he informed company headquarters and within 24 hours, an anti-union SWAT team flew to his store in a corporate jet. And when the meat department of a Walmart store in Texas became the retailer’s only operation in the United States to unionize, back in 2000, Walmart announced plans two weeks later to use prepackaged meat and eliminate butchers at that store and 179 others.  With 1.3 million U.S. employees—more than the population of Vermont and Wyoming combined—Walmart is by far the nation’s largest private-sector employer.  It’s also one of the nation’s most aggressive anti-union companies, with a long history of trying to squelch unionization efforts. Walmart maintains a steady drumbeat of anti-union information at its more than 4,000 U.S. stores, requiring new hires—there are hundreds of thousands each year—to watch a video that derides organized labor. Indeed, Walmart’s anti-union campaign goes back decades: There was “Labor Relations and You at the Wal-Mart Distribution Center,” a 1991 guide aimed at beating back the Teamsters at its warehouses, and then in 1997 came “A Manager’s Toolbox to Remaining Union Free.”    Early last year, Anonymous, a network of hacker activists, leaked two internal Walmart PowerPoint slideshows. One was a “Labor Relations Training” presentation for store managers that echoed the “Manager’s Toolbox” in suggesting that unions were money-grubbing outfits caring little about workers’ welfare. “Unions are a business, not a club or social organization—they want associates’ money,” the PowerPoint read. (Walmart confirmed the PowerPoints’ authenticity.) “Unions spend members’ dues money on things other than representing them,” it added.

Walmart Accused Of Using Its Charitable Foundation To Build More Walmarts -  Consumerist - There are more than 4,500 Walmart stores in the U.S., but the nation’s largest retailer continues to expand. The company, once associated with rural communities, has recently made pushes into urban markets. And a new complaint to the IRS accuses Walmart of wrongfully using its tax-exempt Walmart Foundation charity to get a foothold in those cities.  In a lengthy and detailed complaint [PDF] to IRS Commissioner John Koskinen about the Walmart Foundation, more than a dozen community groups from around the country raise concerns about the retail giant’s potential use of a tax-exempt charity to further its corporate ends. They claim that an analysis of Walmart Foundation giving between 2008 and 2013 shows that donations from the foundation “skyrocketed” in cities like New York, Boston, Washington, D.C., and Los Angeles whenever the retailer attempted to enter those cities.  Here are the relevant charts from the complaint for NYC and Boston:

Wal-Mart Has $76 Billion in Undisclosed Overseas Tax Havens -  Wal-Mart Stores Inc. owns more than $76 billion of assets through a web of units in offshore tax havens around the world, though you wouldn’t know it from reading the giant retailer’s annual report. A new study has found Wal-Mart has at least 78 offshore subsidiaries and branches, more than 30 created since 2009 and none mentioned in U.S. securities filings. Overseas operations have helped the company cut more than $3.5 billion off its income tax bills in the past six years, its annual reports show. The study, researched by the United Food & Commercial Workers International Union and published Wednesday in a report by Americans for Tax Fairness, found 90 percent of Wal-Mart’s overseas assets are owned by subsidiaries in Luxembourg and the Netherlands, two of the most popular corporate tax havens. Units in Luxembourg -- where the company has no stores -- reported $1.3 billion in profits between 2010 and 2013 and paid tax at a rate of less than 1 percent, according to the report. All of Wal-Mart’s roughly 3,500 stores in China, Central America, the U.K., Brazil, Japan, South Africa and Chile appear to be owned through units in tax havens such as the British Virgin Islands, Curacao and Luxembourg, according to the report from the advocacy group. The union conducted its research using publicly available documents filed in various countries by Wal-Mart and its subsidiaries.

California Labor Commission Pops The Uber Bubble, Says Workers Are Employees -- The California Labor Commission ruled that Uber is "involved in every aspect of the operation," which means drivers are employees and not independent contractors.Uber says it's "nothing more than a neutral technology platform." The shift to employee status for California drivers threatens Uber's obscene $50 billion valuation in the private market as they face increased labor costs. The ruling could also spark an avalanche of similar lawsuits across the country. Uber is just one example of the exploitation business model. From Washio to Airbnb, companies in the so called "sharing economy" seek to avoid licensing, regulation, insurance, standard labor costs, and basic business responsibility. This trend threatens the average worker and fosters the development of a peasant class. The misclassification of employees as independent contractors is one of the most widespread employer abuses. The Department of Labor published a report to summarize the employment relationship under the Fair Labor Standards Act. Here are the parts that Uber clearly violated: The extent to which the work performed is an integral part of the employer's business. If the work performed by a worker is integral to the employer's business, it is more likely that the worker is economically dependent on the employer and less likely that the worker is in business for himself or herself. For example, work is integral to the employer's business if it is a part of its production process or if it is a service that the employer is in business to provide. The nature and degree of control by the employer. Analysis of this factor includes who sets pay amounts and work hours and who determines how the work is performed, as well as whether the worker is free to work for others and hire helpers. An independent contractor generally works free from control by the employer (or anyone else, including the employer's clients). Without its drivers, Uber wouldn't have a business.

The Growth of ‘Multiracial’ America - The number of multiracial Americans is much higher than previously thought, a new report says, with some Americans far more likely to see themselves as mixed than others—a trend that could quicken America’s racial transformation. Nearly 7% of Americans 18 or older have a multiracial background, according to a Pew Research Center report released Thursday. That is sharply higher than previous estimates of roughly 2% based on the Census Bureau’s American Community Survey. Pew’s report is based on a nationally representative survey of over 1,500 multiracial Americans ages 18 and up conducted in the spring. Instead of using just self-reports by those surveyed, Pew took a new “three-generation” approach by accounting for the racial backgrounds of parents and grandparents. Hence the higher estimate. Multiracial Americans don’t necessarily see themselves that way. In fact, just four in 10 U.S. adults with mixed-race backgrounds considered themselves “mixed race or multiracial,” Pew found; 60% didn’t. This “multiracial identity gap” was fueled, in large part, by the largest group of U.S. multiracials—those with white and Native American backgrounds. Just 25% of adults with a white-American Indian racial background considered themselves “multiracial.” Reasons for not citing a multiracial background ranged from the fact that someone looked like one race, or were raised that way, or didn’t know any family member or ancestor who was a different race. By contrast, 61% of white-black multiracial Americans said they were multiracial, along with 70% of adults with a white-Asian background. While “Hispanic” is not a race, roughly 53% of Hispanics with mixed-race backgrounds identified as multiracial, the report said.

Bernie Sanders says a black male baby born today has 1-in-3 chance of prison -- Several 2016 presidential candidates in both parties have discussed how the criminal justice system might be improved. The latest to address this issue was Democratic presidential candidate Bernie Sanders during a June 11, 2015, interview on PBS. "A black male baby born today, if we do not change the system, stands a one-in-three chance (of) ending up in jail. This is (an) unspeakable tragedy."  When we took a closer look, we found that the statistic may not be far off -- but it’s hard to know for sure, because the data Sanders relies on is so old. As with other dramatic talking points we’ve seen over the years, this one has been repeated and repeated over a decade and a half without being updated, despite evidence that the underlying trends have changed direction. The statistic dates back to a 2003 paper published by the Bureau of Justice Statistics, a division of the U.S. Justice Department. The Bureau of Justice Statistics paper includes the line, "About 1 in 3 black males ... are expected to go to prison during their lifetime, if current incarceration rates remain unchanged." By contrast, the paper said, one of every six Hispanic males and one of every 17 white males can be expected to go to prison during their lifetime.  When we contacted Mauer, he said he doesn’t know of any updated research that would shed light on the percentage today. "It's a very complex analysis to produce, so that's at least part of the reason that it hasn't been replicated in recent years," Mauer said.

All 50 US states fail to meet global police use of force standards, report finds -  Every state in the US fails to comply with international standards on the lethal use of force by law enforcement officers, according to a report by Amnesty International USA, which also says 13 US states fall beneath even lower legal standards enshrined in US constitutional law and that nine states currently have no laws at all to deal with the issue. The stinging review comes amid a national debate over police violence and widespread protest following the high-profile deaths of 18-year-old Michael Brown in Ferguson, Missouri; 43-year-old Eric Garner in New York; 50-year-old Walter Scott in South Carolina; and 25-year-old Freddie Gray in Baltimore – all unarmed black men killed by police within the past 11 months. Amnesty USA’s executive director, Steven Hawkins, told the Guardian the findings represented a “shocking lack of fundamental respect for the sanctity of human life”. “While law enforcement in the United States is given the authority to use lethal force, there is no equal obligation to respect and preserve human life. It’s shocking that while we give law enforcement this extraordinary power, so many states either have no regulation on their books or nothing that complies with international standards,” Hawkins said.

Puerto Rico’s Dance With Debt -- According to the neoliberal narrative, the rapidly intensifying economic crisis is an open and shut case: Puerto Rico, legally an unincorporated territory of the US, is caught in a debtor’s trap of borrowing to pay for essential operations. And now the bill is coming due. Bloomberg Business likens it to a “consumer using one credit card to pay off another.” But the real story is more complicated, and more connected to Puerto Rico’s colonial relationship with the US. Over the years, the US has treated Puerto Rico as a laboratory for population control, conducted naval war games on the island nation for possible Middle East interventions, and used it as a pre-NAFTA staging ground for corporate megastores to develop consumer bases and exploit low-wage labor.  Puerto Rico’s economic recession was the culmination of decades of US policies that distorted economic development. After the US seized the island from Spain at the turn of the nineteenth century, it began destroying Puerto Rico’s agricultural economy — an informal mix of subsistence farmers and small landowners — by allowing US corporations to buy up most of the arable land.  Designed to enrich US corporations, the economic approach momentarily produced a small middle–class, and throughout the Cold War the US showcased Puerto Rico as an anticommunist alternative to Cuba. Yet because of its colonial status, Puerto Rico was never allowed to negotiate bilateral trade agreements and has had to adhere to fiscal policy directed by the US. While Puerto Rico’s problems are often portrayed as having begun with the 2006 recession, its pattern of borrowing to keep the economy afloat began over thirty years ago. In the 1980s, as the mainland recession dragged down Puerto Rico’s economy, the government began taking out loans from US banks to cover deficits.

Wayne County executive seeks financial emergency declaration - (AP) — Mired under a $52 million structural deficit, local officials asked the state Wednesday to declare a financial emergency in Michigan’s most populous county. The request for Wayne County was made in a letter from county Executive Warren Evans to Michigan Treasurer Nick Khouri. Evans said he wants to enter into a consent agreement with the state that will allow the county to continue negotiations with its stakeholders. Last week, Evans announced an agreement with about 5,000 retirees that will cut their health care benefits while saving the county around $20 million each year. “Our recovery plan provides a clear path to financial stability for the county, but we are keenly aware that our time frame to get the job done is quickly fading,” Evan said in a statement. “Throughout this process we are constantly evaluating where we stand and proactively seeking solutions to work ourselves out of this massive deficit.” The letter outlined some of the county’s financial issues, said Terry Stanton, Treasury spokesman. “The treasurer will review the letter, determining whether or when a preliminary review will start,” Stanton said. A consent agreement would provide for remedial measures to address a financial emergency and may utilize state financial management and technical assistance to help alleviate it. Wayne County has about 1.7 million residents. The county seat is located in Detroit, and Wayne’s financial troubles follow the city’s emergence late last year from the largest municipal bankruptcy in U.S. history.

David Leonhardt Links Two-Parent Families to Low Social Mobility, Without Taking Race and Socio-Economic Status Into Account -- David Leonhardt strikes again. As he now seems to do with some regularity, he takes a complex body of work and reduces it to a soundbite, eliminating the complexity and uncertainty that underlies the research. His soundbite this time links two parent families to upward mobility, and notes that two different dynamics produce two parent families: high income and religion. He then replicates maps that purport to show these linkages.  There are two problems with these single minded linkages. First, the geographic analysis of two parent families and the connection to social mobility is meaningless without taking race into account. The striking thing about Utah, Idaho, the upper Midwest and New England – all areas with relatively low rates of single parent families – is that they have much smaller African-American and Latino populations, and white families tend to have strikingly different demographic patterns than non-white families, in part because of differences in socio-economic status. The second chart Mr. Leonhardt’s column includes captures this point even more effectively. It shows the least social mobility – and some of the highest rates of single parenthood – in a belt that runs through heavily African-American communities, primarily in the South. These communities are as notable for their high rates of poverty, segregation, and isolation. There is sophisticated demographic analysis underlying these figures, but Mr. Leonhardt’s column doesn’t capture it. Instead, he largely dismisses the influence of racial factors, particularly their role in compounding the effects of poverty and isolation, as minor.  Second, the link between single parent families and social mobility raises the question of which comes first – whether the link is a unidimensional one of single parent families causing low social mobility or poor, isolated communities causing low high rates of single parent families. The research on this is somewhat complex. Virtually all studies show that, all other things being equal, two parents are better than one. Yet, the modern examination of upward mobility also indicates that children in single parent families do better in wealthier communities, eliminating much of the disadvantage that comes from single parenthood itself. In a similar fashion, African-Americans, irrespective of family form, do better in integrated communities.

Early Education Gaps by Social Class and Race Start U.S. Children Out on Unequal Footing: A Summary of the Major Findings in Inequalities at the Starting Gate - Understanding disparities in school readiness among America’s children when they begin kindergarten is critically important, now more than ever. In today’s 21st century global economy, we expect the great majority of our children to complete high school ready to enter college or begin a career, and assume their civic responsibilities. This requires strong math, reading, science, and other cognitive skills, as well as the abilities to work well and communicate effectively with others, solve problems creatively, and see tasks to completion. Unfortunately, the weak early starts that many of our children are getting make it hard to attain these societal goals. Since key foundations for learning are established beginning at birth, starting school behind makes it likely that early disadvantages will persist as children progress through school, and last into their adult lives. Knowing which groups of children tend to start school behind, how far behind they are, and what factors contribute to their lag, can help us develop policies to avert the early gaps that become long-term problems. Inequalities at the Starting Gate: Cognitive and Noncognitive Skills Gaps between 2010–2011 Kindergarten Classmates explores gaps by social class and race/ethnicity in both cognitive skills—math, reading, and executive function—and noncognitive skills such as self-control, approaches to learning, and interactions with teachers and peers. We refer to these skills gaps as gaps in school readiness.The paper uses data from the National Center for Education Statistics’ Early Childhood Longitudinal Study, Kindergarten Class, a cohort of students who entered kindergarten in 2010 for the 2010–2011 school year (ECLS-K 2010–2011). The nationally representative sample provides information about the children—their race or ethnicity, socioeconomic status, language spoken at home, etc.—and their experiences in their early years, such as how actively their parents engaged them in enriching activities and whether they received prekindergarten care (see table at right). The analyses focus on the association between these characteristics and children’s readiness for school.

A High School For The Homeless -- 17-year-old Andrea wants to graduate from high school, go to college, and pursue a career. But just hitting the first goal—high school graduation—has often seemed impossible, because Andrea’s family has been homeless on and off since she was 12. For the last five years she has been a student at the Monarch School in San Diego, a school exclusively for homeless children. It’s the largest one of its kind in the nation and the only one that serves high school students. Most homeless students in the U.S. attend regular public schools and federal law allows them to stay in one school even if their family keeps moving. The government’s official counting puts the number of public school children in the U.S. that are homeless at more than 1.2 million—the highest ever on record, according to the National Center for Homeless Education. Thirty percent of them live in California. In San Diego County alone, there are more than 22,000 homeless students in 42 school districts. The lack of programs is a pressing problem for teenagers like Andrea who are transitioning out of high school, says Shahera Hyatt, project director at the California Homeless Youth Project. Her group’s January 2013 action plan, “More Than A Roof: How California Can End Youth Homelessness,” led the state to pass eight new pieces of legislation over the past two years. Still, she said, “There are a handful of programs across the state, but not enough to meet the need. It’s a blind spot.”

Reliable, if not exactly accurate, high school graduation rates -- In January’s State of the Union address, President Obama announced that graduation rates were at an all-time high. Official data from the National Center for Education Statistics (NCES) show the national graduation rate hit 81% in 2012-13, up two percentage points in as many years. Considering how valuable a high school diploma is, the increases in graduation rate are very good news. But NPR is suspicious. In multiple stories last week on All Things Considered and Morning Edition, NPR took a deep and well-rounded look at graduation rates and the (sometimes dubious) means schools are using to get students to graduate high school, or at least to be counted among the graduates. National stories were supplemented by reporting by numerous local affiliates. One of the reports that had traction was a WBEZ report that Mayor Emanuel cited an all-time high 69% graduation rate for Chicago Public Schools (CPS). The report found flaws in CPS accounting on graduation rates, and a day later CPS responded, indicating that it was aware of the problems and is taking steps to correct them. NPR’s reporting raises important questions about these all-time high graduation rates. Are they accurate? Are politicians and school officials playing politics with the numbers? Are graduation rates really at an all-time high? At least for the national statistics, the answers are: No, they are not accurate. No, officials are not playing politics with the numbers. And yes, graduation rates are at an all-time high.

N.J. teachers protest pension payments with county-wide 'blackout'  — Dressed in black, teachers and other public school employees in Hunterdon County lined the paths into their respective buildings this morning, each holding up a number. The numbers — 20, 260, 552, 780 — represent payments into retirement accounts made throughout their employment, and protests stem from the fact that these payments continue without the ability to opt out while the Teachers Pension and Annuity Fund is slated to run out of money in 2027.  According to recent reports, the state's unfunded pension liability, which is the difference between how much money the state has to pay for pensions and how much it owes, is $40 billion, and last week, the state Supreme Court ruled that Gov. Chris Christie could cut $1.57 billion in state payments to the retirement system that had been promised under the governor's 2011 reforms. "It's like going to a restaurant, eating dinner and running out on the check," said Holland Brook School special education aide Jack Kimple, who helped organize the county-wide protest.

Colleges hit with credit downgrades over N.J. financial problems  -- New Jersey's public universities are getting an education this week about the consequences of the state's budget woes, with many being hit with credit downgrades or outlook warnings by Wall Street because of New Jersey's troubled financial situation. Moody's Investors Service downgraded the credit rating of William Paterson University on Monday to A2 on $165 million of debt —a negative rating, although still considered an upper-medium grade and low credit risk. The agency also gave the school a negative outlook. Rutgers University received a negative financial outlook as well, although Moody's made no changes in the ratings on $2 billion of bonds issued by the state's largest public university. The actions come just days after Moody's revised Montclair State University's outlook to negative, and assigned an A1 rating to a planned $72.7million bond issue. It also downgraded New Jersey City University to A3, affecting outstanding $163 million in debt issued through the New Jersey Educational Facilities Authority. And while the agency reconfirmed its current ratings for Rowan University and New Jersey Institute of Technology debt, it similarly gave negative outlooks to both schools.

Chicago Schools Seen as City’s Next Hurdle as Pension Bill Looms - Chicago’s next financial obstacle lies with its school system, which for the first time ever may not have enough cash to make a required payment into its teachers’ retirement fund. As the Chicago Board of Education faces a $634 million pension payment due June 30, yields on some of its bonds are climbing toward records set last month. Officials of the nation’s third-largest school district are also struggling to plug a $1.1 billion deficit for the fiscal year starting July 1 and trying to get out of $228 million of termination payments for derivatives that went awry. Given the demands, the district may fail to make the full pension payment, inflating its retirement-fund shortfall and leaving it vulnerable to more downgrades after its $6.2 billion of debt was cut to junk last month, said Laurence Msall, president of the Civic Federation, a Chicago-based research group that’s tracked the city’s finances since 1929. “Of all the Chicago issuers, CPS seems to be the one that’s struggling the most,” . Charles A. Burbridge, executive director of the teachers’ pension fund, called for the full payment in a statement Wednesday, while noting the “tough choices” confronting the district. Bill McCaffrey, a schools spokesman, didn’t respond to e-mail and phone queries Thursday regarding the payment. Mayor Rahm Emanuel signaled a solution has to come from the state capital. Chicago, with 2.7 million people, gets less pension cash than suburbs and cities downstate, he said.

The Good and Bad Parts of Online Education: Is online education the solution to widening inequality, rapidly rising costs, and lack of access to high quality courses? Will it lead to the demise of traditional “brick and mortar” institutions? I was initially very skeptical about the claims being made about online education, but after teaching several of these course during the past academic year my own assessment has become much more positive.  My main worry, as expressed in a previous column, was that the availability of online courses degrees would create a two-tiered education system and exaggerate inequality instead of reducing it. I still worry about that, but I didn’t give online education enough credit for the things that it can do. Here are some of the positives and negatives of online versus traditional education gleaned from my experience teaching both types of courses. ...

When Guarding Student Data Endangers Valuable Research - There is widespread concern over threats to privacy posed by the extensive personal data collected by private companies and public agencies. Some of the potential danger comes from the government: The National Security Agency has swept up the telephone records of millions of people, in what it describes as a search for terrorists. Other threats are posed by hackers, who have exploited security gaps to steal data from retail giants like Target and from the federal Office of Personnel Management. Resistance to data collection was inevitable — and it has been particularly intense in education.  Privacy laws have already been strengthened in some states, and multiple bills now pending in state legislatures and in Congress would tighten the security and privacy of student data. Some of this proposed legislation is so broadly written, however, that it could unintentionally choke off the use of student data for its original purpose: assessing and improving education.  Data gathering in education is indeed extensive: Across the United States, large, comprehensive administrative data sets now track the academic progress of tens of millions of students. Educators parse this data to understand what is working in their schools. Advocates plumb the data to expose unfair disparities in test scores and graduation rates, building cases to target more resources for the poor. Researchers rely on this data when measuring the effectiveness of education interventions. Last year, parents resisted efforts by the tech start-up InBloom to draw data on millions of students into the cloud and return it to schools as teacher-friendly “data dashboards.” Parents were deeply uncomfortable with a third party receiving and analyzing data about their children.

The Watchdogs of College Education Rarely Bite - Most colleges can’t keep their doors open without an accreditor’s seal of approval, which is needed to get students access to federal loans and grants. But accreditors hardly ever kick out the worst-performing colleges and lack uniform standards for assessing graduation rates and loan defaults.Those problems are blamed by critics for deepening the student-debt crisis as college costs soared during the past decade. Last year alone, the U.S. government sent $16 billion in aid to students at four-year colleges that graduated less than one-third of their students within six years, according to an analysis by The Wall Street Journal of the latest available federal data. Nearly 350 out of more than 1,500 four-year colleges now accredited by one of six regional commissions have a lower graduation rate or higher student-loan default rate than the average among the colleges that were banished by the same accreditors since 2000, the Journal’s analysis shows. “They told me I could build a future there,” says Rachel Williams, 24 years old, who dropped out of Kentucky State University in Frankfort in 2013 because her family couldn’t afford the college anymore and she was losing faith in it. She amassed about $34,000 in federally backed loans. Kentucky State has a graduation rate of just 18%, and nearly 30% of students who began repaying their loans in fiscal 2011 had defaulted within three years. The Southern Association of Colleges and Schools Commission on Colleges reaffirmed Kentucky State’s accreditation in 2009. A preliminary report by the reviewers made no mention of loan defaults and praised Kentucky State for plans to improve its graduation rate.

Who Is Stoking The Trillion Dollar Student Debt Bubble? -- When it became apparent that the US taxpayer would likely be on the hook for the discharge of billions in federal aid awarded to students who had attended Corinthian Colleges (the now defunct for-profit institution that was forced to wind down operations in the face of government scrutiny) critics didn’t so much question whether the government should forgive the loans, but rather why the loans were extended in the first place. Allow us to explain.  There’s a very serious debate raging in America about whether it’s appropriate for the federal government to forgive student loans. Some commentators rightfully assert that when it comes to federal loans made to students who attend public schools — where, even if the education they receive doesn’t exactly prepare them for the jobs market, graduation rates are at least respectable and the admissions process is not riddled with fraud — personal responsibility should be taken into account and borrowers should be expected to pay off their debt.  The argument changes a bit when the conversation shifts to for-profit schools. In many cases, these institutions employ deceptive recruiting practices including falsified graduation and job placement rates to lure students who, once accepted, are encouraged to lie about their circumstances in order to maximize the amount of government aid they’re eligible to receive.These schools live and die by federal student loans as around 90% of students pay for their ‘education’ with debt. And while the government (i.e. the taxpayer) keeps the doors open, CEOs (in many cases the schools are publicly traded) reap millions in compensation.  The government has been aware of this arrangement for years and yet the schools were (and still are) allowed to operate. Because students who attend a school that is deemed to have committed fraud can apply to have their federal loans discharged, the Department of Education is taking an enormous risk by extending billions in credit to students who attend schools that the department likely knows will eventually be shut down.

Why Some Student Debt May Be a Good Thing - The nation’s $1.3 trillion in student debt routinely gets labeled a crisis by politicians and in the media, one of many middle-class issues looming over the 2016 presidential campaign. But a new paper seeks to reframe the discussion, suggesting that a modest level of student debt is actually a good thing. The paper, released Thursday by the centrist Democratic think tank Third Way, uses previous research to show that college students with some amount of education debt are more likely to graduate than those with less or no debt–up to a point. For those who began college in the early 2000s, the subjects of this study, $10,000 was the magic number. Graduation rates improved along with debt up to that level, then decreased as debt increased beyond $10,000. The pattern occurred for students from both poor and wealthy households. (The study does show, however, that wealthier students often withstand higher debt levels and graduate at higher rates than poorer ones.)  The study was done by Rachel Dwyer, an associate professor of sociology at Ohio State University, who previously documented the phenomenon in 2012. Her research, culling data from the Labor Department’s National Longitudinal Survey of 1997,  looked at roughly 2,000 young adults who had graduated college or dropped out by 2007. She said her research doesn’t establish that having some debt necessarily boosts, or “causes,” a person to graduate. But there is a strong correlation. She also said the focus shouldn’t be on the $10,000 figure as the optimal debt load, which has surely changed given the rise in college costs since the recession. Rather, the main takeaway is that graduation rates decline after students acquire a certain level of debt, Ms. Dwyer said. “We should be worrying about the higher levels of debt maybe than we are right now,” she said.

Should Students Voluntarily Default On $1.3 Trillion In Debt? --  One week ago, we highlighted a NY Times op-ed by Lee Siegel, a writer who holds not one, not two, but three degrees from Columbia, including two graduate degrees. Long story short, Siegel accumulated quite a bit of student debt on the way to obtaining three degrees from one of the nation’s top schools, but apparently no one told him that writers (or at least the type of writer he planned on being) don’t generally make a lot of money, and so when Siegel found himself falling behind, he simply decided he would not be repaying his student loans. You see for Siegel, student debt is part of a system that’s “legal but not moral.” It’s “absurd that one [can] amass crippling debt as a result, not of drug addiction or reckless borrowing and spending, but of going to college.”   Of course, one might easily argue that taking out three large loans to fund three degrees from Columbia, none of which promise high-paying jobs, is the very definition of “reckless borrowing and spending.”  But there’s no inherent injustice in the fact that writers are not, on average, paid as much as petroleum engineers. It is Siegel’s right to choose what he wants to study and thereby what vocation he wants to dedicate his life to. If that’s writing, so be it. That’s great. It is however, society’s right to determine how much Siegel’s writing is worth. If that determination leaves Siegel unable to service his debt, he does not have the right to punish society for how they valued his work by forcing taxpayers to take a loss on his student loans.

Hedge-Fund Bet Hits Pensions - WSJ: U.S. companies from Ford Motor Co. F -0.69 % to supermarket chain Kroger Co. KR 0.11 % have boosted their pension plans’ bets on hedge funds, a shift that left many of them on the short end of a stock-market rally. Large corporate pension funds have quadrupled the share of their portfolios invested in hedge funds over the past five years, according to an analysis of about 300 firms in the S&P 500 by Wilshire Consulting. During that period, those pensions have lagged behind the performance of the broader stock market in every year but one, according to Wilshire. Their return of 9.7% in 2014 was below 13.7% for the S&P 500, including dividends. Private-sector pension funds now account for nearly one of every five dollars invested globally by institutional investors in hedge funds, leaping ahead of banks, endowments and insurers to become the second-largest buyer behind only public pension funds, according to Preqin, which tracks pension investments. Just four years ago, private pension funds were in a tie for fifth.  The move into hedge funds has its roots in the 2008 financial crisis, when pension funds suffered heavy losses from their investments in stocks. Many managers piled into bonds and other investments, including hedge funds, deciding they would provide better protection against future downturns because their strategies are designed to insulate investors from the variability of the stock market. But, buoyed by aggressive stimulus from central banks and ultralow interest rates, stocks embarked on a multiyear rally. That meant managers who moved money out of equities and into hedge funds and other investments have missed out on gains. According to Wilshire data comparing 2009 with 2014, total equity as a percent of corporate-pension portfolios fell from 54.1% to 44.7%; total fixed income rose from 34% to 40.8%; hedge funds went from 0.8% to 3.2%.

No, pensions didn’t “miss the rally” because of hedge funds - There are many good reasons not to invest in hedge funds. But there are also bad reasons, one of which was highlighted today in the Wall Street Journal: Large corporate pension funds have quadrupled the share of their portfolios invested in hedge funds over the past five years, according to an analysis of about 300 firms in the S&P 500 by Wilshire Consulting. During that period, those pensions have lagged behind the performance of the broader stock market in every year but one, according to Wilshire. Their return of 9.7% in 2014 was below 13.7% for the S&P 500, including dividends.To see why this reasoning is silly, it helps to take a step back, and remember that defined-benefit pensions are just another kind of financial intermediary. Like insurers and banks, they make a bunch of promises to some people that they expect to fulfill by extracting a bunch of promises from other people.  If you have a promise from a financial intermediary, you would obviously prefer that the promises other people made to the intermediary perfectly match what you are expecting for yourself. That way you have no reason to worry about getting what you’re owed. Conversely, if you are an owner or employee of the intermediary, you would prefer to create a mismatch between your assets and liabilities.  If you can create a mismatch between your assets and liabilities you can make money for yourself and your owners, at least some of the time. In the best case, creatively investing an insurance company’s float can make you rich like Buffett. For DB pension plans, the appeal of risky asset portfolios is that they can reduce the amount that sponsors — whether they’re private companies or local governments — need to contribute to ensure that retirees get what they have been promised.

When Private Equity Firms Give Retirees the Short End - Who comes first, the investors or the person who manages their money?That question is crucial for any investor. But it poses a special challenge for retired firefighters, police officers, teachers and other employees who may not know that their retirement money is being held in private equity funds.These are opaque and costly investment vehicles that borrow money to buy companies and sell them, ideally, for a profit. The secrecy under which this $3.5 trillion industry operates has essentially required millions of people whose pensions are invested in these funds to simply trust that they are being treated fairly.Yet the funds impose fees under terms that create conflicts of interest between investors and general partners who run private equity firms. A little-known practice involves discounts that the firms obtain from lawyers and auditors but do not always share fully with investors. A dive into regulatory filings over the last month revealed that 12 private equity firms said they had actual conflicts of interest in connection with such discounts, while 29 more described potential conflicts. Altogether, the 41 firms oversee almost $600 billion in client assets, documents show. The disclosures appear in documents the firms filed with the Securities and Exchange Commission as registered investment advisers. For example, Carlyle Investment Management, the $113 billion firm led by David M. Rubenstein, states that in certain circumstances, lawyers, auditors and other vendors charge Carlyle rates that are better than those charged to its investors. As a result, Carlyle receives “more favorable rates or arrangements than those payable by advisory clients or such portfolio companies,”. The implications of such arrangements seem troubling: Wealthy private equity funds receive discounts on legal, accounting and other outside work while pension fund investors, like retired bus drivers, librarians and teachers, pay full freight or, in some cases, a premium.

Forcing Workers to Save Just 3% Won’t Solve the Retirement Crisis, EBRI Says -- Making Americans save 3% of their paychecks for retirement wouldn’t be enough to cover their savings shortfall, says a new report today from the Employee Benefit Research Institute. It’s no secret Americans struggle to save. According to the Federal Reserve’s latest Survey of Consumer Finances, only 49.2% of American families had a retirement account in 2013, down from 50.4% in 2010, in part because it’s not easy to make a conscious decision every month to set aside part of your paycheck. In response, behavioral economists have called for making retirement savings automatic rather than voluntary. The thinking is that a program automatically deducting money from paychecks and putting it into individual retirement accounts forces people to save, better preparing them to retire. The idea has been warmly received by the Obama administration and state governments, several of which are working to put in place programs that would automatically deduct money from workers who do not have retirement plans at work. EBRI, a nonpartisan think tank, modeled savings behavior by age group and employer size and found that an automatic 3% deduction without the possibility of opting out would reduce the total retirement savings shortfall for households headed by someone ages 35 to 64 by 6.5%, from $4.13 trillion to $3.86 trillion. The report says it settled on a 3% rate because “an employee contribution this low may be a political necessity in hopes of passage of the original iteration of an auto-IRA programs.”

Doing More, Not Less, to Save Retirees From Financial Ruin - Just over 10 years ago, researchers at the University of Michigan added three questions to their Health and Retirement Study, a biennial survey of Americans over 50:  The results were not encouraging: Only one-third of respondents answered all three questions right. These were adults who had been making financial decisions most of their lives. They had experienced high inflation, not once, but twice. And yet only about half correctly answered both the question about inflation and the one on compound interest.  Financial illiteracy is not limited to the 50-plus set. And it has not improved much over the last decade. It underscores just how much the political debate over how to prepare for the aging of the population has misunderstood what is at stake.Consumed in political argument over the demographic pressure on Social Security, we have bypassed a much more consequential threat: For the first time in generations, a large number of older Americans can expect to suffer a sharp drop in living standards in retirement. In this light, the standard conservative prescription to address the stress on Social Security — taking it off the government’s books and handing control to individual workers — would only compound the problem for most retirees.  Preventing a demographic catastrophe may require, instead, taking more of the decisions out of workers’ hands. That might require enhancing Social Security rather than limiting it. Or it might require employers to take back more of the responsibility for employee’s retirement savings.

46 Doctors And Nurses Busted In Massive $712 Million Medicare Fraud Scandal - The FBI has arrested 46 doctors and nurses across the country for their part in a massive $712 million Medicare scam. In one of the arrests owners of a mental health facility in Miami billed tens of millions of dollars for psychotherapy sessions based on treatment that never occurred. In many cases, the health professionals simply moved patients to other facilities. that was little more than moving patients to different locations, said Attorney General Loretta Lynch. In another arrest, four people were charged with mass-marketing a talking glucose monitor and sending the devices to Medicare patients across the country. Those patients didn’t need or request the devices. The arrested individuals billed Medicare for the devices and received more than $22 million. In several cases, healthcare providers paid kickbacks to fraudsters who helped them obtain the names and other information for Medicare patients’ personal information. Some of the fraudsters are referred to as “patient recruiters.” They were responsible for going to homeless shelters and soup kitchens in search of potential patients who would accept money in exchange for their Medicare numbers. In Los Angeles, a doctor was charged with billing $23 million for 1,000 power wheelchairs and home health services for people who did not require such devices or care. A Florida health care provider received $1.6 million for Medicare prescription drugs that were never purchased or dispensed.

Health Care Fraud Takedown: 243 Arrested, Charged with $712 Million in False Medicare Billings --  More than 240 individuals—including doctors, nurses, and other licensed professionals—were arrested this week for their alleged participation in Medicare fraud schemes involving approximately $712 million in false billings. The arrests, which began Tuesday, were part of a coordinated operation in 17 cities by Medicare Fraud Strike Force teams, which include personnel from the FBI, the Department of Health and Human Services (HHS), the Department of Justice (DOJ), and local law enforcement.   At a press conference today at DOJ Headquarters in Washington, D.C., officials said the arrests constituted the largest-ever health care fraud takedown in terms of both loss amount and arrests. “These are extraordinary figures,” said Attorney General Loretta Lynch. “They billed for equipment that wasn’t provided, for care that wasn’t needed, and for services that weren’t rendered.” The charges are based on a variety of alleged fraud schemes involving medical treatments and services. According to court documents, the schemes included submitting claims to Medicare for treatments that were medically unnecessary and often not provided. In many of the cases, Medicare beneficiaries and other co-conspirators were allegedly paid cash kickbacks for supplying beneficiary information so providers could submit fraudulent bills to Medicare. Forty-four of the defendants were charged in schemes related to Medicare Part D, the prescription drug benefit program, which is the fastest growing component of Medicare and a growing target for criminals.

Report: Health Care Costs Could Quadruple For 1.3M Floridians If Court Ends Subsidies --The U.S. Supreme Court will soon decide on the constitutionality of the subsidies people get to help pay for insurance on The health care access advocacy group, Families USA, looked at the data from Florida and other states that opted not to set up their own health care exchanges to see how many people could lose that help. Executive director Ron Pollack says the number is fairly staggering. “Florida is the state that has the largest number of people who are at risk of losing subsidies,” Pollack said. “All together in the 27 congressional districts, the number of people at risk is 1,325,000 people.” Pollack says the average subsidized premium in Florida is around $82 a month. Without the subsidy, he says, the cost would be 4 ½ times higher. “If they lost these subsidies, it would increase to $376 a month,” Pollack said. “In other words, individuals would be paying on average $294 more per month.” The numbers in the report come from the U.S. Department of Health and Human Services.

Economists predict shockwaves if Obamacare subsidies are nixed -  As the U.S. Supreme Court prepares to rule on whether people in 34 states can continue to receive Obamacare health insurance subsidies, economists are projecting billions of dollars in lost healthcare spending for hospitals, drugstores and drugmakers if the justices say the payments are illegal. The immediate consequences of such a ruling would fall on the 6.4 million people who receive the subsidies and live in states that did not establish their own insurance exchanges under President Barack Obama’s healthcare law, instead relying on the federal website. The case, known as King v Burwell, would not affect subsidies in the District of Columbia or in the 13 states that run their own exchanges. The decision is expected sometime this month. Health economists calculate the economic impact of a ruling against the subsidies in different ways, but one thing many agree on is that about two-thirds of people who receive subsidies through would drop their insurance altogether rather than foot the entire bill. Businesses that have benefited from spending by the newly insured would take a hit, though estimates of the lost revenues vary significantly based on which assumptions are built into the calculation.

Surprise Bills for Many Under Health Law - WSJ: Many consumers with health coverage through the Affordable Care Act are facing unexpected medical bills that in some cases greatly exceed the law’s caps on out-of-pocket expenses. The law’s limits don’t apply to charges from out-of-network providers, and many insurance plans sold on ACA exchanges have limited networks—amplifying the risk of surprise bills. Health plans offered by employers also have been slimming down the number of doctors and hospitals in their networks. But what have come to be known as narrow networks are more prevalent in plans offered on the health law’s exchanges, one tactic insurers are using to curtail costs because they can’t exclude consumers with existing medical conditions. When Arturo Paramo, a 50-year-old construction worker, experienced chest pains last year, he was admitted to St. Francis Hospital in Bartlett, Tenn., after a doctor sent him there following an electrocardiogram. His wife, Bainey, said they weren’t told the hospital in suburban Memphis didn’t accept her family plan. They got a $22,945 bill—above the ACA’s $12,700 cap for a family plan in 2014—in the mail.  Under the ACA, patients generally can’t be charged higher coinsurance or copayments for out-of-network emergency-room services—but they can be charged for the amount insurance doesn’t cover, which could be thousands of dollars. The law caps out-of-pocket costs in 2015 at $6,600 for an individual and $13,200 for a family. But that doesn’t apply to out-of-network providers who charge patients for the part of bills that their insurance doesn’t pay.

Why Are The 2016 Obamacare Rate Increases So Large? - Forbes: You might recall that I have said we wouldn’t see the real Obamacare rates until the 2017 prices are published in mid-2016. By then health plans will finally have had a couple of years of credible claim data and two of the three “3 Rs” reinsurance provisions subsidizing the insurance companies will have gone away. I have also made the argument that after two years the Obamacare enrollment is coming up way short of what it needs for us to be assured that we have a sustainable risk pool—enough healthy people signed up to pay the costs for the sick. Instead of moderate rate increases for one more year, the big rate increases have begun. They are particularly large among the health insurers with the most enrollment—the carriers with the most data. Texas Blue Cross stands out. The health plan commented in its federal government rate filings that it covered 730,833 Obamacare individuals in 2014 with premium of $2.1 billion and claims totaling $2.5 billion––for a medical loss ratio of 119%. The plan further commented that, after the “3Rs” reinsurance adjustments, they lost 17% to 20% of premium in 2014–that would be about $400 million. And, they are only asking for a 20% rate increase. While we won’t see all of the rates in all of the states for a few months, some state regulators have begun to make the 2016 rate actions public:

Why America’s $2.9 Trillion Medical Industry Still Runs on Paper Payments - Dealing with medical bills, like waiting for the cable guy or buying a used car, has become a cliché of consumer exasperation. Everything from electricity and phone bills to tax returns and parking tickets migrated to electronic payments years ago, but America's $2.9 trillion health-care economy remains stubbornly stuck in the 1990s. The number of medical bills paid by paper check through the U.S. mail has even increased while payments for all other services have decreased dramatically. Medical payments are the only category to register an increase in paperwork since the start of the 21st century: It’s not just consumers who are paying by mail. Just 15 percent of commercial insurers make payments to medical providers electronically, according to a report last month from PricewaterhouseCoopers Health Research Institute. The largest insurers are usually the best at going digital, but Cigna, with 14.5 million customers, sends only 39 percent of payments electronically. That's because many doctors aren't signed up to receive electronic transfers, according to spokesman Joe Mondy. Aetna and UnitedHealth Group, in contrast, both say around 80 percent of payments are paperless. Hospitals, medical offices, and insurance companies need an army of workers to push all that paper1, which is also frequently shuffled through middlemen like billing agencies2 and clearinghouses3. One claims clearinghouse, Emdeon, which handles paper billing for many of its health plan clients, spent $87 million4 on postage alone in the first three months of 2015—nearly a quarter of its total revenue—according to financial filings. All this bureaucracy pushed the cost of administering private insurance to $173 billion5 in 2013, according to federal data But there’s also the human cost of sending people piles of indecipherable paperwork as they’re recovering from an illness or operation. “You pull your hair and you get frustrated. You don’t understand why it’s all paper and it’s all phone calls and you waste time and you get confused, and it’s all so broken,”

The American Medical Association is finally taking a stand on quacks like Dr. Oz --Medical students and residents frustrated with bogus advice from doctors on TV have, for more than a year, been asking the American Medical Association to clamp down and "defend the integrity of the profession." Now the AMA is finally taking a stand on quack MDs who spread pseudoscience in the media.  "This is a turning point where the AMA is willing to go out in public and actively defend the profession," Benjamin Mazer, a medical student at the University of Rochester who was involved in crafting the resolution, said. "This is one of the most proactive steps that the AMA has taken [on mass media issues]." The AMA will look at creating ethical guidelines for physicians in the media, write a report on how doctors may be disciplined for violating medical ethics through their press involvement, and release a public statement denouncing the dissemination of dubious medical information through the radio, TV, newspapers, or websites. The move came out of the AMA's annual meeting in Chicago this week, where representatives from across the country vote on policies brought forward by members of the medical community.

National Center for Public Policy Research Defends Trans Fats - A conservative Washington think tank that opposed a federal ban of trans fats has also actively campaigned against climate science and environmental regulation, and is funded by secret donors. The government on Tuesday announced a ban of industrial partially hydrogenated oils, the primary source of artificial trans fats, giving food manufacturers three years to remove them from their products. Food and Drug Administration acting commissioner Stephen Ostroff said the ban “is expected to reduce coronary heart disease and prevent thousands of fatal heart attacks every year.”  Five European countries already ban trans fats. California and several U.S. cities, including New York City, ban them in restaurant food.  But the federal ban had its opponents. The National Center for Public Policy Research (NCPPR), which identifies itself as a “non-partisan, free-market, independent conservative” think tank, campaigned against it, calling it a “horrible idea.” The NCPPR argued that the solution to minimizing trans fats in foods is to allow the free market to operate.

Fixing America’s mental health system -- Congress has been given another opportunity to fix the nation’s broken mental-health system, thanks to the bipartisan efforts of Representatives Tim Murphy (R., Pa.) and Eddie Bernice Johnson (D., Tex.). Murphy, the only psychologist in Congress, and Johnson, the only psychiatric nurse in Congress, understand the depths to which public psychiatric services have descended and are determined to do something about it. On June 4, they introduced the Helping Families in Mental Health Crisis Act, HR-2646.  The legislation contains a broad range of solutions, including addressing the shortage of psychiatric beds in community hospitals and expanding the mental-health workforce. It also proposes improvements in federal privacy laws to make it easier for families and law-enforcement officials to get the information they need to help individuals with severe psychiatric disorders. Perhaps most important, the bill proposes the creation of an assistant secretary for mental health in the Department of Health and Human Services (HHS). To ensure that someone competent assumes this post, the secretary of HHS will appoint the new administrator with the advice and consent of the Senate. Only a psychiatrist or a psychologist with clinical and research experience in mental illness and substance-use disorders will be eligible to fill the position. These protections should ensure quality federal leadership, which, at this time, is woefully lacking.

Experts Fault South Korean Response to MERS Outbreak - The South Korean government’s failure to share information quickly with the public and establish an efficient disease-control system contributed to worsening the outbreak of Middle East respiratory syndrome in the country, a joint panel of experts from the World Health Organization and South Korea said Saturday.  The experts have spent the past week visiting hospitals and meeting with health authorities to assess the outbreak, which has killed 14 people, and make recommendations. “One of the things South Korea failed to do was a transparent and rapid distribution of information, which is the most important thing to do,” A “failure to establish proper governance” in controlling the outbreak in its early stages also contributed to “confusion” among the public, Mr. Lee said.The disease, known as MERS, is known to have infected 145 people in South Korea since the first patient was identified on May 20. The outbreak is the largest to date outside the Middle East, where the virus first emerged in 2012 in Saudi Arabia and has killed more than 400 people.One of the tasks of the joint mission was to determine why so many people were infected in South Korea in a relatively short period of time. On Saturday, Keiji Fukuda, chief World Health Organization official on the panel, pointed to several factors: South Korean doctors’ unfamiliarity with MERS; the country’s “overcrowded” emergency rooms; the practice of “doctor shopping” for care at many different clinics; and the fact that hospital rooms here tend to be bustling with visitors. Nearly all of the country’s confirmed MERS patients were infected while seeking care or while visiting patients at hospitals. Hospital staff members were also infected.

Thailand confirms first MERS case - (Xinhua) -- Thailand's public health ministry on Thursday confirmed the country's first case of the Middle East Respiratory Syndrome (MERS). Lab results have confirmed the virus contracted by a 75-year- old man who came from a Middle East country to Thailand to have his heart condition treated, Public Health Minister Rajata Rajatanavin said. The infectee came from Oman, according to deputy government spokesperson Sansern Kaewkamnerd. The man, who is now being treated at an infectious diseases institute in central Nonthaburi province, is in stable condition, the ministry said. Another 59 people who had contact with the infectee are also being monitored, including three of the patient's family members who traveled to Thailand with him, several from the hotel where he used to stay, hospital workers, as well as those who sat near him on the plane, the minister said. After the disclosure of the case, Thai Prime Minister Prayut Chan-o-cha urged the public not to panic and follow advice from health authorities, Sansern said.

Thailand confirms its first case of MERS - (CNN) Thailand has confirmed its first case of MERS, representing a further spread of the deadly respiratory disease from the Middle East to eastern Asia, Thai Public Health Minister Rajata Rajatanavin said Thursday. A man was diagnosed with MERS after he traveled to Thailand from a Middle Eastern country on June 15, Rajatanavin said. He was being treated in a private hospital in Bangkok on Thursday where his condition was said to be stable. Thailand would be the 26th country with confirmed Middle East respiratory syndrome cases since the disease was identified in Saudi Arabia in 2012. The patient was in Thailand to receive treatment for heart disease, and was taken to the hospital when he displayed flu-like symptoms. The disease continues to claim lives in South Korea, where officials announced a further death in the country's outbreak Friday, raising the total death toll to 24. But Kwon Deok-cheol, an official with Ministry of Health and Welfare leading MERS task force, told reporters at a press conference that the outbreak had "leveled off." "Looking at the currently trend, we have judged that situation has leveled off," said Kwon. "But as I've mentioned earlier, we need to watch for further spread."

Industry’s Growth Leads to Leftover Embryos, and Painful Choices -  After years of infertility, Angel and Jeff Watts found a young egg donor to help them have a baby. They fertilized her eggs with Mr. Watts’s sperm and got 10 good embryos. Four of those embryos were transferred to Ms. Watts’s womb, resulting in two sets of twins — Alexander and Shelby, now 4 years old, and Angelina and Charles, not yet 2.But that left six frozen embryos, and on medical advice, Ms. Watts, 45, had no plans for more children. So in December she took to Facebook to try to find a nearby Tennessee family that wanted them.In storage facilities across the nation, hundreds of thousands of frozen embryos — perhaps a million — are preserved in silver tanks of liquid nitrogen. Some are in storage for cancer patients trying to preserve their chance to have a family after chemotherapy destroys their fertility. But most are leftovers from the booming assisted reproduction industry, belonging to couples like the Wattses, who could not conceive naturally.And increasingly families, clinics and the courts are facing difficult choices on what to do with them — decisions that involve profound questions about the beginning of life, the definition of family and the technological advances that have opened new reproductive possibilities. Since the first American “test tube” baby was born in 1981, in vitro fertilization, at a cost of $12,000 or more per cycle, has grown to account for more than 1.5 percent of all United States births. The embryos with the greatest chance of developing into a healthy baby are used first, and the excess are frozen; a 2002 survey found about 400,000 frozen embryos, and another in 2011 estimated 612,000. Now, many reproductive endocrinologists say, the total may be about a million

Scans Show Psychopaths Have Brain Abnormalities -- New research shows that psychopathy appears to be linked to specific structural abnormalities in the brain. The study, published in the Archives of General Psychiatry and led by researchers at King’s College London, also confirmed that psychopathy is a distinct sub-group of antisocial personality disorder (ASPD), said Nigel Blackwood, M.D., from the College’s Institute of Psychiatry and lead author of the study. He noted that most violent crimes are committed by a small group of male offenders with ASPD, but only about a third of these men are true psychopaths (ASPD+P). Psychopaths are characterized by a lack of empathy and remorse, and use aggression in a planned way to secure what they want, whether it is status or money. Previous research has shown that psychopaths’ brains differ structurally from healthy brains. But until now, none have examined these differences within a population of violent offenders with ASPD, Blackwood said. “Using MRI scans we found that psychopaths had structural brain abnormalities in key areas of their ‘social brains’ compared to those who just had ASPD,” he said.

Air pollution may contribute to white matter loss in the brain -- In a new study, older women who lived in places with higher air pollution had significantly reduced white matter in the brain. For the study, a research team took brain MRIs of 1403 women who were 71 to 89 years old and used residential histories and air monitoring data to estimate their exposure to air pollution in the previous 6 to 7 years. The findings suggest that ambient particulate air pollutants may have a deleterious effect on brain aging. "Investigating the impact of air pollution on the human brain is a new area of environmental neurosciences. Our study provides the convincing evidence that several parts of the aging brain, especially the white matter, are an important target of neurotoxic effects induced by long-term exposure to fine particles in the ambient air," said Dr. Jiu-Chiuan Chen, lead author of the Annals of Neurology study.

MRSA superbug found in supermarket pork raises alarm over farming risks -- Pork sold by several leading British supermarkets has been found to be contaminated with a strain of the superbug MRSA that is linked to the overuse of powerful antibiotics on factory farms, a Guardian investigation has revealed. Livestock-associated MRSA CC398, which originates in animals, has been found in pork products sold in Sainsbury’s, Asda, the Co-operative and Tesco. Of the 100 packets of pork chops, bacon and gammon tested by the Guardian, nine – eight Danish and one Irish – were found to have been infected with CC398. CC398 in meat, which poses little risk to the British public, can be transmitted by touching infected meat products or coming into contact with contaminated livestock or people, although it can be killed through cooking. Many people carry the bacteria without any signs of illness, but some have developed skin complaints, and the bug can cause life-threatening infections, including pneumonia and blood poisoning. Experts warn that the superbug has emerged as a result of antibiotic use in intensive farming and there is evidence that the UK could be at risk of a wider health crisis unless the issue is tackled by the authorities.The superbug CC398 is a variant of the more commonly known MRSA found in hospitals and is endemic in pig farms in some European countries, particularly Denmark, Europe’s biggest pork producer and a key exporter to the UK. The Guardian tested 74 Danish pork products and 25 British, and one from Ireland. CC398 is linked to intensive farms, where the density of pigs crowded together becomes a flashpoint for disease, and farmers become reliant on antibiotics to keep animals healthy and alive. This has led to the emergence of CC398, which is resistant to antibiotics. Two thirds of Denmark’s pig farms are currently infected with CC398, where it is spreading rapidly: 648 people were infected with CC398 in 2013; in 2014, 1,271 people contracted the bug. Of those infected two people died as a result of the infection, and many suffered serious blood poisoning.

Pope Francis Slams GMOs and Pesticides for Environmental and Social Damage - Pope Francis slams both GMOs and pesticides in a draft of his major environmental document that was leaked Monday. He has also called for the financing of independent and interdisciplinary research to study GMOs.On the subject of GMOs Pope Francis states; “It is difficult to give an overall judgment on the development of genetically modified organisms (GMO), plant or animal, for medical purposes or in agriculture, since they can be very different and require different considerations.” He continues; “Although we do not have definitive evidence about the damage that transgenic cereals could cause to humans, and in some regions their use has produced economic growth that has helped solve some problems, there are significant problems that should not be minimized. In many areas, following the introduction of these crops, there has been a concentration of productive land in the hands of the few, due to the gradual disappearance of small producers, who, as a consequence of the loss of cultivated land, have been forced to retreat from direct production. “The most fragile among them become temporary workers and many farm workers migrate to end up in miserable urban settlements. The spread of these (GM) crops destroys the complex web of ecosystems, decreases diversity in production and affects the present and the future of regional economies. In several countries there is a trend in the development of oligopolies in the production of seeds and other products needed for cultivation, and the dependence deepens when you consider the production of sterile seeds, which end up forcing farmers to buy (seeds) from producers.”

France Bans Monsanto’s Roundup As Environmental Groups Push WHO for Stronger Safety Standards --What’s a GMO-promoting multinational chemical company to do? Word is getting out that, while the science isn’t clear whether genetically modified crops (GMOs) themselves are harmful, the fact that they were created to be resistant to increasing amounts of pesticides such as glyphosate is a problem. Monsanto, which manufactures the glyphosate weedkiller Roundup, reacted furiously to a report released earlier this year by the World Health Organization (WHO) that glyphosate likely causes cancer. The company demanded that WHO retract the report, repudiating the years of research by multiple scientists. With Roundup the most widely used and top-selling herbicide, Monsanto clearly has a bottom line to protect.That bottom line has just taken another hit. In Europe, where people are far more suspicious of the extravagant claims and potential dangers of GMOs than in the U.S. and heavily regulates them, the French government has announced this week that it is restricting the sale of glyphosate weedkillers in garden centers. France’s action comes as a coalition of environmental groups sent WHO a letter urging it to set safety standards for glyphosate weedkillers. The group, which includes the Natural Resources Defense Council, Friends of the Earth U.S., Friends of the Earth Europe, the Center for Biological Diversity, the Center for Food Safety, Pesticide Action Network of North America, Pesticide Action Network UK, Food & Water Watch and Toxic Free North Carolina, expressed concern that the eight-member expert advisory committee reviewing WHO’s glyphosate/cancer report includes three panelists who have ties to the chemical industry, including Monsanto.

Endgame for glyphosate? The global fallout of WHO's 'probable carcinogen' classification - WHO's official recognition of the health damage caused by glyphosate, the world's most widely used herbicide, is having ramifications around the world, writes Dr Eva Sirinathsinghji. National governments are moving to restrict the chemical, campaigns to ban it are intensifying, and now 'Roundup Ready' GMO crops are coming under the regulatory spotlight.  Could it be that the World Health Organisation's classification of glyphosate as a 'probable carcinogen' (see [1] Glyphosate 'Probably Carcinogenic to Humans' Latest WHO Assessment, SiS 66) will be the final nail in the coffin for the world's most popular herbicide and Monsanto's flagship product.Recent weeks have seen the intensification of campaigns to ban or remove the product as well as lawsuits being filed against Monsanto; in the US for false safety claims of glyphosate, and in China, for hiding toxicity studies from the public.El Salvador has already banned the chemical though yet to be signed into law [2], while the Netherlands last year banned private sales [3]. Sri Lanka had a partial ban in place in regions most afflicted by chronic kidney disease that has been linked to glyphosate use (see later).

GMOs and the Neoliberal Apologists - Monsanto is often called one of the most ‘evil’ companies on the planet. It has a history of knowingly contaminating the environment and food with various poisons, cover ups and criminality (see this, outlining the company’s appalling history). In recent times, there has been much focus on its promotion and patenting of GMOs, the deleterious impacts of its glyphosate-based herbicide Roundup and how GMOs pose a threat to human and animal health, ecology and the environment (see this, for example). Campaigners and activists have described how global agribusiness players like Monsanto are threatening food security and food democracy. Monsanto and others have been able to capture or unduly influence government regulatory/policy agendas, important trade deals and global trade policies via the WTO. Monsanto is a major player and wields enormous political influence and receives significant political support.  While it is laudable and correct to highlight the actions of Monsanto and indeed its partners like The Gates Foundation, we should not be side tracked from developing a wider analysis to understand the underlying forces that drive companies like Monsanto. A recent piece by Christina Sarich shows that any shares held by Gates or the individuals at the top of the Monsanto corporate structure like CEO High Grant or CTO Robb Fraley are dwarfed by those held by institutional shareholders, such as Vanguard, Capital Research and State Street. While it is difficult to specify the individuals behind these entities and others like them, the name Rothschild crops up time and again along with Goldman Sachs, Loebs Kuhn, Lehmans, Rockefeller, Warburg, Lazard and Israel Moses Seif. Moreover, the eight largest US financial companies (JP Morgan, Wells Fargo, Bank of America, Citigroup, Goldman Sachs, US Bancorp, Bank of New York Mellon and Morgan Stanley) are entirely controlled by 10 shareholders and four companies appear as shareholders in these many of these: Black Rock, State Street, Vanguard and Fidelity.

U.S. agrees to pay millions for Agent Orange claims — Ending years of wait, the government agreed today to provide disability benefits to as many as 2,100 Air Force reservists and active-duty forces exposed to Agent Orange residue on airplanes used in the Vietnam War. The new federal rule, approved by the White House Office of Management and Budget, takes effect Friday. It adds to an Agent Orange-related caseload that already makes up 1 out of 6 disability checks issued by the Department of Veterans Affairs. The expected cost over 10 years is $47.5 million, with separate health care coverage adding to the price tag. “Opening up eligibility for this deserving group of Air Force veterans and reservists is the right thing to do,” VA Secretary Bob McDonald said in a statement. His office held a series of private meetings with veterans’ organizations and lawmakers today to discuss ways to expedite the delivery of benefits, including to surviving spouses. The new federal rule covers an expanded group of military personnel who flew or worked on Fairchild C-123 aircraft in the U.S. from 1969 to 1986 and were believed to have been exposed to Agent Orange residue. The planes had been used to spray millions of gallons of the chemical herbicide during the Vietnam War.

The Blight Of The Honeybee - The American honeybee is in peril, you might have heard, if you are the sort of person who likes a ghost story. In the last year, beekeepers lost 42 percent of their colonies, another peak in a string of mass die-offs on the scale of plagues: In the last five years, die-offs have hit 34 percent, 46 percent, 29 percent, and 36 percent. That’s more than one in every three colonies each year — whole impeccably networked societies, as big as small cities. In many areas, the figures were worse, and it was hard not to wonder how a species in crisis could possibly sustain annual regional losses as high as 60 percent without fast approaching extinction. “What are we doing on bees?” the president has been said to interject at the end of Oval Office meetings. “Are we doing enough?” It’s been a long decade for bees. We’ve been panicking about them nonstop since 2006, when beekeeper Dave Hackenberg inspected 2,400 hives wintering in Florida and found 400 of them abandoned — totally empty. American beekeepers had experienced dramatic die-offs before, as recently as the previous winter in California and in regular bouts with a deadly bug called the varroa mite since the 1980s. But those die-offs would at least produce bodies pathologists could study. Here, the bees had just disappeared.  The reports of bee death were especially distressing for what they seemed to portend: climate-change disaster. There was the feeling that this was a sort of environmental early-warning alarm — an intuition, many bee lovers point out, that draws on literally millennia of old-world mythology of bees as seers. The president was one of those who entertained the bee prophecy. As Obama adviser John P. Holdren told the Washington Post, the president was worried about what he called the “canary in the coal mine” phenomenon, at a time when the biosphere seems on the verge of spinning out of control: “If honeybee colonies are collapsing for a reason we don’t understand, what is that telling us?”

Industrial Agriculture Is a Threat to World Food Supply - Bigger is not always better. As Wall Street banks and big box stores such as Walmart have shown, bigger is often worse. The list of industries that have consolidated into national and global cartels is long and growing, and so is their collateral damage. In general, this trend - accelerated by trade agreements such as the proposed Trans-Pacific Partnership - means an increase in the exploitation of labor. It also means an expansion of unregulated practices that lead to global warming, and an elimination of small businesses. A column this spring in Dollars & Sense details how Big Agriculture - which includes ancillary industries, such as pesticides and seeds - sells itself as a route to creating more and safer food for a growing population. In reality, however, as Professor John Ikerd points out in Dollars & Sense, "everywhere we look, we can see the failure of the grand experiment of industrial agriculture": Agricultural industrialization has had a devastating effect on the quality of rural life. Industrial agriculture has replaced independent family farmers with a far smaller number of farm workers, most of whom are paid poorly. In 1960, farmers were still more than 8% of the U.S. workforce. They are less than 1% today. Rural communities have suffered both economically and socially from this loss of traditional farm families. More than 50 years of research demonstrates that communities supported by small to mid-size family farms are better places to live, both economically and socially, than are communities dependent on large farming enterprises. Perhaps most important, industrial agriculture has failed in its most fundamental purpose: providing food security. The percentage of "food insecure" people in the United States is greater today than during the 1960s—early in the current phase of agricultural industrialization.... Furthermore, the industrial food system is linked to a new kind of food insecurity: unhealthy foods.

Are Locavores a Threat to Feeding the Planet Efficiently? -- Food produced on small farms close to where it is consumed—or “local food” for short—accounts for only about 2% of all the food produced in the United States today, but demand for it is growing rapidly. According to the U.S. Department of Agriculture, sales of food going directly from farmers’ fields to consumer’s kitchens have more than tripled in the past twenty years. During the same period, the number of farmers’ markets in the United States has quintupled, and it’s increasingly easy to talk about “CSAs”—community-supported agriculture operations where consumers pay up front for a share in the season’s output—without explaining the acronym. But as local food has grown, so have the number of critics who claim that locavores have a dilemma. The dilemma, prominently argued by Pierre Desrochers and Hiroko Shimizu in their 2012 book The Locavore’s Dilemma: In Praise of the 10,000-mile Diet, is that local food conflicts with the goal of feeding more people better food in an ecologically sustainable way. In other words, well-meaning locavores are inadvertently promoting a future characterized by less food security and greater environmental destruction. The critics are typically academics, and while not all of them are economists, they rely on economic arguments to support their claims that the globalized food chain has improved our lives. Why are critics pessimistic about the trend toward local food? Their arguments hinge on what we call the CASTE paradigm—the idea that Comparative Advantage and economies of Scale justify global Trade and lead to greater Efficiency.

A Thirsty Colorado Is Battling Over Who Owns Raindrops - When Jason Story bought an old soy sauce barrel to collect the rain dripping from his downspout, he figured he had found an environmentally friendly way to water his garden’s beets and spinach. But under the quirks of Western water rules, where raindrops are claimed even as they tumble from the sky, he became a water outlaw.Water is precious in the arid West, now more than ever as the worst drought in decades bakes fields in California and depletes reservoirs across the region. To encourage conservation, cities and water agencies in California and other states have begun nudging homeowners to use captured rain for their gardens, rather than water from the backyard faucet.But Colorado is one of the last places in the country where rainwater barrels are still largely illegal because of a complex system of water rights in which nearly every drop is spoken for.  And when legislators here tried to enact a law this spring to allow homeowners to harvest the rain, conservationists got a lesson in the power of the entrenched rules that allocate Western water to those who have first claim to it. Even if it is the rain running down someone’s roof. The rain barrel debate was a microcosm of intense fights across the region over who should get to keep using water and who should have to cut back. In California, farmers and other residents are cutting their water use by 25 percent or more. Cities in Colorado’s fast-growing Front Range, in the central part of the state, are vying with farms and users on the wetter, western side of the state as officials piece together a water plan. And as water grows scarcer, critics have assailed a water rights system that is based largely on seniority and century-old claims to stream flows. “Water allocation doesn’t satisfy most people’s norms of fairness,” said Doug Kenney, director of the Western Water Policy Program at the University of Colorado Law School. “A lot of people are clearly surprised to see that it’s a system where some people will get 100 percent of their water, and others will get zero.”

Lake Mead watch: six inches from the level that triggers cutbacks - Record rain across much of the West in May has provided Lake Mead with a much-needed boost – alleviating concerns about possible cutbacks in water deliveries from the nation's largest reservoir. But a month of rain does not solve Mead's falling water levels. For nearly two decades, the reservoir, which straddles the Arizona-Nevada border, has been shrinking due to prolonged drought and over-allocation. Mead hasn’t been full since 1998 at 1,221 feet above sea level and in the past 15 years alone, it has dropped 135 feet. Now it’s 37 percent full and just six inches away from reaching the 1,075-foot threshold that triggers cutbacks in deliveries for the three lower basin states – Arizona, Nevada and California – all of which depend heavily on Colorado River water stored in Lake Mead. (The trigger point doesn’t apply to the Upper Basin states of Wyoming, Colorado, Utah and New Mexico.) But as long as the surface level is at least 1,075 feet above sea level when crucial measurements are taken in January 2016, those cutbacks will be avoided. If not, the Secretary of the Interior will declare a shortage in Lake Mead and the curtailed deliveries,  along with other water rationing measures, will go into effect early next year.

Drought-Stricken California Orders Largest Recorded Water Cuts for Farmers --The California State Water Resources Control Board on Friday ordered the largest cuts on record to “farmers holding some of the state’s strongest water rights,” according to The Guardian. Water officials told senior water rights holders, some of whose rights date back to 1903, to stop pumping water in California’s Sacramento, San Joaquin and delta watersheds.  It’s the first time the state has mandated such a large number of senior rights holders to curtail water use. “It will affect thousands of farmers,”  The last time any restrictions were placed on senior rights holders was during the 1976-77 drought, but “those curtailments were not as geographically widespread as Friday’s,” reports The New York Times. “The order was both expected and necessary.”In April, Gov. Jerry Brown issued unprecedented water restrictions for the state, mandating 25 percent water reduction for cities and towns. But urbanites felt that agriculture, which is responsible for about 80 percent of all water consumption in the state, was not receiving its fair share of cutbacks. But Lund told The Guardian that “such a perception was … inaccurate.”  “Agriculture has been suffering cuts for three years,” Lund said. “Cities have only started to feel the effects of this four-year drought much more recently.” Earlier this spring, the board halted diversions to some 8,700 junior rights holders, said The New York Times. Many are claiming that the state does not have the authority to issue the curtailment. Jeanne Zolezzi, an attorney for two small irrigation districts in the San Joaquin area, told The Guardian she plans to take the issue to court.

California Water Wars Escalate: Government Orders Massive Supply Cuts To Most Senior Rights Holders -- Just two weeks after California's farmers - with the most senior water rights - offered to cut their own water use by 25% (in an attempt to front-run more draconian government-imposed measures), AP reports that the California government has - just as we predicted - ignored any efforts at self-preservation and ordered the largest cuts on record to farmers holding some of the state's strongest water rights. While frackers and big energy remain exempt from the restrictions, Caren Trgovcich, chief deputy director of the water board, explains, "we are now at the point where demand in our system is outstripping supply for even the most senior water rights holders." With "the whole damn state out of water," AP reports State water officials told more than a hundred senior rights holders in California's Sacramento, San Joaquin and delta watersheds to stop pumping from those waterways. The move by the State Water Resources Control Board marked the first time that the state has forced large numbers of holders of senior-water rights to curtail use. Those rights holders include water districts that serve thousands of farmers and others. The move shows California is sparing fewer and fewer users in the push to cut back on water using during the state's four-year drought. "We are now at the point where demand in our system is outstripping supply for even the most senior water rights holders," Caren Trgovcich, chief deputy director of the water board.The order applies to farmers and others whose rights to water were staked more than a century ago. Many farmers holding those senior-water rights contend the state has no authority to order cuts.

Rich Californians balk at limits: ‘We’re not all equal when it comes to water’ – Drought or no drought, Steve Yuhas resents the idea that it is somehow shameful to be a water hog. If you can pay for it, he argues, you should get your water.  People “should not be forced to live on property with brown lawns, golf on brown courses or apologize for wanting their gardens to be beautiful,” Yuhas fumed recently on social media. “We pay significant property taxes based on where we live,” he added in an interview. “And, no, we’re not all equal when it comes to water.”  Yuhas lives in the ultra-wealthy enclave of Rancho Santa Fe, a bucolic Southern California hamlet of ranches, gated communities and country clubs that guzzles five times more water per capita than the statewide average. In April, after Gov. Jerry Brown (D) called for a 25 percent reduction in water use, consumption in Rancho Santa Fe went up by 9 percent.  So far, the community’s 3,100 residents have not felt the wrath of the water police. Authorities have issued only three citations for violations of a first round of rather mild water restrictions announced last fall. In a place where the median income is $189,000, where PGA legend Phil Mickelson once requested a separate water meter for his chipping greens, where financier Ralph Whitworth last month paid the Rolling Stones $2 million to play at a local bar, the fine, at $100, was less than intimidating.  All that is about to change, however. Under the new rules, each household will be assigned an essential allotment for basic indoor needs. Any additional usage — sprinklers, fountains, swimming pools — must be slashed by nearly half for the district to meet state-mandated targets.  Residents who exceed their allotment could see their already sky-high water bills triple. And for ultra-wealthy customers undeterred by financial penalties, the district reserves the right to install flow restrictors — quarter-size disks that make it difficult to, say, shower and do a load of laundry at the same time.  In extreme cases, the district could shut off the tap altogether.

California Water Cuts Leave City Days Away From Running Out Of Water --  The community of Mountain House is days away from having no water at all after the state cut off its only water source.  Anthony Gordon saves drinking water just in case, even though he never thought it would come to this. “My wife thinks I’m nuts. I have like 500 gallons of drinking water stored in my home,” he said.The upscale community of Mountain House, west of Tracy, is days away from having no water. It’s not just about lawns—there may not be a drop for the 15,000 residents to drink. “We’re out there looking for water supplies as we speak,” said Mountain House general manager Ed Pattison. “We have storage tanks, but those are basically just to ensure the correct pressurization of the distribution system. No more than 2 days are in those storage tanks.”The community’s sole source of water, the Byron-Bethany Irrigation District, was one of 114 senior water rights holders cut off by a curtailment notice from the state on Friday.That means Mountain House leaders must find someone to sell them water, hopefully, the GM says, to have enough until the end of the year.“We don’t want this town to become a ghost town, it was a beautiful master-planned community,” he said.

Master-planned community at risk of losing all water within days: When the state last week took the rare step of curtailing the water rights of more than 100 irrigation districts and growers, it appeared that agricultural areas would be the hardest hit. But now, an upscale master-planned community of 15,000 residents in San Joaquin County is facing the loss of all water supplies within days — prompting a frantic search for new sources. Unlike the vast majority of communities in California, Mountain House purchases all its water from a single rural irrigation district. And that agency was covered by the state's order curtailing water rights for some of those who have held them for more than century due to the state's worsening drought. There has been fear in the community that the taps could run dry. But the situation is not quite that dire. Even if Mountain House can't find a new supplier, the state could allow the local irrigation district to deliver just enough to maintain "health and safety" in the community, according to a letter from the State Water Resources Control Board. Still, officials in the town near Tracy say that millions of dollars in landscaping and thousands of acres of crops are at risk. "If we're unable to procure supplemental supplies, it'll be catastrophic," said Rick Gilmore, general manager of the Byron Bethany Irrigation District, which supplies Mountain House with its water. "Even if we are successful, I don't know how much water we're going to be able to acquire to fulfill our needs.… Some folks are going to feel the pain."

What Drought? Oblivious Rich People Whine About Brown Golf Courses, Normal People Drought-Shame Them -- Despite dramatic new NASA studies finding that the world is running out of water and the historic drought now ravaging California, irritated rich people are having none of this alarmist nonsense, defending their innate right to use obscene amounts of our natural resources because, as one aggrieved woman actually put  it, "What are we supposed to do, just have dirt around our houses?" As those with massive California holdings watch their lush green estates wither and their "prices plummet from $30 million to $22 million," the rich and sometimes famous are arguing, in the words of one Steve Yuhas, that "no, we’re not all equal when it comes to water.” Yuhas lives in southern California's uber-rich gated enclave of Rancho Santa Fe, which guzzles five times more water per capita than the statewide average and which, in a memorable ask-us-if-we-care gesture last April, actually increased its usage by 9% after Gov. Jerry Brown called for cutting water use. The indignant Yuhas says he pays big property taxes and people “should not be forced to live on property with brown lawns, golf on brown courses or apologize for wanting their gardens to be beautiful,” because that would be way harsh and anyway why did he bother making and/or inheriting all that money if he couldn't have nicer stuff than you?  Using an innovative tool of class warfare dubbed drought-shaming, a number have taken to posting photos of town sprinklers watering sidewalks, hotels misting their too-rich-to-be-hot poolside guests, aerial views of lush green celebrity spreads surrounded by brown devastation - KanyeKim, this means you - and other egregious scofflaws wasting millions of gallons of desperately-needed water. There's also a #droughtshaming hashtag and a new app allowing users to report to city officials when they see water being wasted. The people with nice green lawns and enough money and chutzpah to water them complain the vigilantes are "promoting greater discord among the civilian population,” by which they presumably mean even more discord than their grotesque economic disparities represent.

Liquid treasure: Water theft rising in drought-ravaged California — It’s not quite “Mad Max,” but Californians are resorting to water theft and police are playing catchup, as nearly half of the state suffers in the throes of an intense drought. A group of thieves broke locks guarding spigots at a shopping center in Milpitas, KPIX reported over the weekend, making off with hundreds of gallons of water. Police are still seeking the suspects, who braved surveillance cameras to access the water. In April, the Associated Press reported that a large amount of water was stolen from the Sacramento-San Joaquin Delta, a source of water for 23 million state residents.   The AP also reported in February that Modesto homeowners had illegally taken water from a canal. Hundreds of gallons were stolen from a fire department water tank in North San Juan during wildfire season last summer. "We were just absolutely stunned," Boyd Johnson, a battalion chief with the North San Juan fire department, told the National Journal. "Fires are on everyone's mind during the summer so to see this happen, I think it really scared people."

California Has Never Experienced A Water Crisis Of This Magnitude – And The Worst Is Yet To Come -- Things have never been this dry for this long in the recorded history of the state of California, and this has created an unprecedented water crisis.  At this point, 1,900 wells have already gone completely dry in California, and some communities are not receiving any more water at all.  As you read this article, 100 percent of the state is in some stage of drought, and there has been so little precipitation this year that some young children have never actually seen rain. This is already the worst multi-year drought in the history of the state of California, but this may only be just the beginning.  Scientists tell us that the amount of rain that California received during the 20th century was highly unusual.  In fact, they tell us that it was the wettest century for the state in at least 1000 years. Now that things are returning to “normal”, the state is completely and total unprepared for it.  California has never experienced a water crisis of this magnitude, and other states in the western half of the nation are starting to really suffer as well.  In the end, we could very well be headed for the worst water crisis this country has ever seen. So what are those people going to do? And what is this going to do to the property values in that area?  Who in the world is going to want to buy a home that does not have running water coming to it?

Global Water Shortage: Study Says Third of Aquifers Running Dry - California isn't the only place where water is in short supply. More than a third of the world's groundwater basins are distressed, according to a new study, and climate change and a growing population will only make things worse.  Researchers from NASA, the University of California, Irvine, and other institutions analyzed satellite data and found that eight out of 37 of Earth's largest aquifers were "overstressed" or "extremly or highly stressed," meaning they had no natural replenishment or very little, respectively.   The most overstressed groundwater supply in the world: the Arabian Aquifer System, which provides water for 60 million people. The second and third most-stressed aquifers were located in Pakistan and northern Africa.   The study was published Tuesday in the journal Water Resources Research.  "What happens when a highly stressed aquifer is located in a region with socioeconomic or political tensions that can't supplement declining water supplies fast enough?" asked Alexandra Richey, the UCI researcher who led the study. "We're trying to raise red flags now to pinpoint where active management today could protect future lives and livelihoods."

Global water supplies are ‘in distress’, scientists warn - More than a third of the world’s biggest aquifers, a vital source of fresh water for millions, are “in distress” because human activities are draining them, according to satellite observations. Scientists from Nasa, the US space agency, and the University of California, Irvine, analysed 10 years of data from the twin Grace satellites, which measure changes in groundwater reserves by the way they affect Earth’s gravitational pull. “Twenty-one of the world’s 37 biggest aquifers have passed sustainability tipping points . . . they are being depleted,” said Jay Famiglietti, the study leader. “Over a third [13] are so bad that they are experiencing exceptionally high levels of stress.” The problem is most serious in regions where rainfall and snowmelt cannot make up for water extracted for agriculture, industry, drinking and other human purposes. The scientists determined aquifers’ overall stress rates on the basis of their depletion over 10 years of satellite measurements, together with their potential for replenishment, taking account of regional climate and human activities. The results, published in the Water Resources Research journal, show that the Arabian Aquifer System, an important water source for more than 60m people, is the most “overstressed” in the world. It is followed by the Indus Basin aquifer of India and Pakistan and the Murzuq-Djado Basin in northern Africa. California’s Central Valley, currently at the centre of a political battle over water rights, was classed as “highly stressed” and suffering rapid depletion — mainly for agriculture. Although many of the world’s great aquifers are being drained rapidly, there is “little to no accurate data about how much water remains in them,”

North Korea says it faces worst drought in a century - BBC News: North Korea says it is facing its worst drought in a century, sparking fears of worsening food shortages.  State news agency KCNA said main rice-growing provinces had been badly affected and more than 30% of rice paddies were "parching up". Hundreds of thousands of North Koreans are believed to have died during a widespread famine in the 1990s. This drought is unlikely to be as deadly because of recent agricultural reforms, correspondents say.  The United Nations World Food Programme says North Korea regularly faces significant food shortages and currently about a third of children in the country are malnourished. It is unusual for North Korea to talk openly of its shortages so the very appearance of the report in state media is significant. It indicates the situation is serious, and it may well indicate that North Korea wants outside help. The report of drought coincides with the release of two South Korean prisoners from North Korean custody, and that may underline the desire of the North to elicit sympathy and more tangible aid.

Alaska’s Heat Wave Ignites Fires as Glaciers Rapidly Melt  --Climate change has caused Alaska’s glaciers to melt so quickly that a one-foot thick layer of water could completely cover the entire state of Alaska every seven years, according to a new study. Alaskan glaciers have lost 75 billion metric tons of ice every year from 1994 through 2013, The Washington Post′s Chris Mooney reported from the study, which was recently accepted for publication in the peer-reviewed Geophysical Research Letters, a journal of the American Geophysical Union. Mooney also reported that the Columbia Glacier (see GIF above) alone has been sending 4 billion metric tons of water into the oceans every year. Alaska’s melting glaciers are “punching far above their weight” when it comes to contributing to sea level rise, CBS News‘s Michael Casey pointed out, referring to how Alaska only holds one percent of the Earth’s glacial ice volume, with most of the Earth’s ice found in Antarctica and Greenland’s ice sheets. But as the authors of the new study explained, “Despite Greenland’s ice covered area being 20 times greater than that of Alaska, losses in Alaska were fully one third of the total loss from the ice sheet during 2005-2010.” For the study, a University of Alaska Fairbanks and U.S. Geological Survey research team analyzed surveys of 116 glaciers in the Alaska region across 19 years to estimate ice loss from melting and iceberg calving, according to a news release. Not only are Alaska’s glaciers melting, the northernmost U.S. state experienced record heat at the end of May where parts of Alaska recorded temperatures higher than in Arizona. Unseasonably high temperatures, unpredictable winds and low humidity have been the perfect storm for wildfires to break out in the state, which recorded its warmest May ever. Some of the major blazes have threatened hundreds of homes and forced numerous evacuations, the Associated Press reported. As of Thursday morning, a total of 56 fires were actively burning around the state. 

Households flee as Alaska wildfire mushrooms in heart of sled dog country -  Japan Times: – An Alaska wildfire that has mushroomed in size was prompting help Monday from people offering their homes to scores of displaced residents and their animals. The fire north of Anchorage has led to the voluntary evacuation of up to 1,700 structures and has struck the heart of sled dog country, including 15 or so mushers who call Willow home. About 500 dogs have been rescued, according to Matanuska-Susitna Borough Assembly member Vern Halter, a former Iditarod musher. About 200 of those dogs ended up with four-time Iditarod champion Martin Buser at his kennels in Big Lake about 20 miles (30 km) from the fire. He also was taking in displaced residents, including veteran Iditarod musher DeeDee Jonrowe, who lost her home. “Everybody’s relieved that their dogs are safe and here, but the people that have lost their homes, they are dejected,”

El Niño Forecast Brings Calif. Hope for Drought Relief -  El Niño is gaining steam in the Pacific Ocean and forecasters are now leaning towards it being a strong event, the first since the blockbuster El Niño of 1997-1998. That possibility is again raising the collective hopes of Californians that this winter may finally see some desperately needed precipitation to begin the slow climb out of a historic drought. “In California, all eyes are on the Pacific given the ongoing historic drought,” Daniel Swain, an atmospheric science Ph.D. student at Stanford University, said in an email. The National Oceanic and Atmospheric Administration issued its latest monthly El Niño forecast on Thursday, calling for a better than 90 percent chance that this event will stick around through the fall months, and an 85 percent chance it will last through the winter. Forecasters also took their first stab this year at projecting the intensity of the event, with the odds right now favoring a strong El Niño. There is, as always with such forecasts, the niggling possibility that it could remain a weak event or even fizzle out. “We can’t rule out a ‘97-‘98-like event,” If the El Niño does become a strong event and stays that way through the winter, that means there’s a good chance California could finally see some healthy rains come winter, the traditional wet season there, which has come up dry in recent years. But after El Niño failed to flourish last year, hopes are seasoned with more than a few grains of salt.

El Nino Likely to Last Through Winter 2015-2016, NOAA Says -- El Nino has an 85 percent chance of lasting through winter 2015-2016, according to an updated forecast released on Thursday by the National Oceanic Atmospheric Administration (NOAA). NOAA also reported that there is a greater than 90 percent chance of El Nino lasting through the fall.  El Nino is an anomalous, yet periodic, warming of the central and eastern equatorial Pacific Ocean. For reasons still not well understood, every 2-7 years, this patch of ocean warms for six to 18 months.  The declaration that El Nino is likely to last through winter is important for the United States since precipitation and temperature impacts from a moderate-to-strong El Nino are typically most noticeable during the cold season. We have more on what those impacts are later in this article.  NOAA reports that sea-surface temperature anomalies increased during the month of May in the equatorial Pacific Ocean. In addition, NOAA says that many computer models are predicting that sea-surface temperature anomalies will continue to increase through the fall. There's also an increasing chance El Nino may become moderate or strong, and, thus, play a stronger role in your weather. Hurricane Specialist Eric Blake of the National Hurricane Center tweeted on June 9 that more than 80 percent of model members from the North American Multi-Model Ensemble are forecasting a strong El Nino to develop by the end of summer.

2015 May Bring Long-Awaited Step-Jump In Global Temperatures -- Historically, the global temperature trend-line is more like a staircase than a ramp. We now appear to be headed for a step-jump in global temperatures — one that scientists have been expecting. NASA reported this week that this was the hottest five-month start (January to May) of any year on record. Climate expert and UK Guardian columnist John Abraham put together this chart of how the start to 2015 compares to previous years: As Abraham notes, “2015 is a whopping 0.1°C (0.17°F) hotter than last year, which itself was the hottest year on record.” The recent study, “Near-term acceleration in the rate of temperature change,” explains why a speed up in the rate of global warming is imminent — with Arctic warming rising up to 1°F per decade by the 2020s. More than 90 percent of global heating goes into the oceans — and ocean warming down to 2000 meters (1.24 miles) has accelerated this century, as this recent NOAA chart shows: Climatologist Kevin Trenberth has explained that “a global temperature increase occurs in the latter stages of an El Niño event, as heat comes out of the ocean and warms the atmosphere.” This week, NOAA released its monthly El Niño Southern Oscillation [ENSO] report, which concludes, “There is a greater than 90% chance that El Niño will continue through Northern Hemisphere fall 2015, and around an 85% chance it will last through the 2015-16 winter.”  So — barring a massive volcanic eruption in the next few months — 2015 is all but certain to become the hottest year on record by far.

NOAA: Hottest May, Hottest Spring, Hottest Year-To-Date On Record By Far - NOAA’s latest monthly report on global temperatures confirms that we are headed toward a record-smashing year. Here are some of the new records for “combined average temperature over global land and ocean surfaces” that NOAA reports were just broken:

  • Hottest “May in the 136-year period of record, at 0.87°C (1.57°F) above the 20th century average of 14.8°C (58.6°F), surpassing the previous record set just one year ago by 0.08°C (0.14°F).”
  • Hottest March–May (boreal spring) on record, “at 0.85°C (1.53°F) above the 20th century average of 13.7°C (56.7°F), surpassing the previous record warmth of March–May 2010 by 0.04°C (0.07°F). “
  • Hottest January-May on record by far “at 0.85°C (1.53°F) above the 20th century average, surpassing the previous record set in 2010 by 0.09°C (0.16°F).”
So far, this year is blowing past every other year in terms of global temperatures. And as NOAA notes, “2010 was the last year with El Niño conditions; however El Niño was ending at this point in 2010, while it appears to be maturing at the same point in 2015.” El Niños tend to set the record for the hottest years, since the regional warming adds to the underlying global warming trend. We could well see the global temperature record set by 0.2°F. We now appear to be in the early stages of the long-awaited jump in global warming.

The latest global temperature data are breaking records -- Just today, NASA released its global temperature data for the month of May 2015. It was a scorching 0.71°C (1.3°F) above the long-term average. It is also the hottest first five months of any year ever recorded. As we look at climate patterns over the next year or so, it is likely that this year will set a new all-time record. In fact, as of now, 2015 is a whopping 0.1°C (0.17°F) hotter than last year, which itself was the hottest year on record. Below, NASA’s annual temperatures are shown. Each year’s results are shown as black dots. Some years are warmer, some are cooler and we never want to put too much emphasis on any single year’s temperature. I have added a star to show where 2015 is so far this year, simply off the chart. The last 12 months are at record levels as well. So far June has been very hot as well, likely to end up warmer than May.So why talk about month temperatures or even annual temperatures? Isn’t climate about long-term trends? First, there has been a lot of discussion of the so-called ‘pause.’ As I have pointed out many times here and in my own research, there has been no pause at all. We know this first by looking at the rate of energy gain within the oceans. But other recent publications, like ones I’ve written about have taken account of instrument and measurement quality and they too find no pause. Second, there has been a lot of discussion of why models were running hotter than surface air temperatures. There was a real divergence for a while with most models suggesting more warming. Well with 2014 and 2015, we see that the models and actual surface temperatures are in very close agreement. When we combine surface temperatures with ocean heat content, as seen below, a clear picture emerges. Warming is continuing at a rapid rate.

NASA releases detailed global climate change projections through the year 2100 (NASA) – NASA has released data showing how temperature and rainfall patterns worldwide may change through the year 2100 because of growing concentrations of greenhouse gases in Earth’s atmosphere. The dataset, which is available to the public, shows projected changes worldwide on a regional level in response to different scenarios of increasing carbon dioxide simulated by 21 climate models. The high-resolution data, which can be viewed on a daily timescale at the scale of individual cities and towns, will help scientists and planners conduct climate risk assessments to better understand local and global effects of hazards, such as severe drought, floods, heat waves and losses in agriculture productivity.   The new dataset is the latest product from the NASA Earth Exchange (NEX), a big-data research platform within the NASA Advanced Supercomputing Center at the agency's Ames Research Center in Moffett Field, California. In 2013, NEX released similar climate projection data for the continental United States that is being used to quantify climate risks to the nation’s agriculture, forests, rivers and cities.
  Additional information about the new NASA climate projection dataset is available at:
  The dataset is available for download at:

India’s hellish heat wave, in hindsight - - The late May siege of blistering temperatures is being blamed for 2,500 deaths, the second-deadliest heat wave on record in India and fifth-deadliest in world history, according to Jeff Masters at Weather Underground, who examined weather mortality databases. Temperatures averaged nearly 10 degrees (5.5 Celsius) above average for nearly two weeks, NASA noted. In New Delhi, temperatures surged to 113 degrees, so hot they melted roads. At Titlagarh in Odisha, the mercury spiked to a searing 117 degrees, just 5 degrees below India’s hottest temperature ever recorded, reported Slate’s Eric Holthaus. Coastal areas dealt with the double whammy of extreme heat and oppressive levels of humidity. At the height of the heat wave in Mumbai, the heat index — what the air feels like given the combination of heat and humidity — struggled to fall below 100 even at night, Holthaus reported. “On May 23 at 14:30,  Bhubneshwar [near the northeast coast of India] recorded a temperature of 42.2°C (108°F) with a dew point of 29.3°C (84.7°F), giving an astonishing heat index of 62°C (143.6°F.),” wrote Weather Underground’s Masters.And the heat was relentless. “The city of Ongole, in the state of Andhra Pradesh, high temperatures averaged 110°F (43.47°C) from May 24-30,” wrote Tom Di Liberto for NOAA’s after day and night after night of such punishing conditions caused heat stress on the human body to accumulate, hitting vulnerable groups, such as older adults, the homeless and outdoor workers, the hardest. In India, many people do not have access to air-conditioning.

Mount Everest shifted southwest due to Nepal earthquake - (AFP) - The world's tallest peak, Mount Everest, moved three centimetres (1.2 inches) to the southwest because of the Nepal earthquake that devastated the country in April, Chinese state media reported Tuesday. The 7.8-magnitude quake reversed the gradual northeasterly course of the mountain, according to a report in the state-run China Daily, citing the National Administration of Surveying, Mapping and Geoinformation. Before the quake, Everest had moved 40 centimetres to the northeast over the past decade at a speed of four centimetres a year, the report said. The mountain also rose three centimetres over the same time period. The earthquake caused an avalanche on Everest, killing 18 people and leaving its climbing base camp in ruins. It prompted authorities in both China and Nepal to cancel all climbs for this year. The mountain straddles the border between the two countries.

Hot Pacific Ocean Runs Bloody — Blob Now Features Record Red Tide -- Red Tide. It’s what happens when massive algae blooms cover vast regions of ocean. The biological density of the blooms is so great that they can paint the waters affected a shade of brown or red. A bloody color indicative of clouds of dangerous microbes just beneath the surface. And today, a massive Red Tide — perhaps the largest ever recorded — now stretches from California to Alaska along a vast stretch of the North American West Coast already reeling under the ongoing and dangerous impact of a massive ocean heating event that researchers have called ‘The Blob.’  A Red Tide has numerous impacts to both marine life and human industry. Microbes within the tide produce biotoxins that are deadly to marine species. Domoic acid, PSP and DSP are all toxins that have been identified during the current Red Tide event. The toxins primarily affect fish and marine mammals — risking mass fish and dolphin, sea lion, seal, otter, and whale deaths during widespread blooms. The toxins concentrate as they move up the food chain, making them most dangerous to top predators. Primary effects of the most lethal toxins are convulsions and paralysis. Other toxins cause nausea, cramps and diarrhea. Human beings are also at risk and for this reason crab and shellfish fisheries all up and down the US West Coast are being closed.  Scientists currently suspect extreme Northeastern Pacific Ocean heat led to the sudden appearance of Red Tide this week, a combination of warm and nutrient rich waters are well known to be the key ingredients for Red Tide formation. Ingredients that are increasingly prevalent due to human fossil fuel burning. Ingredients that are increasingly evident in the Northeastern Pacific. In short the burning of fossil fuels both warms the atmosphere and ocean even as it seeds the surface water with nitrogen. The warm water is a preferred environment for the microbes that form the Red Tide and the nitrogen — both as a constant rain from the sky due to fossil fuel emission and as effluent from streams due to farm runoff — essentially fertilizes the bloom.

Huge Toxic Algal Bloom Shuts Down West Coast Fisheries - Commercial and recreational fisheries up and down the West Coast have been forced to close as a result of a massive toxic algal bloom, which scientists are describing as one of the largest in history.“We have received reports of this particular bloom causing problems as far south as Monterey Bay and we’ve heard from our colleagues in Homer, Alaska that they’re seeing these cells,” Vera Trainer, manager of the Marine Biotoxin Program at NOAA’s Northwest Fisheries Science Center, told ThinkProgress. “It’s geographically very widespread, more so than we’ve seen in the past.”The last time an algal bloom of comparative size occurred on the West Coast was in 1988. That bloom stretched from San Diego up to Washington.Essentially what we’ve got is just perfect plankton growing weather Algal blooms happen when microscopic marine algae — also known as phytoplankton — proliferate in huge numbers. This proliferation results in a buildup of toxins such as domoic acid, a powerful and fatal neurotoxin. High concentrations of algae — or domoic acid — aren’t uncommon, occurring in the Pacific primarily in the fall, when ocean temperatures tend to be at their warmest. But according to Dan Ayers, coastal shellfish manager with the Washington Department of Fish and Wildlife, to see such an intense and extensive concentration of toxic algae in the late spring and summer months is more rare.“The thing that is so significant of this bloom is its timing,” Ayers told ThinkProgress. “In the past, these blooms have occurred in the fall just prior to change of ocean conditions to a winter regime.”Scientists are unsure exactly what is causing the historic bloom, though Trainer said that it is likely related to unusually warm ocean temperatures.

Toxic algae bloom off West Coast might be largest ever - A toxic algae bloom in the Pacific Ocean stretching from California north to B.C. might be the largest ever detected off the West Coast, according to scientists in California. Fisheries and Oceans Canada is also monitoring the unusually large bloom, which has already resulted in the closure of one fisheries area off Vancouver Island just north of Tahsis. But DFO scientist Ian Perry said most areas are not at levels that would raise health concerns.  The bloom, which first appeared in May, involves microscopic algae that produce a neurotoxin potentially fatal to humans called domoic acid, according to researchers at the University of California at Santa Cruz. Levels of domoic acid in California's Monterey Bay are some of the highest scientists have ever observed, Raphael Kudela, professor of ocean sciences at the Santa Cruz campus, said in a statement. "The domoic acid levels are extremely high right now in Monterey Bay, and the event is occurring as far north as Washington state," he said. "It appears this will be one of the most toxic and spatially largest events we've had in at least a decade."  Researchers are concerned that shellfish and other marine life, including razor clams, crabs, hake and West Coast sardines, could have elevated levels of domoic acid, a neurotoxin that causes amnesic shellfish poisoning, also known as ASP. Unlike the more common PSP syndrome, which is resposible for shellfish closures off the coast of B.C. in the summer months, ASP also affects fish, which can then poison humans and other mammals that eat the affected fish. The acid has been responsible for several deaths and has sickened more than 100 people, according to the Washington state Department of Fish and Wildlife.

New study shows Arctic Ocean rapidly becoming more corrosive to marine species --New research by NOAA, University of Alaska, and Woods Hole Oceanographic Institution in the journal Oceanography shows that surface waters of the Chukchi and Beaufort seas could reach levels of acidity that threaten the ability of animals to build and maintain their shells by 2030, with the Bering Sea reaching this level of acidity by 2044. "Our research shows that within 15 years, the chemistry of these waters may no longer be saturated with enough calcium carbonate for a number of animals from tiny sea snails to Alaska King crabs to construct and maintain their shells at certain times of the year," said Jeremy Mathis, an oceanographer at NOAA's Pacific Marine Environmental Laboratory and lead author. "This change due to ocean acidification would not only affect shell-building animals but could ripple through the marine ecosystem." A form of calcium carbonate in the ocean, called aragonite, is used by animals to construct and maintain shells. When calcium and carbonate ion concentrations slip below tolerable levels, aragonite shells can begin to dissolve, particularly at early life stages. As the water chemistry slips below the present-day range, which varies by season, shell-building organisms and the fish that depend on these species for food can be affected. This region is home to some of our nation's most valuable commercial and subsistence fisheries. NOAA's latest Fisheries of the U.S. report estimates that nearly 60 percent of U.S. commercial fisheries landings by weight are harvested in Alaska. These 5.8 billion pounds brought in $1.9 billion in wholesale values or one third of all landings by value in the U.S. in 2013.

Earth 'entering new extinction phase' - US study -  The Earth has entered a new period of extinction, a study by three US universities has concluded, and humans could be among the first casualties. The report, led by the universities of Stanford, Princeton and Berkeley, said vertebrates were disappearing at a rate 114 times faster than normal. The findings echo those in a report published by Duke University last year. One of the new study's authors said: "We are now entering the sixth great mass extinction event." The last such event was 65 million years ago, when dinosaurs were wiped out, in all likelihood by a large meteor hitting Earth. "If it is allowed to continue, life would take many millions of years to recover and our species itself would likely disappear early on," said the lead author, Gerardo Ceballos. Pollination by bees could disappear within three generations, the report warns The scientists looked at historic rates of extinction for vertebrates - animals with backbones - by assessing fossil records. They found that the current extinction rate was more than 100 times higher than in periods when Earth was not going through a mass extinction event. Since 1900, the report says, more than 400 more vertebrates had disappeared. Such a loss would normally be seen over a period of up to 10,000 years, the scientists say. The study - published in the Science Advances journal - cites causes such as climate change, pollution and deforestation. Given the knock-on effect of ecosystems being destroyed, the report says benefits such as pollination by bees could be lost within three human generations. Extinction may be more gradual than when the dinosaurs died, the report says Stanford University professor Paul Ehrlich said: "There are examples of species all over the world that are essentially the walking dead. "We are sawing off the limb that we are sitting on."

Bombing the Arctic: US Navy War Games in Gulf of Alaska Threaten One of World’s Most Pristine Areas | Democracy Now! (video & transcript) The U.S. Navy is set to begin a major war exercise in the Gulf of Alaska amid protests from local communities concerned about environmental damage. The Navy is reportedly unleashing thousands of sailors, soldiers, airmen, marines and Coast Guard members along with several Navy destroyers, hundreds of aircrafts, untold weaponry and a submarine for the naval exercises. The Gulf of Alaska is one of the most pristine places left on Earth; the region includes critical habitat for all five wild Alaskan salmon species and 377 other species of marine life. The Navy’s planned live bombing runs will entail the detonation of tens of thousands of pounds of toxic munitions, as well as the use of active sonar in fisheries. The Navy has conducted war games in the Gulf of Alaska, on and off, for the last 30 years, but these new exercises are the largest by far. They come at a time when scientists are increasingly worried about climate change causing Arctic melting. Meanwhile, the unprecedented melting has created an opportunity for the military to expand its operations into previously inaccessible terrain. We are joined by Dahr Jamail, staff reporter at Truthout, whose latest piece is "Destroying What Remains: How the US Navy Plans to War Game the Arctic."

Rapid Arctic ice loss linked to extreme weather changes in Europe and US - The string of massive snowstorms and bone-chilling cold on the US east coast, as well as flooding in Britain and record temperatures in Europe, are linked to rapid ice loss in the Arctic, new research appears to confirm. While the rapidly-thawing Arctic cannot be held responsible for specific weather events like the “snowmageddon” in 2009, Hurricane Sandy, or European heatwaves, researchers at Rutgers university said it appears to be a prime reason why the polar jet stream – a ribbon of winds that encircles the globe – gets ‘stuck’ with increasing frequency. Western Europe and large parts of North America will experience more extreme weather because of “Arctic amplification” - the enhanced sensitivity of high latitudes to global warming, the team suggested in a paper published in the journal Philosophical Transactions of the Royal Society A.  “We are seeing these extremes because the Arctic is warming faster than elsewhere. The whole lower atmosphere is heating up but the sea ice is the most observable. This is having this effect on the jet stream, making it extend further south and stay longer,” said co-author Jennifer Francis. “The jet stream creates weather of all sorts and where you are in relation to it dictates wether it is hot or cold. When we have a ridge, or a big bulge, in the the jet stream, it makes it extend further and stay longer. When that ridge is stronger it tends to be more persistent,” she said. Deep troughs in the jet stream have been seen regularly in the past few years affecting the east coast of the US, western Europe and central Asia. These have brought prolonged, unusually hot weather to some places, and extended cold or record snowfall to others. “We are seeing extended periods of extreme weather because when the temperature difference between polar and mid northern latitudes gets smaller [because of global warming] this has the effect of weakening the jet stream , allowing it to be deflects more easily and to meander more. It’s a combination of natural conditions being intensified and global warming,” said Professor Francis.

Climate engineering would cool down the planet — but it may not save West Antarctica -- For some time now, fears of climate disaster have been at least partly assuaged by the thought that if the planet really begins to heat up, well, at least we may have a backup plan.  That backup plan is so-called “geoengineering” — artificially altering the planet still further so as to offset warming temperatures. One leading idea in the space is to fill the Earth’s stratosphere with sulfate aerosol particles, which would have a cooling effect by reflecting sunlight back to space. We know this would work because we know that large volcanic eruptions cool the planet, and that they do so by a similar mechanism — firing sulfur high into the skies.But it’s also very risky — there are many possible unintended consequences of geoengineering. Thus, the only reason to really consider it is if you’re on the verge of climate impacts so severe — impacts like, say, the potential collapse of the West Antarctic ice sheet, leading to 10 or more feet of global sea level rise — that it becomes the lesser evil. That’s why a new study recently accepted in Geophysical Research Letters could be so significant. For it calls into question whether geoengineering — at least using sulfate aerosols — can actually save this ice sheet, which is already beginning to be destabilized in our warming world.  The new paper uses a climate and ocean model simulation to examine the fate of West Antarctica in a world in which humans pump huge volumes of sulfate aerosols into the atmosphere to curb global warming. And it finds that while the planet would indeed cool in such a scenario, West Antarctica would continue to melt, especially in the region of the vulnerable Pine Island glacier.  Thus, the authors conclude, the notion that this form of geoengineering can serve as “a ‘backstop’ measure that could be rapidly deployed to avoid so-called climate emergencies, such as destabilization of marine ice sheets” is “not supported in this study.”

Americans Are Again Getting More Worried About the Climate - The financial crisis made Americans less worried about climate change. But now Americans are getting more worried again. About 69 percent of adults say that global warming is either a “very serious” or “somewhat serious” problem, according to a new Pew Research Center poll, up from 63 percent in 2010. The level of concern has still not returned to that of a decade ago; in 2006, 79 percent of adults called global warming serious. It’s impossible to know exactly why concern about the climate fell — and why skepticism that global warming was real increased — starting around 2008. Both economics and politics probably play a role. The financial crisis and recession made Americans more worried about the immediate condition of the economy, rather than about the long-term condition of the planet.  In the last few years, however, discussion of a major climate bill has receded, while the economy has started to improve — and problems from global warming, though increasing only gradually, are increasing. The percentage of Americans who agree with the scientific consensus — that global warming is occurring and caused by human activity — has also bounced back in the last few years. Sixty-eight percent of Americans also say there is “solid evidence of warming,” up from 57 percent in 2009. Skepticism about climate change remains high among nearly any demographic group that leans Republican, including men, whites, evangelicals and people over age 50, according to the Pew data. The main reason is that so many Republicans themselves are skeptical that the planet has become hotter and are opposed to new climate policies. But even Democratic men are slightly less interested in combating climate change than Democratic women.

The Weather Channel’s New Climate Change Messages Will Surprise You -- The Weather Channel has gone hawkish on climate change. It has started web- and broad-casting short but blunt messages from “25 influential voices on climate change, security, energy and peace.” The “Climate 25” features former Bush Treasury Secretary Hank Paulson, who warns that failure to take strong action on climate is “radical risk taking” for our economy. Unilever CEO Paul Polman talks about the $300 million in annual climate disruption costs hitting his company. New York Times columnist Thomas Friedman, who explained why the Syrian civil war was “the revolution fueled by climate change.” I am one of the 25, as is climatologist Heidi Cullen, and White House science advisor John Holdren.  But the Weather Channel has focused on one particular target audience — conservatives. The Climate 25 include four retired generals or admirals, a former senior Pentagon official, and former CIA director James Woolsey. It includes former GOP Congressman Bob Inglis, former VP of the Heartland Institute (!) Eli Lehrer, and two GOP EPA chiefs — William K. Reilly and Christine Todd Whitman, who directly tells Republicans, “it’s our issue.”

In Trade Debate, Climate Concerns Roar Back to House Floor --In a 15-minute speech just before Friday's vote that may—repeat, may—sink the trade package, House Minority Leader Nancy Pelosi repeatedly brought up the impact the "fast track" trade legislation would have on the environment. Saying she was "second to none" in the House on climate change, Pelosi chastised Congress for failing to act on the issue while the fast-track bill was prioritized.  Progressive Democrats and high-profile environmentalists, including the Sierra Club and the Natural Resources Defense Council, have long voiced opposition to Obama's trade push, contending that it will pave the way for a flood of fossil-fuel exports, undermine key environmental safeguards, and worsen climate change.  But the issue injected itself into the debate with fresh force this week with an amendment from House Ways and Means Committee Chairman Paul Ryan that would block the president from using trade negotiations as an avenue to write future climate deals.  The amendment—which comes on a customs bill that would amend the trade bill—was meant to appease Republican concerns that President Obama would use his negotiating authority to act on climate, but it enraged the Left and appears to be one of the factors that pushed Pelosi over the edge.  She singled out the amendment, playing it against language she wrote 25 years ago on the International Development and Finance Act, which required the World Bank and other multilateral development banks to hold environmental reviews of projects they were funding.  "The connection between the environment and commerce is inseparable," she said.

The House Just Voted To Fast-Track The TPP, And Environmentalists Aren’t Happy  - The Republican-led House of Representatives voted to give President Obama authority to negotiate trade agreements, passing the so-called fast-track bill with the assistance of just 28 House Democrats on Thursday.   The Trade Promotion Authority (TPA) bill, which was decoupled from a labor program, will now go back to the Senate for approval. If Obama signs the bill, then the final Trans-Pacific Partnership (TPP) trade deal can go to Congress for a straight up-and-down vote, and Congress will not be allowed to make line-item changes to the deal. Environmental advocates have come out strongly against the TPP, which they say will allow corporations to sue countries that enact environmental policies that damage investments. This tactic has been used under the North American Free Trade Agreement (NAFTA), including an instance where an American oil and gas company sued the Canadian province of Quebec for enacting anti-fracking laws.  In addition, Rep. Paul Ryan (R-WI) added an amendment to the fast-track authorization bill last week that would “ensure that trade agreements do not require changes to U.S. law or obligate the United States with respect to global warming or climate change.” In effect, this means the U.S. Trade Representative would be prohibited from addressing climate change during negotiations.  Environmentalists criticized Thursday’s vote, which came on the same day Pope Francis officially released a papal encyclical on climate change and the environment.  “On the very day when one of the world’s leading moral authorities issues a historic clarion call for action to combat climate change and protect our planet, you’d think at least some of our leaders would listen,” Executive Director May Boeve said in an emailed statement to ThinkProgress. “Instead, Congress has once again bowed to moneyed special interests, and voted to fast-track a trade deal that takes us a giant step backwards in the fight against climate change.”

Senate GOP bill combats Obama environmental agenda - - A GOP-controlled Senate panel on Tuesday approved a $31 billion spending bill slashing the Environmental Protection Agency's budget by more than $500 million and seeking to block the agency on clean air and water regulations, global warming, and hydraulic fracturing to extract oil and gas from federal lands. The measure, drafted by Lisa Murkowski, R-Alaska, is opposed by panel Democrats and the White House and came as the Senate's top Republican laid the groundwork for a vote later this week in which Democrats are poised to filibuster the Pentagon's budget in a Washington showdown over the agency spending approved each year by Congress. The buzz of activity involves the agency operating budgets Congress passes each year, a process that this year features a drive by President Barack Obama and his Democratic allies on Capitol Hill to boost spending for domestic programs and the Pentagon as well. Republicans have responded by increasing defense spending but freezing domestic agencies, for the most part, in keeping with the return this year of automatic spending cuts called sequestration. The ongoing budget battle features fights big and small, from tens of billions of dollars in increases sought for the nuts and bolts operations of the government to regulations limiting sales of antique ivory in the U.S. Both the House and Senate EPA and Interior Department funding bills are stuffed with GOP policy "riders" aimed at reining in Obama administration actions on endangered species, ozone standards, "fracking" on federal lands, and new clean water rules.

Proposed Rule for Big Trucks Aims at Cutting Fuel Emissions - The Obama administration on Friday introduced a major climate change regulation intended to reduce planet-warming carbon pollution from heavy-duty trucks.The rule, issued by the Environmental Protection Agency and the Transportation Department, is the latest in a march of pollution constraints that President Obama has put forth on different sectors of the economy as he seeks to make tackling climate change a cornerstone of his legacy.The proposed rule is meant to increase the fuel efficiency of the vast rigs that haul goods as varied as steel, timber and oil, as well as packages from The regulations will also set emissions targets for other types of trucks larger than light-duty pickups, like delivery vehicles, dump trucks and buses.In his first term, Mr. Obama outlined rules to reduce greenhouse gas emissions from automobiles and trucks. The new rule further increases the fuel-efficiency requirements for trucks. In the months ahead, the E.P.A. is expected to release a final set of climate change rules on curbing pollution from power plants. And this month, the agency proposed a legal step that could lead to regulating emissions from airplane engines. “In fact, these efficiency standards are good for the environment — and the economy. When trucks use less fuel, shipping costs go down.” Environmentalists cheered the proposal, but the reaction among truck manufacturers was mixed. Some say they will be able to adapt to the new standards, but others say it will require expensive new technology and may pose a challenge. The proposal announced on Friday will be open to public comment. The E.P.A., in conjunction with the National Highway Traffic Safety Administration, is expected to release a final version of the rule next year.

Saudi Arabia blocks drive to tighten global warming cap - Saudi Arabia has blocked attempts to negotiate an even tougher global warming target to prevent dangerous climate change — as well as proposals for more research on this — during the latest talks in preparation of the UN’s next major climate summit. The majority of delegates at last week’s UN Framework Convention on Climate Change (UNFCCC) meeting in Bonn supported a draft proposal to keep an alternative target on the negotiating table of capping global warming since pre-industrial levels at 1.5 degrees Celsius. The existing target, agreed at the UN’s 2010 Cancun summit, aims to limit global warming to two degrees above pre-industrial levels, but it also considered lowering that maximum to 1.5 degrees “in the near future”. A pre-negotiation draft agreement from Bonn also called for more funding for scientists to produce the data policymakers need to judge where an acceptable limit for global warming may lie. But amid profound frustration, Saudi Arabia, the world’s second largest oil producer, refused the text, consigning it and a week of meetings on the subject to the bureaucratic dustbin. The negotiation rules state that all countries must agree for the target to be validated.

Bonn meeting ends with last-minute compromise on Paris climate text - Climate change negotiators meeting in Bonn on Thursday came up with a last-minute compromise that observers hope will put the talks on track for a new global agreement on greenhouse gases. Slow progress was made until the final hours, as nations wrangled over the wording of an 89-page draft text, intending to cut it down to a more manageable size. After two weeks, the text had been cut by just four pages to 85. But shortly before the talks were scheduled to finish, countries agreed that the co-chairs of the negotiations should be allowed to make their own alterations to the text, and present it to all countries for approval, probably in late July. This should be a quicker process, though there is no guarantee that countries will not try to re-draw the new draft when it becomes available. The talks in Bonn were a staging post on the way to a crunch conference in Paris this December, at which countries are supposed to sign a new global agreement on limiting greenhouse gas emissions, to take effect from 2020 when current emissions commitments run out.

G7 Carbon Goal May Come Too Late, Scientists Say -- Ridding the global economy of its carbon is the only way to stabilize the climate, something the leaders of the G7 nations recognized Monday when they called for all countries to cease emitting climate-changing greenhouse gases over the next 85 years. But there’s a sense among some climate scientists that such a goal may be too little too late, even though it serves as a necessary first step toward a commitment among nations to slash global carbon emissions. A new pact is expected to be finalized at the Paris climate summit taking place in December. “Decarbonization by the end of the century may well be too late because the magnitude of climate change long before then will exceed the bounds of many ecosystems and farms, and likely will be very disruptive,” Kevin Trenberth, senior scientist at the National Center for Atmospheric Research in Boulder, Colo., said. The goal is a step in the right direction, but not very meaningful considering greenhouse gas emissions need to be reduced dramatically within the next decade, well ahead of the G7’s timeline, Michael Mann, director of the Earth System Science Center at Penn State University, said. “In my view, the science makes clear that 2050 or 2100 is way too far down the road,” he said. “We will need near-term limits if we are going to avoid dangerous warming of the planet.”

Weak climate plans set to overshoot world temperature goal - IEA -  – Countries’ current pledges for greenhouse gas cuts will fail to achieve a peak in energy-related emissions by 2030 and likely result in a temperature rise of 2.6 degrees Celsius by the end of the century, the International Energy Agency said on Monday. An international deal to combat climate change is meant to be agreed in December but a meeting in Bonn, Germany, last week ended with little progress towards an agreement to keep average temperature rises within 2C. The proposed emissions cuts from 2020 offered by governments so far are unlikely to meet the 2C goal, a threshold scientists say is the limit beyond which the world will suffer ever worsening floods, droughts, storms and rising seas. While the pledges are a “good start,” if governments do not strengthen policies, the world would be on a path to an average temperature increase of 2.6C by 2100 and 3.5C after 2200, the Paris-based IEA said. This translates into an average temperature rise of 4.3C over land in the northern hemisphere where most of the world’s population lives, and even more in urban areas. “Then we can say goodbye to the planet we have seen for centuries,” IEA chief economist Fatih Birol told reporters at a briefing in London.

Pope Backs Climate Change Science, Denounces World Leaders - Pope Francis has endorsed the science behind global warming and denounced the world’s political leaders for putting national self-interest ahead of action. Now, Catholic priests are gearing up to spread the word. The 192-page leaked draft of a papal encyclical, published Monday by the Italian magazine L’Espresso, is an attempt to influence the debate before United Nations climate talks scheduled for the end of the year in Paris. Father Federico Lombardi, the pope’s spokesman, said the text was not the final one, which will be officially released midday local time Thursday by the Vatican. The encyclical, entitled “Laudato si (Praised Be) on the care of our common home,” is a call to action in the form of a letter to the church’s bishops. With fossil-fuel emissions and temperatures at record levels, the spiritual leader of 1.2 billion Catholics is adding his voice to calls to rein in greenhouse gases. “International negotiations cannot progress in a significant way because of the positions of the countries which privilege their own national interests rather than the global common good,” the pope wrote. “Those who will suffer the consequences which we are trying to hide will remember this lack of conscience and responsibility.” Francis squarely put the blame on humans, writing that many scientific studies show “the greater part of global warming in the last decades is due to the great concentration of greenhouse gases (carbon dioxide, methane, nitrogen oxide and others) emitted above all due to human activity.”

Pope Francis’ Encyclical Urges Swift Action on Climate Change Ahead of Paris Climate Talks --There were no big surprises in the encyclical, given its leak to the media earlier this week and the Pope’s ongoing speeches and remarks about the climate. But the encyclical, a letter from the Pope to the church bishops, give the official endorsement of the Catholic Church to his concern for the climate. Writing that “the Earth, our home, is beginning to look like an immense pile of filth,” the Pope emphasized the outsized impact failure to care for the environment has on the poor. He wrote:  The deterioration of the environment and of society affects the most vulnerable people on the planet: both everyday experience and scientific research show that the gravest effects of all attacks on the environment are suffered by the poorest. The impact of present imbalances is also seen in the premature death of many of the poor, in conflicts sparked by the shortage of resources and in any number of other problems which are insufficiently represented on global agendas. It needs to be said that, generally speaking, there is little in the way of clear awareness of problems which especially affect the excluded. Yet they are the majority of the planet’s population, billions of people. These days, they are mentioned in international political and economic discussions, but one often has the impression that their problems are brought up as an afterthought, a question which gets added almost out of duty or in a tangential way, if not treated merely as collateral damage. He attributed this to the fact that “many professionals, opinion makers, communications media and centers of power” have little contact with the poor and their problems. But he made it clear that the burden is on the wealthy—both nations and individuals—to act on behalf of the poor and to stop exploiting them to the detriment of people and the planet.

Pope calls for ‘international agreements’ for the ‘global common good’ - Pope Francis’s powerful encyclical making an urgent moral case for action to combat climate change has now been released. E.J. Dionne has a good summary, noting that it aligns itself (mostly) with the scientific consensus that global warming is mainly caused by human activity, and that fairly dramatic changes in lifestyle and consumption are needed, partly to protect the world’s poor (the primary victims of climate change). The earth is “our common home,” Pope Francis repeatedly says, noting that a “frank look at the facts” shows that our common home “is falling into serious disrepair.” He adds that “we are not God” and thus do not have “an unlimited right to trample his creation underfoot.” I have not read the whole thing, but I wanted to highlight one particular aspect of it: the intense emphasis on the need for international agreements to combat global warming. In particular, he notes the need for richer countries to put the “global common good” before their own “national interests” in order for these international agreements — which have failed in the past — to succeed. “Interdependence obliges us to think of one world with a common plan,” Pope Francis writes, adding that “enforceable international agreements are urgently needed.” It’s being widely asserted that Pope Francis’s encyclical will put pressure of some kind on the GOP presidential candidates — particularly the Catholic ones — to more seriously engage on climate change. There are various reasons why climate could have a higher profile in this cycle than in past ones. And there’s another layer to this, as well: the climate debate could also feed into a broader argument over the proper extent of our international engagement on multiple fronts — on climate, but also on Iran and even Cuba — which could become a key point of debate in the 2016 presidential race.

Championing Environment, Francis Takes Aim at Global Capitalism — The encyclical on the environment that Pope Francis released on Thursday is as much an indictment of the global economic order as it is an argument for the world to confront climate change. It offers blistering criticism of 21st-century capitalism, expressing skepticism about market forces, criticizing consumerism and cautioning about the costs of growth. But where Francis’ environmental and economic agendas meet, he leaves something of a paradox, and ammunition potentially for both sides in the debate over how to address climate change. While urging swift action to curb the burning of fossil fuels that have powered economies since the Industrial Revolution, he also condemns the trading of carbon-emission credits, saying it merely creates new forms of financial speculation and does not bring about “radical change.” But carbon trading is the policy most widely adopted by governments to combat climate change, and it has been endorsed by leading economists as a way to cut carbon pollution while sustaining economic growth. Francis’ encyclical also amplifies the argument that rich countries should shoulder the economic burden of cutting emissions, an issue that has blocked progress in global climate change negotiations for years. While environmentalists around the world praised the document, some of its core messages could give pause to environmental economists and negotiators who have sought to find a path to a new United Nations accord that is politically palatable to major economies and corporations. In particular, environmental economists criticized the encyclical’s condemnation of carbon trading, seeing it as part of a radical critique of market economies.

Release of encyclical reveals pope’s deep dive into climate science - — He warns of “synthetic agrotoxins” harming birds and insects and “bioaccumulation” from industrial waste. He calls for renewable fuel subsidies and “maximum energy efficiency.” And although he offers prayers at the beginning and end of his heavily anticipated missive on the environment, Pope Francis unmasks himself not only as a very green pontiff, but also as a total policy wonk. In the 192-page paper released Thursday, Francis lays out the argument for a new partnership between science and religion to combat human-driven climate change — a position bringing him immediately into conflict with skeptics, whom he chides for their “denial.” Francis urges taking public transit, carpooling, planting trees, turning off unnecessary lights, recycling — and boycotting certain products. He called for an “ecological conversion” for the faithful. “It must be said that some committed and prayerful Christians, with the excuse of realism and pragmatism, tend to ridicule expressions of concern for the environment,” he writes. A highly accurate draft, which leaked Monday in the Italian press, had already begun dividing politicians and theologians. As the Vatican rolled out the official version to scenes of Francis on a big screen planting a tree, the debate over the proper role of a pope — one that was already popping up on the presidential campaign trail in the United States — immediately intensified. Environmental activists, meanwhile, widely cheered the rise of an unlikely ally in the fight against climate change, one whose voice could resonate not only in major global conferences but also in prayer groups and church pews.

Activists, U.N. celebrate pope's call to arms on climate change (Reuters) - Pope Francis' appeal to save the planet won enthusiastic praise from climate change activists, scientists and religious figures on Thursday as a moral imperative to governments to make 2015 a turning point in efforts to slow global warming. In the first papal document, or encyclical, dedicated to the environment, Pope Francis demanded swift action to head off what he saw as looming environmental ruin and urged the world's leaders to hear "the cry of the earth and the cry of the poor". He called for "decisive action, here and now," to stop environmental degradation and global warming, squarely backing scientists who say it is mostly man-made. Activists and scientists celebrated the intervention as bringing a moral element to the political controversy over climate change, which some conservative politicians and business executives - especially in the United States - doubt has been caused by human activity. "Climate change is no longer just a scientific issue; it is increasingly a moral and ethical one," said Yolanda Kakabadse, president of the WWF international conservation group. "It affects the lives, livelihoods and rights of everyone, especially the poor, marginalised and most vulnerable communities." Christiana Figueres, head of the Bonn-based U.N. Climate Change Secretariat, said the encyclical importantly provided a powerful impetus to governments to agree a strong pact when they meet in Paris from Nov. 30 to Dec. 11. "This clarion call should guide the world towards a strong and durable universal climate agreement in Paris at the end of this year," Figueres said in a statement.

Pope Francis May Find Wariness Among U.S. Bishops on Climate Change - Never before, church leaders say, has a papal encyclical been anticipated so eagerly by so many. With Francis expected to make the case that climate change, unchecked development and overconsumption are exacerbating the suffering of the poor, advocates for the environment and the poor are thrilled.Some said they were wary about getting the church enmeshed in the debate over climate change, a contentious issue in the United States. They also expressed concern about allying with environmentalists, some of whom promote population control as a remedy, since the church sees abortion and contraception as great evils. Some bishops said they had received hate mail from Catholics skeptical of climate change. That has added to the bishops’ hesitation and confusion on the topic. Cardinal Theodore McCarrick, the retired archbishop of Washington, said that at the meeting on Thursday, when the bishops discussed their top priorities for the coming years, “nobody mentioned the environment.” “They don’t understand it. They don’t understand the complexities.” Cardinal McCarrick said of the bishops. He added, “When the encyclical comes out they’ll all get behind it, but they’re waiting to see what’s in it.” Their wariness is one of many signs of the challenges Pope Francis faces with American Catholic leaders, who are more cautious and politically conservative than he seems to be on certain issues. Most in this current generation of bishops were appointed and shaped by Francis’ more conservative predecessors, Popes Benedict XVI and John Paul II.

It’s Not Just Climate — Pope Francis Is Also Warning About The Health Of Our Oceans -- With the release of his encyclical “Laudato Si” on Thursday, Pope Francis made headlines for recognizing the threat of human-caused climate change.  But the encyclical also called attention to the world’s oceans, affirming just how vital they are to “our common home.” In Laudato Si, Francis talked about the unique threats marine environments face in a planet changed by humanity. Below are six warnings from the Pope about the health of our oceans. Quotes from the encyclical are shown in italics, along with their corresponding passage number.“The melting in the polar ice caps and in high altitude plains can lead to the dangerous release of methane gas, while the decomposition of frozen organic material can further increase the emission of carbon dioxide.” [24]  “A rise in the sea level…can create extremely serious situations, if we consider that a quarter of the world’s population lives on the coast or nearby, and that the majority of our megacities are situated in coastal areas.” [24] “Carbon dioxide pollution increases the acidification of the oceans and compromises the marine food chain. If present trends continue, this century may well witness…an unprecedented destruction of ecosystems, with serious consequences for all of us.” [24] “Underground water sources in many places are threatened by the pollution produced in certain mining, farming and industrial activities, especially in countries lacking adequate regulation or controls. It is not only a question of industrial waste. Detergents and chemical products, commonly used in many places of the world, continue to pour into our rivers, lakes and seas.” [29] “Marine life in rivers, lakes, seas and oceans, which feeds a great part of the world’s population, is affected by uncontrolled fishing, leading to a drastic depletion of certain species. Selective forms of fishing which discard much of what they collect continue unabated. Particularly threatened are marine organisms which we tend to overlook, like some forms of plankton; they represent a significant element in the ocean food chain, and species used for our food ultimately depend on them.” [40] “In tropical and subtropical seas, we find coral reefs comparable to the great forests on dry land, for they shelter approximately a million species, including fish, crabs, mollusks, sponges and algae. Many of the world’s coral reefs are already barren or in a state of constant decline.” [41]

Hey Frackers – Mother Nature has Given You The FINGER Again…Happy father’s Day!  -- The far right “loony-squad” in Texas is at it again…instead of just being paranoid about Uncle Sam invading Texas (thank you Sensei Norris…), now they are fretting over the latest blow-back from Mother Nature in the form of Tropical Storm Bill.  Rather than pull their heads out of their assholes to see what is REALLY happening all around the planet,  these paranoid and delusional misanthropes are now blaming Mother Nature’s wrath on a plot by the Federal Government to cause severe storms to hit the region – in prelude to an invasion…of Texas.  Now, not everybody in Texas is completely out of touch with reality or psychotic,  as confirmed by the latest poll showing that 58% in Houston agree with the pope that warming’s mainly man-made, but the small core of mental defectives that obsess over being invaded by Uncle Sam, along with a larger group of rabid science deniers, show how depraved America’s Far Right has become. Contrary to claims by the Bible-preaching Bunko Artists that “Mankind has dominion over the Earth”, the reality these poor dumb bastards cannot grasp is that Mother Nature is in control now, and praying to their man-mad God will do little to save them from Mother Nature’s wrath…for cooking the planet by burning Fossil Fuels. So, for the third time in 6 weeks, Mother Nature has given our Oil & Natural Gas Capitols the FINGER – this time for Father’s Day.  As thousands of people in Texas, Oklahoma and other Red States spend this weekend cleaning up and trying to put their lives back in order (after the flood waters recede), you can rest assured that Mother Nature is not finished having her way with these people.

A New Era For Utilities -- Last year, a report from The Rocky Mountain Institute (RMI), The Economics of Grid Defection, put fear into the hearts of many utility operators and some significant investors. Talk of a ‘death spiral’ for the utility business entered the mainstream. Many of the biggest names in the investment banking world took note. From Barclays one report stated: “We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade.” Morgan Stanley drew a similar conclusion: “Over time, many U.S. customers could partially or completely eliminate their usage of the power grid.” Even the mighty Goldman Sachs agreed: “Grid independence is soon to be a reality.” RMI has refined its thinking and issued a new report this April, The Economics of Load Defection, which offers a startling conclusion: “We think large scale power plants are the structural losers from this trend...The customers don’t leave, but their load does, ‘defecting’ from grid supply to behind-the-meter, grid-connected solar PV and batteries.”  How many home and business owners will become net suppliers to the grid over the next ten or fifteen years? Who will own and manage the assets? The answer to these questions is the measure of the risk to generating and transmission utilities and central power plant owners.

FirstEnergy: Power plant construction will move forward - FirstEnergy Corp. announced that it will be moving forward with a necessary construction project at its Beaver County power plant. President Jim Lash said the company has decided to move ahead with its project that will remove water from the Bruce Mansfield power plant’s stream of coal ash slurry. The reason for proceeding with the construction is due to the company’s deadline approaching. FirstEnergy’s goal with the new facility is to ensure the plant will be able to continue operating after December 31st, 2016. As reported by the Pittsburgh Business Times, “That’s the date FirstEnergy has agreed to close the impoundment to which the Bruce Mansfield slurry is stored. As a result of the agreement, the plant needs to send its waste elsewhere, but the new disposal plans will require that the slurry be dried first.” Lash explained in that order for the company to meet its deadline and have the facility completed, it had to move forward with construction. Executives of FirstEnergy had previously said the company would continue with preliminary work, but now the company is digging and pouring foundations.

EIA’s mapping system highlights energy infrastructure across the United States - Today in Energy - U.S. Energy Information Administration (EIA): EIA's energy mapping system is a data-intensive visual reference tool that includes several map layers defining energy infrastructure components across the United States. Using this series of maps, viewers can see crude oil, petroleum, natural gas, or hydrocarbon gas liquid pipelines, terminals, and ports in their area, as well as high voltage electric transmission lines. The mapping system combines information from many government agencies as well as public and private sources. Understanding infrastructure components is helpful as energy supply and consumption patterns change. These map layers can be presented over several base layers with geographic, topographic, street, or satellite image detail, as well as with state, county, and congressional district borders. Each state's map is also included as part of EIA's State Energy Data System. For instance, within North Dakota, viewers can see several components of energy infrastructure (pipelines, rail terminals, transmission lines) in addition to parts of the energy system, such as the locations of natural gas processing plants, coal mines, and wind power plants (including individual turbines).

India Just Upped Its Solar Target Five-Fold, Will Install More Solar This Year Than Germany --On Wednesday, Prime Minister Narendra Modi and the Indian Cabinet approved increasing the country’s solar target five times to a goal of reaching 100 gigawatts, up from 20 GW, by 2022.  The new solar capacity will be nearly split between residential and large-scale solar projects, with some 40 GW expected to be generated from rooftop installations and the remaining 60 GW coming from larger, grid-connected projects, such as solar farms.  “With this ambitious target, India will become one of the largest green energy producers in the world, surpassing several developed countries,” reads the announcement. “Solar power can contribute to the long term energy security of India, and reduce dependence on fossil fuels that put a strain on foreign reserves and the ecology as well.” The announcement ups the stakes significantly for the Jawaharlal Nehru National Solar Mission, launched in 2010 by Prime Minister Manmohan Singh, which aims to help the country achieve success with solar energy deployment.  In 2013 India added just over one GW of solar capacity to its grid, which at the time nearly doubled the country’s cumulative solar capacity to 2.18 GWs. In the ensuing year and a half, Indian leadership has become more focused on securing financing to ramp up its solar program as part of a stated goal of bringing power to the 400 million Indians currently getting by without it. The current power deficiencies, combined with the rising costs of fossil fuel-generated power, make solar and other renewables an even more attractive option.

Fukushima power plant operator 'knew of need to protect against tsunami' - The operator of Japan’s ruined Fukushima Daiichi nuclear power plant was aware of the need to improve the facility’s defences against tsunami more than two years before the March 2011 disaster but failed to take action, according to an internal company document. The revelation casts doubt on claims by Tokyo Electric Power (Tepco) that it had done everything possible to protect the plant, which suffered a triple meltdown after being struck by a towering tsunami. The nuclear accident, the world’s worst since Chernobyl 25 years earlier, caused massive radiation leaks and forced the evacuation of more than 150,000 people, most of whom have yet to return to their homes. Tepco executives agreed that building coastal defences to defend the plant against tsunami higher than those previously recorded in the region was “indispensable”, according to the document, which was discussed at a meeting at the plant in September 2008 – two and a half years before the disaster. The utility disclosed the document this week during a lawsuit brought by more than 40 Tepco shareholders who are demanding damages totalling 5.5 trillion yen from company executives.

Coal industry finds comfort in pope's encyclical --  Not only environmental activists and renewable energy advocates are celebrating Pope Francis’ strong message on climate change. Even the coal industry found something they like. The World Coal Association highlighted the pope’s emphasis on helping the poor as a crucial part of the fight against climate change. WCA chief executive Benjamin Sporton told AP that to address the developing needs of poor countries, “we need to have affordable reliable energy, and coal is a key part of achieving that.” He disagreed with some environmental groups who interpreted the pope as saying fossil fuels need to be phased out, seeing it instead as “a call to address emissions.” The encyclical says high-polluting technologies based on fossil fuels — “especially coal, but also oil and, to a lesser degree, gas” need to be progressively replaced. But it also says that until renewable energy sources are widely accessible, “it is legitimate to choose the lesser of two evils to find short-term solutions.” Sporton says, “The way I’d interpret that is we need to use the best technology that we have available with the lowest emissions. There are many countries that will continue to use coal in the future so we need to help them use the best coal technology that is available.”

Crunch time for the coal industry - Coal prices in the US are collapsing. The September Appalachian coal futures contract gave up over 2% on Friday as the industry faces unprecedented challenges. One can see the decline in the industry's activity levels by tracking rail shipments of coal. Railcar loadings are now at the lowest level in decades. The industry's woes have been caused by a "perfect storm" of events that wrecked havoc on US coal producers. Here are some of the recent developments:
1. US natural gas production has been on the rise for the last decade, continuing through today in spite of the ongoing reductions in rig count. Prices have declined recently as inventory levels returned to normal after the draw-down during the winter of 2013-14. As a result, power producers are increasingly shifting to natural gas.

2. New EPA regulation, particularly the Mercury and Air Toxics Standards (MATS), is also pressuring electricity producers to retire some coal power plants. PLATTS: - Appalachian Power said this week the cost to upgrade coal-fired units at four power plants in Virginia and West Virginia that were retired in May would have been so high it did not even compile cost estimates for the work.
3. Global coal demand has fallen off sharply, driven largely (but not entirely) by China. The Sydney Morning  Herald: China's coal imports slumped 41 per cent in May from a year earlier to 14.25 million tonnes and were down sharply on April despite industry expectations of a pick-up in seasonal demand, data showed on Monday. Total imports in the first five months of the year reached 83.26 million tonnes, down 38.2 per cent compared with the previous year, according to preliminary data from China's General Administration of Customs.May's imports were down 28.6 per cent on April, according to the data, while Reuters calculations showed that imports were down 40.6 per cent compared to May 2014.

Ohio lawmakers punt on drilling tax hike, send issue to study committee -- Unable to reach agreement on raising the state's oil and gas severance tax, Ohio legislative leaders said Tuesday they're sending the issue to a study committee. With time running out for lawmakers to pass a new two-year budget plan, House and Senate leaders said they agreed to have a proposed Ohio 2020 Tax Policy Study Commission review a severance tax hike and report on its findings by Oct. 1. So the budget, which must be in place by the end of this month, will go forward without a severance tax. Lawmakers have talked for years about raising taxes on oil and gas fracking, which has been accelerating in eastern Ohio. The debate has pitted Republican Gov. John Kasich and the Ohio Senate, supporters of a tax hike, against the oil and gas industry, whose position is supported by the Ohio House.. "We've never had everybody in the same room together," Senate President Keith Faber said, when asked why lawmakers haven't been able to reach agreement so far. "Putting everybody in the same room together, I think, will lead to fruitful negotiations."

GOP axes John Kasich's oil & gas tax from budget - – Republican lawmakers say they won't add a tax on oil and gas obtained through fracking into the state budget as Gov. John Kasich asked. In February, Kasich asked for a 6.5 percent tax on oil and gas at the fracking well head and 4.5 percent tax on natural gas and liquids obtained downstream. That was higher than the 2.75 percent tax the governor suggested last year. Twenty percent of the tax revenue would have gone to counties with wells and the rest would have helped pay for an income tax cut. House Republicans stripped the fracking tax from their version of the state's two-year budget. Kasich, who is fundraising for a potential presidential bid, complained through a spokesman about the alternate tax plans offered by fellow Republicans, saying they could dismantle Ohio's recovery.  On Tuesday, Ohio Senate President Keith Faber, R-Celina, and House Speaker Cliff Rosenberger, R-Clarksville, said they will not add a tax to the two-year state budget, which the Senate plans to vote on this week. Both said there wasn't enough time to agree on a fracking tax before the June 30 deadline for passing the budget. Instead, they created a task force with lawmakers and members of the Kasich administration to discuss options, which likely would include a fracking tax hike. A report from the task force would be due Oct. 1. Ohio currently taxes the industry at 20 cents per barrel of oil — one of the lowest taxes in the country.

Ohio GOP creates panel to discuss energy drilling taxes - Throwing their hands up on any chance of reaching a deal for this budget, Republican legislative leaders today announced creation of a committee to negotiate a possible increase in taxes on Ohio’s new age of oil and natural gas drilling. A report from the study would be due on lawmakers’ desk by Oct. 1. “Today we have a choice — to hold that dialogue, move forward with an unfinished policy in the budget, and fight it out in conference committee or to continue the process outside of the budget and work toward a meaningful compromise during the next three months,” Senate President Keith Faber (R., Celina). House Speaker Cliff Rosenberger (R., Clarksville), who has been adamant that a severance tax hike would not be in the budget, said the committee will allow for an “open and frank discussion” at once with the industry, both legislative chambers, and Gov. John Kasich’s office. Senate Finance Committee plans to unveil another round of changes today to its proposed $71.3 billion, two-year spending plan, but has put off a final committee vote until Wednesday. A full Senate vote could come Wednesday or Thursday. Mr. Kasich has made multiple attempts to increase the severance tax on hydraulic fracturing, or “fracking,” wells with much of the revenue to pay for additional income tax cuts. Mr. Kasich had included his latest proposal in his budget, but House Republicans stripped it from the measure before sending its version of a budget to the Senate. The Senate has continued to negotiate with the industry.

Another stall on fracking tax - Columbus Dispatch: Ohio Senate President Keith Faber says he and his colleagues can’t include a new severance-tax package in the biennial budget they’re working on because the June 30 budget deadline looms, and they’ve run out of time after a month and a half of negotiation with the oil and gas industry. Now, legislative leaders promise, just give them three more months to ponder it and they’ll produce a deal that the industry will accept. That would be more convincing if Gov. John Kasich hadn’t been pleading with lawmakers and the industry on the same issue for three years. Over and over, Kasich has made the case that Ohio’s severance tax, far lower than those in other shale-drilling states, should be raised, to give Ohioans a fair return for the natural resources being sucked out of Ohio for the profit of mostly out-of-state companies. Over and over, he has been rebuffed by lawmakers protecting the industry, which rejects any reasonable tax and, by the way, contributed about $1.4 million total to legislators and other state candidates in the past election cycle. There’s little reason to think that they’ll put Ohioans first this time. Faber and House Speaker Cliff Rosenberger plan to establish a commission to study the issue. Any Statehouse veteran recognizes this as a time-honored evasion tactic, and despite Faber’s assertion to the contrary, this looks like a three-month extension of three years of delay. The commission, which will be a subgroup of a larger tax-reform committee, will have three House members (two Republicans and one Democrat), a like complement of Senate members

Kinder Morgan seeks shippers for $4 billion pipeline from Ohio to Gulf Coast for Utica Shale liquids -- A Texas pipeline company is seeking shippers to send natural gas liquids from Ohio and Pennsylvania to the Gulf Coast. Kinder Morgan Inc., based in Houston, is seeking drilling companies through Sept. 15 for its Utica Marcellus Texas Pipeline, a $4 billion project that will stretch 1,100 miles. The open season for signing up began Wednesday with the announcement by subsidiary Utica Marcellus Texas Pipeline LLC. The pipeline would run from Ohio’s Harrison and Tuscarawas counties to Natchitoches, La., and then to Mont Belvieu, Texas. The plans call for abandoning and converting 964 miles of existing pipelines operated by Kinder Morgan’s Tennessee Gas Pipeline Co. from Ohio to Louisiana to transport liquids including ethane, propane and butane from the Utica and Marcellus shales. That would alter 24-inch and 26-inch lines. The plans would require construction of 202 miles of new 20-inch pipeline from Louisiana to Texas. The new pipeline will provide a connection to the petrochemical industry on the Gulf Coast and to a Kinder Morgan dock for export. About 120 miles of new liquid pipelines would be built in Ohio, Pennsylvania and West Virginia, along with a liquids storage facility in Tuscarawas County. It would take liquids from at least three processing facilities in eastern Ohio.

Democracy Day event elaborates on charter for Athens County - Advocates for turning Athens County into a charter government argued that it would give power back to residents and allow the county to impose standards on the oil and gas industry similar to what Athens City Council passed in 2013. Those standards have yet to be tested as no oil- or gas-drilling activity has occured in the city of Athens. Democracy Day at the Shade Community Center on Saturday featured a variety of speakers and panels, and was sponsored by the local activist group Democracy Over Corporations, the Appalachian Peace and Justice Network, and a variety of local businesses.  A heavy focus of the event was the Athens County Bill of Rights Committee's proposal to voters this November for turning Athens County into a charter government. A similar proposal is underway in Meigs County and several others throughout Ohio. Currently, only Summit and Cuyahoga counties are charter governments in Ohio, with the rest being statutory. A panel speaker, Nancy Pierce, explained that a charter would not change the way Athens County government is set up, but it would give the county board of commissioners the ability to make law, and it would allow citizens the right to petition initiatives and referendum. She pointed to Chapter 47 of the city of Athens municipal code, enacted by City Council in 2013, that calls for the imposition of various fees and controls on companies looking to conduct horizontal hydraulic fracturing oil-and-gas drilling business within city limits. The city's code includes fees for monitoring for groundwater contamination and air pollution, control over industry trucks such as weight limits, and the funding of insurance premiums for liability concerns.  The proposal does include a Bill of Rights for the county that would seek to ban fracking activities, McGinn said, but it is set up to allow for what's known as severability, so that if that portion or any portion is struck down by a court, for instance, the rest of the charter remains intact. "If part of it is thrown out for some reason, the other parts will stay," he said.

Fracking and water: Quantity, not just quality, a concern - Even in a water-rich state like Ohio, growing water use for fracking could strain water reserves, according to new research from the FracTracker Alliance, a non-profit organization that compiles data, maps and analyses about the impacts of the oil and gas industry. FrackTracker compared the oil and gas industry’s water use within southeastern Ohio’s Muskingum Watershed Conservancy District (MWCD) to residential use in that area, which covers roughly 20 percent of Ohio. Residential water use includes families’ home use, but excludes water for agricultural, industrial and other purposes. FracTracker found that the oil and gas industry’s use ranged from 11 to 18 percent of the residential amount. If current trends continue, the industry’s water use could rise to 25 percent of the residential amount within just a year or two, reported Ted Auch, Great Lakes program coordinator for FracTracker.  Although much of the area is rural, Auch said the growing water demands are cause for concern, because those demands might ultimately limit the region’s ability to respond to periods of drought, climate change or other events. Industry sources dismissed concerns about southeastern Ohio’s water supplies. Local authorities are not worried now, although they note that ongoing management is needed.

Utica and Marcellus well activity in Ohio - Activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to last the well activity update. The state’s severance tax, on the other hand, seems to have made no progress. Governor John Kasich is hopeful about his severance tax being passed by legislation, but legislation is taking its sweet time when it comes to doing so. During an interview, Gov. Kasich explained there has been “virtually no progress made” towards the tax. The Governor’s tax would increase what companies operating in the Utica Shale formation pay to drill. A large portion of the revenue generated from the tax would be allocated to funding Gov. Kasich’s proposed income tax cut.The following information is provided by the Ohio Department of Natural Resources (ODNR) and is through the week of June 13th. Activity in the Utica Shale formation in Ohio has caused a few slight changes in comparison to last week’s update.  The ODNR reported 428 wells were permitted, 401 drilled, 904 producing, 25 inactive, 24 in final restoration and 3 abandoned.  This brings the total number of wells in the Utica to 1,932. The Marcellus Shale in Ohio remains unchanged from last week’s well report.  The area is still sitting at 15 wells permitted, 11 drilled and 16 wells producing.  There are a total of 44 wells in the Ohio Marcellus Shale.

Marcellus permit activity in Pennsylvania -- The Marcellus Shale formation in Pennsylvania saw quite a bit of action over the last week, along with some good news for housing in the Marcellus Shale region in the state. Pennsylvania’s state impact fee has always brought in revenue for the communities and municipalities that are impacted by Marcellus Shale operations, and this year housing throughout the region will be receiving serious improvements thanks to the fee.  The Pennsylvania Finance Agency is now issuing a Request for Proposals for projects that will benefit and upgrade housing in the Marcellus Shale. Funding for the projects will come directly from the 2014 Marcellus Shale impact fees, which includes $5 million from 2014 wells, drilled or active. It also includes “Marcellus Shale impact fee funds provided to municipalities that exceeded a certain percentage or dollar amount set by law. The following information is provided by the Pennsylvania Department of Environmental Protection and covers June 8th through June 14th. New: 26 - Renewed: 11 Top Counties by Number of Permits  Elk: 10 - Lycoming: 8 - Susquehanna: 7 - Bradford: 5 - Westmoreland: 2

Communities can do little to keep PennEast pipeline out - In Moore Township, where farmers tend miles of uninterrupted fields against the backdrop of Blue Mountain, residents pride themselves on their commitment to a pastoral way of life. So when PennEast Pipeline LLC proposed a 108-mile natural gas pipeline that would cut through seven miles of the township, residents made their dissatisfaction known. They planted signs in their yards and peppered supervisors with phone calls and emails, imploring them to stop it. Moore supervisors didn’t need any convincing. The last thing they want is a pipeline that would “come up over the mountain,” cross the historic Appalachian Trail and pass near the Hokendauqua Creek, a popular trout fishing spot among locals. “It will permanently leave a scar on the land that will never go away,” Supervisor Richard Gable said. “It’s going to affect a lot of people.” But as they looked at options, Moore supervisors learned there is little they can do. “Can we prevent them from coming through the township? The answer is no,” supervisors Chairman David Tashner Sr. told residents at a township meeting in October. Moore Township isn’t alone. Twenty-six municipalities from Wilkes-Barre to Mercer County, N.J., could be affected. Of about 845 properties, nearly 200 are in Northampton County, according to PennEast.

Bradford County might join lawsuit against gas companies: Commissioners concerned about growing problem of large deductions from royalty checks - – Bradford County might join one of the lawsuits that have been brought against gas companies for allegedly taking large, unfair deductions for post-production costs from local landowners’ royalty checks, the Bradford County commissioners announced Thursday. “We have instructed our solicitor to look at all the different lawsuits” that have been brought against gas companies for taking unreasonably large deductions for post-production costs from Bradford County landowners’ royalty checks, Doug McLinko, chairman of the Bradford County commissioners, said at the commissioners’ meeting on Thursday. “We are strongly considering joining one of the lawsuits” as a plaintiff, he said. Bradford County has leased the gas rights to over 900 acres of land that it owns, McLinko said. The county would join one of the lawsuits not only to “protect the county going forward” from large deductions being taken from its royalty checks, but to show support for property owners who are having “very unreasonable deductions” taken from their royalty checks,” McLinko said. Currently, the county is receiving royalty payments on over 90 acres of land that it owns in West Burlington Township and in the Wyalusing area, said Bradford County Chief Clerk Michelle Shedden. The royalty payments that the county receives come from Chesapeake Energy Corp., she said.

What happened to 160000 fracking jobs? Under Wolf, the numbers change - Last week Pennsylvania changed the way it counts jobs associated with the Marcellus Shale industry.  Somehow Pennsylvania lost 160,000 gas industry jobs overnight.  What happened? Did drillers flee at the specter of a new tax on production? Not quite. Although companies have been laying off workers and cutting costs– lackluster market conditions don’t explain this shift. Instead, it was a decision made under Governor Wolf’s new administration. Last week the state Department of Labor and Industry quietly changed the way it tracks employment in the Marcellus Shale industry.  “Those numbers were a joke,” says John Hanger, Wolf’s secretary of planning and policy. ”The errors were so glaring, they had to be changed.” Wolf’s predecessor Tom Corbett, a Republican, often credited drillers with supporting more than 200,000 Pennsylvania jobs.  “We were very uncomfortable with some of the misrepresentations under the past administration,” says labor department spokeswoman Sara Goulet. As StateImpact Pennsylvania has previously reported, the way the state reported gas jobs had been repeatedly questioned over the years by independent economists. Roughly 30,000 people work directly in six “core” oil and gas industry jobs. But starting in 2011, the labor department began publishing a monthly booklet called Marcellus Shale Fast Facts, which showed about 200,000 other jobs in 30 “ancillary” industries. This figure included every road construction worker, trucker, and steel worker in Pennsylvania– whether they had ties to the gas industry or not. The two numbers (core and ancillary) were often added together by industry boosters, who then claimed the Marcellus Shale supported a quarter-million jobs statewide.  In its new analysis, the labor department credits the gas industry with 89,314 jobs during the third quarter of 2014. The figure includes direct jobs and those in related industries.

Is The Rogersville Shale The Next Shale Formation to be Fracked? - Members of the Ohio Valley Environmental Coalition gathered the public Monday night in Westmoreland, near Huntington, to discuss the Rogersville Shale. The forum was designed to inform the public of a newly discovered shale formation, the Rogersville Shale. The shale is concentrated in Calhoun, Roane, Jackson, Kanawha, Putnam, Lincoln, Wayne and Cabell counties in West Virginia, but also extends into Kentucky. Dianne Bady is with the Ohio Valley Environmental Coalition. "There is a lot of interest on the part of oil and gas companies in the very deep Rogersville shale formation that underlies parts of eastern Kentucky and western West Virginia," Bady said. The forum featured presenters who have been affected by the influx of fracking in the northern Marcellus Shale region of West Virginia, each with a different story about what fracking has done to their community. Bady says they just want to inform and educate before things begin to change because of the new shale discovery.  "Before this part of the state is turned into a major oil and natural gas production area and transformed into something that looks nothing like it does now that people in the area ought to know what’s going on and have a say in what kind of economic development we want to see in this part of the state," Bady said. Marilyn Howells is from Wayne County and has already received a letter about purchasing her mineral rights. She says just wants people in the region to think about what fracking could mean and to make sure to consult others before making a decision.

W.Va., Va. coalition takes a stand against natgas pipeline -— A coalition of environmental and conservation groups in West Virginia and Virginia announced its opposition Thursday to the proposed 550-mile route of a natural gas pipeline. The position represents a shift for the Allegheny-Blue Ridge Alliance, which was formed last September as an “information coalition” on the development of the Atlantic Coast Pipeline. “We now have decided to broaden our role and adopt the policy” of opposing the pipeline’s route, the alliance’s chairman, Lewis Freeman, wrote in an email. The alliance cited a number of reasons for its opposition, including fears over water safety, the sensitive mountainous terrain it would cross and the potential harm to habitat of protected plants and animal species. The pipeline also would carve up portions of the Monongahela and George Washington national forests, as well as the Appalachian Trail, the alliance said. The route for the pipeline is “not in the best interest of the public good of the affected communities and citizens of Virginia and West Virginia,” the alliance said in a news release. The pipeline is being proposed by Dominion Resources, Duke Energy and other partners. It would begin in Harrison County, West Virginia, and stretch through Virginia and North Carolina to Robeson County, near the South Carolina border.

Fracking to blame? Alabama earthquakes occurring near shale-gas developments - -- More than a dozen minor earthquakes have struck western Alabama’s Greene County since November. The area is near the Black Warrior Basin, where thousands of hydraulic fracturing natural gas wells have been operating in recent years.  The Associated Press reported Sunday that Greene County has had 14 notable yet inexplicable seismic events since November 20, starting with a magnitude 3.8 quake 10 miles northwest of Eutaw. The latest was a magnitude 3.0 earthquake on June 6. "It is interesting that recently there has been more activity there than in the last four decades," Geological experts are now using a seismic monitor to gather information on the quakes in hopes that they can understand the exact cause.   Some wonder if hydraulic fracturing, or fracking, in the area is the source of unusual seismic activity, as the oil and gas extraction process has been the cause of quakes in other areas of the United States, including Oklahoma and Ohio.   Nick Tew, Alabama’s state geologist, told AP that no oil or gas is currently being produced in the area where the quakes occurred in Greene County, and so there has been no recent wastewater disposal either.  Tew is the head of both the Geological Survey of Alabama and the State Oil and Gas Board of Alabama, the latter of which regulates drilling operations in the state.  Tew was the former head of American Geosciences Institute, an organization that downplays fracking risk, and vice-chairman of the Interstate Oil and Gas Compact Commission. He currently serves on the National Petroleum Council.

Feds seek to separate fact from fiction in earthquakes caused by gas wastewater injection - Yes, injection of wastewater from fracking operations and oil recovery deep into the earth is causing earthquakes in the central United States. No, fracking wells are not directly causing the earthquakes. That’s a message from the U.S. Geological Survey as it seeks to battle misconceptions from a study released in January that concluded that humans were responsible for minor earthquakes in eight states. In the last six years, the number of earthquakes with a magnitude of 3 or larger has risen dramatically. Such quakes averaged 24 per year from 1973 to 2008. From 2009-2014, such earthquakes shot up to 193 per year. That latter period coincides with the spread of natural gas recovery by hydraulic fracturing, or fracking, in parts of the the U.S. More specifically, it coincides with a method of disposing of saltwater and chemicals from gas and oil operations by injecting them deep underground, below aquifers that may provide drinking water.“This process increases the fluid pressure within fault zones, essentially loosening the fault zones and making them more likely to fail in an earthquake,” the U.S. Geological Survey said in a recent news release titled “Six Facts about Human-Caused Earthquakes.” “When injected with fluids, even faults that have not moved in historical times can be made to slip and cause an earthquake if conditions underground are appropriate.” The federal agency said earthquakes caused by wastewater injection have been found in Ohio, Alabama, Arkansas, Colorado, Kansas, New Mexico, Oklahoma and Texas.However, the service notes that in many locations the wastewater being injected does not come from fracking wells. For example, in Oklahoma, the source of most wastewater is from oil wells. But near Youngstown, Ohio, and Guy, Arkansas, where injection was placed as the cause for earthquakes, the wastewater was made largely of spent hydraulic fracturing fluid.

Wastewater disposal is triggering more earthquakes, study finds - The number of earthquakes taking place in the United States is on the rise, and humans are causing at least some of them by drilling for shale gas and oil and, more likely, by using deep injection wells to dispose of drilling fluid. That’s the word from the U.S. Geological Survey, which put out a report this month after studying the increase in seismic activity in Ohio and other states were shale drilling is taking place.  “The central United States has undergone a dramatic increase in seismicity over the past six years,” the USGS found.  The number of earthquakes of magnitude 3.0 or larger has increased from about 24 per year between 1973 and 2008, to about 193 per year between 2009 and 2014, researchers said. The busiest year was 2014, when drilling was still going strong and low oil and gas prices had only begun to slow the growth of new wells — there were 688 earthquakes registering 3.0 or more on the Richter scale that year, the USGS reports. So far, 2015 is busy as well, with 430 such temblors reported in the central United States through the end of May. “In the United States, fracking is not causing most of the induced earthquakes. Wastewater disposal is the primary cause of the recent increase in earthquakes in the central United States,” the report stated.

Study: Mega injections of wastewater triggers more quakes --- The more oil and gas companies pump their saltwater waste into the ground, and the faster they do it, the more they have triggered earthquakes in the central United States, a massive new study found. An unprecedented recent jump in quakes in America's heartland can be traced to the stepped up rate that drilling wastewater is injected deep below the surface, according to a study in Thursday's journal Science that looked at 187,570 injection wells over four decades. It's not so much the average-sized injection wells, but the supercharged ones that are causing the ground to shake. Wells that pumped more than 12 million gallons of saltwater into the ground per month were far more likely to trigger quakes than those that put lesser amounts per month, the study from the University of Colorado found. Although Texas, Arkansas, Kansas and other states have seen increases in earthquakes, the biggest jump has been in Oklahoma. From 1974 to 2008, Oklahoma averaged about one magnitude 3 or greater earthquake a year, but in 2013 and 2014, the state averaged more than 100 quakes that size per year, according to another earthquake study published Thursday. Since Jan. 1, the U.S. Geological Survey has logged more than 350 magnitude 3 or higher quakes in Oklahoma. Studies have linked the increase in quakes to the practice of injecting leftover wastewater into the ground after drilling for oil and gas using newer technologies, such as hydraulic fracturing. Recent studies have linked the damaging 2011 magnitude 5.7 quake that hit Prague, Oklahoma, to a nearby high-rate injection well. Unlike other studies, this new University of Colorado study looked at 18,757 wells that were associated with earthquakes within 9 miles of them and the nearly 170,000 that didn't have any quake links. Looking for the difference between the two groups, researchers determined that it was how much wastewater was pumped and how fast, said lead author Matthew Weingarten.

Studies bolster North Texas earthquakes' links to oil, gas activity - Energy company attorneys have called a recent study linking North Texas earthquakes with oil and gas activity “incomplete,” “misleading” and “flawed.” Texas regulators have also questioned the research, telling The Dallas Morning News that evidence of human-triggered quakes in Texas is “anecdotal” and not “widely accepted.” But two new scientific papers buttress findings from the earlier study, which was led by researchers at Southern Methodist University and published in April in the journal Nature Communications. A paper published Thursday in the journal Science reports an “unprecedented” surge in earthquakes in Texas, Oklahoma and other central states. It blames oil and gas operations. “We think the study produces clear evidence that the earthquake rate change is not natural,” said Matthew Weingarten, a doctoral candidate in geology at the University of Colorado, Boulder, and the study’s lead author. Weingarten and his colleagues at the university and at the U.S. Geological Survey concluded that the entire increase in earthquake rates in Texas and nearby states was associated with fluid injection wells. The SMU study concluded that wastewater disposal wells likely triggered a series of earthquakes west of Fort Worth in 2013 and 2014. The Science study concluded that wastewater wells are more than 1.5 times as likely as other types of injection wells to be associated with quakes. Wells that inject more than 300,000 barrels of wastewater per month, known as high-rate injection wells, were disproportionately associated with ground shaking. One of the wells linked with the Fort Worth-area earthquakes averaged approximately 369,000 barrels per month from June 2009 through September 2013, according to the Nature Communications study. The Fort Worth Basin has one of the highest concentrations of active disposal wells in the country, with some areas in the basin containing five wells per 2-square-mile area, the study reported.

More oil, gas drilling causing more earthquakes: Study: A dramatic increase in the rate of earthquakes in the central and eastern US since 2009 is associated with fluid injection wells used in oil and gas development, a new study has claimed. Advertisement: Replay Ad Ads by ZINC The number of earthquakes associated with injection wells has skyrocketed from a handful per year in the 1970s to more than 650 in 2014, according to University of Colorado Boulder doctoral student Matthew Weingarten, who led the study. The increase included several damaging quakes in 2011 and 2012 ranging between magnitudes 4.7 and 5.6 in Prague, Oklahoma, Trinidad, Colorado, Timpson, Texas, Guy and Arkansas, researchers said. "This is the first study to look at correlations between injection wells and earthquakes on a broad, nearly national scale," said Weingarten. "We saw an enormous increase in earthquakes associated with these high-rate injection wells, especially since 2009, and we think the evidence is convincing that the earthquakes we are seeing near injection sites are induced by oil and gas activity," Weingarten said. The researchers found that "high-rate" injection wells - those pumping more than 300,000 barrels of wastewater a month into the ground - were much more likely to be associated with earthquakes than lower-rate injection wells. Injections are conducted either for enhanced oil recovery, which involves the pumping of fluid into depleted oil reservoirs to increase oil production, or for the disposal of salty fluids produced by oil and gas activity, said Weingarten.

'Frac' is newest four-letter word - The newest four-letter word seems to be “frac.” And if you believe local media, it is the cause of contaminated drinking water, earthquakes, and cracks in buildings and swimming pools. And even though studies regarding hydraulic fracturing prove these claims to be false, the uninformed continue to report nonsense.  You may think a royalty owner supporting hydraulic fracturing is odd. Minerals have no value until they’re brought to the surface. In order to monetize assets contained in these tight oil/gas formations, hydraulic fracturing is necessary. It’s not a new process. It has been done safely for decades.  Contaminated drinking water is not caused by hydraulic fracturing. It could be a result of wellbore integrity or naturally occurring gas in shallow formations. Following a study looking at dozens of cases of suspected contamination, Ohio State University geochemist, Thomas Darrah, stated that “fracking was not to blame, that it was actually a well integrity issue”. An easy fix. The idea of “induced seismicity” or doing something to cause an earthquake is intriguing. But, earthquakes are not caused by hydraulic fracturing. Studies have shown they could be caused by water injection wells. From Stanford geophysicist Mark Zoback — “These microseismic events [from hydraulically fracturing a well] affect a very small volume of rock and release, on average, about the same amount of energy as a gallon of milk falling off a kitchen counter.” That’s hardly an 8.2 on the Richter scale.

Editorial: Fracking op-ed was signed by public officials, but penned by big oil - With its Republican legislative allies facing criticism that they had robbed a North Texas town of its powers, the oil and gas industry settled on a PR move in late May that fought fire with fire: enlist local officials from a handful of Texas communities to lend their names to an opinion piece praising the new, high-profile law that quashed a North Texas town’s ban on fracking. In the opinion piece, versions of which have appeared in at least seven newspapers, including the San Antonio Express-News and the American-Statesman, officials from Karnes City, Pleasanton, Midland and Lubbock argue that, with the recently signed law, “lawmakers got it right by relying on fact-based information to develop a balanced solution for Texas.” The law clarifies that oil and gas regulation is the exclusive jurisdiction of the state. It was a response to a November referendum in Denton, in which 59 percent of voters chose to ban fracking, a method of natural gas extraction, within city limits. In a twist that left local-control-minded Republican policymakers, including the governor, facing accusations of hypocrisy, killing the Denton measure fast became a legislative priority, one spurred by gas industry lobbying. Through a public information request, the Statesman learned that the opinion piece was shopped around by the Joint Association Education Initiative, which is paid for by oil and gas associations and producers. The Joint Association’s work is paid for by the Texas Oil and Gas Association, the Texas Alliance of Energy Producers, the Texas Pipeline Association and a handful of other associations and nonprofits.

What does Texas do with 945 million gallons of wastewater a day? - Freshwater is a colossal commodity to the frac operations throughout Texas. Texas now produces nearly 3 million barrels per day of crude oil and condensate – more than Mexico or Kuwait. But it must deal with more than 10 times this much water produced daily, according to Baker & Hostetler LLP. Recently, Baker Hostetler, one of the nation’s largest law firms, published a report to detail the ongoing problem of wastewater from hydraulic fracturing operations. For years, treating oily, salty water was too expensive. Now, technological, improvements, economic factors and regulatory incentives to reduce freshwater use, produced water may turn from a nuisance into a valuable commodity. A single large Eagle Ford frac job can require as much as 11.5 million gallons of water. Baker Hostetler noted that this is enough water to submerge a one-acre plot of land under more than 30 feet of water. That’s literally tons of water to treat, but a few different methods have been implemented to suppress fresh water use. Thankfully, water treatment technology has advanced over the years, and costs are now a fraction of what they were in the early years of the most recent boom. In addition, some companies may even be able to purify the water to drinking-level quality at a cost still comparable to that at which major Texas cities such as San Antonio have recently acquired freshwater supplies. Baker Hostetler referenced Apache Corporation, which now has produced water recycling operations in several of its Permian basin operations. The company now recycles all produced water from its Barnhart operations and no longer uses freshwater for hydraulic fracturing operations in that area.

UT-Arlington Study Links Fracking To Groundwater Contamination - Yesterday’s News Roundup told you about the puckering sound coming from Fort Worth’s Range Resources, a gas drilling company facing an $8.9 million fine from Pennsylvania’s Department of Environmental Protection. (The agency said the drilling company’s repeated failure to repair a gas well led to groundwater contamination.) When gas drillers began pushing hard for lax regulation on urban drilling, they claimed loudly and proudly that their industry had never contaminated groundwater. When local residents complained about their water wells going bad after drilling started nearby, the gas industry denied responsibility. Residents who sought a legal remedy found themselves facing a team of industry lawyers ready to wage courtroom war for no matter how long it took or how much it cost. Residents who were lucky enough to settle out of court signed nondisclosure agreements. Now comes a University of Texas at Arlington study that says fracking chemicals have caused “widespread” groundwater pollution in the Barnett Shale. “This study suggests the Environmental Protection Agency is taking a ‘see no evil’ approach to fracking water pollution,” said Earthworks Policy Director Lauren Pagel. “The University of Texas, working independent of the oil and gas industry, found evidence of widespread groundwater pollution connected to fracking. The EPA, working for years with the oil and gas industry to study the same issue, managed not to find that evidence in its study released earlier this month. Perhaps that’s because President Obama’s ‘all of the above’ energy policy requires favoring oil and gas over the clean, renewable energy our communities and water really need.” UT-Arlington and Inform Environmental LLC collaborated on the study, surveying 550 wells in the Barnett Shale.

'Alarming' study shows dangerous water along Barnett Shale: What's being called one of the most comprehensive groundwater studies ever done in the U.S. was published Wednesday, and, according to the lead scientist, some of its findings are "incredibly alarming." The tests were performed over the past two years in the Barnett Shale and purport to show a growing link between fracking and groundwater contamination. The study is published in the trade journal Environmental Science and Technology. Dr. Zac Hildenbrand, one of the lead authors of the study who collaborated with the University of Texas at Arlington, collected samples from 550 water wells in 13 counties along the Barnett Shale."When you find a BTEX compound with a chlorinated compound with an anti-corrosive agent all in the same water well, it's pretty shocking evidence that there's been a problem," said Hildenbrand. "The only industry that uses all of those simultaneously is the oil and gas industry." The study is quick to point out that it does not establish fracking as a source of contamination, but it does provide a strong association. "The conclusion we can make is where there is more drilling there is more abnormalities in the water," Hildenbrand said.

Cancer-Causing Chemicals Found In Drinking Water Near Texas Fracking Sites  - Scientists have found elevated levels of cancer-causing chemicals in the drinking water in North Texas’ Barnett Shale region — where a fracking boom has sprouted more than 20,000 oil and gas wells.   Researchers from the University of Texas, Arlington tested water samples from public and private wells collected over the past three years and found elevated levels of heavy metals, such as arsenic. Their findings, released Wednesday, showed elevated levels of 19 different chemicals including the so-called BTEX (benzene, toluene, ethyl benzene and xylenes) compounds.   Heavy metals are toxic when ingested, and BTEX compounds are considered carcinogenic when ingested. Exposure to BTEX compounds is also associated with effects on the respiratory and central nervous system. The study found elevated levels of toxic methanol and ethanol, as well.  The researchers were clear that they had not determined the source of the metals and chemicals. However, they noted that “many of the compounds we detected are known to be associated with [fracking] techniques,” and said the data support further research on the potential of fracking contamination.  According to the study, published in Environmental Science & Technology, chemical leaks can occur when well casings fail. Some estimates show this happens in approximately 3 percent of new gas well operations, but the researchers point out that recent data indicate well casing failure rates closer to 12 percent within the first year of well operation.

Evacuations but no injuries after pipeline ruptures in Texas - — Authorities say no one is injured after a natural gas pipeline ruptured in rural South Texas, sparking a massive fire that prompted the evacuation of nearby homes. DeWitt County Emergency Operations Center spokeswoman Peggy Fonseca says an Energy Transfer Partners pipeline ruptured near Lindenau around 8 p.m. Sunday. Fonseca said early Monday that the gas had been rerouted and the fire is extinguished. She says seven homes were evacuated but that no one is injured. Residents will be allowed to return home after safety inspections are completed. Energy Transfer Partners spokeswoman Vicki Anderson Granado says the company will investigate the cause of the rupture. The Victoria Advocate reported that the blaze could be seen from 20 miles away.

Pipeline company investigates explosion - In the 62 years she has lived in DeWitt County, the heart of Eagle Ford Shale country, Dorothy Arndt had never seen anything like Sunday’s pipeline explosion, and she hopes she never does again. The air felt like an oven when she stepped outside in her nightgown. “The heat knocked me back,” Arndt, 84, said. “I looked across the way, and I saw a huge, huge ball of fire.” Cattle broke through the fence trying to escape the heat, the asphalt road bubbled and power lines melted, cutting electricity to 130 homes after a natural gas pipeline ruptured about 8:15 p.m. Sunday west of Cuero. Officials with Energy Transfer Partners and the Texas Railroad Commission have not determined the cause of the explosion, which shot flames hundreds of feet into the air through a 42-inch steel pipe. One of seven households remained under a mandatory evacuation order Monday afternoon, and the farm-to-market road remained closed.  Eastern DeWitt County is laced with gas transmission pipelines. In the area where Energy Transfer Partners’ line ruptured, there are three other pipelines, including one for crude transmission owned by Victoria Express Pipeline, according to information from the Texas Railroad Commission.

Photos of ruptured oil pipeline provide clues of spill cause — Photos of the pipeline that spilled oil on the Santa Barbara coast show extensive corrosion and provide clues about the cause of the rupture, experts said. Corrosion visible around the crack, coupled with wear documented inside the pipe, led Robert Bea, a civil engineering professor emeritus at the University of California, Berkeley, to believe the pipe burst during a pressure spike when the operator restarted pumps that had failed the morning of the May 19 spill. The pictures released to The Associated Press on Monday under a California Public Records Act request show the 6-inch tear that spewed up to 101,000 gallons of oil, polluting beaches and killing hundreds of birds and marine mammals. Plains All American Pipeline has declined to discuss the cause of the spill while it’s being investigated by federal regulators and local, state and U.S. prosecutors. The pipeline operator has apologized for the spill and is paying cleanup costs that have exceeded $60 million. Bea said the photos provided by Santa Barbara County show about 10 percent of the pipe’s outer wall had deteriorated from corrosion. A test conducted for the company two weeks before the spill showed up to 45 percent of the pipe’s interior wall was gone. Bea calculated that with the walls at least half corroded, the pipe would have failed during a restart when the pressure surged to a reported 700 pounds per square inch. What alarmed Bea was that an external examination of the pipe in three other areas showed up to 74 percent of the pipe wall had deteriorated. “I don’t think I’d want to start pumping crude through this existing pipeline,” he said. “I’d just replace the whole pipeline. I wouldn’t try to patch it.”

Oil, gas spill reports for June 15 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Noble Energy Inc. reported on June 9 that historical impacts were discovered beneath a water vault during a facility upgrade outside of LaSalle. It is approximated that less than five barrels of produced water released. It was determined that the cause of the leak was equipment failure. Bonanza Creek Energy Operating Company LLC reported on June 9 that piping on a heater treater was corroded, outside of Briggsdale. About 15 barrels of produced water released.  Carrizo Niobrara LLC reported on June 9 that a mist of oil and water was released after a jet pump sustained a cracked nipple, outside of New Raymer. The wind carried the release onto an adjacent pasture. It is approximated that less than 100 barrels released.  DCP Midstream LP reported on June 8 that a leak originated from a pipeline, outside of Kennesburg. EOG Resources reported on June 3 that an electrical contractor broke the sight glass on the oil phase of a treater, outside of Grover. Approximately five barrels of oil sprayed from the treater, before the sight glass could be isolated. PDC Energy Inc. reported on April 19 that during plugging and abandonment procedures, a historic release was discovered beneath a produced water vessel, outside of Eaton. It is approximated that less than five barrels of oil spill, condensate spill and produced water spill released..

This Land Was Made for You and Me … And Fracking? - For most people, the image of a fracking rig is probably not the first thing that comes to mind when they think about public lands. In Colorado, we think of rushing rivers, majestic mountains, colorful wildflowers, and fish and wildlife. But a new Bureau of Land Management (BLM) Resource Management Plan (RMP) could open nearly 7 million acres of BLM-managed federal mineral estate in eastern Colorado to fracking—with little input or oversight from the very Colorado residents who stand to lose the most if the BLM allows the extreme oil and gas extraction process on these lands. If the agency’s plans for Colorado follow a pattern that’s played out in RMPs elsewhere in the western U.S., fracking is most assuredly on the table.  This week in Colorado, the BLM launched a scoping process—a “big picture” project evaluation designed to inform the public and solicit feedback before the agency drafts the RMP for Colorado’s Front Range. Sadly, BLM’s public process seems fatally flawed from the start. The seven scheduled hearings are far removed from the majority of Coloradans who will be affected by the new plans. For example, the BLM failed to schedule a scoping hearing in Denver, the state’s most populous city, which gets 40 percent of its drinking water from the South Platte River Basin, comprising some 280,000 acres of land under consideration by the BLM. In addition, Denver’s thriving tourism, fishing and microbrew industries rely on the water from these lands and would be jeopardized by inappropriate land uses such as fracking. The closest hearing to Denver was inconveniently scheduled for 5:30 p.m. in Golden, which is not easily accessible via public transit and is a 25-minute drive from downtown Denver in the mellowest of traffic.

Regulate Like it's 1988: Senate Committee's Plan to “Modernize” Oil and Gas Calls for a Return to 1980’s Standards - Despite technological advances and increasing use of techniques like hydraulic fracturing in the past few decades, the oil and gas industry is subject to regulations enacted in the 1980’s. In March, the Bureau of Land Management (BLM) released a much-needed complement to the existing rules, which have not been updated since 1988. In response to growing public concern about fracking, the BLM’s final rule, Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands, provides minimum standards for all states to follow, including: best practice requirements in construction of wells, protecting water supplies, managing flow back in environmentally responsible ways, and providing public disclosure of the chemicals used in the processes. The BLM’s fracking rule is a definite step in the right direction, but it’s not sufficient to protect our public lands or the communities that rely on them. On June 9, the Senate Committee on Energy and Natural Resources met to discuss Senator Murkowski’s broad energy bill that will, according to her, “modernize our energy policies.” However, the BLM’s minimal rule is apparently too modern for members of the Committee, because — under the guise of “reform”— two proposed bills that would return the new regulations back to 1988 standards have been introduced. First, Senator Hatch of Utah proposed Senate bill 15, “Protecting States' Rights to Promote American Energy Security Act,” which would grant individual states complete control over oil and gas industry regulations. Then, Senator Murkowski sponsored Senate bill 1230, which would require the BLM to enter into a memorandum of understanding (MOU) with a state if the Governor of the state requests. The MOU’s would allow the state to have control over the regulations, negotiating and compromising the minimum federal standards, rather than strictly following the BLM requirements.

Gas line explodes in Bellevue; 2 'significantly burned' — Fire officials say two people have been “significantly burned” in a gas-line explosion at a building under construction in Bellevue. Lt. Richard Burke said the victims were being transported to Harborview Medical Center. Hospital spokeswoman Susan Gregg said two men were being treated. A 45-year-old man was in satisfactory condition and a 36-year-old man was in serious condition. Gregg said they will be transferred to an intensive care unit. Burke said the explosion occurred Thursday morning when a large-diameter natural gas line fractured during the construction.

Growing oil train traffic is shrouded in secrecy - The railroads are moving 40 times more oil now than in 2008 due to an oil boom in the Bakken formation of North Dakota. Bakken crude oil contains high concentrations of volatile gas, with a flashpoint as low as 74 degrees Fahrenheit. Derailments and explosions have occurred around North America since the oil boom began, including a 2013 catastrophe that killed 47 people in rural Quebec. This has prompted emergency responders to call for more information from railroad companies about oil train traffic patterns and volumes. The railroads mostly have refused; they say that releasing that information could put them at a competitive disadvantage. Which is why Smith decided to find out for himself. “It’s pretty hard to hide an oil train,” he said with a chuckle. Last year, Smith launched the first Snohomish County Train Watch. He organized 30 volunteers to take shifts counting trains around the clock for a week. In their first week of watching oil trains, the group collected more information about oil train traffic than the railroads had given Washington in the three years the trains have come here. State officials say Smith’s data is helpful but insufficient. They say they shouldn’t have to rely on citizen volunteers to get critical information in case of disaster.  Dave Byers, the head of spill response for the state’s Department of Ecology, said his team needs the information to plan area-specific response plans to protect the public and keep oil from getting into the environment. Oil train traffic shows no signs of slowing, which adds to the state’s sense of urgency. The oil industry wants to build five new terminals in Washington to move crude oil off trains and onto ships.

In North Dakota’s Bakken oil boom, there will be blood -- Jebadiah Stanfill was working near the top of an oil rig at a bend in the Missouri River in North Dakota. Jolted by a deafening boom in the distance, he swung around from his perch and saw a pillar of black smoke twisting into the sky.Less than a mile away, another rig had exploded. “There’s men over there!” a worker below him shouted.  Stanfill descended to the ground and hopped into the bed of a red pickup driven by a co-worker. Bruce Jorgenson, a manager overseeing the work of Stanfill and his crew, jumped into the passenger seat, and they raced to the explosion.  A few minutes later, they reached the burning rig and pulled up next to Doug Hysjulien, who was wandering in a valley and clutching the front of his underwear. The rest of his clothes were gone.  “They’re over there,” Hysjulien shouted, pointing toward the fiery rig. “Go help the other boys. They’re worse.”  Stanfill sprinted until he spotted Ray Hardy, who had been hurled into a patch of gravel. His skin was charred black and peeling. His nails were bent back, exposing the stark white bones of his fingers.“How many people were on the rig?” Stanfill asked Hardy.“He’s over there,” Hardy responded, gazing toward a field near the rig. Stanfill scrambled over a berm and waded through knee-high wheat until he found Michael Twinn, lying on his back naked and seared. His hair was singed and his work boots had curled up in the heat. He cried out in agony.“The derrick man’s dead! The derrick man’s dead!” Twinn screamed.  “They were beyond burned,” Stanfill recalled. “Nothing but char. The smell of flesh burning. ….”

Debunked: The Bakken doesn't burn THAT bright --In recent years, news reports following the Bakken oil boom claimed that due to the amount of gas being flared into the atmosphere, the rural skies of western North Dakota shined as bright as metropolitan areas such as Chicago and Minneapolis. A recent study has debunked this finding, however, finding that the satellite photos comparing the light emitted from flared gas and city lights did not use solid science. The study, conducted by the University of North Dakota Energy and Environmental Research Center and the John D. Odegard School of Aerospace Sciences, concluded that the satellite technology used to take these pictures measured heat, not light. The study states, “These images are misleading in that they give the uninformed public the idea that flares are literally lighting up many square miles of prairie countryside, creating visible light similar to large metro areas. So does the sky in western North Dakota light up like a million-person metropolis? A casual drive on any evening through counties of the Bakken oil play shows otherwise.”   According to The Bakken Magazine, Associate Professor of UND’s Department of Earth System Science and Policy Xiaodong Zhang said, “We looked at the satellite imagery and then from the imagery, we were able to develop a method to detect and quantify a flare in terms of its temperature, size and how much methane it’s burning.”

The Dark Side Of The Shale Bust  -- The fallout of the collapse in oil prices has a lot of side effects apart from the decline of rig counts and oil flows. Oil production in North Dakota has exploded over the last five years, from negligible levels before 2010 to well over a million barrels per day, making North Dakota the second largest oil producing state in the country. But the bust is leaving towns like Williston, North Dakota stretched extremely thin as it tries to deal with the aftermath. Williston is coping with $300 million in debt after having leveraged itself to buildup infrastructure to deal with the swelling of people and equipment heading for the oil patch. Roads, schools, housing, water-treatment plants and more all cost the city a lot of money, expected to be paid off with revenues from oil production that are suddenly not flowing into local and state coffers the way they once were. Williams County Commissioner Dan Kalil says that a lot of unemployed people who flocked to North Dakota are left in the wake of the bust, something that the local government has to sort out. “We attracted everyone who had failed in Sacramento, everyone who failed in Phoenix, everyone who failed in Las Vegas, everybody who had failed in Houston, everyone who failed in Florida,”  “And they all came here with unrealistic expectations. And it’s really frustrating for those of us left to clean up the mess.” The massive increase in drilling brought a huge wave of cash and people to once sleepy towns, fueling a boom not only in oil, but also in violent crime, prostitution, and drug trafficking.  Output is still only slightly off its all-time high of 1.2 million barrels per day, which it hit in December 2014. But more declines are expected with drillers pulling their rigs and crews from the field. Rig counts in North Dakota have fallen to just 76, as of June 12, far below the 130 or so that state officials believe is needed to keep production flat.

North Dakota's oil production has peaked – North Dakota’s crude oil output has peaked, according to the latest production data published by the state government, as the slump in prices takes its toll. The state produced 1.17 million barrels per day (bpd) in April, down from a peak of 1.23 million in December, the Department of Mineral Resources (DMR) reported on Friday. The former rapid growth in production has stalled and current output is no higher than it was in September 2014.In the seven months between February and September 2014, output increased by 233,000 bpd, while in the seven months from September 2014 to April 2015, output actually edged down 18,000 bpd. Prices are by far the most important cause of the downturn, according to state regulators, followed by tax changes, tougher flaring rules and new regulations on oil conditioning to remove the most volatile components from the crude and make it safer to transport (“Director’s Cut” June 2015). Falling production comes as no surprise: the number of rigs drilling for oil in the state has declined by more than 60 percent since September. Unlike production numbers published by the U.S. Energy Information Administration and the Railroad Commission of Texas, North Dakota’s figures are based on well records rather than estimates and are subject to only small revisions in subsequent months.

Oil field job cuts cross 150,000 -- Job slashing from the oil bust reached a staggering 150,000 at the end of May, according to energy recruiting firm Swift Worldwide Resources. In a recent Fuel Fix publication, Swift elaborated that when compared globally, the United States has seen the “the fastest and steepest decline.” Layoffs have slowed dramatically as oil prices have just begun to regain some footing and companies have adjusted accordingly.  The recruiting firm tracks both public and non-public data, and it is possible the industry’s layoffs surpass what the UK-based company has estimated, Swift CEO Tobias Read said in the report.  “Where data is not publicly available we have kept our ear to the ground and made assumptions based on likely impact,” Read stated. “Our assumptions remain conservative and the likelihood is that total job losses probably substantially exceeds Swift’s forecast.”  Large cuts in the energy industry have made news for the first two quarters of 2015. Halliburton cut 9,000 jobs in six months and reported a loss of $643 million in Q1 of 2015. Schlumberger reported even deeper cuts that tallied around 11,000 in efforts to reduce personnel employment 15 percent when compared to the third quarter of 2014. Some analysts believe the worst is over, and by the end of the year, the US could see a stout recovery. Analysts tend to agree that a slowdown in non-OPEC production, led by U.S. shale producers, and unrest in the Middle East and North Africa, particularly Iraq, would support prices this year.

Small U.S. frackers face extinction amid drilling drought -  Oil field work was coming in fast when GoFrac doubled its workforce and equipment fleet at the beginning of last year, just one of hundreds of small oil service companies thriving on the revival of U.S. drilling. Founded in November 2011 with a loan of around $35 million, the Fort Worth, Texas-based company was by 2014 making nearly that much in monthly revenues, providing the crews and machinery needed by companies including ExxonMobil (XOM.N) to frack oil and gas wells from North Dakota to Texas. Executives flew to meetings across the country in a Falcon 50 private jet, and entertained customers at their suite at the Texas Rangers baseball stadium in Arlington. The firm would soon move into a 22,000-square-foot office on the 12th floor of Burnett Plaza, one of Fort Worth's most prestigious office buildings. Eighteen months on, however, without work and unable to meet monthly loan payments, GoFrac has closed its doors, its ambitions gutted by a steep dive in oil prices. Of the 550-odd employees on the payroll at the beginning of this year, only six remain. At GoFrac's only remaining outpost, a small warehouse and 40-acre gravel yard in Weatherford, 30 miles west of Fort Worth, its huge fleet of sand haulers, chemical blenders and pressure pumps that months before were being used to frack U.S. oil and gas wells, sit idle in long rows, waiting to be sold.

Expect A Wave Of Consolidation In The Oil Industry -- As stated previously, asset monetization by small E&P operators will start in earnest in the second half of this year out of cash flow necessity. Most, if not all, smaller market capitalization companies, public or private, are still free cash flow negative (operating cash flow less capital expenditure) and only a few of the larger ones are now, or will be, based on guidance. The point is, with volumes languishing (and probably poised to decline) tied to a flat oil futures price curve and with economics marginal at $60 per barrel, many E&P operators find themselves running through hedges in 2015 and still in need to finance their already reduced capital spending. With Wall Street unwilling to lend anymore and prospects of fall credit line redeterminations looming, further reducing liquidity, it is likely small E&P operators will turn to either mature producing asset sales or, more likely, to undeveloped assets which require more capital spending. We are seeing this being factored into stock prices as we speak, as small cap E&P valuations have collapsed to 4-6 times the Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) from 6-8X EV/EBITDA. This not only reflects solvency risk but also the natural course of bringing assets to a price more in line with their underlying sale value.Wall Street is famous for getting public prices at levels that magically make deals happen and, with better funded E&P companies trading at substantial premiums vs. the leveraged ones, this is what is occurring. Take the collapse of Goodrich Petroleum (GDP) as a prime example as to what is now taking place and what will continue through the latter half of this year. Here is a company with $100million in liquidity but who continues to be free cash flow negative on current strip pricing in 2015 & 2016. However, it has a capital spending budget of $100 million for 2015 and 2016 and a free cash deficit of $60 million-$80 million in each of 2015 and 2016 depending on asset price assumptions. To plug the hole it hopes to sell its Eagle Ford assets this year.

The Shale Industry Could Be Swallowed By Its Own Debt - Bloomberg Business -- The debt that fueled the U.S. shale boom now threatens to be its undoing. Drillers are devoting more revenue than ever to interest payments. In one example, Continental Resources Inc., the company credited with making North Dakota’s Bakken Shale one of the biggest oil-producing regions in the world, spent almost as much as Exxon Mobil Corp., a company 20 times its size. The burden is becoming heavier after oil prices fell 43 percent in the past year. Interest payments are eating up more than 10 percent of revenue for 27 of the 62 drillers in the Bloomberg Intelligence North America Independent Exploration and Production Index, up from a dozen a year ago. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16 percent increase in the past year, even as revenue shrank. The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years. “There’s a liquidity issue, and you start looking at the cash burn,” Watters said. Debt Continental borrows at cheaper rates than many of its smaller peers because its debt is investment grade. S&P assigns speculative, or junk, ratings to 45 out of the 62 companies in the Bloomberg index. “Our cash flow easily covers interest costs, and we expect to continue maintaining our investment-grade credit rating as commodity prices recover,” Almost $20 billion in bonds issued by the 62 companies are trading at distressed levels, with yields more than 10 percentage points above U.S. Treasuries, as investors demand much higher rates to compensate for the risk that obligations won’t be repaid, data compiled by Bloomberg show.

OilPrice Intelligence Report: Oil Gloom Spreading To Natural Gas Market: The oil glut is having a knock on effect on natural gas drilling across the United States. The U.S., the largest natural gas producer in the world, is starting to see its gas boom come to an end. Natural gas prices have fallen by half within the past year, down below $2.90 per million Btu. Much of that can be attributed to the record level of production in 2014, which brought welcome relief to northeastern states that dug out from a brutal winter and a spike in natural gas prices. Storage levels dropped to their lowest in years. While many analysts predicted similar price spikes for winter 2015, it wasn’t to be. The boom that occurred in 2014 allowed for storage levels to build up sufficiently so that this past winter didn’t raise any problems. Now, with production still elevated, market watchers are raising questions about the opposite problem: too much supply. Storage levels are starting to build up, and could be well above the five-year average within just a few months. Prices are already extraordinary low, and more output would depress them even further. It seems the gloom from the oil markets is spreading to natural gas. On the other hand, the same dynamic that is rebalancing oil is also true for gas. Rig counts have declined along with prices. But importantly, a lot of natural gas is produced in association with oil, so when oil drillers cut back production, gas production will also fall. After all, the drillers of oil and gas tend to be the same people. In that sense, natural gas production will take a hit because of the oil glut.

Cowboyistan: Harold Hamm's hope of crude oil exports -- “Cowboyistan” could produce more than enough petroleum to justify the exporting of light, sweet crude, according to Continental Resources CEO and oil mogul Harold Hamm. Earlier this week, the U.S. Energy Information Administration’s 2015 Energy Conference was held in Washington, D.C. Hamm was one of the numerous speakers and promoters there to voice the reasoning behind exporting American-produced petroleum, according to a recent report from SNL. Promoting the operations of Cowboyistan –which includes North Dakota’s Bakken Shale and Texas’ Eagle Ford Shale and the West Texas Permian shale—Hamm claimed we are more than ready as a nation to begin exports. “Only in America” could Cowboyistan happen, Hamm said, because of the “three Rs: rigs, rednecks and royalties.” If it were its own country, Cowboyistan would rank seventh in the world for crude production and account for 50 percent of the world’s crude oil production growth,” Hamm stated. “Reserves? We rank right up there with the Saudis, with 250 million barrels of proved reserves.” However, the problem, as Hamm noted, is America’s refining capacity. “We’re a threat to OPEC,” Hamm said, arguing that there is 3.2 million barrels per day of light, sweet refining capacity overseas that is in danger of being shut down because it is unable to access crude oil. In addition, over a fourth of all refining capacity in America is foreign owned and was purchased to handle heavier crudes in order to set up new exports markets from Venezuela, Canada, Saudi Arabia and Mexico.

Don't Believe The Hype On U.S. Shale Growth -- There is a popular narrative going around that I want to address in today’s article. Last November, OPEC chose to defend market share against the surge of supply from U.S. shale producers, and in doing so the fall in the price of crude oil accelerated. A look at the U.S. rig count shows the swift impact to U.S. shale drillers in the aftermath of that meeting:  Rig counts went into free-fall after it became clear that OPEC was not interested in propping up the price of oil for the benefit of rapidly expanding shale oil producers. While that approach hurt OPEC’s income in the short term, it also immediately impacted rig counts in the shale oil fields. But — and here is the narrative — shale oil producers continue to make gains in production even as rig counts have been slashed because they are becoming more and more efficient There is some truth to the narrative. Yes, oil production has continued to grow even though rig counts have plummeted. The week before OPEC’s meeting last November, the number of rigs drilling for oil stood at 1,574. Oil production that week was 9.1 million bpd. Today, with the rig count at 642, production is 9.6 million bpd — a gain of just over half a million bpd. Yes, producers are getting better at squeezing oil and gas from these shale formations. And natural gas production has indeed continued to expand for years despite a sharp drop in the rigs drilling for gas.But oil production isn’t expected to follow the same pattern as natural gas. The gains are already slowing as a result of the drop in rig counts. There have been some weekly declines recently, and the Energy Information Administration (EIA) is projecting a 91,000 bpd drop over the next month. Bloomberg put together a nice graphic showing the expected impact in the country’s shale oil basins:

Guesswork, inconsistency nag U.S. shale oil accounting - – Steep downward revisions to oil and gas reserves at the end of this year are likely to increase scrutiny of how energy companies tally future barrels – a process that has become more opaque with the rise of shale drilling. The revisions due in December will reflect a deep plunge in crude prices and should not come as a surprise for investors who have been pouring billions of dollars into U.S. oil companies betting that crude prices will recover. But investors may not fully appreciate other risks stemming from the wide variety of methods companies use to estimate and vet their reserves, or economically-recoverable oil and gas. Reserves have long underpinned company stock prices. Reserve growth is used at companies, including ConocoPhillips as a component of the chief executive’s compensation. Yet there is plenty of uncertainty in the industry as measuring unconventional resources such as shale oil is a young science and there is no uniform process for reserve reporting, geologists, investors and lawyers say. In contrast to financial reporting, the U.S. Securities Exchange Commision does not require outside auditing for reserves. That leaves the process “a little opaque” according to Stewart Glickman, director of energy research at S&P Capital IQ in New York. A Reuters analysis of public filings by companies in the Dow Jones U.S. Oil and Gas index reveals a wide variety of practices used to report them.

The EPA says It's Ok to Drink Your Fracking Water - The US Environmental Protection Agency (EPA) often plays the enemy to oil and gas corporations. But a recently released report paves the way for fracking like no government document has before. Here's what you need to know.  Fracking, or "hydraulic fracturing" as it's more formally known, is a process for extracting more oil and gas out of the earth. By pushing a mix of water, chemicals, and sand down into the ground, it increases the pressure and sends additional oil and gas up. But most environmentalists have long believed that fracking is more sinister than a simple replacement process. From earthquakes to methane leaks to water table contamination, some think fracking gets away too easy on the environmental front. But at least on water contamination, one of fracking's most controversial and damaging potential effects, this EPA report flags no foul. After an extensive analysis, the EPA reports that fracking "has not led to widespread, systematic impacts on drinking water resources."  But what about the flaming water? As the video below shows, fracking does affect some water — and the EPA makes sure to caveat its findings, accordingly. But the Agency also notes that these instances were few and far between compared to the number of fracking operations, and that some of these instances have less to do with the fracking process and more to do with improper implementation.

After EPA Fracking Report, Stanford to the Rescue...Sort Of - Just days after the US Environmental Protection Agency issued its long-awaited fracking report, Stanford University announced that it would undertake a comprehensive research effort aimed at resolving several areas of concern in the natural gas industry. However, part of the aim is to grow the global market for natural gas, which doesn’t seems seem like a particularly sustainable way to address the core issues raised in the EPA fracking report. Stanford’s work will be conducted through a new program called the Natural Gas Initiative (NGI), and the university issued a press release last Friday describing NGI’s first crop of research efforts. The press release focuses on one issue in particular, that being fugitive emissions or methane leaks. A Stanford research team is already at work on developing faster, cheaper, and more effective ways to detect methane leaks from natural gas fields, using a combination of infrared imaging (for now by helicopter, but we’re guessing drones in the future) and software that can recognize plumes. That’s all well and good, but fugitive emissions are a problem all up and down the natural gas supply chain, including the nation’s aging network of local distribution pipes in cities. We’ll be waiting to see how NGI proposes to tackle that end of the problem. In the meantime, NGI’s other leadoff areas of focus should set off some red flags. One of the new research initiatives will support the lobby for increasing US exports of natural gas to Europe and Asia. Natural gas exports are a huge issue for communities that will host the brunt of new transportation, storage, and processing facilities. No word yet on what research NGI is planning in that regard.

Document shows Canadian government has been fully aware of tar sands dangers (NRDC) – A document recently released under Canada's access-to-information law reveals that Canadian government officials have been aware of the proliferation of contaminants associated with tar sands mining even as they continues to promote industry expansion with minimal regulation. The January 2015 briefing note discusses findings from a tar sands monitoring report published in December 2014 describing dangerous concentrations of iron and cadmium in Alberta's wetlands and of phosphorous and nitrogen in the Athabasca River. In addition, increased concentrations of polycyclic aromatic hydrocarbons (PAH) in the toxic tailings ponds near tar sands strip mines are raising PAH levels in the atmosphere, which can lead to human health concerns like DNA damage and impaired development. The briefing note also highlights serious declines in species that rely on old forest habitat, which has been decimated by mining operations. Yet even with the knowledge furnished by this briefing note, the Canadian government has continued to promote the expansion of the tar sands industry, particularly through its support for tar sands pipelines like Keystone XL and Energy East.  Almost a year ago two Alberta First Nations and the University of Manitoba released a report detailing high levels of carcinogens found in local species, including moose and muskrat, which have been traditionally harvested by First Nations for centuries. This and other studies have documented increased rates of cancers in communities like Fort Chipewyan that are located near or downstream from tar sands mining. A 2009 report from the Alberta Cancer Board determined that certain cancers, including extremely rare forms, had a 30 percent higher rate of incidence between 1995 and 2006 than would normally be expected. In February 2014, NRDC released its own fact sheet summarizing the scientific research documenting increases in air and water pollution and cancer rates linked with tar sands mining. Other communities have independently reported odors and emissions neartar sands mining that were causing headaches, dizziness, diarrhea, nausea, and difficulty breathing. [more]

Government trying to fast-track fracking without public consent - The Government is attempting to fast-track fracking by doing away with the need for the public to be consulted before test drilling goes ahead. The changes, which have been quietly put out to public consultation, mean the advice of local residents would no longer be sought in the early stages of most new oil and gas developments. The proposals have been strongly criticised by campaign groups, who say the Government is increasing the risk of pollution by relaxing the environmental scrutiny given in the early stages of hydraulic fracturing – where pressurised chemicals are used to break up rocks to release oil or gas. The changes will sidestep the need for public consultation in England by changing the way permits are allocated for the exploration phase of a site’s development – during which tests are carried out on the site using conventional drilling techniques to determine how much oil or gas is present. Under the proposed new permit regime, the Environment Agency will no longer visit the site and conduct a thorough environmental audit before drawing up a set of tailored requirements for the exploration company. Instead, it will create a one-size-fits-all permit based on a set of rules that will be awarded to oil and gas companies showing they can meet the criteria.  The Government has placed fracking, which in the US has been linked to earthquakes and water and air pollution – at the heart of its energy strategy. Whitehall wants to speed up the development of the fledgling industry by making it quicker and cheaper for companies to start work. The proposed permit changes relate to the waste created by drilling, well testing and the use of acid to clean the borehole.

For Oil Price, Bad Is The New Good -- Lately, oil prices have gone up when they should have gone down. In the last week, OPEC decided not to cut production and the two major energy agencies reported that the world over-supply problem is getting worse.  Brent futures increased from $62 to $65. Bad is the new good.  The expected bad news on Friday, June 5 that OPEC would not cut production was skillfully cloaked in positive statements about growing demand. On Monday, June 8, Brent opened at $62.69 and rose to $65.70 over the next two days.  On Tuesday, June 10,  the EIA published its monthly Short-Term Energy Outlook (STEO) that showed that the production surplus responsible for low oil prices had increased in May to almost 3 million barrels per day (bpd).  Production fell by 106,000 bpd but consumption fell more by 156,000 bpd (Figure 2). Oil prices rose $2.19 per barrel based on that good news. On Thursday, June 11, the IEA came out with its Oil Market Report. The message was the same. The production surplus for the first quarter of 2015 was the highest in a decade at 1.85 million bpd and, obviously, the highest since the oil price crisis began in June of last year (Figure 3). The oil-price crisis occurred because supply (production) exceeded demand (consumption) beginning in the first quarter of 2014 (Figure 4). That situation has persisted. First quarter 2015 supply was about the same as fourth quarter 2014 but demand was lower, not a good thing. There is optimism about demand but what is that based on? It’s based on increased vehicle miles travelled in the United States. There is optimism about decreased U.S. rig counts but U.S. production has increased. The EIA estimates that tight oil production will decline by 91,000 bopd in July but that is more than balanced by new lower Tertiary production in the Gulf of Mexico. There is optimism because there have been inventory withdrawals in the U.S. but those always occur at this time of year. I agree with all of this optimism but it is basically well-informed sentiment. The hard data is that we have a production surplus in the world that is getting worse, not better–unless the data from IEA and EIA is somehow unreliable.

Oil Demand Weaker Than Many Expect -- Although I disagree with the vast majority of the bear calls that have existed all year (all of which were documented as being false, by the way) one thing stands out as a red flag: demand. The reliance on strong demand to justify increased supply, as is the case with OPEC, is one example. The other is US producers using stronger demand to draw down inventory while keeping production flat. I still expect production to decline in the second half of this year in the US, by the way. However, the sudden surge of US production in fall last year was, in part, due to prices remaining elevated but also the industry’s reliance on messaged economic data that showed a stronger US economy on the surface, but weaker underlying activity. The weaker activity finally surfaced in quarter one this year and in the current quarter, even though GDP is about to get messaged again through seasonally adjusting the data. The point is that the oil industry believed the economic data and media hype about a strong economy and thus kept pumping. The broad weakness in commodities is a reflection of that false reality, with the stronger dollar helping to weaken things further. What should be cautioned against is continued reliance on demand pull as a means to balance the market in an economy built on bubbles and debt. It simply won’t last as, once again, the false reality will be exposed. I do think demand for gasoline in the US and Asia (remember that in winter, weak Asian demand was all the rage as the reason why oil must fall) is up strongly, but will it last is the question.  The most likely scenario is that it will wane at some point in 2015 and as the economic false realities get “popped” as the equity bubble bursts, demand will eventually fall. In the US, by that time, supply will likely be falling tied to depletion.

A year after the crash, oil markets risk more trouble ahead  -- A year on from the start of one of the biggest oil price crashes in history, the driving force behind the slide remains intact: there is still too much crude. While output continues to grow, the economic outlook has darkened in top energy consumer China, where oil demand has been one of the few bright spots in the market. Add to the mix record output by the Organization of the Petroleum Exporting Countries (OPEC) and the possibility of a return of Iranian crude exports, and further price turbulence looks almost certain. Oil prices began a seven-month rout this time last year that took Brent crude futures from $116 (£74) per barrel to around $45 by January. While prices have crawled up since, there are few signs yet that OPEC’s strategy of keeping output high in a bid to drive out competitors, such as U.S. shale oil, is doing enough yet to change market fundamentals.. “The real bearish change is OPEC production that has risen from 29.79 million barrels per day (bpd) last year to over 31 million bpd. I think this is the most significant fundamental change of the last 12 months,” said PVM oil analyst Tamas Varga. U.S. Energy Information Administration (EIA) data published this month shows that global petroleum oversupply, or production versus consumption, has more than doubled to 2.6 million bpd since the end of the second quarter last year.And more oil may yet come to the market. Major powers and Iran are trying to agree on a nuclear compromise by the end of the month that could allow a lifting of sanctions that have reduced Iran’s crude exports to under 1 million bpd, down from 3 million bpd in 2011. Should Iranian oil return before the end of the year, traders said that would prevent a seasonal drawdown in stocks that usually happens in the fourth quarter, preventing a re-balancing of the market.

Crude Oil Prices Jump Following Stockpile Report - Oil prices jumped on Wednesday after a new industry report showed a bigger-than-expected fall in U.S. oil stockpiles. The American Petroleum Institute reported a 2.9 million barrel decrease in U.S. oil stocks for last week. Prices could rise further after the closely watched U.S. Energy Information Administration is released on Wednesday afternoon. Analysts polled by The Wall Street Journal expect a decline of 1.3 million barrels. Brent crude for August delivery rose 2.4% to $65.25 a barrel on London’s ICE Futures exchange. Trading was on the New York Mercantile Exchange, and West Texas Intermediate futures for July were trading up 2% at $61.16 a barrel. Analysts at Commerzbank told Fox Business that the EIA data is “expected to show the seventh consecutive weekly decrease in U.S. crude oil stocks. If this turns out to be of a similarly high level to that reported by the API, it would lend support to oil prices.” 

Biggest Glut In Recorded Crude-Oil History Taking Shape -- The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable, according to Bloomberg.  Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show. But as Wolf Richter warns, if Iran and world powers reach an accord on the Islamic Republic’s nuclear program by their June 30 deadline, we’ll be watching the most magnificent oil glut ever building up into next year. “The market is flooded with oil and everyone is desperate to sell quickly, so you have a price war,”   OPEC, which produces about 40% of global oil supply, announced on June 5 to “maintain” output at 30 million barrels per day for the next six months. Six days later, the IEA’s Oil Market Report for June clarified that “Saudi Arabia, Iraq, and the United Arab Emirates pumped at record monthly rates” in May and boosted OPEC output to 31.3 million barrels per day, the highest since October 2012, and over 1 MMbpd above target for the third month in a row. OPEC will likely continue pumping at this rate “in coming months,” the IEA said.  “We have plenty of crude,” explained Ahmed Al-Subaey, Saudi Aramco’s executive director for marketing while in India to discuss with Indian oil officials supplying additional oil. “You are not going to see any cuts from Saudi Arabia,” he said. Saudi Arabia produced 10.3 MMbpd in May, its highest rate on record. So forget the long-rumored decline of Saudi oil fields. For Saudi Arabia, it’s a matter of survival. It has cheap oil, and it won’t be pushed into the abyss by high-cost, junk-bond-funded, eternally cash-flow-negative producers in the US. It will defend its market share, and it can do so profitably.

Crude Slides On Cushing, Gasoline Inventory Build - Following last week's major inventory draw (and last night's less than expected API-reported inventory draw), DOE reports a 2.68 million barrel draw (slighlty less of a draw than expectations of 2.79 million barrels). End products saw inventories rise considerably more than expected (Gasoline +460k vs -800k exp) and Cushing saw a build (+112k vs -850k exp.). Oil prices dropped on the news despite a very modest drop in production (-0.2%). While the overall inventory saw a draw, Cushing and Gasoline saw notable builds... The reaction is clear...

Oil up third day on dollar slump, U.S. crude draw data - Oil prices settled up for a third straight day on Thursday, boosted by a slipping dollar and reports that data showed a draw in crude this week at Cushing, Oklahoma, the delivery point for U.S. crude futures. The dollar fell to a one-month low against a basket of currencies .DXY after the Federal Reserve disappointed investors anxious for a clearer signal on a U.S. rate hike. The euro also got a boost from hopes for a positive end to the Greek fiscal crisis. [FRX/] Market intelligence firm Genscape reported a draw of about 870,000 barrels of crude at Cushing in the week to Tuesday, according to market sources who saw the data. Between Friday and Tuesday alone, some 1.2 million barrels were drawn. On Wednesday, the U.S. Energy Information Administration (EIA) also cited the first weekly build in Cushing inventories since mid-April. Oil still ended off the day's highs, pressured by lingering doubts about demand a day after U.S. government data suggested the recent strength in crude consumption may not hold.

US oil rig count falls for 28th straight week -  The US oil rig count fell yet again last week. The latest data from driller Baker Hughes showed that the number of oil rigs in operation fell by four to 631, the lowest since August 6, 2010. The combined count of oil and gas rigs fell by two to 857, the lowest level since January 17, 2003. This is the 28th straight week of a decline. Last week, the number of oil rigs in operation fell by seven to 635, the lowest count since August 6, 2010. The combined count fell by nine to 859. Even with the plunge in the rig count, US oil production has continued to surge. But that is forecast to change. According to the Energy Information Administration's latest short-term outlook, oil output hit a peak in May, and will likely decline until early 2016. Following the data, West Texas Intermediate crude was down more than 1%, near $59.42 a barrel. Here's the latest chart showing the plunge in the rig count:

Rig count falls again, marking 7 months of declines: Baker Hughes - Crude oil fell more than 1 percent on Friday, the first decline after three days of gains, as worries over the Greek fiscal crisis, weaker oil products prices and pre-weekend profit taking undercut the market. Gasoline and diesel's proxy, heating oil, led the oil complex lower, sliding about 3 percent as concerns about their high refining margins over crude prompted those who had been bullish on such products to close out some positions. U.S. crude for July closed down 84 cents, or 1.39 percent, at $59.61 a barrel. Brent crude for August slipped $1.20 to $63 a barrel.  Oil prices were little changed after oilfield services firm Baker Hughes reported its weekly rig count fell again last week, extending the decline in exploration to a seventh month. The number of rigs exploring for oil in the United States fell by 4 last week to a total of 631. This time last year, U.S. drillers had 1,545 oil rigs online.

OilPrice Intelligence Report: BP Claims Tectonic Shift Underway In Energy: Last year may have been a “watershed” moment for world energy consumption. That assessment comes from BP’s just released 2015 Statistical Review, which provides a roundup of the global energy picture as well as future projections of supply and demand. BP says that a “tectonic shift” is underway, and 2014 may have been the year in which we all look back and see it as a pivotal moment for energy markets. Global supplies continue to climb, and the U.S. has produced a massive amount of oil and gas from shale. OPEC is producing at elevated levels and so is Russia. Non-OPEC energy, largely made up of US shale, has undermined the influence of OPEC, a shift that could last many years. An era of energy abundance could be here to stay. But it is on the demand side that a potential revolution is taking place. BP notes that 2014 saw shockingly slow rate of growth in global demand for energy, expanding by a mere 0.9 percent. And a lot of that boils down to China, which saw its demand for energy grow at its slowest rate since the end of the last century. At the same time, renewable energy is the fastest growing source of new energy supply. Global greenhouse gas emissions also expanded at the slowest level since 1998. Taken altogether, we are living in a time that is seeing huge changes in energy flows, and 2014 could have been the inflection point.In a separate report, the International Energy Agency (IEA) says that global demand is picking up in response to lower oil prices. It revised upwards its expectation for demand growth this year by 300,000 barrels per day. It now expects the world to consume an additional 1.4 million barrels per day in 2015. However, the agency did not say that demand growth would be sufficient to spark a major rebound in prices, citing ongoing excess in supplies.

The World Is Facing Its Longest Oil Glut in at Least Three Decades -  The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable. Record-Breaking Glut Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show. If the Organization of Petroleum Exporting Countries were to keep pumping at current rates it would become the longest surplus since at least 1985 by the third quarter, the data show. There are few signs the 12-nation group will cut back. Saudi Arabia, OPEC’s biggest member, will probably increase production to intensify pressure on U.S. shale drillers, Goldman Sachs Group Inc. predicts. OPEC’s supplies may be swollen further this year if Iran reaches a deal with world powers to ease sanctions on its exports, Commerzbank AG says. “It seems to be taking longer for the oil surplus to clear, and, even without the return of Iran, IEA data indicates it could last for the rest of the year,” . “Any expectations the oversupply will be gone by 2016 don’t look justified at this stage.” OPEC pumped 31.3 million barrels a day in May and will probably continue to pump around that level “in coming months,” the IEA said in a report on June 11. The agency doesn’t forecast OPEC production. Global Oversupply Producing at that level would imply a global oversupply of 1 million barrels a day in the third quarter and 600,000 barrels in the following three months, according to IEA projections for global demand and non-OPEC supply compiled by Bloomberg. That would be the eighth consecutive quarterly surplus, exceeding the current record of six quarters from 1997 to 1998.

No, BP, the U. S. did NOT surpass Saudi Arabia in oil production  -- Even the paper of record for the oil industry, Oil & Gas Journal, got it wrong. With the release of the latest BP Statistical Review of World Energy, media outlets appeared to be taking dictation rather than asking questions about which countries produced the most oil in 2014.  If they had asked questions, they would have ended up with a ho-hum headline announcing that last year Russia at 10.1 million barrels per day (mbpd) and Saudi Arabia at 9.7 mbpd were once again the number one and number two producers of crude oil including lease condensate (which is the definition of oil). The United States at 8.7 mbpd remained in third place.  It turns out that oil according to the BP definition includes something called natural gas liquids which includes lease condensate--very light hydrocarbons that come from actual oil wells and are included in the oil refinery stream--and natural gas plant liquids which come from natural gas wells and include such things as ethane, propane, butane and pentanes. Only a small portion of natural gas plant liquids are suitable substitutes for oil. Production of natural gas plant liquids in the United States has grown rapidly as a result of increasing exploitation of natural gas in deep shale deposits, so-called shale gas. These liquids are useful, but they are not oil and only displace oil in a minor way. Moreover, their energy content is around 65 percent that of crude oil and so counting barrels of natural gas plant liquids as equivalent to oil is doubly misleading. The second question media outlets could have asked is whether natural gas plant liquids can be sold as oil on the world market. The answer is a resounding "no." In fact, major exchanges accept neither natural gas plant liquids nor lease condensates as satisfactory delivery for crude oil. If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil.

Russia, Greece Ink Pipeline Deal As Gazprom Boosts Ukraine Bypass -- Two weeks ago, in “Greece Breaks America’s Heart, Will Sign MOU With Russia For Gas Pipeline,” we highlighted comments from Greek Energy Minister Panagiotis Lafazanis which indicated that Athens was prepared to sign an MOU with Russia on the Turkish Stream pipeline. As a reminder, The Turkish Stream will allow Gazprom to bypass Bulgaria by piping gas through Turkey, then through Greece, Serbia, and Hungary straight to the Austrian central hub. Washington urged Greece to spurn the Russians and support an alternative pipeline plan designed to let the EU tap into Caspian gas via a series of connecting pipelines running from Azerbaijan to Italy. The Greeks, seeing no need to view the two pipeline projects as competitors, indicated that they would be open to supporting both. “Greece is no one’s property,” Lafazanis said, adding that Athens would “move based on its national interests.”  As is becoming more apparent by the day, the country’s “national interests” are clearly not aligned with the rest of Europe and to the extent Gazprom would be willing to advance Greece a portion of the projected revenues from its portion of the pipeline, Athens interests very clearly align with Moscow’s which is why no one should be surprised that Greek energy officials indicated Thursday that the MOU was a done deal. WSJ has more:

The Russian Pipeline Waltz - This is an eventful period for EU-Russia gas relations. Six months ago Russian President Vladimir Putin surprised the energy world by dismissing the long-prepared South Stream project in favour of Turkish Stream. Like South Stream, Turkish Stream is intended to deliver 63 billion cubic metres (bcm) of gas per year through the Black Sea to Turkey and Europe by completely bypassing Ukraine from 2019. Yesterday, during the St. Petersburg International Economic Forum 2015, Gazprom unexpectedly signed a set of Memorandums of Intent with the European gas companies E.ON, Shell and OMV. These plan for the construction of two additional gas pipeline strings along the Nord Stream pipeline system that connects Russia and Germany through the Baltic Sea. This project would double the current capacity of Nord Stream from 55 bcm per year to 110 bcm per year.  Both Turkish Stream and an expanded Nord Stream indicate that Russia does not intend to abandon its position in the European market (by for example shifting attention to Asia).  As illustrated in the figure below, current EU-Russia gas trade is based on three key axes: the Nord Stream pipeline, the Yamal-Europe pipeline through Belarus and the pipeline system crossing Ukraine. Of these three routes, only the Ukrainian gas transportation system is not controlled by Gazprom.

OilPrice Intelligence Report: Iran Woos Oil Companies Ahead Of Nuclear Deadline: Iran is reportedly readying a collection of contract terms that it thinks will be very attractive to international oil companies weighing whether or not to invest in Iran’s oil and gas sector. We have heard this story before, but Iranian officials have provided more clues into their thinking. While not yet officially public – pending a final agreement with the West over its nuclear program that leads to the removal of sanctions – Iran says that it will pay companies more if they produce more, and Iran may even be prepared to offer production-sharing agreements. That is something that the government has long been opposed to since it technically allows for part ownership of sovereign oil by international companies. But for financial reasons, that is exactly what oil companies want, since it allows them to book more reserves, which boosts their share prices. Iran also wants international companies to enter into joint ventures with the state, and share technology. With the deadline for the nuclear negotiations now just about two weeks away, the extensive work that Iran’s oil ministry has done to prepare these new contract terms is a testament to the country’s resolve and desire to see the negotiations with the West culminate in a comprehensive deal. Iran is desperate to see its oil and gas sector freed from sanctions, which would allow it to potentially ramp up output by an additional 1 million barrels per day.

Iran Holds Out Improved Oil-Contract Terms - WSJ: Iran is prepared to offer longer-term and more-profitable contracts to international oil and gas firms but expects substantive partnerships with Iranian companies, said oil-ministry officials, signaling how the cloistered country will try to entice billions of dollars in energy investments after any nuclear deal. The contract outline, which Iran has discussed with foreign companies but not yet released in its entirety, would pay companies more for boosting production, last longer and encourage joint ventures from the earliest stages of field development, said Ali Kardor, the vice president for investment and finance at the National Iranian Oil Co. The companies will also be expected to share more technology and management expertise with their Iranian partners. “They will have the incentive to produce more, and to transfer the technology,” Mr. Kardor said. Attention has focused on Iran’s oil and gas reserves, the fourth-largest and biggest in the world respectively, as negotiators from Iran and six world powers appear to be closing in on a deal that would lift international sanctions on Iran in exchange for controls on its nuclear program.

Softly, softly, India's influence rises in crude oil  – Almost unnoticed, India is starting to exercise increasing influence on crude oil markets in Asia. The South Asian nation has doubled imports to almost 4 million barrels per day (bpd) in the past decade, in the process overtaking Japan, Germany and South Korea to become the world’s third-biggest importer behind China and the United States. Its importance to the outlook for crude oil over the next decade becomes even more apparent in the light of slowing demand growth in China, the likelihood of at best steady consumption in much of the developed world and declining demand in Japan. Two recent events underscored the importance that India is assuming in Asian crude oil markets: the visit by a senior official of Saudi Arabia’s state oil giant and talks between Indian refiners and Iraq over filling strategic storage. The main news from the visit of Ahmed Al-Subaey, Saudi Aramco’s executive director for marketing, to New Delhi last week was that the kingdom is ready to boost output in coming months to meet rising global demand. That was information useful to market players, but what wasn’t discussed in public was what the Aramco executive was talking about with the Indian oil officials he met. It doesn’t require much imagination to conclude that the Saudis are interested in expanding their relationship with India, given it is becoming the main driver of crude demand growth in Asia, something Al-Subaey acknowledged.

Venezuela Oil Loans Go Awry for China - WSJ: —As Venezuela’s economy totters thanks to low oil prices and years of mismanagement, a Chinese government-owned bank is badly on the hook. China Development Bank has lent nearly $37 billion to Venezuela since 2008, helping to prop up the regime of Hugo Chávez and his successor, Nicolás Maduro, while becoming one of the Latin American nation’s biggest creditors. Venezuela says China has pledged billions more. CDB’s plan was simple. In return for its largess, Venezuela would send China millions of barrels of crude each year. Since the middle part of the last decade, the bank has doled out tens of billions in similar loans to energy companies and governments in other oil-producing countries to help secure resources for China’s expanding economy. In Venezuela, the strategy has gone awry. In recent months, CDB has extended loan maturities and eased repayment terms, allowing the country to send it less oil than agreed and to pay bolivars instead of hard currency into a mutual-development fund intended to finance projects there. As other investors flee amid triple-digit inflation and social unrest, Venezuela has become more dependent on CDB.“It shocks many when China issues major loans to Venezuela, considering that the situation there is increasingly precarious, but there would indeed seem to be an ongoing commitment,” The Caracas government said in January that China pledged $20 billion in new investment in housing and infrastructure, mainly via CDB. Neither the bank nor Chinese government officials have confirmed that transaction.

Chinese Iron Ore, Steel Prices Collapse Despite Government Stimulus --A funny thing happened in the last year since China gave up on its hard-line reforms and folded back to stimulate by all means necessary... the financial economy soared and the real economy sunk. Iron Ore prices are near record lows and Rebar prices are at record lows as stocks spike.. and this should be no surprise since we were told by a rural Chinese chap recently that "making money in stocks is a lot easier than farmwork" or construction or real world activity.  As Reuters reports, "Steel prices in China have continued to fall despite the rally in iron ore prices in the last month, limiting the ability for steel mills to pay increasingly higher prices for ore," Australia and New Zealand Banking Group analysts said in a note. With Chinese steel demand expected to wane as hotter temperatures over June and July slow construction activity, the ANZ analysts said they expect iron ore to fall back below $60 per tonne over the coming month. A sustained decline in stockpiles of iron ore across China's ports has helped fuel a 40 percent rally in the steelmaking commodity from a decade-low of $46.70 in April.Shanghai rebar prices in contrast rose only around 4 percent from April lows before pulling back again this week.

Decoding the US and China - The strategic discussion between the US and China can’t be called a dialogue of the deaf. The talk is loud and each side hears the other. Yet a lot of mishearing is happening. Perhaps the metaphor should be a security debate shaking on a sea of scrambled semiotics. Everybody purports to be talking about the same thing when really they’re talking about different things. Same subject, divergent understandings. Take the subject du jour: the South China Sea. The issue under discussion should be clear and well understood. This is about rocks and reefs, contested ownership and rights in some vital maritime territory. When each side talks about the South China Sea, however, they’re also talking about lots of things that look nothing like rocks and reefs; scrambled semiotics in spades. The big shared understanding is that the South China Sea is one element in a much larger process—the shift in Asia’s balance of power. Beyond that, though, the South China Sea becomes a subject of conflicting and confusing signs and symbols and understandings. For everyone else, China’s rampant terraforming in the South China Sea shows the raw power of Asia’s biggest player, grabbing what it wants on the international commons. China, though, sees it as a domestic issue, restoring historic rights torn from China in its time of humiliation. The Party has been telling the people the humiliations-of-history story for a long time — and the people believe it. Domestic imperatives mean the Party must press on or be punished by the people. This is about domestic politics, not the international system.

A Partnership with China to Avoid World War - George Soros - International cooperation is in decline both in the political and financial spheres. The UN has failed to address any of the major conflicts since the end of the cold war; the 2009 Copenhagen Climate Change Conference left a sour aftertaste; the World Trade Organization hasn’t concluded a major trade round since 1994. The International Monetary Fund’s legitimacy is increasingly questioned because of its outdated governance, and the G20, which emerged during the financial crisis of 2008 as a potentially powerful instrument of international cooperation, seems to have lost its way. In all areas, national, sectarian, business, and other special interests take precedence over the common interest. This trend has now reached a point where instead of a global order we have to speak of global disorder. In the political sphere local conflicts fester and multiply. Taken individually these conflicts could possibly be solved but they tend to be interconnected and the losers in one conflict tend to become the spoilers in others. There are just too many conflicts for international public opinion to exert a positive influence. In the financial sphere the Bretton Woods institutions—the IMF and the World Bank—have lost their monopoly position. Under Chinese leadership, a parallel set of institutions is emerging. Will they be in conflict or will they find a way to cooperate? Since the financial and the political spheres are also interconnected, the future course of history will greatly depend on how China tackles its economic transition from investment and export-led growth to greater dependence on domestic demand, and how the US reacts to it. A strategic partnership between the US and China could prevent the evolution of two power blocks that may be drawn into military conflict.

Exclusive: China to extend economic diplomacy to EU infrastructure fund – Reuters - China will pledge a multi-billion dollar investment in Europe's new infrastructure fund at a summit on June 29 in Brussels, according to a draft communique seen by Reuters - Beijing's latest round of chequebook diplomacy to win greater influence. While the exact amount is still to be decided, the pledge will mark the latest step in China's efforts to shape global economic governance at the expense of the United States, and follows major EU governments' decision to join the Chinese-led Asian Infrastructure Investment Bank (AIIB) in defiance of Washington. It is expected to come with a request for return investment in China's westward infrastructure drive - the "One Belt, One Road" initiative - constructing major energy and communications links across Central, West and South Asia to as far as Greece. "China announced that it would make (X amount) available for co-financing strategic investment of common interest across the EU," the draft final statement says, adding that agreements will be finalised at another meeting in September. An EU diplomat said the Chinese contribution was likely to be "in the billions". EU and Chinese officials have told Reuters that Chinese banks are looking mainly at telecoms and technology projects.

Chinese Corporations Become Stock Speculators, Joining Housewives, Banana Vendors -- It’s no secret that things are getting tougher for China’s manufacturing sector as the country embarks on a difficult transition from an investment-driven economy to a model led by services and consumption. Domestic demand for metals has fallen as “idle cranes, empty construction sites, and abandoned buildings” (to quote Bloomberg) betray a sharp economic deceleration. Export growth has slowed, rail freight has collapsed to what look like depression levels, and industrial production remains in the doldrums and will need to fall far further if China is serious about getting its pollution problem under control.   Meanwhile, Chinese equities have staged one of the most impressive rallies in recent memory as housewives, security guards, banana vendors, and, more recently, farmers, flock to the SHCOMP and the Shenzhen exchange where, using record margin debt, the semi-literate hordes have driven multiples into the stratosphere and created an environment where umbrella manufacturers post 2,000% gains.   Given the above, and given the fact that credit is increasingly hard to come by for in the manufacturing sector with China’s largest banks reporting rising NPLs thanks in large part to souring loans to the industrial sector, one could hardly blame the industrialists for wanting to get in on the equity mania. And because nothing surprises us when it comes to China’s stock market miracle, we can’t say we were completely shocked to learn that some manufacturers are laying off everyone and trading stocks from the shop floor while they wait for the economy to recover. WSJ has more:

China’s Unsettling Stock Market Boom - New York Times. Editorial. - Something strange is going on in the Chinese stock market. Even as the country’s economy has slowed, stocks have surged about 147 percent in the last 12 months as individual investors have poured their savings and have borrowed money to put into the market. The sharp increase in stock prices must worry China’s leaders, because it could put household finances and the financial system at risk of big losses. It is particularly troubling that the recent rally has been fueled by an explosion of margin lending, in which brokerage firms make loans to investors to buy shares. Total margin debt outstanding is five times the level it was a year ago, reaching 2 trillion renminbi ($322 billion) on May 27, Bloomberg News reported recently. The total borrowed to buy stocks is probably even higher, because some investors have presumably borrowed from banks and their families, too. Stocks of smaller and less proven companies have had the biggest increases, which suggests investors are taking big risks in the hopes of fast gains. The average price-to-earnings ratio, a measure of how expensive stocks are relative to corporate profits, is 143 for companies listed on the ChiNext board of the Shenzhen stock market, which is dominated by smaller companies and tech stocks. One high-flying company on the market, Leshi TV, an Internet video service, has seen its stock jump almost 250 percent in the last year and has a P/E ratio of 358. By contrast, the ratio for larger companies listed on the Shanghai Stock Exchange is about 25. In the United States, the Standard & Poor’s 500 stock index has a price-to-earnings ratio of about 21. A booming market might make more sense if the economy were picking up speed, but it is slowing. The International Monetary Fund expects the economy to grow at 6.8 percent this year and 6.3 percent in 2016, down from 7.4 percent in 2014. Individual investors appear to have flocked to stocks in part because the once-booming Chinese real estate market, which produced big profits for speculators, has cooled. Some investors now see stocks as the next good bet.

China shakes off deep slump as credit soars again - China’s housing market is roaring back to life in the biggest cities while local governments are issuing bonds at a blistering pace, the latest signs that the world’s second largest economy is finally pulling out of a deep downturn. Output is picking up on almost every front as the effects of credit easing begin to feed through, with the ‘expectations’ component of consumer confidence soaring to the highest level since the glory days of 2007. Rail freight, electricity use, and even sales of diggers and earthmovers are all recovering at last from recessionary levels. The apparent inflexion point has major implications for the world’s commodity markets and for struggling resource economies in Latin America and central Asia that depend on feeding the dragon. The China Activity Proxy published by Capital Economics – deemed more accurate than the official GDP data – suggests that the underlying growth rate slowed to 4pc in the first quarter. This was the slowest pace since the 1990s, excluding the brief episode of the SARS epidemic in 2003. The economic cycle has now clearly turned as authorities step up stimulus, clearly worried that efforts to clamp down on the shadow banking system and rein in excess debt may have gone too far for comfort. The crucial shift is an expansion of the country’s debt swap plan, intended to clean up the Augean Stables of China’s local government finances. The regions have switched from bank lending to bonds, issuing $65bn in the first two weeks of June alone.

Up The CRIC Without A Paddle: Understanding China’s Economic Fits and Starts --China’s economy hits the skids. Policy makers pour on the stimulus to prop it up. It recovers for a few months. Then it hits the skids again. Stir and repeat.  This year is shaping up as the fourth year of just such a cycle. What’s going on?  Some economists chalk the pattern up to China’s budget process. With China’s annual growth targets and spending priorities unveiled in March each year, local officials are left sitting on their hands for much of the first quarter waiting for marching orders. This is compounded by the lag between when stimulus measures are introduced and when they’re felt in the real economy, he added.  Others blame the transition as China’s economy moves from manufacturing and investment to consumption and services. “We’re changing gears, from high growth to low growth, but it’s not easy,” said OCBC economist Dongming Xie. “The old model is not working. But the new model is not ready, so growth goes up and down. All they can do is bide their time and wait for it to kick in. That’s the reason you have these mini cycles.” Still others focus on the fine line that Beijing walks as it tries to stem local government debt while avoiding a hard landing. “My suspicion is that the central government kind of waits to see what it can get away with,” . “Because there’s been a lot of downward pressure in recent years, they underestimate what’s needed at the beginning of each year.” The cycle has a name and is hardly unique to China. Known as CRIC, short for crisis-response-improvement-complacency, the term was coined in Japan in the late 1990s in a bid to track the interaction of politics, economics and human nature. Tokyo-based economist Robert Feldman says he came up with the idea when he and his colleagues at Morgan Stanley were trying to forecast Japan’s economic movements during its long slide and realized it tended to move in fits and starts rather than a straight line.

China, Australia Sign Landmark Free Trade Agreement: The Australian and Chinese governments signed a long-awaited free trade agreement in a ceremony in Canberra on Wednesday, freeing up trade between the two countries. The historic agreement, signed by Australia's Trade Minister Andrew Robb and China's Commerce Minister Gao Hucheng finalized negotiations that began ten years ago and followed the Declaration of Intent signed in November by the two countries' leaders, Australian Prime Minister Tony Abbott and Chinese President Xi Jinping. In celebrating the signing on Wednesday, Abbott said that the China-Australia FTA (ChAFTA) signified a mutual trust between the two countries. He said the agreement was much more than just a deal with the world's coming economic superpower, it was "proof of Australia's trust in China." "Today is a truly historic step forward in our comprehensive strategic partnership," Abbott said. "I hope all of you will remember today. One day we will be able to say to our children and grandchildren that, yes, we were there the day this extraordinary agreement was signed between our two countries." A statement released by the Chinese government said the signing of ChAFTA was a significant development because, of all the free- trade agreements involving China, this one boasted "the highest level of overall trade and investment liberalization." The statement said Australia was the second largest destination, after Hong Kong, for China's overseas investment. "It is expected ChAFTA will facilitate the flow of capital, resources and people and benefit industries and consumers in both countries," it said.

For Luxury Car Markers, The Chinese "Cash Cow Is Dying" --It’s no secret that Chinese President Xi Jinping’s crackdown on corruption has had a rather dramatic effect on VIP gambling revenue in Macau, which has fallen for 12 consecutive months.  But the pinch is being felt well beyond the Baccarat tables.  “The enormous growth rates luxury-car makers like us have seen in China in recent years won’t continue,” Porsche CFO Lutz Meschke said, at an event in Atlanta last month. Some estimates have Porsche selling more vehicles in China this year than in the US, and as Bloomberg notes, the Chinese market — which has been a huge boon for luxury manufacturers in recent years — is set to cool significantly going forward.  Newly minted Chinese millionaires have long heralded their status by buying big, expensive cars such as Porsche’s Cayenne SUV. The penchant of rich mainlanders for flaunting their wealth is a big reason that China is set to dethrone the U.S. as the luxe automaker’s biggest market this year. But after a government crackdown on graft and conspicuous consumption, growth in luxury-car sales is slowing, and Chinese buyers are settling for less opulent models. That could spell an end to the gold rush for brands such as Porsche, BMW, and Audi, which have relied on China for about 50 percent of their global profits, estimates Sanford C. Bernstein..

Asia Now Has More Millionaires Than the U.S. - The population of newly minted millionaires across Asian-Pacific nations has swelled to 4.69 million, bringing the grand total a hair above North America’s millionaires club, according to a new survey of the world’s high net worth individuals.Capgemini and RBC Wealth Management surveyors estimate that the global economy produced 920,000 newly minted millionaires last year, who they define as anyone with investable assets exceeding $1 million in value. Asia-Pacific led the world with 8.5% growth in the population of millionaires, followed by North America’s 8.3%.While the cumulative wealth of North America’s millionaires still led the world with $16.23 trillion in holdings, the study estimates that Asian-Pacific millionaires will hold a greater sum by the end of this year.

Indian monetary policy: Unusual times -- There is a lot of discussion of the right course of monetary policy for India. In this column, India’s Chief Economic Adviser argues that the country’s real policy interest rates have diverged significantly for consumers and producers, and are unusually high for the latter. The real rate is 2.4% based on the consumer price index, but 7.5% based on the GDP deflator. There is a clear need for more consideration of the appropriate measure of restrictiveness in these unusual times.

Pakistani Hindu Population Among Fastest Growing in the World -  Contrary to the sensational media headlines about declining Hindu population in Pakistan, the fact is that Hindu birth rate is significantly higher than the country's national average. Although Hindus make up only 1.9% of Pakistan's population, it is among the worlds fastest growing Hindu communities today, growing faster than the Hindu populations in India, Nepal, Bangladesh and Indonesia.  Hindu fertility rate (TFR) of 3.2 children per woman in Pakistan is much higher than national fertility rate of 2.86.  With 3.33 million Hindus, Pakistan is currently home to the world's 5th largest Hindu population. By 2050, Pakistan will rank 4th with 5.6 million Hindus, surpassing Indonesia which is currently ranked 4th largest Hindu country, according to Pew Research.While it is true that some Pakistani Hindus have been targets of religious bigotry and intolerance by some in the majority Muslim community, there are also many may examples of mutual tolerance and respect between Hindus and Muslims in the country.  In the city of Mithi in Sindh's Tharparkar district, for example,  Muslims do not slaughter cows out of respect for their fellow citizens of Hindu faith, and Hindus, out of respect for Muslim rites do not  have marriage celebrations during the month of Muharram. Hassan Raza, a student journalist, quoted a resident of a village near Mithi as saying: "In our village, Hindus and Muslims have been living together for decades and there has not been a single day, when I have seen a religious conflict. No loud speaker is used for Azaan at the time when Hindus are worshiping in their temple, and no bells are rung when it is time for namaz. Nobody eats in public when it is Ramazan and Holi is played by every member of the village."

Navy Modernization to Boost Pakistan Shipbuilding Industry - Pakistan is launching domestic construction of warships, submarines and missile boats as part of its ambitious naval modernization program in collaboration with China, according to media reports.  Chinese media reports have described a building program involving six of eight S-20 AIP-equipped variants of the Type-039A/Type-041 submarine under negotiation; four "Improved F-22P" frigates equipped with enhanced sensors and weaponry (possibly including the HQ-17 surface-to-air missile developed from the Russian Tor 1/SA-N-9); and six Type-022 Houbei stealth catamaran missile boats, to be built by Pakistan's state-owned shipbuilder Karachi Shipyard and Engineering Works (KSEW), according to DefenseNews.  Pakistan is expanding and modernizing its underwater fleet with 8 additional AIP-equipped submarines jointly built with China.  Mansoor Ahmed told Defense News that AIP-equipped conventional submarines "provide reliable second strike platforms, [and] an assured capability resides with [nuclear-powered attack and nuclear-powered ballistic missile submarines], which are technically very complex and challenging to construct and operate compared to SSKs, and also very capital intensive."

How Will Obama's TPP and TISA Trade Deals Help Pakistan?  - US President Barak Obama is pushing legislation to gain fast track authority to negotiate Trans Pacific Partnership (TPP) and Trade in Services Agreement (TISA) as part of his pivot to Asia. TISA faces stiff opposition from Obama's fellow Democrats and organized labor who fear significant loss of American service sector jobs to other TISA member nations. Pakistan is one of the countries that will likely benefit from these trade deals.  President Obama is expected to get the authority he seeks because TPP and TISA are both supported by the pro-business Republicans who now control both houses of  the US Congress.Trans Pacific Partnership is crucial for America's Pivot to Asia which is aimed at checking China's rise and maintaining America's continued relevance in Asia. It is part of America's answer to Chinese-led Asian Infrastructure Investment Bank and Silk Road fund to promote Chinese trade with Asia and Europe. China-Pakistan Economic Corridor is the first major piece of this Chinese plan. Pakistan's inclusion in TPP and TISA confirms America's continued interest in maintaining close ties with its old Cold War ally in South Asia. Trade in Services Agreement is being negotiated among United States, European Union, Australia, Canada, Chile, Hong Kong, Iceland, Israel, Japan, South Korea, Liechtenstein, New Zealand, Norway, Switzerland, Taiwan, Uruguay, Colombia, Costa Rica, Mexico, Panama, Peru, Turkey, Pakistan and Paraguay. These countries make up about two-thirds of the global GDP. Trade in service is being more and more important with rapid growth in services sector of the world economy. Services now account for nearly two-thirds (64%) of the world GDP with the rest coming from manufacturing (30%) and agriculture (6%). Services account for even higher percentages of GDP in US (80%) and EU (73%).  Service sector is also the largest and fastest growing sector of Pakistan's economy. Services account for nearly 60% of Pakistan's GDP while manufacturing and agriculture each contribute about 20%. It therefore makes sense for Pakistan to join multilateral trade in service deals like TISA. Other provisions of TISA would ease outsourcing of a variety of services from America and Europe to Pakistan. These include information technology services, back office services, medical, engineering, legal and accounting services. These outsourced services will help create job opportunities for hundreds of thousands of college grads pouring into the job market every year.

Walmart’s black mark - Phnom Penh Post: Cambodian workers producing garments for global retail giant Walmart say they are subjected to a slew of workplace abuses ranging from forced labour to sexual harassment. Employees at numerous Walmart supplier factories across the country have made the allegations, which were compiled in a recent study exposing the brand’s “heinous abuses” in three of the major countries in its Asian supply chain – Cambodia, India and Indonesia. The study into Walmart, which was published by workers rights groups Jobs with Justice Education Fund and Asia Floor Wage Alliance, accuses the mega-brand of using its “large and complex supply infrastructure … [to] conceal the exploitation”. It states that the brand, which Forbes lists as the world’s largest retailer, fails to take any responsibility for abuses in its supply chain, where in Cambodia alone it is estimated to indirectly employ 45,000 people through its supplier factories. Leaked export records obtained from a source in the transportation industry show that more than 13,500 tonnes of Walmart garments and footwear were exported from Sihanoukville Autonomous Port last year to countries including the US, Canada, France, Germany and the UK. But despite its investment in Cambodia giving the brand “huge leverage” to improve working conditions, Walmart remains “right on the bottom” when it comes to protecting workers rights, according to Joel Preston, a consultant with the Community Legal Education Centre, which authored the Cambodia section of the report.

Amid Brazil's economic crisis, consumers struggle with debt - Brazil's top credit information bureaus estimate that as of April, more than 55 million Brazilians were behind on paying off credit cards or loans. That's 37 percent of the adult population in a country of about 200 million people, and the numbers are rising. According to the SPC credit information bureau, the lists have grown by an estimated 700,000 people since January, when the top credit bureaus began working together on combined lists for the first time. Soraia Panella, coordinator of customer service at Rio de Janeiro's Procon consumer protection agency, said she routinely sees people living so close to the edge financially that any sudden misfortune can plunge them into a hole from which it's nearly impossible to climb out. "The majority of people who come here break down in tears and cry and cry. They're ashamed and feel they have no way out," said Panella, whose team helps about 450 debtors consolidate their payments every day. "I think it's going to get much worse than it already is." After peaking at 7.5 percent annual growth in 2010, Brazil's economy has steadily retreated. And this year, it contracted 0.2 percent in the first quarter and is forecast to fall more than 1 percent for the full year.

Trade is strategy for America in Asia - THE setback suffered by the Trans-Pacific Partnership free trade deal in the United States Congress is a worrying sign of America's fluctuating ability to underpin its national interests in Asia with a commensurate set of multilateral responsibilities. By declaring that trade is strategy, Singapore Foreign Affairs and Law Minister K. Shanmugam delivered a pithy and pointed reminder to the Barack Obama administration of the larger strategic context that should frame long-term American decisions in a region crucial to America's security. Ironically, it was President Obama's fellow Democrats who blocked the TPP's passage, failing to live up to a larger vision linking trade and strategy. That failure is habitual for assertive labour unions and environmental groups, but lawmakers in charge of the national destiny should be able to look beyond such constituencies as they survey America's place in the world. That pre-eminent place is not guaranteed. America faces a geopolitical landscape marked by the rise or re-emergence of countervailing powers such as China and Russia. The political and economic institutions which upheld Western influence in general, and American supremacy in particular, after World War II are giving way to new arrangements in the long aftermath of the Cold War. The recent creation of the Asian Infrastructure Investment Bank is a telling example of a regional initiative that could bypass American interests unless Washington signals its determination to stay the economic course. The TPP would be a milestone. The American foreign policy establishment must abjure any notions of being in default charge of the world. No one else is, either, but everyone is living through intensely transitional times. In that evolving context, the American pivot to the Indo-Pacific would be incomplete if its military aspects were to be divorced from the need to accommodate accelerating change in a region coming into its economic own.

Peru capitulates to United States on health: Wikileaks: According to a document leaked by the WikiLeaks portal related to the so-called Trans Pacific Partnership (TPP), a United States-sponsored treatise for multilateral commerce undergoing closed-doors negotiations, Peru is to give up part of its sovereignty in matters of health, and will be exposed to international trials.The leaked document shows that, if the agreement is signed, the member countries will be forced to submit their national health programs to review and give explanations upon accepting or rejecting a pharmaceutical product, in a direct intervention of the pharmaceutical companies on the sovereign national health plans of each country. The TPP also supposes a reduction in the number of subsidy of medicines and medical equipment for accessible prices, to lead to the increase in the costs of treatments and medicines which will have to be absorbed by the patients. Another serious concern is the proposed extension of the period of protection of private patents, which will prevent the emergence of generic medicines in a short term — those which are usually cheaper than the original ones but just as effective —, and will sentence a virtual monopoly of the prices led by the big pharmaceutical laboratories. According to Melinda Saint Louis, director of the Public Citizen campaign — an NGO advocating the defense of consumers —, the pharmaceutical companies — almost all of them from the United States — will be able to initiate lawsuits if "they realize that some public policy of the Peruvian State is harmful to their investments." The activist said that in the face of such policies, the Peruvian government "has filed no safeguards" and thus "the civil society should be vigilant" to not see their rights been stepped on.

75 per cent of Canadians unaware of TPP negotiations: poll -- It's the biggest free trade deal Canadians never heard of. A new poll suggests three in four Canadians have no idea that Canada is one of 12 countries immersed in negotiations for the Trans-Pacific Partnership. The poll was conducted by Environics Research Group for Trade Justice Network, an umbrella group dedicated to challenging the secretive process by which international trade deals are generally negotiated.Fully 75 per cent of respondents said they had never heard of the TPP before being asked about it by the pollster. The telephone poll of 1,002 Canadians was conducted June 3-12 and is considered accurate within plus or minus 3.2 percentage points, 19 times in 20. The 12 countries involved in negotiations include the United States, Mexico, Australia, Japan, Chile, Vietnam and Singapore; they represent a market of almost 800 million people and a combined gross domestic product of more than $25 trillion. The federal government maintains the TPP would enhance trade in the Asia-Pacific region, providing greater economic opportunity for Canadians. Trade Justice Network spokesman Martin O'Hanlon called it "deeply disturbing" that so few Canadians are aware of the partnership talks. The network maintains the secret negotiations are being conducted with the guidance of multinational corporations and with no input from labour leaders, environmentalists or even MPs. "It's frightening that this can happen in a democracy," O'Hanlon said.

Brazil Retail Sales Drop Most On Record, Goldman Warns Will Get Worse -- Just a few months ago, we warned Brazil's economy was on the verge of collapse as the fiscal situation was deteriorating rapidly. It appears, judging by the most recent data from the oil-rich nation, that we were right. Broad retail sales have now declined for five consecutive months with the seasonally adjusted broad retail sales index now at the same level as early 2012. Core retail sales declined 3.5% YoY during April (weakest print since Aug 2003) andbroad retail sales declined by an even larger 8.5% YoY (lowest on record), and as Goldman warns, the outlook for private consumption and retail sales in the near term remains very weak.  Via Goldman Sachs,  The core retail sales measure (excluding autos and building materials) missed market consensus (+0.7% mom sa) by surprisingly contracting 0.4% (mom sa) in April. In addition, the March figure was revised slightly down from -0.9% mom sa to -1.0% mom sa. Similarly, broad retail sales contracted 0.3% mom sa in April, and the March figure was revised down from -1.6% mom sa to -1.8% mom sa.  Broad retail sales have now declined for five consecutive months at an average monthly rate of 1.6% mom sa per month. The seasonally adjusted broad retail sales index is now at the same level as early 2012.  In annual terms, core retail sales declined 3.5% yoy during April (weakest print since Aug 2003) and broad retail sales declined by an even larger 8.5% yoy.

Dominican Republic strips thousands of black residents of citizenship, may now expel them -- In 2013, the constitutional court of the Dominican Republic announced a decision that stripped an estimated 210,000 people — about 2 percent of the island nation's population — of their citizenship overnight. The Dominican Republic is a Caribbean nation that occupies roughly two-thirds of the island of Hispaniola. The other half belongs to Haiti, and the two countries are divided by language, history, and race. That division has often been toughest on Dominicans who are of Haitian descent, which is the group of people who lost their citizenship in the ruling. The government later softened the decision to allow people with birth certificates to "validate" their citizenship, and those without them to register as foreign migrants, the deadline for which was last night at midnight. But because the Dominican government has for decades systematically refused to grant birth certificates to people of Haitian descent, thousands were never able to obtain validation. That means there are now fears of what human rights advocates have warned would be an act of ethnic cleansing: that people of Haitian descent who cannot prove their right to stay will be rounded up and forced to "return" to Haiti — a country where many of them have never lived. Although the country's president and foreign minister have promised there will be no mass roundups, the government has announced that it is readying buses and detention centers to gather and deport people of Haitian descent, and has placed 2,000 troops on standby to support the process.

Haitians Scramble for Legal Residency in Dominican Republic - Haitians and other non-citizens stood in long lines across the Dominican Republic on Monday in last-minute bids to secure legal residency, hurrying to beat a looming paperwork deadline along with the threat of possible quick deportation. Lines snaked outside Interior Ministry offices as foreign residents, who are overwhelmingly from neighboring Haiti, sought to submit papers before a 7 p.m. Wednesday deadline. Many said they have had to spend all day and return multiple times after being told they lacked sufficient documentation to complete the applications. "You still have to bring more papers. It's always hard, but we'll see," bricklayer Aime Morette said as he waited with more than 140 other people to submit his application. Morette, a 28-year-old who has a wife and two children, said he has lived more than half his life in the Dominican Republic, but that doesn't automatically qualify him for legal residency under an initiative begun last year aimed at regulating the migration of workers who have long flowed across the border from Haiti. Under the program, the government said it would consider granting legal residency to non-citizens who could establish their identity and prove they arrived before October 2011. Officials estimated up to 500,000 people were in this category, and relatively few have been able to provide sufficient documentation. Interior Minister Ramon Fadul said about 250,000 people have at least started the application process but only 10,000 had met all the requirements for legal residency. So far, only about 300 have actually received permits.

Millionaires control 41% of world's wealth: Millionaires are expected to control nearly half of the world's personal wealth by 2019, according to a new study, suggesting that the wealth gap will continue to widen. The Global Wealth report from Boston Consulting Group (BCG) said the number of millionaires in the world grew to 17 million in 2014, up from 15 million in 2013. The world's millionaires now control 41 percent of the $164 trillion in global private wealth, up from 40 percent in 2013. The report said millionaires are expected to control 46 percent of the world's wealth in 2019.  The growing fortunes of the wealthy are owed largely to rising stock markets and asset prices around the world. According to BCG, 73 percent of the gains in global private wealth last year came from market performance on existing assets rather than newly created wealth or businesses. "The wealthier are getting more and more wealthy," "They have a much larger share of their wealth invested in equity markets and last year was a good year for market performance."   By far, the U.S. still has the largest number of millionaires. That segment of the population grew by 4.7 percent last year to 6.9 million. (BCG defines millionaires as households with $1 million in easily monetized wealth—cash, stock and securities, pension funds and other financial assets. Their wealth measurement doesn't include real estate, business ownership and collectible and consumer goods). China ranked second in millionaire population but had the largest number of new millionaires in 2014. Its millionaire population grew to 3.6 million from 2.4 million in 2014, meaning the world's second largest economy added more than half of the world's 2 million new millionaires last year.

IMF raises tempo in inequality debate - When the rich get richer, a country’s economic health can suffer. But if the poorest members of a society start climbing the wealth ladder, then national growth can receive a boost. That was the message on Monday from economists at the International Monetary Fund who have raised the tempo in the debate on global inequality.Previous IMF research has pointed to redistributive policies having benign effects on countries’ coffers. Work produced by the fund, as well as by others including French economist Thomas Piketty, has prompted vigorous debate in economic circles. But a new research paper, based on data from 159 advanced and developing economies for the period 1980 to 2012, goes further, and establishes a direct link between how income is distributed and national growth. The IMF economists found that when the income share of the richest 20 per cent of the populations of these countries increased by one percentage point, gross domestic product growth ended up 0.08 percentage points lower in the following five years, “suggesting that the benefits do not trickle down”. The same one percentage point increase in income share for the poorest 20 per cent in these economies was associated with a 0.38 per cent increase in growth. That positive relationship also held true for the middle class, the economists found.  The research was hailed on Monday by poverty campaigners, who said it marked the death of “trickle-down economics”.

Pay low-income families more to boost economic growth, says IMF -- The idea that increased income inequality makes economies more dynamic has been rejected by an International Monetary Fund study, which shows the widening income gap between rich and poor is bad for growth. A report by five IMF economists dismissed “trickle-down” economics, and said that if governments wanted to increase the pace of growth they should concentrate on helping the poorest 20% of citizens. The study – covering advanced, emerging and developing countries – said technological progress, weaker trade unions, globalisation and tax policies that favoured the wealthy had all played their part in making widening inequality “the defining challenge of our time”. The IMF report said the way income is distributed matters for growth. “If the income share of the top 20% increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% is associated with higher GDP growth,” said the report. Echoing the frequent warnings about rising inequality from the IMF’s managing director, Christine Lagarde, the report says governments around the world need to tackle the problem. It said: “Raising the income share of the poor, and ensuring that there is no hollowing-out of the middle class, is actually good for growth.” The study, however, reflects the tension between the IMF’s economic analysis and the more hardline policy advice given to individual countries such as Greece, which need financial support.

IMF Backs Steps to Cut Income Inequality, Boost Growth - WSJ -- International Monetary Fund chief Christine Lagarde called on officials around the world to make changes to tax regimes, clamp down on corruption and take other steps to reduce income inequality, which she blamed for weighing on global growth. “The poor and the middle class are the main engines of growth,” Ms. Lagarde said at a speech in Brussels on Wednesday. “Unfortunately, these engines have been stalling.” The IMF’s managing director blamed the oversized role of the financial sector in major economies such as the U.S. and Japan as well as unequal access to technology and education, and low social mobility around the world for leading to an “economy of exclusion,” citing a term used by Pope Francis in her prepared remarks for Les Grandes Conferences Catholiques. Lifting the proportion of income going to the poor and middle class by 1 percentage point can increase economic growth in a country by as much as 0.38 percentage point over five years, while boosting the rich’s share of income appears to lower growth domestic product growth slightly, she said, citing IMF research. “You do not have to be an altruist to support policies that lift the incomes of the poor and the middle class,” she said. “Reducing excessive inequality — by lifting the ‘small boats’ — is not just morally and politically correct, but it is good economics.” Countries should first take steps to insure stable growth with minimal corruption to give the less rich a fighting chance, she said. When it comes to fiscal policy, governments should abolish popular tax breaks that mostly benefit the rich, including mortgage-interest deductions and tax relief on capital gains and stock options, she said. European countries should trim taxes connected with workers, including employers’ social-security contributions, to help create more full-time jobs.

End game as the global bond bubble bursts: Not to put too fine a point on it, there's a rout in bond markets that could yet cause financial convulsions and problems for the banks. Another funding freeze, perish the thought, or a global rise in rates next year would do more harm to investors who are paying too much for Sydney and Melbourne properties than the "crazy" talk from the Reserve Bank or bubble warnings from Treasury. Advertisement They'd just have to make do with rent rises – shouldn't be a problem with all those who can't afford to buy where they want to live – instead of unrealistic double-digit capital gains. At least it's not the global financial crisis all over again but the end game. The difference is bond yields are rising because things are picking up even, dare I suggest, here. Back then they were falling as the banking system imploded and money fled to government-guaranteed safety. Recently German and Swiss bonds have been the spectacular exception because some of their very short maturities are even trading on a negative yield. Can you believe buyers are paying the government to mind their money?That government bonds are the bedrock of the financial system always bemuses me considering how capitalism got its name. Anyway, they set the risk-free rate on which everything else is based, including your mortgage or term deposit.Except that things are moving quickly. All bond yields move lockstep with the US, even more so than the sharemarket does. The levels might be different between countries but the direction is invariably the same.  If US bond yields keep rising they'll slowly percolate up to all other rates everywhere. They've risen 48 basis points in less than two weeks, which might not sound much but in bondland that's panic stations. It's akin to a 24 per cent jump in interest payments.

Sovereign debt needs international supervision - Joseph Stiglitz -- Governments sometimes need to restructure their debts. Otherwise, a country’s economic and political stability may be threatened. But, in the absence of an international rule of law for resolving sovereign defaults, the world pays a higher price than it should for such restructurings. The result is a poorly functioning sovereign-debt market, marked by unnecessary strife and costly delays in addressing problems when they arise. We are reminded of this time and again. In Argentina, the authorities’ battles with a small number of “investors” (so-called vulture funds) jeopardised an entire debt restructuring agreed to – voluntarily – by an overwhelming majority of the country’s creditors. In Greece, most of the “rescue” funds in the temporary “assistance” programs are allocated for payments to existing creditors, while the country is forced into austerity policies that have contributed mightily to a 25% decline in GDP and have left its population worse off. In Ukraine, the potential political ramifications of sovereign-debt distress are enormous. So the question of how to manage sovereign-debt restructuring – to reduce debt to levels that are sustainable – is more pressing than ever. The current system puts excessive faith in the “virtues” of markets. Disputes are generally resolved not on the basis of rules that ensure fair resolution, but by bargaining among unequals, with the rich and powerful usually imposing their will on others. The resulting outcomes are generally not only inequitable, but also inefficient.

Central banks enter the unknown with sub-zero rates - For years, central bankers have treated the fabled interest rate known as the “zero lower bound” as if it were a physical barrier. Like the notion that temperatures cannot fall below absolute zero, policy makers thought they could not impose negative borrowing costs, as depositors would simply withdraw their money and hoard the cash. However, as the risk of deflation has pushed central banks in the eurozone, Denmark, Sweden and Switzerland to venture below zero, the question has shifted from whether negative rates are possible to how low they can go. Critics fear the unprecedented experiment of negative rates could have unwarranted side effects, including the formation of asset bubbles and deep disruption to the operation of the banking system. “Negative rates are the policy for which we know least,” said Lucrezia Reichlin, an economist at London Business School. “They may create distortions and have undesirable distributional effects, so they should be considered an emergency, temporary measure.” Denmark’s Nationalbanken was the first central bank in Europe to experiment properly with negative rates after the global financial crisis. In July 2012, the DNB began charging lenders 0.2 per cent for some of the cash parked in its deposit facility — a measure needed to defend the longstanding peg between the krone and euro. But this experiment acquired a whole different scale at the start of the year, when the ECB launched a programme of quantitative easing, having already cut its deposit rate to -0.2 per cent. This forced neighbouring central banks to slash their own rates deep into negative territory to stem the risk of large-scale capital inflows. In January, Switzerland dropped its deposit rate to as low as -0.75 per cent, while Sweden’s Riksbank moved its main repo rate to -0.25 per cent in March. The DNB, which had briefly raised the deposit rate back into positive territory, is now charging banks 0.75 per cent for their excess reserves.

ECB Allots €73.8 Billion to Banks in Latest Round of Four-Year Loans -  —The European Central Bank said Thursday that 128 eurozone banks borrowed €73.8 billion ($83.13 billion) of cheap, central bank credit under a four-year lending program that was created last year, an indication that brighter prospects for Europe’s economy are boosting loan demand. It was the fourth tranche of loans under a program that began last September aimed at channeling financing to the eurozone economy. As a condition for obtaining the loans, which carry an interest rate of just 0.05%, banks must in turn raise their lending to the private sector. The amount borrowed at the latest installment was the lowest since the program began. The peak occurred in December, when banks tapped the facility to the tune of €129.8 billion. Still, Thursday’s figure was in line with analyst expectations, and should help the ECB raise the size of its balance sheet–the value of assets on its books–toward its goal of reaching March 2012 levels when the balance sheet was around €3 trillion. The balance sheet was €2.44 trillion at the end of last week. “The sizable number is a further illustration that bank lending dynamics continue to pick up in the euro area and further support the notion that short market rates will remain anchored for still a long time,” said Jan von Gerich, chief strategist at Nordea. Still, some analysts cautioned against reading too much into the sizable uptake at Thursday’s loan installment. Borrowing conditions have improved in recent months, but lending to the eurozone private sector remained flat on an annual basis in April, according to ECB data last month.

Moscow Furious After Both Belgium And France Freeze Russian State Assets -- Russia has summoned the Belgian ambassador to Moscow and threatened to “respond in kind” after bailiffs instructed nearly 50 Belgian companies to disclose Russian state assets, a move which reportedly sets the stage for the seizure of Russian property in connection with the disputed $50 billion Yukos verdict. Essentially, Russia was required to submit a plan for a €1.6 billion payment pursuant to the ECHR decision by June 15, and because Moscow did not do so, Belgium will attempt to extract the payment on its own. As a refresher, here’s what we said last year regarding the arbitration: The Hague is not Vladimir Putin's favorite place today. Following the "war crime" comments earlier, the arbitration court's decision to rule in favor of Yukos shareholders (and thus against the allegedly "politically motivated" confiscation of the firm's assets by the Russian government) with a $50 billion settlement (half what was sought) has prompted a quick and angry response from the Russian government. Blasting the "one-sided use of evidence," and re-iterating the massive tax evasion that the leadership were involved in, Russia slams "the puzzling unprecedented amount of damages" awarded, claiming the process is "becoming increasingly politicized." Here’s RT on Belgium’s move to freeze Russian assetsThe bailiffs were reportedly acting at the behest of the Isle of Man-based Yukos Universal Limited, a subsidiary of the Russian energy giant, dismantled in 2007. They have given the target companies a fortnight to comply.. Russia will appeal the court’s arrest of Russian property, Russian presidential aide Andrey Belousov said. According to the official, “the situation with the arrest of the property is politicized, [and] Moscow hopes to avoid a new escalation in relations.”

Spain: Leftist Mayors for Madrid, Barcelona in Historic Turn - — Madrid and Barcelona pulled off one of Spain's most significant political upheavals in recent memory Saturday, swearing in far-left mayors who stridently oppose the country's governing party and want to replace it in national elections later this year.The new radical leaders have promised to cut their own salaries, halt homeowner evictions and eliminate perks enjoyed by the rich and famous.The landmark changes came three weeks after Spain's two largest traditional parties were punished in nationwide local elections by voters groaning under the weight of austerity measures and repulsed by a string of corruption scandals.In Madrid, 71-year-old retired judge Manuela Carmena was sworn in to cheers from jubilant leftists who crowded the streets outside city hall shouting "Yes We Can!" as they ended 24 years of city rule by the conservative Popular Party, which runs the national government."We want to lead by listening to people who don't use fancy titles to address us," Carmena said after being voted in as mayor by a majority of Madrid's new city councilors.Carmena has vowed to take on wealthy Madrilenos who enjoy exclusive use of the city-owned Club de Campo country club — opening it up to the masses. "We're creating a new kind of politics that doesn't fit within the conventions," she said before being voted in. "Get ready."In Barcelona, anti-eviction activist Ada Colau was later sworn in as the city's first female mayor, smiling broadly as she took possession of the mayoral sash and staff.

Spanish Leftist Leader Says Elections a Warning to EU — Leftist victories in big-city mayoral elections herald a fundamental shift against austerity in Spain and should serve as a further warning to European leaders that southern economies are in dire need of relief, the leader of the upstart populist party Podemos told The Wall Street Journal. In an interview, party leader Pablo Iglesias also defended the performance of Spain's new leftist mayors despite a rocky start and said German-led efforts to force further budget cuts on Greece pose an existential threat to the European Union and the euro. "The future of Europe is in play now, and the future looks very uncertain if they keep up the pressure on Greece," Mr. Iglesias said. Mr. Iglesias, a ponytail-wearing political scientist, heads an 18-month-old political party that helped engineer the surprising victories of leftist coalitions in May mayoral elections in Madrid and Barcelona. The 36-year-old said that if Spanish history is any guide, the wins portend further triumphs by the left in general elections later this year against Prime Minister Mariano Rajoy and his conservative Popular Party. "The big cities are the engine of political change," Mr. Iglesias said. He said Spain's media and establishment parties are foregoing the customary political honeymoon period and "opening fire very harshly" on the new mayors. That is especially true in Madrid, he said, where the Popular Party had governed for 24 years. Madrid's new mayor, Manuela Carmena, who took office Saturday, was almost immediately forced to seek the resignation of her cultural councilor due to a flurry of criticism over offensive tweets, including an anti-Semitic joke, he made in 2011. Ms. Carmena has also taken heat for backing away from a campaign pledge to create a municipal bank to finance social projects, saying it was unfeasible, and for suggesting that janitorial work in schools could be done more efficiently and economically by students' mothers.

Greek Debt Deal; Tsipras Still Asking For What He Knows Is Impossible - Forbes: The Greek negotiations seem to have been going on forever but it really is only four months since Syriza was elected and they started to demand two major points from said talks. That there should be a reduction in the total amount of debt that Greece owes (ie, a haircut on the debt) and a relaxation of some of the supply side reforms that the creditors are insisting upon. The third, that the primary surplus requirements could be relaxed has pretty much been agreed by everyone, conditional upon the other two not happening. And yet this four months later Syriza, in the form of Tsipras, the Prime Prime Minister, is still insisting that a deal can be done if only the supply side reforms are relaxed and the amount of the debt is cut. Neither of which is something that anyone else can agree to.  He’s doing it again: Greek Prime Minister Alexis Tsipras said he was willing to accept unpalatable compromises to secure a deal with international creditors, provided he gets debt relief in return, something that Germany refuses to countenance. With Greece heading towards possible default and bankruptcy, he told his negotiating team before it took a counter-proposal to Brussels that without debt relief he would say “no” to any settlement with the EU and IMF IMF that isolate his country from the rest of Europe. This is just something that the other Europeans (here, the national governments of the eurozone, represented by the Eurogroup) just cannot agree to. And Tsipras knows this very well.

Greek FinMin Varoufakis: "Europe Does Not Want 'Grexit'" | In an interview with BBC radio 4, Greek Finance Minister Yanis Varoufakis noted that Greece’s European partners will not eventually let the country leave the Eurozone. “German Chancellor Angela Merkel is not even considering the possibility of a Grexit,” he noted. When asked whether it is possible for the country to exit the Eurozone, the Greek finance minister replied that no EU official would want such an outcome. “I don’t believe that any sensible European bureaucrat or politician will go down that road,” he replied. Furthermore, when asked if the EU and the IMF are bluffing the Greek Finance Minister said “I hope they are.”

Greek PM Warns of 'Difficult Compromise' After Default Threat: Greek premier Alexis Tsipras warned Greece on Saturday to prepare for a "difficult compromise" with its EU-IMF creditors as his closest advisors delivered a last-chance proposal to avert a catastrophic default by Athens. Cash-starved Greece is under huge pressure to strike an agreement to unlock vital bailout funds in the coming days, if not hours, after top eurozone officials turned the screws Friday and said they were preparing the ground for an Athens default. The Tsipras envoys brought his latest bid to end a five-month standoff with the EU and IMF, who are demanding tough reforms in exchange for giving Athens 7.2 billion euros ($8.1 billion) still remaining in its international rescue package."If we arrive at a viable accord, even if it is a difficult compromise, we will take up the challenge because our only criteria is to get out of the crisis," Tsipras was quoted as telling Greek officials late Friday in a government statement. Whatever needs to be done "needs to be done quickly", deputy finance minister Dimitris Mardas told Skai TV in Athens. He predicted there would be a deal. A European source close to the negotiations told AFP that the meeting was "underway" with its resolution "open-ended", and it would possibly take several days.

Greek bailout talks to continue; positions still far apart: - Greek government representatives were due Sunday to continue bailout talks in Brussels with the country's creditors, amid uncertainty over whether the two sides would manage to bridge their differences, sources said. After months of negotiations, time is running out for Athens to agree with the European Commission, the European Central Bank and the International Monetary Fund (IMF) on reforms needed to access 7.2 billion euros (8.2 billion dollars) in bailout aid. "Time is not on our side," commission Vice President Valdis Dombrovskis told German newspaper Die Welt. "We need an agreement in the coming days." Nikos Pappas, a senior aide to Greek Prime Minister Alexis Tsipras, held talks on Saturday with the personal representative of commission President Jean-Claude Juncker and members of the ECB and IMF, EU sources said on condition of anonymity. The aim was to reach a compromise before markets reopen on Monday, in what was billed as Juncker's final attempt to reach a deal with Athens. But positions were still far apart early Sunday, after talks ran late into the night, according to a diplomatic source. "It is not certain whether there will be an outcome," the source said on condition of anonymity. "Senior commission officials are worried whether an agreement can be reached on time." On Saturday, Juncker warned of the "devastating consequences" for both Greece and the rest of the eurozone if the country were to leave the currency bloc, and he said Tsipras was also aware of this.

Greek default fears rise as ‘11th-hour’ talks collapse - Talks aimed at reaching an 11th-hour deal between Greek ministers and their bailout creditors collapsed on Sunday evening after a new economic reform proposal submitted by Athens was deemed inadequate to continue negotiations. The breakdown is the clearest sign yet that differences between the two sides may be too wide to breach, increasing the possibility that Athens will not secure the €7.2bn in bailout aid it needs to avoid defaulting on its debts — including a €1.5bn loan repayment due to the International Monetary Fund in just two weeks. Greek negotiators, including Nikos Pappas, aide-de-camp to Prime Minister Alexis Tsipras, left the European Commission only 45 minutes after entering. A commission spokesman said there remained a “significant gap” between the sides, amounting to up to €2bn per year, and there was no longer time to reach a “positive assessment” of Greek efforts before a meeting of eurozone finance ministers on Thursday. “While some progress was made, the talks did not succeed,” said the spokesman. “On this basis, further discussion will now have to take place in the eurogroup.” The eurogroup meeting is seen by many officials as the last chance for Athens to secure agreement on a list of economic reforms its creditors are demanding in order to release the €7.2bn before Greece’s EU bailout runs out at the end of the month. Without the endorsement of Greece’s trio of bailout monitors — the commission, the International Monetary Fund and the European Central Bank — the chances of an amicable agreement on Thursday are remote, raising the prospect eurozone negotiators may resort to the “take it or leave it” strategy used on Cyprus at a eurogroup meeting two years ago. On that occasion, an ECB representative warned that without a deal, it would be forced to cut all emergency funding to Cypriot banks — essentially laying waste to the country’s financial system. The ECB has faced pressure in the past week to take the same stance with Athens.

Greece and creditors fail in 'last attempt' to reach deal | Reuters: Talks on ending a deadlock between Greece and its international creditors broke up in failure on Sunday, with European leaders venting their frustration as Athens stumbled closer toward a debt default that threatens its future in the euro. European Union officials blamed the collapse on Athens, saying it had failed to offer anything new to secure the funding it needs to repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund by the end of this month. Greece retorted it was still ready to talk, but that EU and IMF officials had said they were not authorized to negotiate further. Athens insists it will never give in to demands for more pension and wage cuts. "This is very disappointing and sad. It was a last attempt to bridge our differences but the gap is too large. One can discuss a gap, but this is an ocean," said a person who was close to the talks. Both sides acknowledged the talks had lasted less than an hour, although even here accounts differed: Greece put the length at 45 minutes, EU officials at half an hour. Following what it called this "last attempt" at a solution, the EU's executive Commission said euro zone finance ministers would now tackle the issue when they meet on Thursday. With no technical deal apparently possible, the ministers are likely to have to make difficult political decisions on Greece's membership of the currency bloc.

Greece: A Credible Deal Will Require Difficult Decisions By All Sides - Oliver Blanchard -  IMF Direct -- The status of negotiations between Greece and its official creditors – the European Commission, the ECB and the IMF – dominated headlines last week. At the core of the negotiations is a simple question: How much of an adjustment has to be made by Greece, how much has to be made by its official creditors? In the program agreed in 2012 by Greece with its European partners, the answer was: Greece was to generate enough of a primary surplus to limit its indebtedness. It also agreed to a number of reforms which should lead to higher growth. In consideration, and subject to Greek implementation of the program, European creditors were to provide the needed financing, and provide debt relief if debt exceeded 120% by the end of the decade. The primary surplus in the program was to be 3% in 2015, and 4.5% next year. Economic and political developments have made this an unattainable goal, and the target clearly must be decreased. It also included a number of reforms aimed at increasing medium term growth, and making the fiscal adjustment easier. These also need to be reconsidered. In this context, by how much should the primary surplus target be reduced? A lower target leads to a less painful fiscal and economic adjustment for Greece. But it also leads to a need for more external official financing, and a commitment to more debt relief on the part of the European creditor countries. Just as there is a limit to what Greece can do, there is a limit to how much financing and debt relief official creditors are willing and realistically able to provide given that they have their own taxpayers to consider. How should the initial set of reforms be reassessed? Greek citizens, through a democratic process, have indicated that there were some reforms they do not want. We believe that these reforms are needed, and that, absent these reforms, Greece will not be able to sustain steady growth, and the burden of debt will become even higher. Here again, there is a trade off:  To the extent that the pace of reform is slower, creditors will have to provide more debt relief.  Here again, there is a clear limit to what they are willing to do

Varoufakis rules out 'Grexit', deal possible if Merkel takes part -- Greece Finance Minister Yanis Varoufakis said he could rule out a 'Grexit' because it would not be a sensible solution to the Greek debt crisis and in a German newspaper interview on Monday also said a debt restructuring was the only way forward. "I rule out a 'Grexit' as a sensible solution," Varoufakis told mass circulation Bild newspaper, referring to a possible Greek exit from the euro zone. "But no one can rule out everything. I can't even rule out a comet hitting earth." Talks on ending the deadlock between Greece and its international creditors broke up in failure, with European leaders venting frustration as Athens stumbled towards a debt default that threatens its future in the euro. Varoufakis said he believed it could be possible for Greece to reach an agreement with creditors quickly. He said the only way Greece would be able to repay its debts was if there was a restructuring and a deal could be possible if Chancellor Angela Merkel took part in the talks. "We don't want any more money," he told the German daily that has been especially critical of the rescue efforts, adding Germany and the rest of the eurozone had already given Greece "far too much" money. "An agreement could be reached in one night. But the chancellor would have to take part." He said the austerity program had failed. "There's no way around it: We have to start all over again. We have to make a clean sweep," Varoufakis said.

Greece has nothing to lose by saying no to creditors - So here we are. Alexis Tsipras has been told to take it or leave it. What should he do? The Greek prime minister does not face elections until January 2019. Any course of action he decides on now would have to bear fruit in three years or less. First, contrast the two extreme scenarios: accept the creditors’ final offer or leave the eurozone. By accepting the offer, he would have to agree to a fiscal adjustment of 1.7 per cent of gross domestic product within six months. My colleague Martin Sandbu calculated how an adjustment of such scale would affect the Greek growth rate. I have now extended that calculation to incorporate the entire four-year fiscal adjustment programme, as demanded by the creditors. Based on the same assumptions he makes about how fiscal policy and GDP interact, a two-way process, I come to a figure of a cumulative hit on the level of GDP of 12.6 per cent over four years. The Greek debt-to-GDP ratio would start approaching 200 per cent. My conclusion is that the acceptance of the troika’s programme would constitute a dual suicide — for the Greek economy, and for the political career of the Greek prime minister.  Would the opposite extreme, Grexit, achieve a better outcome? You bet it would, for three reasons. The most important effect is for Greece to be able to get rid of lunatic fiscal adjustments. Greece would still need to run a small primary surplus, which may require a one-off adjustment, but this is it.  After Grexit, nobody would need to fear a currency redenomination risk. And the chance of an outright default would be much reduced, as Greece would already have defaulted on its official creditors and would be very keen to regain trust among private investors.  The third reason is the impact on the economy’s external position. Unlike the small economies of northern Europe, Greece is a relatively closed economy. About three quarters of its GDP is domestic. Of the quarter that is not, most comes from tourism, which would benefit from devaluation. The total effect of devaluation would not be nearly as strong as it would be for an open economy such as Ireland, but it would be beneficial nonetheless. Of the three effects, the first is the most important in the short term, while the second and third will dominate in the long run .

Greek Talks Collapse, Default Looms -- Yves Smith - Both sides in the Greece/creditor negotiations have said they have reached the limits of what they are prepared to give. Talks on Sunday fell apart after a mere 45 minutes. The immediate impasse is an inability to bridge the gap on what the IMF surgically calls “making the numbers work” or meeting the creditor’s primary surplus target of 1% for this year. Greece had proposed in its 47 page document a target of 0.6%, which it increased to 0.75%. The difference between the two sides the path by which Greece gets to a stringent primary surplus level of 3.5% a year by 2018 is a bit under a €2 billion per year gap. The lenders pushed for more cuts in pensions, higher taxes on energy, and VAT increases, and the Greek side would not budge.  The locus of decision-making is again at the political level. The key date is JUne 18, when the Eurogroup meets. However, ECB chief Mario Draghi is speaking at the EU parliament today at 13:00 GMT, and the ECB also has one of its regularly scheduled two week meetings this Wednesday at which they decide whether or not to increase the ELA. Even though an IMF default is not a bright white line, June 30 is not just the date when Greece will default absent somehow cinching a deal, but it is also when the bailout will expire unless the Eurozone countries all agree to extend it. The sour mood on both sides makes that seem well-nigh impossible. The key creditors all appear to have reconciled themselves to loss recognition. One of the fallacies we’ve seen in both media and financial commentary is that a Greek default will trigger a loss. Assuming the creditors don’t have a way to finesse it, what it instead triggers is loss recognition and a wrangle over who absorbs how much of it.  Even though the financial media keeps citing the face amount of Greek debt, that’s not what is at issue. Like a house that someone bought at $200,000 but is now worth $90,000, everyone knows that Greek loans are less than their face amount. As we’ve stressed, they’ve already been cut in economic terms by extensions of maturities and reductions of interest rates. The creditors fully expected to take more economic losses; had Greece gotten through the bailout and gotten its €7.2 billion in bailout funds, it was set to roll right into a new negotiation over debt levels, which the lenders have called the third bailout.

The Operational Issues of a Grexit Part Two: Organizational Capacity, Capital Controls and Bootstrapping a New Monetary System -naked capitalism - Yves here. We thought it was important to focus on the operational issues of a Grexit because the commentary on this issue too often muddies multiple issues, which then leads to a poor understanding of what the costs and risks to Greek citizens might be. The first, and most important, is a default does not mean a Grexit. Countries can and do default on their sovereign obligations, as Russia did in 1998 and Argentina did in 2001, without adopting new currencies. Moreover, default is not a “get out of paying free” card. Even with defaults with mere private lenders, Russia and Argentina restructured their debts, meaning they agreed to a program of payment of a reduced amount. It is also important to recognize that official creditors like the IMF and ECB have far more power relative to sovereign borrowers that private creditors. For instance, the IMF was the only lender to Argentina prior to its default to be repaid in full. That means even when dealing with a borrower of limited means who has defaulted, an official creditor is in a better position to extract what can be gotten than private ones.  Second, when most commentators discuss a Grexit, they focus on two elements: the forcing of a debt restructuring, and a sudden currency devaluation. Argentina again is a precedent of sorts, since when it defaulted, it also abandoned its currency peg with the dollar. Experts widely acknowledge that a rapid currency depreciation is painful even though the longer-term effects are positive. The reason is what economists call a J-curve effect: the trade deficit gets worse before it gets better. A county goes into a devaluation with an established pattern of trade. The immediate impact of a default is that import prices shoot up in the new, depreciated currency value terms while what the country receives on its now cheaper exports goes down. It is only after trade partners have shifted more of their sourcing of imports to buy from the country with the now-bargain-priced goods that the country gets the benefit of the depreciation. The immediate shock of the spike in import prices is an immediate slowdown, shortages, and business failures.

Greece bonds, stocks collapsing as the market re-panics - This time we’re really panicking. That’s what some markets seem to be saying this morning on the heels of failed talks over the weekend between Greece and its European creditors. Those discussions lasted anywhere between 45 minutes to an hour, with the breakdown a painful reminder of the fact that the International Monetary Fund bailed on its own talks with Greece last week. The can has now been kicked all the way to the last-stand June 25 European Union leaders summit in Brussels, where some say Prime Minister Alexis Tsipras has all his hopes riding. But there’s also a meeting of Eurogroup finance ministers on Thursday, and many are looking anxiously for Athens to come up with new reform proposals ahead of that. June 30 remains the big line in the sand as Greece has a 1.6-billion-euro ($1.8 billion) payment to the IMF looming, after it bundled all its four June repayments into one. The question is, what will markets do in the meantime? At least as far as Greek bonds and stocks are concerned, maybe just keep panicking. The yield on the 10-year Greek bond pushed above 12% in Europe’s morning, on track for its highest close since late April. It was up 90 basis points at 12.72%, according to electronic trading platform Tradeweb. The yield on 2-year bonds surged 3.9 percentage points to 28.66%.

Hydrocarbon block tender still on: The tender for the concession of 20 blocks for hydrocarbon exploration in the Ionian Sea and south of Crete will continue regardless of recommendations by certain companies to postpone it due to low oil rates and the political uncertainty in Greece. Energy Ministry sources have told Kathimerini that there are no plans to postpone the tender that ends on July 14, and they estimate that any such development less than a month before the deadline for the submission of binding bids would be seen as “problematic.” Ministry officials who have been supervising the process since its start and are in contact with the oil market acknowledge the difficulties as regards the current low global oil rates, which considerably raises the business risk in terms of regions with great sea depths, such as the Ionian, but say that a postponement would not really change anything as market forecasts speak of oil rates staying at around $60 per barrel. “Those who are about to come, will come,” a ministry source said, adding that at this point even one offer from a major company would constitute a satisfactory result for the tender.

As Fish Stocks Dwindle, So Do The Livelihoods Of Greek Fishermen -- Parisi Tsakirios is not celebrating. He's on his wooden fishing boat, cleaning a bright yellow net. Two days at sea, he says, and barely a catch."We caught just 20 pounds of fish," says Tsakirios, who, at 29, has been fishing for 15 years. "We can sell that for 200 euros (about $225). But fuel costs almost as much, so we'll be lucky if we make 20 euros (about $22)."He will split those earnings with his 58-year-old father, Yannis, who fishes with him. Yannis Tsakirios made enough to raise four children as a fisherman. Three followed him into the trade."It's so hard to make a living these days," he says. "I work much longer hours now than I did as a young man."The traditional Greek fisherman casting a net from his small wooden caique is a postcard image of the Mediterranean. In the past, these fishermen supplied tavernas and fish markets. But fish stocks are so low now that many say they can't make a living.

Greece Won’t Present New Proposal to Eurogroup to Unlock Aid -- Greece snubbed European pleas to submit a proposal to avert a default, dimming chances of a compromise at a key meeting this week. Greek stocks fell for a third day on Tuesday on concern time is running out. The country needs to seal an accord or get an extension before the euro area’s bailout expires on June 30, or risk missing payments on its debt of about 313 billion ($354 billion) euros. “The overwhelming sense of Greece’s creditors is that the government does not fully understand the institutional constraints it faces, the level of reform detail necessary for a deal and that is massively underestimating the risk and impact of capital controls,” . “Even if a Euro summit is called, it may prove too late.” Greek Prime Minister Alexis Tsipras is scheduled to address lawmakers from his party in Parliament at 2 p.m. in Athens. Finance Minister Yanis Varoufakis told Bild newspaper that any new proposals would need to be thrashed out at a lower level before they could be presented to the finance ministers set to meet June 18 in Luxembourg. A Greek government official, who asked not to be named in line with policy, said the government hasn’t submitted a new plan.

Defiant Alexis Tsipras accuses creditors of ‘pillaging’ Greece - Alexis Tsipras, the Greek prime minister, vowed not to give in to demands made by his country’s international creditors, accusing them of “pillaging” Greece for the past five years and insisting it was now up to them to propose another rescue plan to save Athens from bankruptcy. Mr Tsipras’s remarks came less than 24 hours after the collapse of last-ditch talks aimed at reaching agreement on the release of €7.2bn in desperately needed rescue funds. The comments were part of a chorus of defiance in Athens that left many senior EU officials convinced they can no longer clinch a deal with Greece to prevent it from crashing out of the eurozone. Without a deal to release the final tranche of Greece’s current bailout, Athens is likely to default on a €1.5bn loan repayment due to be paid to the International Monetary Fund in two weeks, an event officials fear would set off a financial chain reaction from which Greece would be unable to recover. “One can only suspect political motives behind the fact that [bailout negotiators] insist on further pension cuts, despite five years of pillaging,” Mr Tsipras said in a statement. “We are carrying our people’s dignity as well as the aspirations of all Europeans. We cannot ignore this responsibility. It is not a matter of ideological stubbornness. It has to do with democracy.” Reflecting the growing fears of a Greek default, Günther Oettinger, Germany’s European commissioner, called for an “emergency plan, a ‘Plan B’” in case Athens failed to reach a deal, saying this would lead to “a state of emergency” in Greece, including difficulties paying for energy, police services and medicines. The growing signs of breakdown sent the Athens stock exchange down nearly 5 per cent and borrowing costs on Greek bonds sharply higher. The jitters appeared to spread to other peripheral eurozone bonds as well, with sell-offs in benchmark Italian, Spanish and Portuguese debt.

Greece accuses Europe of plotting regime change as creditors draw up ultimatum - Greek premier Alexis Tsipras has accused Europe’s creditor powers of trying to subvert Greece’s elected government after five years of “pillaging”, warning in solemn terms that his country will defend its sovereign dignity whatever the consequences.  The defiant stand came as the European Commission lashed out at the Greeks and warned that the country would collapse into a “state of emergency” unless there is a deal to avert a financial crash.  Germany's EU Commissioner Guenther Oettinger said the creditor powers must draw up urgent plans to cope with social unrest in Greece and a break-down of energy supplies and medicine as soon as July.  In a terse statement, Mr Tsipras called on the EU institutions and the International Monetary Fund to “adhere to realism”.  He accused the creditors of “political motives” for demanding further pension cuts, hinting that their real goal is to destroy the credibility of his radical-Left Syriza government and force regime change. “We are not only carrying a historical past underlined with struggles. We are carrying our people's dignity as well as the aspirations of all Europeans. We cannot ignore this responsibility. It has to do with democracy,” he said.  Germany’s Suddeutsche Zeitung reported that the creditors are drawing an ultimatum to the Greeks, threatening to cut off Greek access to the European payments system and forcing capital controls on the country as soon as this weekend. The plan would lead to the temporary closure of the banks, followed by a rationing of cash withdrawals.

Prepare for Greek 'state of emergency', says German EU commissioner - The European Union needs to start making plans for a "state of emergency" in Greece from July 1 if Athens fails to reach an agreement with its creditors, Germany's EU Commissioner Guenther Oettinger said on Monday in Berlin. In remarks to reporters before a meeting of Chancellor Angela Merkel's Christian Democratic party (CDU), Oettinger said it was time to make concrete preparations for a crisis in Greece if no deal is reached, Greece defaults and exits the euro zone. Separately, a close ally of Merkel, CDU parliamentary floor leader Volker Kauder, told German TV that Greece needs to "get back to reality" as signs emerged her conservatives were growing more exasperated after talks broke down on Sunday. "We should work out an emergency plan because Greece would fall into a state of emergency," said Oettinger, the EU Commissioner for Digital Economy and Society who is also a senior member of Merkel's CDU in unusually strong comments. "Energy supplies, pay for police officials, medical supplies, and pharmaceutical products and much more" needed to be ensured, he said. He noted that the EU has "proven mechanisms" that can help states to fulfil essential duties such as with police protection and healthcare. "I think that the Commission needs to work out a plan that could avert a worsening of the situation in the event that Greece leaves the euro zone, in the event of a bankruptcy,"

Europe Asks if Greece Could Default Without Exiting Euro - WSJ: As the bailout standoff between Athens and its creditors escalates, some European officials are suggesting something that was once unthinkable: Let Greece keep the euro currency even if it defaults on its rescue loans. This idea breaks with the conventional wisdom of more than five years of debt crisis, where the shock of a default has been seen as sending Greece down an inexorable path of bank runs, capital controls and, finally, exit from the eurozone. Yet, with the risk of nonpayment higher than ever, finding a way to avoid the chaos of a Greek currency switch is looking more attractive. Proponents say it could spare Europe the embarrassment of one of its members crashing out of the eurozone, damp some of the market panic that would likely follow a default, and avoid setting a precedent that would undermine confidence in those still inside.The idea of keeping Greece in the euro despite a default was briefly discussed by senior officials from eurozone finance ministries last week, although many of them harbor serious doubts about if it would work, according to people familiar with the talks. “It is not so much a plan, but an evolution in the thinking,” says one person familiar with the discussions among Greece’s creditors. Proponents of a default-without-exit scenario largely fall into two camps: those who believe the shock of a temporary default would compel Prime Minister Alexis Tsipras to finally seal a financing deal with the creditors; and those who believe that an immediate ejection from the euro would trigger chaos in Greece and beyond. “Greece lacks the capacity for launching a new currency and [organizing a] ‘Grexit,’ ” an official familiar with last week’s discussion said, using a popular term for describing Greece’s departure from the eurozone.

What Happens if Greece Misses Payments? - With little sign of progress in talks on Greece’s international bailout, some European policy makers are considering whether Athens could default but stay in the eurozone. The whole situation is fraught with unknowns, however.  Here are some of the complications: June 30. Greece must repay €1.54 billion ($1.73 billion) to the International Monetary Fund. If it doesn’t, the fund would issue an escalating series of warnings that could result in Greece being kicked out of the IMF after two years. Also, if there is no agreement by then, Greece’s bailout expires. Then the question is whether the European Central Bank would cut off Greek banks. The ECB’s decision would be based in part on whether the ratings companies define the missed IMF payment as a default. That isn’t a given because the fund is a preferred creditor and doesn’t hold any tradable securities issued by Greece. Therefore, the ECB may not pull the plug on Greek banks immediately—even though continuing to lend to them might end up putting more funds at risk. The Bank of Greece has extended up to €83 billion in loans to the Greek banks to replace deposits withdrawn amid the turmoil. Every week, the ECB must decide whether to allow the Bank of Greece to raise the ceiling on the amount of so-called “emergency liquidity assistance” that can be extended to Greek banks. A two-thirds vote of the ECB’s Governing Council can block a decision to extend more ELA. Even before the June 30 deadline, Greece and the rest of the eurozone might be tempted to impose capital controls in Greece to prevent capital flight if there is no compromise in sight. An expiration of the bailout agreement and failure to repay the IMF would lead the ECB to conclude a default is growing more likely. The ECB then likely would raise the haircut, or discount, it applies to Greek government bonds it accepts as collateral for ELA. Expiration would also raise the risk that the ECB concludes that Greek banks are insolvent. The ECB only allows eurosystem lending to solvent banks against eligible collateral.

The IMF “Defense” of it Actions against the Greeks is an Unintended Confession-  William K. Black --The IMF, the heedless horseman of the troika that announced it would stop negotiating with the Greeks and go home, has attempted to justify its position through Olivier Blanchard, its “Economic Counsellor and Director of the Research Department.” Blanchard entitled his defense “Greece: A Credible Deal Will Require Difficult Decisions By All Sides.” That is a “serious person” title, but it is also economically illiterate – and no one knows that better than Blanchard. After all, it is the IMF’s deeply neo-liberal economists whose research has confirmed that the IMF’s austerity policies are self-destructive responses to the Great Recession and that fiscal stimulus programs are even more effective than economists had predicted.  That means that Blanchard and the IMF know that an economically-literate deal does not “require difficult decisions by all sides.” It requires, instead, the troika to cease its destructive demands that Greece “bleed the patient” to “heal” it. The troika’s austerity demands forced Greece into a Great Depression that is worse than the Great Depression of the 1930s in terms of sustained, obscene unemployment rates. As we (UMKC economists and NEP bloggers) and Paul Krugman have explained repeatedly, the fiscal response to a Great Recession does not require “difficult decisions” and “sacrifices.” It requires funding worthwhile projects that provide an enormous “win-win” for the nations suffering from the Great Recession – and it helps their neighbors’ economies. Germany’s economy would be much stronger today if it had not insisted on forcing Greece, Spain, and Italy into Great Depressions. Because of the inherently flawed structure of the euro, this requires the ECB to be used far more aggressively than was contemplated by its inept architects, but it can be done.

Russian Pivot: Greek PM Schedules Putin Meeting Ahead Of "Lehman Weekend" -- Earlier this month, we reported that Greece is prepared to sign an MOU of political support for Gazprom’s Turkish Stream Pipeline, when Alexis Tsipras visits St. Petersburg for the International Economic Forum this week.  The deal is a blow to Washington, which attempted to persuade Athens to support an alternative pipeline. In April, US State Department envoy Amos Hochstein met with Greek foreign minister Nikos Kotzia to pitch The Southern Gas Corridor, a project which, when complete, will  allow the EU to tap into Caspian gas via a series of connecting pipelines running from Azerbaijan to Italy. The corridor is aimed at breaking Gazprom’s stranglehold in Europe.  Greece, defiant in the face of US pressure and no doubt intent on preserving the last bit of leverage it has in negotiations with European creditors, contended that it did not view the two pipelines as competitors and would pursue participation in both projects. Greece will not, Greek Energy Minister Panagiotis Lafazanis said, be swayed by pressure from The White House: “We do not considered them to be rivals. On the contrary, we think they both contribute to energy supply of European countries.That’s why it is odd that the Russian project is raising concern and doubts in the US and the European Union.We will not submit to the interests and wishes of any third country. Greece is nobody’s property. We move based on the interests of our people and our national interests. The country must become a development hub for Europe’s energy supply."

Bank of Greece Issues Grexit Warning, in Move Certain to Intensify Bank Run - Yves Smith - The Bank of Greece submitted a required report on monetary policy to the Greek Parliament and the Cabinet this morning (hat tip Swedish Lex). The English language version of the press release shows that it says, in stark terms, that failure to reach a pact with Greece’s creditors will lead to a Grexit and likely a departure from the European Union. Here is the key section: As the Bank of Greece had assessed in its Governor’s Report for the year 2014, the conclusion of a new agreement with our partners is of the utmost importance to fend off the immediate risks to the economy, reduce uncertainty and ensure a sustainable growth outlook for Greece. Failure to reach an agreement would, on the contrary, mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union. A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring. All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South. This is why the Bank of Greece firmly believes that striking an agreement with our partners is a historical imperative that we cannot afford to ignore. It does at least call for “milder fiscal consolidation” meaning less draconian fiscal surplus targets, but also puts in a firm word in favor of the structural reforms:

Tsipras misleading Greece, says EU commission chief Juncker - European Commission chief Jean-Claude Juncker has accused Greek Prime Minister Alexis Tsipras of misinforming his people. Athens' voters were not being told the truth about the commission's proposals, he alleges.The European Commission's President Jean-Claude Juncker targeted Greek Prime Minister Alexis Tsipras with his criticism, saying the leader wasn't giving his citizens correct information about the EU's proposals. "I don't care about the Greek government…I do care about the Greek people, mainly the poorest part," Juncker said at a news briefing in Brussels. "The debate in Greece and outside Greece would be easier if the Greek government would tell exactly what the commission is really proposing," the commission chief added, referring to lenders' proposals which would pave the way for Athens to receive its 7.2 billion euro (8.1 billion dollars) installment - the last of the 240-billion-euro economic recovery package to the country.   Greece's creditors, which include the European Central Bank (ECB) and the International Monetary Fund (IMF) proposed a 10 percentage point increase in value added tax (VAT) on electricity. However, Juncker said he himself opposed the proposal: "I'm not in favor, and the prime minister knows that, I'm not in favor of increasing VAT on medicaments or electricity." He said the commission had instead proposed a 35-billion-euro program to support investments in Greece and floated the idea of a "modest cut in the Greek defense budget," which constitutes two percent of the country's gross domestic product.

Divorce Greece in haste, repent at leisure -  A growing number of people feel that enough is now enough. The strident views expressed in these pages by the Italian economist, Francesco Giavazzi, are shared by many in high office. Meanwhile, Alexis Tsipras, the Greek prime minister, accuses Greece’s creditors of “pillaging” his country. Olivier Blanchard, the International Monetary Fund’s sober chief economist, indicates that a deal might still be reached. But many are beginning to long to see the knot cut. Whatever game the Greeks thought they were playing, their government may now just desire an end to the humiliation. Similarly, whatever game the eurogroup may have been playing, it may now just want an end to the frustration. If so, Greek default, exit and devaluation could be fairly close.  The assumption of some in the eurozone is not only that the Greek case is unique, but that the disaster those sinners so deserve would improve the behaviour of everybody else. But the currency union would also no longer be irrevocable. New crises will occur. When they do, confidence in the union would be less than complete after a Greek exit. The programme of Outright Monetary Transactions, announced by the European Central Bank in 2012, might need to be implemented, to calm nerves. But it could fail. Self-fulfilling speculation could force even more divorces.  Some argue that Greece at least would be far better off after a default and exit. It is indeed theoretically possible that a default to its public creditors, combined with introduction of a new currency, a big devaluation (accompanied by sound monetary and fiscal policies), maintenance of an open economy, structural reforms and institutional improvements would mark a turn for the better. Far more likely is a period of chaos and, at worst, emergence of a failed state. A Greece that could manage exit well would have also avoided today’s plight.  Neither side should underestimate the risks. It is also crucial to avoid the contempt so characteristic of the frayed nerves caused by failing negotiations.

Austrian chancellor sides with Greece in debt row | Reuters: Austrian Chancellor Werner Faymann expressed solidarity with Greek Prime Minister Alexis Tsipras before meeting the leader in Athens on Wednesday in a bid to end a standoff with international creditors over a rescue package. Faymann, a Social Democrat who has taken a relatively lenient line with Greece, told broadcaster ORF that Athens had to live up to commitments under its current bailout plan but needed support to keep it from leaving the euro zone. "I know there were a number of proposals, also from the (creditor) institutions, that I also don't find in order," Faymann said in the radio interview. "High joblessness, 30-40 percent (with) no health insurance and then raising VAT on medicines. People in this difficult situation cannot understand that." Faymann seemed to be wading into a row over what European Commission President Jean Claude Juncker has called misrepresentations by the Greek government over just what reforms the EU wants from Athens to unlock frozen loans. Faymann said the alternative was fighting fraud and ensuring all Greeks pay their fair share of taxes. Greece and Brussels have been locked in an increasingly bitter war of words as the clock ticks toward the end of June, when the current bailout accord runs out, exposing Greece to potential default that could usher it out of the currency bloc.

Greek travails turn spotlight on Spanish defences - For much of this year, Spanish leaders have watched the crisis in Greece with a degree of serenity. Bolstered by the country’s economic recovery and shielded by European Central Bank bond-buying, Spain had seemed impervious to contagion from the Greek turmoil. But since Monday that sense of safety has been thrown into question as investors focus less on Spain’s recent economic performance and more on what it — and countries such as Italy, Portugal and Ireland — have in common with Greece. Bonds issued by such peripheral eurozone countries have been racked by volatility this week, with Spain’s 10-year benchmark borrowing costs hitting their highest levels since August last year. “The major uncertainty for the Spanish economy now is the external context,” said Jordi Canals, the dean of Iese business school. “Spain has profited a lot from low interest rates and from the relative stability in the rest of the eurozone. Any disruption, for example Greece leaving the euro, is a threat — especially for a country like Spain, with high unemployment and high debts.” According to the IMF, the Spanish economy is on course to grow by more than 3 per cent this year, making it one of the best-performing in Europe. Yet Spanish bond yields have performed worse than Italy’s this week, suggesting investors are concerned above all about political uncertainty. Spain’s conservative government faces a tough election campaign this year, marked by the rise of Podemos, a new anti-austerity party that is allied with the Syriza government in Greece. “The political future of Italy is more or less clear. But in Spain you have a leftwing anti-austerity party that is running very strongly in the polls,”

Greek Debt Committee Just Declared All Debt To The Troika "Illegal, Illegitimate, And Odious" -- It was in April when we got a stark reminder of a post we first penned in April of 2011,describing Odious Debt, and why we thought sooner or later this legal term would become applicable for Greece, because two months ago Greek Zoi Konstantopoulou, speaker of the Greek parliament and a SYRIZA member, said she had established a new "Truth Committee on Public Debt" whose purposes was to "investigate how much of the debt is “illegal” with a view to writing it off." Moments ago, this committee released its preliminary findings, and here is the conclusion from the full report presented below: All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious. As we predicted over four years ago, Greece has effectively just declared that it will no longer have to default on its IMF (or any other debt - note that the dreaded "Troika" word finally makes an appearance after it was officially banned) simply because that debt was not legal to begin with, i.e. it was "odious."  If so, this has just thrown a very unique wrench in the spokes of not only the Greek debt negotiations, but all other peripheral European nations' Greek negotiations, who will promptly demand that their debt be, likewise, declared odious, and made null and void, thus washing their hands of servicing it again. And another question: when Greece says the debt was illegal and it no longer has to make the June 30 payment, what will be the Troika's response: confiscate Greek assets a la Argentina, declare involutnary default, sue it in the Hague? Good luck.

Greece Declares Troika Debt Illegitimate, Odious, Illegal, Unsustainable; German Official Calls Greek Leaders "Clowns”? - The war of words between Greece and its creditors took a leap in intensity today, with Greece declaring its debt illegal and odious, and Germany calling the Greek leaders "clowns".  Please consider a few snips from a translation of the Executive Report of the Hellenic Parliament's Debt Truth CommitteeSeveral legal arguments permit a State to unilaterally repudiate its illegal, odious, and illegitimate debt. In the Greek case, such a unilateral act may be based on the following arguments: the bad faith of the creditors that pushed Greece to violate national law and international obligations related to human rights; preeminence of human rights over agreements such as those signed by previous governments with creditors or the Troika; coercion; unfair terms flagrantly violating Greek sovereignty and violating the Constitution; and finally, the right recognized in international law for a State to take countermeasures against illegal acts by its creditors, which purposefully damage its fiscal sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate economic self-determination and fundamental human rights.  People's dignity is worth more than illegal, illegitimate, odious and unsustainable debt. Having concluded a preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.  CSU Secretary General Calls Greek Leaders "Clowns"

Greece's Future in EU in Doubt if Talks Fail, Central Bank Warns - A warning by Greece's central bank that the country risked being driven from the euro zone and, ultimately, the European Union failed to break a deadlock with creditors before a potentially decisive meeting of European finance ministers. "People are getting anxious on both sides. Athens expects Brussels to move. And Brussels expects Athens to move. And it’s stuck," said a senior EU diplomat, who declined to be named. "It’s very dangerous, and we may have an accident." Making clear the huge stakes at play, the Greek central bank said reaching an accord was "an historical imperative" that the country could not ignore. "Failure to reach an agreement would ... mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union," the Bank of Greece said in a monetary policy report.

Greece's future in EU in doubt if talks fail, central bank warns - Reuters: Greece's leftist government faced a barrage of warnings on Wednesday that it risked being forced out of the euro zone and left without support if it failed to strike a swift aid-for-reforms deal with its creditors. The Bank of Greece said the country's future in the European Union itself could also be at risk without a deal, underlining the extent to which officials who once refused any suggestion of "Grexit" are now openly discussing the prospect. Despite urgent pleas, including from the White House, there has been little sign of movement since talks between officials from Greece, the European Union, European Central Bank and International Monetary Fund collapsed on Sunday. Hopes of a breakthrough on Thursday at a meeting of European finance ministers, once seen as the last opportunity for an agreement, looked increasingly remote. Athens must find a way out of the impasse by the end of June, when it faces a 1.6 billion euro ($1.8 billion) repayment due to the International Monetary Fund, potentially leaving it bankrupt and on the verge of exiting the euro zone. "People are getting anxious on both sides. Athens expects Brussels to move. And Brussels expects Athens to move. And it's stuck," said a senior EU diplomat, who declined to be named. "It's very dangerous, and we may have an accident."

Greeks withdrawing cash from banks as Eurozone exit looms - “Everybody’s doing it,” said Joanna Christofosaki, in front of a Eurobank cash dispenser in the leafy Athens neighbourhood of Kolonaki. “Our friends have all done it. Nobody wants their money to be worthless tomorrow. Nobody wants to be unable to get at it.” A researcher in the archaeology department at the Academy of Athens, Christofosaki said she knew plenty of people who had “€10,000 somewhere at home” and plenty of others who chose to keep their stash at the office. Was she among them? “If I was, I certainly wouldn’t tell you.” It was not too hard, in central Athens’ plushest district on Tuesday, to find people worried that the latest breakdown of talks between Greece and its creditors over a new aid-for-reforms deal may have implications for the security – and accessibility – of their savings. With time fast running out to secure a desperately needed €7.2bn in new rescue funds before the end of the month, when Athens is due to repay €1.5bn in loans to the International Monetary Fund, anxious Greeks have begun withdrawing money from their country’s banks at an unprecedented rate. Bank deposits have been falling steadily since October and now stand at their lowest level since 2004. Withdrawals in recent weeks have averaged €200-250m a day, but on Monday – after the shock collapse of last-ditch talks between the Greek government and its eurozone and international lenders – withdrawals surged to €400m.

Bank savings in front line as Greece hurtles toward default: The last time Greece was facing a hard deadline to secure a deal with its bailout creditors, in February, it agreed to one only when it feared a worst case scenario ? a run on the country's banks. Fast forward four months, and the situation is looking dire once again. With no sign of a breakthrough in Greece's talks with its creditors to avoid a default on June 30, the incentive is growing for Greeks to pull their cash out of the banks. Why leave euros in a bank when - should Greece default and drop out of the currency bloc - they could be converted with one strike of a keyboard into a new, weaker currency? "Everyone is worried about their deposits," says Alexandros Papandreou, a 66-year-old pensioner, as he withdraws money from a cash machine in Athens. Among the myriad of threats facing Greece, a bank run is perhaps the biggest as it would trigger a series of events that could call time on the country's 13-year membership of the euro. That's why theres growing speculation that Greece, with or without a deal, could have to do what's normally reserved for the most extreme financial turmoil ? clamp down on money transfer and withdrawals to pre-empt a bank run. The government could in theory put limits on the amount of cash an individual can withdraw, restrict electronic transfers of money outside Greece and on how much someone can carry over borders. "Capital controls may well be a milestone towards a deal or an exit" from the euro, said Guy Foster, head of research at investment management company Brewin Dolphin. Such limits could keep the banks stable, but would crimp the economy. And if history proves anything, they can last a long time - Iceland is only now discussing how to relax its emergency measures, seven years after imposing them.

Greek showdown widens Merkel’s rift with Schäuble - The EU’s showdown with Greece is bringing to the surface longstanding differences between Angela Merkel and her tough-minded finance minister, complicating efforts at a solution. Ms Merkel has for months pushed for a deal with Alexis Tsipras, the Greek premier, to extend the bailout but Wolfgang Schäuble remains sceptical that Athens will ever deliver the reforms necessary to survive in the currency union. Mr Schäuble has been arguing in private that policy makers should also at least consider investing their energies in orchestrating an orderly exit for Greece. The veteran finance minister’s loyalty to the chancellor has long kept the argument at bay. But with Athens fast running out of money to pay its bills, and Ms Merkel facing the most consequential decision of her decade-long rule, their differences are becoming more pronounced. “There is a split between Schäuble and Merkel because Schäuble wants the Greeks out of the euro and Merkel wants them in,” said an MP from the centre-left Social Democrats, part of the governing coalition. “At the end he will be loyal, but he is doing everything to make the process difficult.” Another MP from Ms Merkel’s centre-right CDU was more circumspect, saying: “There has been a small rift between them.” That rift reflects growing divisions over Greece in Ms Merkel’s CDU/CSU bloc, in which Mr Schäuble ranks second only to the chancellor.

Athens suffers collapse in revenue amid fears of emergency levies - The Greek government suffered a collapse in revenue in May after companies and individuals delayed filing tax returns amid fears that emergency levies might be imposed in order to secure a deal with bailout creditors. The news of the sharp drop in receipts comes as eurozone finance ministers held a crunch meeting in Luxembourg to discuss Greece’s bailout. Ahead of the gathering, leaders appeared as deadlocked as ever and officials continued to minimise the chance of a breakthrough, raising the likelihood that Greece could default on its sovereign debt. Unless it agrees economic reforms with its creditors by the weekend, Greece could run out of time to access the last €7.2bn tranche of its bailout programme before it expires in less than two weeks, according to EU officials. Without the funds, the government will probably be unable to repay a €1.5bn loan from the International Monetary Fund, a scenario the country’s central bank has warned could trigger Greece’s ejection from the eurozone and possibly even from the EU. Greek government revenues in May were €900m, or 24 per cent, short of the monthly target, according to preliminary budget figures. It had met projections for the previous three months. But the country still ran a primary budget surplus — before making payments on the public debt — amounting to €1.5bn for the first five months, after it slashed payments to suppliers and outlays for public investment. “There appears to be a complete freeze on domestic payments apart from wages and pensions as the government rounds up cash to pay international creditors,” a senior Athens banker said. “This is starting to have a knock-on effect on revenue collection.”

What If There is No Deal on Greece? - Yves Smith - A resolution of the Greek impasse still looks remote, particularly given that Angela Merkel, in a speech to Parliament this morning, made all sorts of apple pie and motherhood statements about the importance of the Eurozone, but nevertheless pointed to the need for Greece to make concessions.  The alarming part of the deadlock is the lack of a plan on the creditor side to develop a Plan B, a sort of mirror image of the Greek government’s claim that its has bet everything on securing a favorable agreement. Even if the ECB has been gaming out scenarios (as was rumored as early as February), it can only do so much unilaterally. The Eurozone crisis is on the verge of entering a phase where a common view among different governments and institutions is necessary before any concerted action can take place. Even allowing for a relatively quick agreement on preliminary steps, there is still a ton of moving parts, as well as the near certainty of continued high friction with Greece.  Finance minister meetings extend into Friday, with all EU members attending. That may allow for further discussion, but it’s hard to see how anything more could emerge than a very high level agreement on a few principles, like “We need to develop a plan for how to keep Greece in the Eurozone if it defaults” and maybe also “We need to get serious about preparing for what happens in the event of a Grexit” (a variant might be “Can/should we assist Greece with a Grexit?” I think the latter is too hard to accomplish given the short timeframe and the fact that Greece would have to trust and rely on foreign technocrats, ironically including the IMF, which allegedly has the most technical expertise).It is possible that as a result of the Thursday/Friday meetings, the Eurocrats hit the panic button and try to extend the bailout, which is set to expire June 30 (June 21 appears to be the last viable emergency meeting date). But that was offered to Greece before, with the condition that it agree to crossing its red lines of pension and labor market “reforms”. We keep coming up against each side’s boundary conditions. It’s career suicide in too many countries for politicians to vote through a deal with Greece with no pension reductions, and far too little time to soften public opinion by June 30. The bank run is certain to accelerate in anticipation of an IMF non-payment and immediately thereafter. So the liquidity demands will rise as the ECB will have every reason to impose higher haircuts on collateral, moving the banking system closer to the end of its ELA runway.  The Greek banks are deemed to be solvent by the ECB despite the fact that they clearly aren’t. And their underlying insolvency is getting worse. 

Greece: it can’t get *that* much worse, can it? -- Conventional wisdom holds that it would be an unmitigated disaster for Greece if it left the euro. This is, after all, why the country has continued to cling to the single currency despite the catastrophic decline in employment and output. But what if those costs have been grossly overstated?  An intriguing new note from Gabriel Sterne at Oxford Economics argues that, judging by the historical record, things really can’t get that much worse. According to Sterne, staying in the euro promises only years of stagnation and crushing joblessness, while leaving offers a chance, even at this late date, of rapid growth and the end of the depression that began seven years ago. In particular, he argues that leaving the euro would provide a fillip to the private sector’s balance sheet, boost trade competitiveness, and, perhaps most importantly, end the uncertainty over default and devaluation that has been choking off credit and investment. To be clear, there are still plenty of reasons to think that, at least in the short-term, default and devaluation would be extraordinarily painful. For all the money that has already left the Greek banking system, there are still about €128 billion of Greek private-sector deposits sitting in Greek banks:  Those euros — many of which are probably held by middle-class savers and the elderly, rather than the financially sophisticated who long ago shifted funds into Switzerland or Germany — would plummet in value.Meanwhile import costs would soar, and since Greece is a net importer of food and energy, this would probably hit the poor hardest. If Greece were ejected from the European Union and lost access to the single market and the structural and cohesion funds, it would suffer even more.bHowever…There is a certain logic to recessions — or in this case, depressions — and the subsequent recoveries. Prices generally can’t fall below zero. In fact, there is usually a point well before then when it makes sense even for shell-shocked savers to start buying assets because they are so ridiculously cheap, and for companies to start hiring workers from the mass of unemployed.

Greeks admit they will default at the end of the month as central bank turns on government - The Greek government has admitted it will become the first developed country in history to default on the International Monetary Fund (IMF) if its creditor powers fail to strike a deal with the Leftist government over its eurozone future in the coming days.  With just 13 days before the country’s bail-out programme officially expires, finance ministers will gather in Luxembourg on Thursday to discuss whether to finally give their assent to release bail-out cash and stave off an unprecedented default. Before the 11th hour attempt to secure a deal, Athens’ chief negotiator said his government had run out of cash to make a €1.6bn payment to the IMF, also on June 30.   "At the moment we haven’t got the money," said Oxford-educated minister Euclid Tsakalotos. Greece has been without any aid from its creditors since August 2014. The Syriza government has been locked in five month stalemate over the release of a remaining €7.2bn owed to the country under its current programme. Athens only avoided falling into arrears with the IMF earlier this month by taking recourse in an obscure “bundling” method which delayed debt payment until the end of June. Mr Tsakalotos, who was drafted in by the Greek prime minister to head up negotiations, said the country had been “squeezing every last bit of drop of liquidity” to service its international obligations. “There is no financing, we haven’t got access to the markets, we haven’t got money that hasn’t been paid since the summer of 2014 so obviously we won’t be able to have the money to pay that [the €1.6bn to the IMF],”

In Eurozone, Growing Support for a Greek Exit - Of the countless writs and regulations that govern Europe’s currency club, one golden rule trumps them all: Membership is conditional.After joining the euro in 2001 and through the bailouts of the last five years, Greece has been told the same thing. To belong, it must satisfy the strict economic standards that underpin this community of 19 disparate nations.Now, as yet another Greek government resists the rule makers, the view is taking hold in Europe that its ambitious currency project would be better served if Greece just left. At its root, the euro project is an enterprise that succeeds only if its members follow the rules.Such a dire outcome is not assured, of course. Greece and its creditors could strike a deal, unlocking fresh aid and avoiding a default.Greek government officials said debt talks with creditors would continue through the weekend. And there is a chance that the prime minister of Greece, Alexis Tsipras — who has said he is committed to staying in the euro — will replace the hard-liners in his cabinet with party leaders who will support him in cutting a deal with Europe.But there is little sign that either side is softening its position, and Greek bank withdrawals are accelerating, adding to the pressure.

Greek pensions laid bare | MacroPolis: Greece’s pension system is taking centre stage again in the discussions with lenders. It should come as no surprise that even five years of programmes and repeated interventions have not managed to deal with the monster that was created after decades of mismanagement and a misled belief of entitlement. The first alarm bells regarding its sustainability rang in early 1990 when it become obvious that the re-distributive nature of the Greek pension system – the contributions of those in employment paying for the pensions of those retired – would face serious headwinds as the ratio of employed per pensioner was steadily declining and the demographics were developing unfavourably for a rather generously designed scheme. A comprehensive report on the Greek pension system in 1997 highlighted all the risks and gave a small window of opportunity up to 2005 to deal with the issue before the pension rights of older generations would come to maturity and put significant strain on the financing of the system and consequently the state budget. No government since that report took the courageous step to deal with the issue head on and upset reluctant stakeholders and social partners. There were half-hearted patch ups involving minor, mostly parametric, interventions. Absence of genuine intention to reform created a skewed pension system which was heavily reliant on state grants. According  to Eurostat data (courtesy of Emmanuel Schizas's recent blog post), in 2009 when employer contributions were just over 11 billion euros and 11.7 billion euros came from contributions of employees and the self-employed, the state was by far the biggest donor in the system, paying in 17.8 billion euros.

Greece’s defiant youth opt for ‘chaos’ over more of the same - Greece’s central bank delivered an alarming warning on Wednesday that the country faced an “uncontrollable crisis” that might force it out of the EU if the government was unable to reach a new bailout deal with creditors soon. But the throng of young supporters gathered outside the Greek parliament had a different message for their defiant prime minister: hold firm, whatever the cost. Disillusioned and depressed by years of austerity that have ruined their job prospects and slashed their financial support, the young foot soldiers of the ruling Syriza party may not openly demand the country’s exit from Europe’s single currency, but they are prepared to accept the unknown consequences if the only other option is more of the same. “[A choice] between more austerity or chaos?” asks Iasonas Schinas, 26, a member of the Syriza Youth wing. “Chaos,” he answered. Unemployment among the under 25s in Greece is about 40 per cent, almost double the EU average. As with other crisis-hit parts of Europe, the young have been forced to endure the indignity of living at home and relying on handouts from their parents, delaying plans for marriage or emigrating to find even menial work. For that, many point the finger squarely at austerity measures imposed by Brussels. “Over the past five years, our lives have been destroyed. So now we have nothing to lose. And so we are calm,” Mr Schinas explains amid the noise of chanting, fiery speeches and protest songs blaring from loudspeakers in Athens’ main square.

Still Deadlocked With Greece, Europe Sets Emergency Summit Meeting - European leaders will try again in an emergency summit meeting on Monday to break the deadlock between Greece and its international creditors after a meeting of eurozone finance ministers ended on Thursday with no deal on Greece’s bailout.Without additional aid, Greece faces the prospect of effectively going bankrupt by the end of June, when it owes a payment of 1.6 billion euros, or about $1.8 billion, to the International Monetary Fund, and when the European part of its bailout program ends.“Too little progress has been made,” Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, said at a joint news conference with Christine Lagarde, the managing director of the International Monetary Fund, and Pierre Moscovici, the European commissioner for financial affairs.“No agreement as yet is in sight,” said Mr. Dijsselbloem, who added there was still a chance to reach a deal, though “very little time remains.”Talks between Athens and its creditors were expected to continue over the weekend as both sides insisted they wanted Greece to remain a member of the 19-nation currency bloc but were far apart on what Athens must do to keep its membership.

At Emergency Summit, Creditors Plan to Make Greece an Offer It Can’t Refuse - A Eurogroup meeting ended if anything with Greece and its creditors even more alienated from each other. Greek finance minister claims he was ready to give a proposal (and he apparently did set forth some of his ideas) but wasn’t given an audience; the other participants told the press that Varoufakis’ idea of what a proposal amounted to was out of synch with what they wanted. This sort of culture clash has been a constant feature of these talks. From Politico: Take this counter-claim from an EU official: “A debt brake, fiscal authority and debt swap: They are nice but none of that replaces the need for reforms … We still do not have a proposal. There was no substantial discussion, to be honest. I didn’t see a five-page proposal, I saw a verbal presentation of his ideas and Dijsselbloem said we need a proper proposal…” Michael Noonan, the Eurogroup elder statesman from Ireland, was the most specific about the Varoufakis contributions. “They tend to be more macroeconomic in nature than specific. And negotiations are about specifics.” If an account in the Financial Times is accurate, an emergency summit of Eurozone leaders set for Monday evening is prepared “an offer you can’t refuse,” meaning an offer less generous than one previously made because the other party is signaling his superior position by worsening terms. Recall that it was leaked on June 8 that European Commission president Jean-Claude Juncker and Eurogroup Chief Jeroen Djisselbloem offered Greece an extension of the current bailout till March 2016, with the strings attached that Greece would still need to agree to cross its red lines and agree to pension and labor market “reform”. We stressed that it was not clear whether Juncker and Dijsselbloem had gotten IMF and ECB consent, or whether they needed to sell them on the plan in the unlikely event Tsipras had agreed. Now I doubt the “offer you can’t refuse” element (assuming the rumor proves to be accurate) is by design but due to the fog of negotiations and the looming deadlines limiting flexibility. Regardless, the Greek side is certain to reject a proposal of this sort with prejudice.

Greece Debt Crisis: Despair as $1 Billion Withdrawn From Banks in a Day - - Desperate Greeks expressed fears for their future Friday as more than $1.1 billion was withdrawn from banks in a single day, pushing the country closer towards a default. Uncertainty grew after a meeting between the country's government and European creditors ended Thursday in acrimony. Failure to clinch a deal by June 30 would see Greece default on a $1.8 billion loan payment to the International Monetary Fund, bankrupting the country and potentially driving it out of the Euro currency zone. advertisement Talks resume Monday, but crisis-weary citizens already fear the worst - and that has prompted concerns of a potentially disastrous run on already-crippled banks. "The situation is completely hopeless and it's getting worse day by day," said Evi Huraklia, 63. "We are all worried about our children. We've lived our lives but for the young people this is a catastrophe." She told NBC News: "The Greek people are happy people, by nature positive. But right now they are a psychological wreck. It's not just the economic catastrophe we are dealing with it's the psychology of the people that have been driven to despair. We've become sick."

ECB raises emergency funding for Greek banks - The European Central Bank on Friday increased the amount that Greek banks can borrow under an emergency lending program, a Greek bank official said, as daily deposit outflows picked up to almost one billion euros, amid uncertainty over the country's bailout program. The Greek bank official didn't specify how much liquidity will be provided to Greek lenders. Under the ECB's emergency liquidity assistance program, or ELA, the Greek central bank lends money to financial institutions. The loans carry a higher interest rate than standard ECB loans, and the credit risk stays with Greece. "In a teleconference, the European Central Bank approved the extra ELA funding. There is no problem with the financing of Greek banks," said the bank official. "We expect a positive outcome to Monday's meeting," he added. Friday's decision by the ECB came after a request by the Greek central bank for additional emergency loans to buffer deposit outflows. On Wednesday, the ECB raised the amount available from the ELA program to EUR84.1 billion euros from EUR83 billion.

ECB Gives Greek Banks Barely Enough Cash To Cover One Day's Bank Run -- Yesterday evening, after what had been a dramatic surge in the Greek bank run which has resulted in over €3 billion in cash withdrawn through Thursday night, the Greek central bank requested an emergency cash dispensation from the ECB under the country's Emergency Liquidity Assistance program, just one day after the ECB granted the latest €1.1 billion expansion in the ELA. Rarlier today, in an unscheduled session, the ECB did as requested, however it granted Greece far less than the amount it sought, and according to MarketNews reports, the ECB gave Greece just €1.8 billion in addition funds. This means that Greek deposits have declined by over €5 billion in the past 7 days alone, as indicated by the surge in the ELA from €80.7 billion on June 10 to €85.9 billion currently. Worse, as Reuters reported moments ago, on Friday alone there was another €1.2 billion in deposit outflows which means that the entire ELA increase has already been used up, and Greece is again facing the abyss. Finally, the one question on everyone's mind, can Greek deposits hit parity with total ELA as we hypothesized a week ago? The answer - no. As the following chart shows, Greece currently has about €95 billion in ELA eligibility and just around €120 BN in deposits left.

The Eurozone’s cover-up over Greece - Whenever I write about Greece, a large proportion of comments (maybe not a majority) could be summarised as follows: how can you side with Greece when its economy is so inefficient and its governments so inept and after everything we have done for them. I have no illusions about the inefficiencies and corruption endemic within the Greek economy. Nor do I want to become an apologist for any Greek government. What does seem to me very misguided is the idea that European policymakers have already been generous towards Greece. The general belief is that had they not stepped in austerity in Greece would have been far worse. This seems simply wrong. If European policymakers have been generous to anyone, it is the Greek government’s original creditors, which include the banks of various European and other countries.  Suppose that Eurozone policy makers had instead stood back, and let things take their course when the markets became seriously concerned about Greece at the beginning of 2010. That would have triggered immediate default, and a request from the Greek government for IMF assistance. (In reality at the end of 2009 the Euro area authorities indicated that financial assistance from the Fund was not “appropriate or welcome”: IMF 2013 para 8) In these circumstances, given the IMF’s limited resources, there would have been a total default on all Greek government debt.  If that had happened, the IMF’s admittedly large assistance programme (initially some E30 billion, but increased by another E12 billion in later years), would have gone to cover the primary deficits incurred as Greece tried to achieve primary balance. That E42 billion is very close to the sum of actual primary deficits in Greece from 2010 (which includes the cost of recapitalising Greek banks).

Contagion from Greek crisis engulfs euro zone bonds  (Reuters) - Italian, Spanish and Portuguese bond yields leapt on Tuesday in one of the most serious episodes of contagion since the height of Europe's debt crisis after the latest breakdown in talks between Greece and its creditors. Except for a jump in May during a global bond sell-off driven by improving inflation expectations, yields on bonds issued by the euro zone's most vulnerable states were on track for their biggest three-day move since mid-2013. Similarly sharp moves were seen in 2012 as the crisis peaked, although yields on the three countries' bonds remain far below the highs of above 7 percent hit in that period. The moves, analysts say, could impact the dynamic of the negotiations between Greece and European leaders, who may have thought that the relative calm in markets during the protracted talks was a sign that investors thought a Grexit was manageable. "A lot of people, especially in Germany, have seemed relaxed about Greece. We've seen comments saying that if Greece exits it's not such a big thing," said Jean-Francois Robin, head of rates strategy at Natixis. "The market is just showing exactly the opposite of that."

Months of Greek debt talks yield bad blood but no deal - It was last Sunday afternoon and European Commission negotiators were preparing for a meeting that they hoped would at last end an increasingly bitter stand-off with Greece. According to two EU officials, however, as commission negotiators were beavering away in their offices, the Greek delegation was spotted taking a leisurely Sunday afternoon stroll around the Sablon, the central Brussels square lined with some of the city’s most fashionable restaurants and antique boutiques. Some on the EU side were furious. “Everybody else is working their ass off,” one official fumed that afternoon. “So they don’t care, it seems.” In the grand sweep of the five-year Greek crisis, the jaunt around the Belgian capital may amount to less than a footnote. But it exemplifies the bad blood that has built up on both sides of the Greek stand-off, making a deal at Monday’s emergency summit all the more difficult. Both sides seethe with resentment over perceived double-crosses, snubs and disrespect that — separate from the substantive differences between the Greek government and its bailout creditors — have occasionally overshadowed the talks. “In diplomacy, national interests set the stage but human emotions determine the script,” said one veteran eurozone diplomat who has been involved in multiple EU-level negotiations. “The longer the negotiations take, the more sympathy, love, rancour, jealousy and exasperation come into play. It’s the one profession that robots are least likely to take over.” Officials on both sides of the divide insist that their differences are primarily over the list of economic reforms Greece must agree to in order to unlock €7.2bn in bailout aid that Athens needs to avoid defaulting on its debts. And there are, indeed, significant substantive differences: Greece and its creditors remain up to €2bn a year apart on fiscal measures. But personal animus and a collapse of trust has also played a part. At first, eurozone officials and politicians believed the bravado coming from Greek leaders — particularly Yanis Varoufakis, the charismatic finance minister — was a hangover from electioneering that would eventually fade.

Why Greece might now have the upper hand in crunch talks -- Greece knows it. The International Monetary Fund knows it. Every European finance minister knows it. After the latest failure to secure a deal at the meeting of finance ministers in Luxembourg, the crisis is coming to a head. The unescapable facts are that between Monday and Wednesday, some €2bn (£1.43bn) left the Greek banking system – more than the €1.1bn in additional emergency financing provided by the European Central Bank this week. The banks are losing around 0.5% of their deposits each day and cannot sustain losses of this sort. They are on the brink of collapse. Greek public finances also look dire, with tax revenues 24% below target in May. The government is balancing the books – but only by not paying its bills. There will be an emergency summit of eurozone leaders on Monday, but by then it may already be too late. Capital controls look inevitable to stem the outflow from the banks and could be needed before the weekend after the latest setback. Athens has already said it will be unable to pay the IMF at the end of the month unless it gets some immediate financial assistance. There was little evidence in Luxembourg of a deal, no sign even that either side was adopting a more emollient approach. The idea that Greece might be offered a grace period after its debts become due to the IMF was rejected by Christine Lagarde. The fund’s managing director could not have been clearer: “I have a deadline, which is 30 June, when a payment is due from Greece. If 1 July it’s not paid, it’s not paid.” Meanwhile in Athens, the government said it was preparing for the return of the drachma. “If we are forced to say the big no, the difficulties will last for a few months”, said the social security minister, Dimitris Stratoulis. “But the consequences will be much worse for Europe.”

Does Greece Need More Austerity? - Paul Krugman --As many of us have noted, it’s hugely unfair when people claim that Greece has done nothing to adjust. On the contrary, it has imposed incredibly harsh austerity and substantial reforms on other fronts. Yet you might be tempted to argue that the results show that Greece hasn’t done enough — after all, last year it was running only a tiny primary budget surplus (that is, not counting interest), and this year it has slipped back into primary deficit. So more adjustment is needed, right? Well, step back for a minute and imagine that we weren’t talking about Greece but about the U.S. or the UK. When we look at our budgets, we normally focus not on the headline budget balance but on the cyclically adjusted balance — an estimate of what it would be at more or less full employment. This helps avoid pressure to pursue procyclical policies that make the economy unstable, and also gives a better idea of the long-run sustainability of the position. And while cyclical adjustment can be controversial, there are standard estimates from third parties like the IMF and the OECD.So here’s a picture you probably haven’t seen: the IMF’s estimates of the cyclically adjusted primary balances of eurozone countries in 2014: Greece is, by this measure, the most fiscally responsible, indeed crazily austere, nation in Europe. So why is it in fiscal crisis? Because the economy is deeply depressed. Suppose that there were a way to end this depression. Then Greece’s fiscal problems would melt away, with no need for further cuts. But is there any way to do that? The answer is, not as long as Greece remains in the euro. It can pursue reforms that might make it more competitive, but anyone promising dramatic, quick results has no idea what he is talking about.  On the other hand, Grexit would produce a rapid improvement in competitiveness, at the cost of possible financial chaos.This is not a route anyone has been willing to go down, but one does have to say that as the crisis worsens it becomes a more plausible outcome.

Merkel’s one big reason to hold on to Greece - I n Berlin, as in capitals across Europe, politicians and policy makers have started thinking about the day after. Maybe that should be the week, month and year after. Step one is to prepare for the blame game if the Greek government decides to default. Step two asks what happens next. Exit from the euro and, possibly, from the EU? A failing state collapsing into a failed one? A Balkan foothold for Russia’s Vladimir Putin? Amid this swirl, I have heard half a dozen good reasons why German chancellor Angela Merkel and her fellow eurozone leaders — Madrid, Lisbon and Dublin to name but three take, if anything, a tougher line towards Athens — should call Greece’s bluff. Not from any sense of self-righteousness, nor in a spirit of punishment or retribution, but because negotiations have not thrown up a better alternative. For all that Syriza seems determined to march off the edge of the cliff and its partners are confident that the eurozone would weather the shock of its fall, the one good reason for holding on to Greece is felt more acutely by Ms Merkel than by any other leader. There are plenty of reasons beyond economics that might sway her. Greek exit from the euro would pile more insecurity on to the continent’s most combustible of regions. Mr Putin, already promoting instability and subversion in the Balkans, would seize the moment. Europe’s stand against Russian revanchism could be gravely weakened. It would be harder still to control migration across the Mediterranean; efforts at reconciliation in Cyprus would stall. All this, even before the impact on market confidence in the long-term future of the eurozone. My own guess, though, is that the thing that keeps Ms Merkel awake at night is at once far less tangible and immeasurably more powerful than any such hard-headed calculation. More likely she is torn between her own firm belief in the importance of preserving the rules — Mr Putin’s trampling on the rules explains her tough response to the Russian invasion of eastern Ukraine — and her acute and closely-held sense of Germany’s European mission. Ms Merkel sees herself as the guardian of European unity, the more so since François Hollande’s French government has retreated from the shared leadership role that once conjured up the metaphor of the Franco-German motor. Greece’s departure would be a historic failure; an admission of the fragility of the European enterprise and a signal to the world that the process of integrations could yet unravel.

Breaking up retail and investment banks is not so hard to do - Next to the hated bank levy, few of the UK government’s regulatory reforms are more calculated to bring even mild-mannered financiers out in angry hives than the requirement for institutions to ringfence their retail businesses. It is a rule that has been variously denounced as a needless firebreak that would not have prevented any of the calamities of the financial crisis, an act of pure regulatory spite, and a barrier to investment. HSBC even cites it as one reason why it may move its headquarters to another country altogether. Ringfencing is certainly not a trivial undertaking. It requires banks to place their retail operations in a subsidiary that is capable of continuing its business, even if the group of which it is a part implodes. Quite what this entails in practice has yet to be decided by the regulator. It is not only pondering where the ringfence should be drawn functionally in the case of each large bank, but also the extent to which the retail unit can share services with its parent — such as information technology. Bank bosses chafe at the rule for numerous reasons. There is the cost and hassle of separating out businesses that have been bundled together. There are also the governance rules, which oblige ringfenced subsidiaries to have their own independent boards. These can potentially limit the parent’s ability to draw dividends — or even drive strategy. One HSBC director privately questioned the point of hanging on to the bank’s UK retail business at all, given these restrictions. “Why would we want to retain something we don’t control?” he said.

UK two-trillion-pound pension liabilities outstrip GDP for the first time  - (Reuters) - British private sector defined benefit, or final salary, pension scheme liabilities of 2 trillion pounds ($3.11 trillion) have outstripped Britain's GDP for the first time due to ultra-low interest rates, pensions consultants Hymans Robertson said. Low interest rates have meant the pension funds are struggling to make the investment returns needed to pay their pensioners. The 2-trillion pound pension hole exceeds Britain's gross domestic product of 1.8 trillion pounds, Hymans Robertson said in a statement. "There’s a pressing need for DB (defined benefit) schemes to focus on income-generating assets rather than simply chasing capital growth," the consultants said. "This will help raise schemes’ resilience to poor capital returns -- avoiding any fire sale of assets at depressed prices to pay pensions." British pension funds have increasingly been investing in higher-yielding, riskier assets such as infrastructure or corporate debt. Hymans Robertson said recent British pension reforms would also likely lead to 10 billion pounds in annual transfers from defined benefit schemes to defined contribution schemes, which enable retirees to spend their pension pots as they wish. This would increase the gap between the contributions which the defined benefit pension funds receive and the benefits which they need to pay out, the firm added.

No comments: