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

Saturday, June 6, 2015

week ending Jun 6

IMF sees ‘strong case’ for Fed waiting until next year to hike - — The Federal Reserve should delay raising rates until next year given the risks that moving too soon could stall the economy, the International Monetary Fund said Thursday. “We think a rate hike would be better off in 2016,” said Christine Lagarde, the IMF’s managing director at a press conference. The IMF comments clash with current thinking at the central bank — 15 out of 17 Federal Reserve officials, including Chairwoman Janet Yellen, have said they plan to lift interest rates this year. Yellen has said waiting too long risks overheating the U.S. economy. In its annual review of the U.S. economy, the IMF said the central bank said the Fed should wait for “more tangible signs” of wage or price inflation than are currently evident. Inflation won’t reach the Fed’s 2% annual inflation target until mid-2017, Lagarde said. Starting too early to raise interest rates raises the risk of having to retreat back to zero, the IMF said. This is a bigger risk that an outbreak of inflation from waiting too long, she said. Overall, the IMF said that the fundamentals for continued growth and job creation remain in place for the U.S. economy, but momentum has been sapped in recent months by a series of negative shocks. The first Fed rate hike could still rattle markets and lead to instability, despite being carefully prepared and telegraphed, the IMF warned. There are already “pockets” of financial stability risks in the U.S. economy that are dangerous, Lagarde said.

IMF’s Surprising Message to Yellen on Interest Rates - The International Monetary Fund today issued unusually direct and specific advice to the Federal Reserve about when interest rates ought to be allowed to start rising again. Through its intentionally vague policy statements, the Fed has suggested that a “liftoff” from the current zero-rate is likely to occur near the end of this year. In its annual review of the state of the U.S. economy released today, the IMF cut growth estimates for 2016 from 3.1 percent to 2.5 percent, and it called on Fed policymakers to hold off on any interest rate hike until 2016. The Fund warned that the central bank’s Federal Open Market Committee risks its credibility with the markets if it hikes rates and then has to backtrack. “Raising rates too soon could trigger a greater-than-expected tightening of financial conditions or a bout of financial instability, causing the economy to stall,” the IMF statement said. “This would likely force the Fed to reverse direction, moving rates back down toward zero with potential costs to credibility.” Financial markets professionals said that the practical impact of the IMF statement on Fed policy would likely be negligible. “They are data dependent. If the data suggests they should wait, they’ll wait; if it says they should raise rates, they’ll raise them.” However, the IMF statement, released in conjunction with a press conference featuring the Fund’s high-profile managing director, Christine Lagarde, raised some eyebrows among those who follow monetary policy debates, if only because of its directness. It also caused a stir in the financial markets, as investors considered the possibility of an even longer era of ultra-low rates.

Fed’s Rosengren: Economic Conditions Don’t Support Fed Rate Rise Now - Worried a weak economy over the start of the year may signal deeper problems for 2015, the leader of the Federal Reserve Bank of Boston said Monday the time hasn’t arrived to raise short-term interest rates. “Continued patience in monetary policy” is the best path to ensure that growth gets back on track and drives low levels of inflation back to 2%, while helping drive further declines in the unemployment rate, Boston Fed chief Eric Rosengren said. While he didn’t say when he would like to see the U.S. central bank lift rates off of current near-zero rates, he said he is worried that surprisingly weak growth over the start of the year could be a harbinger of future trouble. Being able to raise rates would be “good news” because it would signal a true improvement in the economy, Mr. Rosengren said. He said he would like to raise rates “as soon as possible, but it has to be because the economic conditions are right. The economic conditions haven’t been right to date” and it’s not clear when they will be. Mr. Rosengren made his comments in a speech before a local group in Hartford, Conn. He spoke as anxiety is rising over the state of growth so far this year. As reported Friday, the U.S. economy contracted at a 0.7% annual rate over the first three months of the year. Many forecasters see only modest gains coming in the second quarter. This surprisingly weak performance has called into question central bankers’ broad desire to raise rates this year. If growth is slow, it will make it hard for the unemployment rate to fall further, and for price pressures that have been short of the Fed’s official mandate for nearly three years to achieve the levels sought by Fed officials.

Fed’s Brainard: First-quarter weakness makes it too early to hike rates - — In her maiden speech on monetary policy, Federal Reserve Governor Lael Brainard sounded dovish, suggesting she does not support a rate increase at the upcoming June policy meeting. Brainard said soft data in the first quarter raise some troubling questions, could be long-lasting, and don’t support an immediate liftoff. “Consumer spending so far this year has been undeniably weak,” making it hard to dismiss the chance that the economy is weaker than had been expected, at least “based on the data available today,” Brainard said in a speech to the Center for Strategic and International Studies. This possibility “argues for giving the data some more time” to confirm further improvement in the labor market and firming of inflation, Brainard said. “I think there is value to watchful waiting while additional data help clarify the economy’s underlying momentum in the face of the headwinds from abroad,” Brainard said.

Fed’s Brainard Wants More Economic Progress Before Rate Rises -  The U.S. economy is still too fragile to handle interest rate increases from the Federal Reserve, Fed governor Lael Brainard said Tuesday. In her most substantial policy speech since joining the Fed in June 2014, Ms. Brainard said she was concerned that some of the recent economic weakness might not be transitory, as many economists had hoped. “The limited data in hand pertaining to the second quarter do not suggest a significant bounceback in aggregate spending, which we would expect if all of the weakness in the first quarter were due to transitory factors,” she said in a speech to the Center for Strategic and International Studies. “More optimistic growth projections may have placed too much weight on the boost to spending from lower energy prices and too little weight on the negative implications for aggregate demand of the significant increase in the foreign exchange value of the dollar and large decline in the price of crude oil,” she said. The U.S. economy shrank 0.7% in the first quarter, but most economists expect a rebound that should take the year’s overall expansion rate to around 2% or so. Until recently, investors and Fed officials had envisioned the first interest rate increase in nearly a decade would come in summer of this year. But that timing has been pushed forward due to recent softness. Ms. Brainard confirmed this inclination. Recent developments argue “for giving the data some more time to confirm further improvement in the labor market and firming of inflation toward our 2% target,” she said. “But while the case for liftoff may not be immediate, it is coming into clearer view. If continued labor market strengthening is confirmed and inflation readings continue to improve, liftoff could come before the end of the year,”

St. Louis Fed’s Bullard: Appropriate to Think Fed Will Wait to Raise Rates - It is appropriate to think the Federal Reserve won’t raise interest rates at its June policy meeting following a recent run of weak economic data, Federal Reserve Bank of St. Louis President James Bullard said Wednesday. “I would like to move on the back of good news, basically, and I think it’s very difficult to say that you’re trying to normalize interest rates just at the moment where the economy looks a little bit weaker,” Mr. Bullard told reporters at the regional reserve bank’s headquarters. “I think this is all transitory, but that’s where we are.” Asked about the Fed’s June 16-17 policy meeting, Mr. Bullard said, “The joy of being data-dependent is that you can wait until the meeting actually occurs. You don’t have to say what’s going to happen before the meeting occurs. But I think the shifts that are apparent in market-based thinking are completely appropriate given the weaker data that we’ve had through the spring.” Most Fed officials have said they expect to begin raising the benchmark short-term interest rate, the federal-funds rate, later this year. The Fed in March opened the door to a rate increase as soon as June.But a stretch of weak economic data have made a June rate increase appear less likely in recent months. Most private economists now believe the Fed’s first rate increase will come in September, not June. Mr. Bullard has been an advocate for raising rates sooner rather than later. In March, he said the risks of keeping rates pinned near zero for too long “may be substantial.” On Wednesday, Mr. Bullard said he thinks the Fed isn’t very far from achieving its goals of maximum employment and stable prices. He also said he thinks seasonal-adjustment issues skewed the contractionary reading on gross domestic product during the first quarter.

Chicago Fed’s Charles Evans Sees No Rate Increase Before Early 2016 - Although the Federal Open Market Committee has discussed raising interest rates this year, recent economic signals and a consensus among committee members suggest rates will not move before early 2016, according to a Fed official. Federal Reserve Bank of Chicago President Charles Evans said Wednesday the Fed needs to focus on getting inflation to a previously-stated 2% target “as quickly as possible” and that he does not expect rates to move in 2015. “The hurdle is pretty high for raising rates at the moment,” said Mr. Evans during a media roundtable following a speech at the Chicago Banking Symposium at the University Club of Chicago. “There’s currently a strong consensus on continued accommodation.” Mr. Evans said recent “soft” economic data, continued slack in employment and an inability for the economy to hit the Fed’s current 2% inflation target have contributed to his outlook. “My view is we need to see inflation move up to 2%,” Mr. Evans said. “Let’s have a ‘whites of their eyes’ attitude towards inflation,” he said, adding that the target must not just be hit but sustained. “We have a strategy, and it’s 2%, and I currently think it’s workable,” he said. Mr. Evans said if the Fed does raise rates this year, the increase needs to be “shallow.”

Fed Officials Should Pay the Bond Market Less Mind, Jeremy Stein Says - Federal Reserve policy may have underreacted to strong economic activity over the years because officials were too afraid to spook U.S. government bondholders, Harvard University economist and former Fed governor Jeremy Stein writes in a new paper. Mr. Stein, known for staking out contrarian views as a policy maker, continues the trend with a new working paper that argues the Fed’s approach to interest rate increases may have been too gradual and predictable in the past. The paper was published by the National Bureau of Economic Research. “Society would be better off appointing a central banker who cares less about the bond market,” write Mr. Stein and co-author Adi Sunderam. Mr. Stein’s research has often focused on the interactions between financial markets and the economy. During his tenure, he was a proponent of incorporating financial stability concerns into the central bank’s thinking about monetary policy.  Messrs. Stein and Sunderam study transcripts of Federal Open Market Committee meetings and find “an increasing emphasis over time by the FOMC on financial-market considerations.” They say the Fed’s “gradualism” in raising interest rates became so clearly telegraphed during the chairmanship of Alan Greenspan and continuing under his successor Ben Bernanke that markets came to anticipate it. This predictability in turn, means that when the Fed starts raising its benchmark short-term rate from near zero, investors could see the initial move as the first in a continuous series of similar-sized rate increases, expecting a greater tightening of monetary conditions than envisioned by policy makers, the authors say.

Hatzius: September rate hike "sensible in the base case ", "but less than optimal on risk management grounds" -- A few excerpts from a research piece by Goldman Sachs chief economist Jan Hatzius: A September Hike: Sensible in the Base Case, Premature on Risk Management Grounds. The monetary policy path in the March "dot plot", which implies rate hikes starting at the September FOMC meeting, is consistent with the implications of a Taylor 1999 rule with a focus on broad labor market slack. To us, this looks like sensible policy in the FOMC's base case for the economy (which is broadly similar to our own at this point).  Nevertheless, we think the risk management case for delaying the first hike until 2016 remains persuasive. There is substantial uncertainty around the economic outlook, the equilibrium funds rate, and the true amount of labor market slack. This uncertainty has asymmetric effects on optimal monetary policy, and generally favors waiting.  Meanwhile, we are unconvinced by the main risk management arguments that are typically deployed in favor of an earlier liftoff than implied by the baseline economic scenario, which include financial stability concerns, worries about "falling behind the curve", and a desire to test the machinery of exit. For now, our forecast remains that the FOMC will hike rates at the September FOMC meeting. But our discussion today reinforces our existing view that this remains a close call.

Fed Watch: Solid Employment Report: The May employment report should help ease concerns about the health of the economy, but will have little impact on the outcome of next week's FOMC meeting. Fed officials had largely already written off the June meeting, and I think it is too little too late to expect them to reverse course now. Instead, the report puts the focus squarely on September. Nonfarm payrolls gained 280k for the month, with upward revisions adding 32k to the previous two months. The March slowdown now looks like what it was - the typical kind of variability we see in this report: The unemployment rate edged up on the back of an increase in the labor force participation rate, a positive development in light of the downward demographic push on the labor force. In the context of indicators previously identified by Fed Chair Janet Yellen, the overall picture looks like: Sustained improvement in labor markets as slack slowly dries up. And I would say the signs that wage growth is gaining traction are increasing; the three-month trend is heading up: I am not ready to sound the "all clear," but I am optimistic that we are getting there. That said, not getting there fast enough to dramatically change the path of monetary policy just yet. Data since the beginning of the year, especially the GDP data, spooked Fed officials pretty badly - they just weren't sure what was persistent and what was temporary. The employment data suggests the latter is largely at play. Moreover, I don't think they fully appreciate the implications of a lower growth trajectory on the quarterly GDP readings. These zero and sub-zero events are more likely to happen than in the past. The upshot is that a June rate hike was essentially off the table before this report, and is after this report as well.

Analysis: May Jobs Report Likely Keeps Fed on Track for Rate Increase Later This Year - The strong May employment report likely keeps the Federal Reserve on track to start raising short-term interest rates later this year, but officials are unlikely to move at a policy meeting later this month because they want to see more evidence of a solid economic expansion. Fed officials before the report signaled they had moved into a wait-and-see mode ahead of their June 16-17 meeting, their confidence shaken by an economic contraction in the first quarter and preliminary signs of a slow rebound in the second. They now want to see more data proving the winter economic contraction was transitory and not a signal of a more serious loss of momentum. Many investors are expecting a September rate increase, though Fed officials stress they are not bound to any particular date. Many Fed officials began the year believing that by June they might start lifting their benchmark short-term interest rate from near zero, in what would be their first rate increase in nearly a decade. Instead, they were thrown by new signs of economic torpor. They have been forecasting economic growth will pick up, as it did last year when a spring rebound followed a winter downturn. This year, the bad weather and work closure at West Coast ports that hindered output in the first three months of the year have run their course. The depleting effects of oil price declines on business investment and of a strong dollar on exports should be transitory. They had already seen a few encouraging signs before the jobs report, including trade improvement in April and strong auto sales in May. The Labor Department report bolstered their case, showing employers ramped up hiring last month while wage gains accelerated.

Monetary policy and inequality - Ben Bernanke -- Since the financial crisis the Federal Reserve has aggressively used monetary policy, including unconventional policies like quantitative easing, to promote job growth and keep inflation near the Fed's 2 percent target. Progress has been made, even if it has been slower than we would have liked. Unemployment, which peaked at 10 percent in 2009, is now 5.4 percent and falling, and inflation appears gradually to be moving toward its target. Early critics of the Fed's policies warned that they would be ineffective; or, if effective, that they would generate high inflation and the collapse of the dollar. With these forecasts largely discredited, critics have turned to other arguments. In this post I'll look at another critique, that the Fed's monetary policies have exacerbated inequality—a proposition that happens to be the subject of a June 1 symposium at the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy. The claim that Fed policy has worsened inequality usually begins with the (correct) observation that monetary easing works in part by raising asset prices, like stock prices. As the rich own more assets than the poor and middle class, the reasoning goes, the Fed's policies are increasing the already large disparities of wealth in the United States. Certainly, inequality and lack of social mobility are issues of first-order significance for economic policy in general. Should they also be first-order considerations for the making of monetary policy? I have my doubts.

Bernanke on monetary policy and inequality - Steve Randy Waldman - Ben Bernanke has a new post discussing the relationship between monetary policy and inequality. It is characteristically thoughtful and there is much to recommend it. Unlike some monetary policy cheerleaders, Bernanke is candid that “[m]onetary policy is a blunt tool which certainly affects the distribution of income and wealth”. And he correctly points out that monetary policy operations provoke complex and countervailing distributional effects, rendering simplistic stories hard to judge. Yes, Bernanke acknowledges, monetary easing raises the value of financial assets held almost entirely by upper quintiles and disproportionately by the very wealthy. But “easier monetary policies promote job creation as well as increases in asset prices. A stronger labor market—more jobs at better wages—obviously benefits the middle class, and it is the best weapon we have against poverty.” Bernanke reminds us that, “[a]ll else equal, debtors tend to benefit (and creditors lose) from higher inflation, which reduces the real value of debts.   Some of Bernanke’s protestations are less persuasive. Yes, easy money supports housing prices and “more than sixty percent of families own their home”. But asset price gains are proportionate to value, and the distribution of real-estate value is highly skewed. Plus, the divergence of homeowners and nonhomeowners marks one of the main socioeconomic cleavages in America today, and the whole constellation of housing-price-supportive policies (of which easy money is just one part) have made the chasm ever more risky and difficult to traverse. But the big lacuna in Bernanke’s defense of post-crisis monetary ease (such as it was, pace Scott Sumner) is the unstated counterfactual. Was monetary ease worse along dimensions of distribution than a counterfactual in which tight money, no fiscal support, and a collapse of financial intermediation created a prolonged collapse of output and employment? Surely not, we can agree. But the actual post-crisis policy apparatus was not the only possible configuration of support.

Stiglitz: Fed’s Zero-Rate Policy Boosts Inequality - The Federal Reserve’s prolonged policies of near-zero interest rates and asset purchases have further widened the already large gap between the rich and poor in the United States, says Nobel prize-winning economist and Columbia University professor Joseph Stiglitz. “Contrary to the presumption in the nineteenth century, where lower interest rates favored debtors over creditors and thus increased equality, we show that…lower interest rates may actually increase inequality,” Mr. Stiglitz, a long-time inequality scholar, argues in the fourth of a four-part working paper series published by the National Bureau of Economic Research.  That’s because rich individuals tend to hold much of their wealth in a stock market that benefits disproportionately from such policies, which included purchases of government and mortgage bonds, a program known as quantitative easing or QE. “The composition of wealth-holdings will differ between the capitalists and life cycle savers, so that any policy which differentially benefits those assets held by capitalists leads to greater inequality. Quantitative easing did that,” he says. Today, he said, “workers and capitalists are both owners of capital, but different kinds of capital,” with lower- and middle-income Americans rely primarily on fixed-income assets while upper-income individuals tend to invest more in stocks and other riskier assets offering higher returns. “A lowering of the interest rate helps owners of equity and hurts those who hold government debt. This model seems to be a better description of the modern economy, and in this model, lowering interest rates unambiguously contributes to growing inequality,” he concludes.

New Research Does Not Provide Any Reason to Doubt that CEO Pay Fueled Top 1% Income Growth --Economic Policy Institute - A new paper, Firming up Inequality, has been receiving substantial attention in the media for its claim that wage inequality is not occurring within firms but only occurs between firms. The authors claim that their results disprove the claim made by me and others, such as Thomas Piketty and Emmanuel Saez, that the growth of top 1 percent incomes was driven by the pay of executives and those in the financial sector. Though the authors present valuable new data, which offers the possibility of great insights, their current analysis does not disprove that executive pay has fueled top 1 percent income growth. In fact, the study neither examines nor rebuts claims about executive pay. The authors also offer a “we live in the best possible world” interpretation of their findings—inequality is due to high productivity growth of “superfirms.” This is pure speculation and is completely disconnected from their actual empirical work. A similar study examined productivity trends and contradicts their narrative about superfirms. Last, there are reasons to be skeptical of their findings because they imply huge wage disparities have opened up between median workers across firms within an industry that are implausible.

The Fed’s low rates may be harming the middle class - There was certainly a time and place for it: Most economists credit the Federal Reserve’s super-low interest rate policy, in effect since 2008, with reviving shell-shocked financial markets and breathing life back into the economy. But nearly seven years on, aggressive monetary stimulus may now be hurting those it’s meant to help.  Fed critics have long warned that the gusher of liquidity opened by the Fed will generate runaway inflation, which hasn’t happened. But there’s new concern that the abnormally low interest rates resulting from central bank quantitative easing are creating perverse incentives for many companies to deploy cash in ways that benefit the wealthy without doing much, if anything, for workers or ordinary consumers. “Flooding the system with more cheap money is the wrong solution,” former FDIC chief Sheila Bair recently told Yahoo Finance. “It has made income inequality worse. We need to get back to real economic growth, not artificially stimulated growth with cheap interest rates.” Wall Street barons and other one-percenters have gained the most from super-low rates that have diverted a flood of money out of low-yielding bonds and into stocks and other risky assets, producing an epic bull market that’s now in its sixth year. But a growing chorus of one-percenters, including BlackRock CEO Lawrence Fink and hedge-fund billionaire Stanley Druckenmiller, argue that raising rates is now the best way to help workers still struggling to join the economic recovery.

The Fed has created a liquidity time bomb - Roubini -- A paradox has emerged in the financial markets of the advanced economies since the 2008 global financial crisis. Unconventional monetary policies have created a massive overhang of liquidity. But a series of recent shocks suggests that macro liquidity has become linked with severe market illiquidity. Policy interest rates are near zero (and sometimes below it) in most advanced economies, and the monetary base (money created by central banks in the form of cash and liquid commercial-bank reserves) has soared — doubling, tripling, and, in the United States, quadrupling relative to the pre-crisis period.  These events have fueled fears that, even very deep and liquid markets — such as U.S. stocks and government bonds in the U.S. and Germany — may not be liquid enough. So what accounts for the combination of macro liquidity and market illiquidity? For starters, in equity markets, high-frequency traders (HFTs), who use algorithmic computer programs to follow market trends, account for a larger share of transactions. This creates, no surprise, herding behavior. Indeed, trading in the U.S. nowadays is concentrated at the beginning and the last hour of the trading day, when HFTs are most active; for the rest of the day, markets are illiquid, with few transactions. A second cause lies in the fact that fixed-income assets — such as government, corporate, and emerging-market bonds — are not traded in more liquid exchanges, as stocks are. Instead, they are traded mostly over the counter in illiquid markets. Third, not only is fixed income more illiquid, but now most of these instruments — which have grown enormously in number, owing to the mushrooming issuance of private and public debts before and after the financial crisis — are held in open-ended funds that allow investors to exit overnight. Imagine a bank that invests in illiquid assets but allows depositors to redeem their cash overnight: if a run on these funds occurs, the need to sell the illiquid assets can push their price very low very fast, in what is effectively a fire sale.

The Fed is not doing its job --Here's a recent WSJ report on the economy: Many Federal Reserve officials entered 2015 thinking they likely would start raising short-term interest rates by midyear. That idea got put on ice after a winter economic slowdown, partly attributed to the dollar's rapid rise in previous months. While the dollar's value is down a bit from its March peak, the Fed's own models show the greenback's drag on the economy is likely to grow in coming months. This and other factors could prompt some Fed officials to lower their latest growth forecasts, to be released at the next Fed policy meeting June 16-17--and to wait even longer to move on rates.  If we make the highly plausible assumption that the Fed's two-year forward NGDP forecast is also declining, then we can infer that the Fed is not doing its job. Its job is not to adjust its forecasts up or down, but rather adjust its policy so that its longer-term forecast never needs to be revised.  The article also suggests that Janet Yellen is confused about the current stance of monetary policy:  At their March meeting, Fed officials lowered their expectations for U.S. growth to a range of 2.3% to 2.7% this year and next. In December they had estimated a pace as high as 3% for both years.  Fed Chairwoman Janet Yellen attributed some of the March downgrade to the dollar's strength. "Export growth has weakened. Probably the strong dollar is one reason for that," Ms. Yellen said at her March news conference. There are all sorts of problems here, starting with reasoning from a price change. Price changes are not good or bad for the economy. They have no effect. Instead they are the effect of other deeper forces. If the dollar rose because of monetary stimulus at the ECB and BOJ, that's a bullish indicator for America. If it rose due to tight money at the Fed, that's bearish.

QE Breeds Instability – Ilargi - Central bankers have promised ad nauseum to keep rates low for long periods of time. And they have delivered. Their claim is that this helps the economy recover, but that is just a silly idea. What it does do is help create the illusion of a recovering economy. But that is mostly achieved by making price discovery impossible, not by increasing productivity or wages or innovation or anything like that. What we have is the financial system posing as the economy. And a vast majority of people falling for that sleight of hand. Now the central bankers come face to face with Hyman Minsky’s credo that ‘Stability Breeds Instability’. Ultra low rates (ZIRP) are not a natural phenomenon, and that must of necessity mean that they distort economies in ways that are inherently unpredictable. For central bankers, investors, politicians, everyone. That is the essence of what is being consistently denied, all the time. That is why QE policies, certainly in the theater they’re presently being executed in, will always fail. That is why they should never have been considered to begin with. The entire premise is false. Ultra low rates are today starting to bite central bankers in the ass. The illusion of control is not the same as control. But Mario and Janet and Haruhiko, like their predecessors before them, are way past even contemplating the limits of their powers. They think pulling levers and and turning switches is enough to make economies do what they want. Nobody talks anymore about how guys like Bernanke stated when the crisis truly hit that they were entering ‘uncharted territory’. That’s intriguing, if only because they’re way deeper into that territory now than they were back then.

"The Fed Has Been Horribly Wrong" Deutsche Bank Admits, Dares To Ask If Yellen Is Planning A Housing Market Crash -- The reason why Zero Hedge has been steadfast over the past 6 years in its accusation that the Fed is making a mockery of, and destroying not only the very fabric of capital markets (something which Citigroup now openly admits almost every week) but the US economy itself (as Goldman most recently hinted last week when it lowered its long-term "potential GDP" growth of the US by 0.5% to 1.75%), is simple: all along we knew we have been right, and all the career economists, Wall Street weathermen-cum-strategists, and "straight to CNBC" book-talking pundits were wrong. And now, 7 years after the start of the Fed's grand - and doomed - experiment, the flood of other "serious people", not finally admitting the "tinfoil, fringe blogs" were right all along, and the Fed was wrong, has finally been unleashed.Here is Deutsche Bank admitting that not only the Fed is lying to the American people: Truth be told, we think the Fed is obliged to talk up the economy because if they were brutally honest, the economy what vestiges of optimism remain in the domestic sectors could quickly evaporate. But has been "horribly wrong" all along: At issue is whether or not the Fed in particular but the market in general has properly understood the nature of the economic problem. The more we dig into this, the more we are afraid that they do not. So aside from a data revision tsunami, we would suggest that the Fed has the outlook not justhorribly wrong, but completely misunderstood.... the idea that the economy is “ready” for a removal of accommodation and that there is any sense in it from the perspective of rising inflation expectations and a stronger real growth outlook is nonsense

Question for Central Banks: What About El Niño? - Fed-watchers and economists have spent the past few weeks trying to figure out how bad weather in the first quarter affected growth. Now a new paper published by the Federal Reserve Bank of Dallas suggests we should take a much broader, worldwide look at what climate—specifically the El Niño pattern—does to economies. The researchers even suggest that policy makers should consider global weather patterns in deciding what to do with interest rates. The world is in an El Niño cycle this year and that could produce shocks in commodity prices, inflation and changes in economic growth patterns concentrated in Pacific countries, the paper says. In some countries, El Niño weather patterns cause a short-term drop in growth. But in others, such as the United States, El Niño can be an economic boon. In normal years, east-west trade winds over the Pacific Ocean bring warm water to the western end of the Pacific. The waters off South America, on the other hand, are colder, which helps the fishing industry in places like Peru. El Niño, which flares up every few years, causes those west-blowing trade winds to weaken, reducing rainfall on the western side of the Pacific and warming the water off South America. That warmer water brings significant rainfall to North and South America and leaves Asia and Australia parched. The National Weather Service reports “weak to moderate” El Niño conditions will likely persist through the end of the year.

PCE Price Index: Headline and Core Remain Disappointingly Below Target - The Personal Income and Outlays report for April was published this morning by the Bureau of Economic Analysis.  The latest Headline PCE price index year-over-year (YoY) rate is 0.12%, down from 0.30% the previous month. The latest Core PCE index (less Food and Energy) at 1.24% is a slight decline from the previous month's 1.32% YoY. The general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. In April of 2013, the Core PCE dropped below 1.4% and hovered in a narrow YoY range of 1.23% to 1.35% for twelve months. The subsequent months saw a higher plateau approaching 1.5%, but the most recent months are closer to the lower range. The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when Core PCE hovered in a narrow range around its interim low, a level to which it has returned in the last five months. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. Also included is an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The two percent benchmark is the Fed's conventional target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. The most recent FOMC statement now refers only to the two percent target.

Inflation Misses Fed’s 2% Target for 36th Straight Month - It’s been three years since U.S. inflation hit the Federal Reserve‘s 2% target, according to new data from the Commerce Department. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose just 0.1% in April from a year earlier, the lowest level since October 2009 and a little softer than the 0.3% reading in February and March.  April 2012 was the last time the inflation rate was on target. That’s the longest such stretch of sub-2% inflation since the 1960s. Excluding the volatile food and energy categories, prices climbed 1.2% in April from a year earlier, a slight downshift from the 1.3% reading the prior four months. Such low inflation complicates the Fed’s plans to start raising interest rates. The central bank’s dual mandate calls for price stability–in this case 2% inflation–and maximum employment. While the labor market appears healthy, low oil prices, a strong dollar and tepid global demand are all holding down prices. “It won’t be current inflation that prompts the first Fed hikes, it will be the tightness of the labor market and the signal it sends about future inflation risk, given the extraordinarily easy stance of policy,”

Fed's Beige Book: Economic Activity Expanded, Respondents "generally optimistic"  -- Fed's Beige Book "Prepared at the Federal Reserve Bank of Dallas based on information collected on or before May 22, 2015"  Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded during the reporting period from early April to late May. Activity in the Richmond, Chicago, Minneapolis, and San Francisco Districts was characterized as growing at a moderate pace, while the New York, Philadelphia, and St. Louis Districts cited modest growth. Contacts in the Boston District reported mixed conditions, and the Cleveland and Kansas City Districts indicated a slight pace of expansion. Compared to the previous report, the pace of growth slowed slightly in the Dallas District but held steady in the Atlanta District. Manufacturing activity generally held steady or increased over the reporting period, except for in the Dallas District where it was slightly weaker and in the Kansas City District where it fell markedly.  Residential real estate activity and construction expanded in most districts since the prior report, and outlooks were largely positive. ... Residential construction was flat to up during the reporting period, although a few districts reported a slower pace of homebuilding activity due to financing and capacity constraints and severe weather.  Commercial real estate leasing and construction activity improved in most districts, and outlooks were optimistic.

Beige Book Adds a Rosy Hue to Outlook - WSJ: Early economic reports indicate U.S. growth has failed to rebound strongly in the second quarter after shrinking during the first three months of the year—but you wouldn’t know it from the tone of the Federal Reserve’s beige book survey. The informal survey of anecdotal business contacts’ views is conducted by each of the central bank’s 12 regional districts, and paints a fairly rosy picture of the outlook. The latest beige book report finds “overall economic activity expanded during the reporting period from early April to late May.” Growth was characterized as “moderate” in the Chicago, Richmond, Minneapolis and San Francisco districts; “modest” in New York, Philadelphia and St. Louis regions; mixed in the Boston district; “slight” in Cleveland and Kansas City; holding steady in Atlanta; and slowing “slightly” in Dallas. The latter could be associated with falling business spending in the energy sector.  In a speech Tuesday, Fed Board Governor Lael Brainard warned that more-optimistic growth forecasts may have overestimated the benefits to consumer spending from lower oil prices—and underestimate its hit on business investment. That concern was shared among other forecasters trying to assess whether first-quarter economic softness was indeed transitory. The beige book “indicated some divergence in economic activity across the country, with dependence on energy production being an important differentiating factor,” In a hopeful sign for the housing market, the Fed reported “residential and commercial real estate activity and construction improved since the last report.”  Overall loan demand increased, the report said, particularly in the New York district.  As for the labor market, employment was “up slightly” from the prior survey, as were wages, the report said. Prices “were stable or ticked up, although manufacturers in some districts cited lower input prices.”

Did The US Slip Into Recession In Q1? GDI Begs To Differ -- Gross domestic product (GDP) is down, but gross domestic income (GDI) is up. One hints at the possibility of a recession for the US while the other still points to growth, albeit at a lesser pace than we’ve seen recently. GDP retreated by 0.7% in the first quarter, but GDI—considered an alternate and arguably superior measure of economic activity—increased 1.4% (real seasonally adjusted annual rates).  Economist Justin Wolfers argues that GDI is a “better measure” of economic activity, in part because it’s “measured using somewhat higher-quality data [compared with GDP], and so it tends to yield more reliable signals.”   Minds will differ, of course—this is macroeconomics, after all. But while the debate will roll on, advocates of GDI say it offers support in favor of the view that the US didn’t flirt with a new recession in Q1.   To put GDI on a relatively level playing field with GDP in terms of business-cycle signals, let’s run the quarterly changes for this alternative measure of economic activity through a probit model in search of context for deciding if Q1 has crossed the red line into contraction. The short answer: no, as the chart below shows. The current reading is quite low, at roughly 13% for this year’s first quarter.  The recession-risk estimate for GDP via a probit model looks considerably darker, of course, thanks to Q1’s slide, as I noted last week.  Which one’s telling us the truth? Let’s split the difference and for now say that the US trend turned softer in Q1 but is still short of a tipping point. That leaves us to ponder the case for a second-quarter rebound. The numbers overall are a bit shaky to date, but the monthly figures through April still translate into low odds that the NBER will declare the month as the start of a new downturn.

Current economic conditions: not as bad as it sounds -- On Friday the Bureau of Economic Analysis released its second estimate of U.S. 2015:Q1 real GDP growth. The BEA now estimates that the economy contracted at a 0.7% annual rate rather than grew 0.2% as originally estimated. The number is discouraging, though I see some silver linings. The primary factors that brought GDP growth down from the BEA’s original estimate were stronger growth of imports and a smaller inventory build than originally anticipated. Both components can be volatile, and I would not interpret the latter as a sign of fundamental weakness. The new BEA data also allow us to calculate an alternative estimate of GDP, building the estimate up from income data instead of expenditures. In terms of the underlying concepts, the income-based and expenditure-based calculations should produce the identical number for GDP. But because the data sources are different, in practice the two estimates differ, with the difference officially reported as a “statistical discrepancy.” While the expenditure-based GDP estimate showed a 0.7% decline at an annual rate, the income-based GDP estimate implied 1.4% growth for the first quarter. Moreover, using the statistical method for reconciling and combining the different estimates proposed by Aruoba, Diebold, Nalewaik, Schorfheide, and Song (ADNSS), the best estimate of first-quarter real GDP growth based on the existing data might be about 2%. Another factor contributing to the weak first-quarter GDP number was harsh winter weather. This is becoming a pattern, with the “seasonally adjusted” Q1 estimates coming in consistently below the other three quarters for the last decade.

Seasonality, Measurement, and First Quarter U.S. GDP - After the latest revisions to U.S. real GDP by the Bureau of Economic Analysis (BEA), the estimate for real GDP growth in the first quarter of 2015, seasonally adjusted at an annual rate, was -0.7%. So, have we entered a recession or what? In answering that question, we can learn something about how GDP is measured, and how seriously we want to take GDP measurement and the interpretation of quarterly real GDP growth rates. Real GDP in the United States since the beginning of 2007 looks like this: If you focus on what's happened since the end of the last recession, in 2009Q2, you'll notice that GDP has not grown in every quarter. So, the average first-quarter growth rate since the end of the recession has been 0.4%, while the average growth rate over that period was 2.2%. This might make you wonder whether there is something funny going on with the seasonal adjustment of the data. The same thought occurred to Glenn Rudebusch et al. at the S.F. Fed, and they showed that, in fact, there is residual seasonality in the real GDP time series. They ran the supposedly-seasonally-adjusted real GDP time series through Census X-12 (a standard statistical seasonal adjustment filter), and came up with an estimate of first-quarter 2015 real GDP growth that was 1.6 percentage points higher than the reported number at the time (before the latest revisions). Apparently the BEA has been made aware of this problem, and is working on it.  Why do we have this problem? In the United States, the collection of economic data is a decentralized activity, conducted by several government agencies. The Bureau of Labor Statistics collects labor market and price data (why the consumer price index is a labor statistic I'm not sure), the Fed collects financial data, the Congressional Budget Office collects data on government activity, and the Census Bureau collects demographic data. Finally, the Bureau of Economic Analysis collects data for the National Income and Product Accounts (NIPA), and international trade statistics. When the BEA constructs an estimate for real GDP, it uses as inputs data that comes from other sources, including (I think) some of the other government statistical agencies listed in the previous paragraph. Some of the data used by the BEA as inputs has been seasonally adjusted before it even gets to the BEA; some has not been adjusted. What the BEA does is to seasonally adjust all the inputs, and then construct a real GDP estimate. It might be surprising to you, as it is to me, that the resulting GDP estimate could exhibit seasonality. But, behold, it does. Maybe somebody can explain this for us.

IMF Cuts U.S. 2015 Economic Growth Forecast to 2.5% - WSJ: —The International Monetary Fund Thursday slashed its forecasts for U.S. economic growth, calling for the Federal Reserve to hold off its first rate increase in nearly a decade until 2016. In its annual review of the U.S. economy, the IMF said a series of negative shocks, including a strong dollar and bad weather, had sapped momentum for job creation and expansion, forcing the fund to downgrade its growth expectations to 2.5% for the year. Its last estimate in April was for a 3.1% expansion. The West Coast port labor dispute and the collapse in oil sector investment amid plummeting energy prices also dragged on growth in the first quarter. Barring upside surprises to growth and inflation, the fund said the weaker outlook means the Fed should defer its rate increase untilthe first half of 2016. Long-term unemployment and high levels of part-time work point to continued slack in the labor market, with wage data showing only tepid growth. The dollar, which has surged against other major currencies in the past year as the U.S. economy strengthened and other central banks revved up their easy-money policies, is damping growth and job creation. The fund said the currency is already “moderately overvalued” and further marked appreciation of the dollar would be harmful to the U.S. economy. Given the “significant uncertainty around inflation prospects, the degree of slack and the neutral policy rate, there is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation,” the fund said.

US hasn’t had a year of 3% growth since 2005 and is suffering worst productivity streak ‘on record outside of a recession’ -- So long Year of Acceleration, it seems. From the IMF (via the WSJ): The International Monetary Fund Thursday slashed its forecasts for U.S. economic growth, calling for the Federal Reserve to hold off its first rate increase in nearly a decade until 2016. In its annual review of the U.S. economy, the IMF said a series of negative shocks, including a strong dollar and bad weather, had sapped momentum for job creation and expansion, forcing the fund to downgrade its growth expectations to 2.5% for the year. Its last estimate in April was for a 3.1% expansion. If the IMF is right, the US will not have had a 3% or higher GDP year since 2005. And while the IMF focus on some “negative shocks,” there continues to evidence — at least in the data as we have it — of something more secular happening. Like this (via the WSJ): U.S. worker productivity fell in the opening months of 2015, underscoring an economic soft patch marked by weak business investment and tepid wage gains. The productivity of nonfarm workers, measured as the output of goods and services per hour worked, decreased at a 3.1% seasonally adjusted annual rate in the first quarter, the Labor Department said Thursday. That was revised down from an initial estimate of a 1.9% slide.. Productivity increased only 0.3% oya in 1Q and was up 0.6% annualized over the past five years—this is the worst five-year run for productivity since the early 1980s and the worst five-year performance on record outside of a recession.” – JPMorgan Here is a more upbeat take on productivity from Goldman Sachs, looking at the GDPmeasurement issue.

The Real Reason The US Economy Simply Won't Grow: Lowest Worker Productivity In 22 Years -- Just under two years ago, when Bank of America's economic team still produced meaningful commentary instead of blaming the growth slowdown on the snow (especially after it said not to blame the growth slowdown on the snow), it pointed out that the real reason the US recovery was aging (this was in the summer of 2013) was the tumble in worked productivity. This is what BofA said then: "what we show below is that, outside of the tech boom in the late 1990s, productivity tends to slow as business expansions mature. Our current 'expansion' is now thoroughly mature." This time, Bank of America was absolutely right. Of note, its commentary took place just as the Fed had launched QE3 in another desperate bid to if not boost the economy, then at least sends stocks to all time highs. It achieved the latter, as for the former, after peaking at 1.2%in Q3 2014, productivity has since crashed. As the chart below shows, according to just released final data by the BLS, in Q1 labor productivity barely rose, growing 0.3% in Q1, following a -0.1% drop in the fourth quarter. Worse, on a sequential basis, productivity dipped by a -0.8% in Q1 (a 3.1% SAAR), after a -0.5% drop (-1.9% SAAR) in Q4.

CBO: Fiscal 2015 Federal Deficit through May about 10% below Last Year - More good news ... the budget deficit in fiscal 2015 will probably be lower than the recent CBO March forecast.From the Congressional Budget Office (CBO) today: Monthly Budget Review for May 2015The federal government ran a budget deficit of $368 billion for the first eight months of fiscal year 2015, CBO estimates. That deficit was $68 billion smaller than the one recorded during the same period last year. Revenues and outlays were both higher than the amounts recorded during the same period in fiscal year 2014—by 9 percent and 4 percent, respectively. If not for shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the eight-month period would have been $33 billion less this year than it was in fiscal year 2014. ... And for May 2015:  The federal government recorded a deficit of $85 billion in May 2015, CBO estimates—$45 billion less than the deficit in May 2014. If not for the effects of timing shifts that occurred in May 2014, the deficit in May 2015 would have been $9 billion (or 10 percent) smaller than it was in the same month last year.The consensus was the deficit for May would be around $97 billion, and it appears the deficit for fiscal 2015 will be smaller than the CBO currently expects (less than 2.7% of GDP).

America's Biggest Secret: Wikileaks Is Raising A $100,000 Reward For Leaks Of The TPP -- If there is one piece of legislation (and in a "democracy", there is no reason why any one law should be fast-tracked through Congress under the shroud of secrecy) that should be passed in complete openness and in full view of the general public, especially by the world's "most transparent organization", it is Obama's Trans-Pacific Partnership, a multi-trillion dollar treaty with 29 classified chapters, which - when not if passed - will have an impact on the vast majority of workers in the US, on their wages and living conditions. And yet, when it comes to the TPP, not only is the text of the legislation under lock and key,but the law's drafters, primarily US corporations, have made it so profoundly secret, that "many of the provisions will not only be secret before the vote in the House, but will also be kept secret for four years after the bill is signed.  That means we won’t know what’s in it even after it’s passed." Curiously, according to Wikileaks, the TPP contains 29 chapters but only 5 pertain to trade. As Red State reports, "Wikileaks will be publishing the entire bill and they have already released the chapter on Investment.  It’s very interesting.  It is written in a such a way as to give multinational companies a huge advantage on trade.  If a public hospital is built close to a private one, the private hospital has the right to sue the country for expected losses." The chapter on investment can be found here. It gets worse: The agreement also regulates the internet and requires internet companies to gather certain data which they will be required to share with certain private companies.  Many of the provisions will not only be secret before the vote in the House, but will also be kept secret for four years after the bill is signed.  That means we won’t know what’s in it even after it’s passed.

TPP: Call ‘Em Out In the House, Now! -- In a previous post, I discussed the likelihood that the Fast-Track bill, if it passed the House, would need to return to the Senate again to align the different bills produced by the two Houses. I focused on the importance of Fast-Track/TPP opponents preparing for that return by building the opposition into a movement exerting continuous pressure on Senators to expand the size of the opposition to the bill in both parties.  I also pointed out that an emerging movement should be emphasizing the governance impact of Fast-Track/TPP on national, state, and local sovereignty, separation of powers, consent of the governed and democracy, more than the many other TPP issues that have emerged. In my view, the governance issues are the winning issues against the Fast-Track/TPP initiative for a number of reasons. This is so because they cut against the beliefs that 1) the people, ought in the final analysis to rule; 2) the independence of the United States is, above all, to be treasured and ought not to be subordinated to corporations and big money; and 3) the United States is an exceptional nation, in part because its governance institutions, with all their warts are still superior to all others on earth. Of course, the Fast-Track bill may never return to the Senate in any form because it may be defeated in the House. So, now I’ll turn to assessing the state of play in that body at this point.

Obama’s Trade Deal Faces Bipartisan Peril in the House -The bruising battle over President Obama’s push for the power to negotiate two potentially far-reaching trade pacts will shift this week to the House, where the White House faces entrenched opposition from Democrats and the stirring of rebellion from the Republicans’ right flank.Advocates of the trade bill from both parties say they are gaining strength since it passed the Senate just before the Memorial Day break. But that 62-to-37 vote — while bipartisan — was not the overwhelming victory House supporters had hoped for.And those advocates concede they do not yet have the votes to hand the White House trade promotion authority, which would allow Mr. Obama to complete the Trans-Pacific Partnership trade accord, knowing Congress could vote for or against it but not amend or filibuster it. (Another trade deal, involving Europe, is also being negotiated but is not expected to be completed until after Mr. Obama leaves office.)Only 17 Democrats out of 188 have come out in favor of so-called fast-track authority — and many of them are being hounded by labor and environmental groups to change their minds. Opponents of the trade deal say just seven Democrats remain truly undecided. Representative Nancy Pelosi of California, the minority leader, who has yet to declare her position, has told House Speaker John A. Boehner of Ohio that he will have to produce 200 Republican votes to win the 217 he needs. In other words, she is not promising a single new convert.

TPP: State of Play in the House -- The Republicans and the Administration still can’t count on the 217 votes needed to pass Fast-Track, according to Politico. There are 245 Republicans and 188 Democrats in the House. Republicans are now “feeling new found optimism that at least 190 of their lawmakers” will support fast-track. So, that leaves 55 Republican opponents. Very near the maximum of 57 that TPP opponents have estimated could vote against it. A few days ago, supporters of the bill reportedly could not count on more than 17 Democrats to vote for it, and no more than 20 after all the maneuvering and politicking has occurred. Today, the number of committed TPP Democrats seems to be 18. So, it appears not much progress has been made toward the 217 votes required to carry the measure, and the pro-TPP forces still have 9 votes to get, provided they don’t lose any of the 18 Democrats, called out publicly by Alan Grayson on June 1st, much to the regret and/or consternation of Steny Hoyer, perhaps the rest of the House leadership, and, at least some of the 18 Democrats called out.  Hoyer has gone so far as to characterize Grayson as “not helpful” when this serious Democrat calls out people in the caucus who are selling out both the Democratic caucus majority and the American people by supporting a deal that clearly betrays the principles of national sovereignty, popular sovereignty, and consent of the governed apart from the damage it is likely to do to jobs, economic equality, net neutrality, the environment, the climate, and progress toward making the United States energy self-sufficient using renewable sources and technologies. By every yardstick one can think of TPP would be a disaster, yet Hoyer has the gall to characterize him as “unhelpful,” a classic bureaucratic epithet used by authorities who won’t engage in real debate of issues but prefers instead to speak from authority using labeling and name-calling against someone who disagrees with him.

Congress Can — and Should — Declassify the TPP -  One of the most controversial aspects of the proposed Trans-Pacific Partnership (TPP) is the fact that the Obama administration has tried to impose a public blockade on the text of the draft agreement. When Congress votes on whether to grant the president “fast-track authority” to negotiate the TPP — which would bar Congress from making any changes to the secret pact after it’s negotiated — it will effectively be a vote to pre-approve the TPP itself. Although the other negotiating countries and “cleared” corporate advisers to the U.S. Trade Representative have access to the draft TPP agreement, the American people haven’t been allowed to see it before Congress votes on fast track. Members of Congress can read the draft agreement under heavy restrictions, but they can’t publicly discuss or consult on what they have read. Keeping the negotiating texts secret isn’t keeping other countries from getting secret knowledge about the U.S. position in negotiations. They already have this information. “It’s the public that are being kept in the dark,” Beatie wrote. Who or what was harmed when WikiLeaks published the TPP chapter on intellectual property claims? Interim texts are published for other important international negotiations — like on climate change. Indeed, interim texts were published on international trade agreements in the past. Seeing the text at the end of the process isn’t good enough, because then it will be too late to change it. Saying that the public doesn’t get to see the text until the end is tantamount to keeping the public out of the process.Unlike the Iran nuclear negotiations, the TPP is about commerce, not “national security.”

What Is the Trans-Pacific Partnership (TPP) Really All About? –Simon Johnson - The Trans-Pacific Partnership (TPP) is a proposed free trade agreement (FTA) between the United States and 11 other countries.  It is comprised of two main parts: reductions in tariffs (and related non-tariff barriers), of the kind typically seen in trade agreements; and new rules for foreign direct investment and intellectual property rights, which have not previously been prominent in FTAs. The new rules part has become controversial.  The case for introducing an investor-state dispute settlement seems less than compelling – this would favor foreign investors over domestic investors, not an idea that sits well with the standard idea of equality before the law (going back at least 800 years) and a direct contradiction to the usual principles of FTAs (emphasizing non-discrimination across types of investors).  As currently formulated, it would also be open to considerable abuse.  And the precise rules under consideration for patent protection appear likely to reduce access to affordable medicines in both our trading partners and potentially also in the United States. As a result, advocates of TPP are now emphasizing the benefits of tariff reductions in terms of boosting US exports.  But the administration’s claims in this regard are greatly exaggerated and the United States Trade Representative (USTR) is unfortunately refusing to fully discuss the broader trade impact, including the precise impact of higher imports into the United States.

We Need Actual Free Trade, Not The TPP -- Brendan Nyhan at The New York Times seems to be under the impression that the Trans Pacific Partnership (TPP) has something to do with free trade. Nyhan writes that the TPP is the latest step in a decades-long trend toward liberalizing trade — a somewhat mysterious development given that many Americans are skeptical of freer trade. But Americans with higher incomes are not so skeptical. They — along with businesses and interest groups that tend to be affiliated with them — are much more likely to support trade liberalization. Nyhan is probably correct that much of the population — especially the part that’s never studied economics — is against the lowering of trade barriers. After all, much of the population is wed to ancient ideas of mercantilism which views trade with foreign countries as a zero-sum game in which anything that benefits foreigners must be harmful to “us.” As Henry Hazlitt wrote with exasperation in Economics in One Lesson, “popular thought ... in everything connected to international relations, [has] not yet caught up with Adam Smith ...” Nyhan is apparently deeply confused, however, since he equates the Trans Pacific Partnership with “trade liberalization.” In fact, the TPP is not about any type of liberalization, but is about centralizing political power. The TPP will further transfer the negotiation and implementation of trade policy into the hands of a small number of global regulators and bureaucrats, while further reducing the prerogatives of Congress and state legislators in the US. Indeed, citizens of all twelve member nations of the TPP will see trade policy become more remote and unknowable thanks to the TPP. And, since trade is but one small part of the agreement, we can expect a further shift toward opaque and authoritarian global decision making on everything from environmental policy to the internet to immigration.  There is no denying that the secret negotiations among unelected elites appointed by TPP members may result in the lowering of trade barriers for selected friends of the global regulators. This cronyist system of rewards and punishments for global favorites, however, should most certainly not be confused with free trade.

Obama's Trade Agenda Rewards U.S. Companies That Profit From Slavery -- President Barack Obama's effort to include Malaysia in a major pending trade pact has baffled human rights advocates, who see it as a reward for a regime with one of the world's worst human trafficking records. But the myriad interests involved in the trade fight include some very large American corporations, which are currently padding their profits with labor costs kept low by modern-day slavery in Malaysia. Major U.S. electronics brands, including Intel, AMD, Apple, Hewlett-Packard, Texas Instruments and Dell, have relied on Malaysian manufacturing for years -- either in their own factories, or through facilities operated by their suppliers. Computer processors, hard drives, smartphone parts and other consumer electronic devices are all part of the slavery system -- more than one-fourth of all workers in the Malaysian electronics industry are victims of forced labor, according to a damning 2014 report commissioned by the U.S. Department of Labor. U.S. companies say that in the wake of that report, they have enacted corporate policies to root out slave labor from their supply chain. While labor experts applaud the formal changes, they also say that actually implementing them is nearly impossible under current Malaysian government policies. And indeed, American firms have relied on Malaysian labor in large part due to its extremely low cost.

Don't Reward Human Traffickers – Senator Menendez - The horrors along the Thai-Malaysian border revealed in the past week have shocked our consciences, and put the scourge of human trafficking at the front of international news. In this most recent revelation, 139 graves were discovered at the site of what was virtually a prison camp run by human traffickers. The scene described in news reports included cages for the human victims, and in one painfully poignant image, a single tiny orange slipper — evidence that children had been among them. As shocking as those stories are, they are not the first reports from Malaysia, from the border it shares with Thailand, or from far too many other locations around the world. The victims in this case are likely to have been Rohingya, fleeing persecution in Burma. But other marginalized and vulnerable people, seeking refuge and employment, fall victim to highly organized criminal operations that have sprung up to prey on them. These criminals extort money for passage, not to freedom or a decent job, but to what turn out to be wretched employment conditions. Some victims are simply kidnapped for ransom. Those whose families cannot pay are disposed of in shallow jungle graves. This reality is why I introduced an amendment to the “fast-track” trade promotion bill that for the first time prohibits expedited, unamendable congressional consideration for any trade deal including the very worst human-trafficking country.

Connecticut liberal battles Obama on trade - Rosa DeLauro has long been a champion of quirky causes, from the risks of arsenic creeping into the nation’s rice supply to the importance of senior aerobics. But over the past two years, DeLauro has shown another facet of her legislative personality, waging a scorched-earth campaign against President Barack Obama’s trade agenda that’s earned praise from fellow liberals but drawn withering fire from the administration and pro-trade business interests. Story Continued Below In the House, the Connecticut liberal has become the de facto leader of Democratic opposition, running a behind-the-scenes whip operation against new fast-track trade powers for the president. So far, her campaign is paying dividends as the White House likely remains a handful of Democratic votes short of what it needs to pass Trade Promotion Authority legislation. And if the trade measure fails in the House — a possibility given continued resistance among Democrats and Republicans — DeLauro will be able to claim the lion’s share of the credit. “We will defeat TPA,” DeLauro said during a recent interview with POLITICO in her Capitol Hill office. “I’m not the only person who has seen job loss and wage depression. That is universal. You have a whole crowd of folks who see that. The secrecy around the issue has been extraordinary. … We want to have congressional input into this process.”

Nancy Pelosi Is Whipping “Almost Daily” for TPP -- Gaius Publius - Why Nancy Pelosi is the White House's secret weapon for the pending Fast Track bill. It looks like this early statement, about which I got some pushback, is proving true. Just as Chuck Schumer was the behind-the-scenes enabler on Fast Track and TPP in the Senate — he voted No but privately organized the Fast Track set of bills so they would pass — Pelosi is the behind-the-scenes enabler of TPP in the House. According to one report (see below), she might even vote No, so long as it passes with votes other than hers. Publicly, Pelosi has said both (a) she’s neutral and (b) she’s seeking a “path to yes.” Sounds like a contradiction, and it sounded so at the time. About her supposed neutrality, here’s the New York Times (my emphasis throughout):  Representative Nancy Pelosi of California, the minority leader, who has yet to declare her position, has told House Speaker John A. Boehner of Ohio that he will have to produce 200 Republican votes to win the 217 he needs. In other words, she is not promising a single new convert.  That’s the spin, and it’s being repeated elsewhere as well. It’s also not true. According to two sources, in private Pelosi is working “almost on a daily basis” to get Fast Track to pass, and with it, TPP. Evidence comes from Greg Sargent at Plumline and from Politico. Let’s start with Sargent and the problems around Fast Track’s associated Trade Assistance bill.

Why WikiLeaks and Unions Want the Pacific-Trade Draft Public - Some secrets are more exciting before they’re revealed. That may be the case for the sweeping Pacific trade agreement the U.S. is negotiating with Japan and 10 other countries in Asia and the Americas. On Tuesday, the anti-secrecy organization WikiLeaks offered to pay $100,000 for a copy of the entire draft agreement, known as the Trans-Pacific Partnership. Meanwhile, a coalition of labor and allied organizations marched across a few blocks in Washington from the headquarters of the AFL-CIO to the office of the U.S. Trade Representative, Michael Froman, to demand that the Obama administration release the draft. Neither WikiLeaks nor the unions are likely to get their wish until the House of Representatives considers so-called fast-track legislation, which would help President Barack Obama and Mr. Froman finish up the TPP and submit it several months later for an up-or-down vote in Congress. “TPP is still being negotiated!” Mr. Obama said last week on Twitter. “But legislation requires the full text for 60 days before I sign. After I sign agreement, Congress will have months of debate before a vote.” Opponents of the deal, ranging from some tea party conservatives to labor unions, are eager to doom the Pacific pact this month in the House. That’s where a large group of Republicans are wary of granting Mr. Obama enhanced international negotiating authority of any kind, whether it’s a trade agreement or a nuclear deal with Iran. The Senate passed fast track, also known as trade promotion authority, last month. The vast majority of House Democrats, led by Reps. Rosa DeLauro (D., Conn.) and Lloyd Doggett (D., Texas) are opposed to fast track and the Pacific deal, which they say would lead to some job losses and do little to raise most workers’ incomes. So the lawmakers are pressing for the publication of the draft text, which would allow them to highlight concerns about provisions ranging from labor rules to the environment and access to affordable medicines.

The Arguments For the TPP and Fast-Track Keep Getting Weaker and More Far-Fetched - Dean Baker -- As Congress gets ready to vote on whether to “fast-track” the Trans-Pacific Partnership (TPP), its proponents are making weaker and more far-fetched arguments for the deal. And they keep getting their facts wrong and their logic twisted. This hit parade of failed arguments should convince any fence sitters that this is a bad deal. After all, you don’t have to make up nonsense to sell a good product. Topping the list of failed arguments was a condescending USA Today editorial from early May. It admonished unions who oppose the TPP because they worry it will cost manufacturing jobs. The newspaper’s editors summarily dismissed this idea, blaming the huge manufacturing job losses in recent years — amid a doubling of manufacturing output — on productivity growth, not imports. The editorial rested its case on Commerce Department data that doesn’t actually measure manufacturing output. The correct data showed a sharp slowdown in the growth of manufacturing compared with the prior decade, when the trade deficit was not exploding. USA Today eventually acknowledged the error, but left the text and the criticism in the editorial unchanged. Remarkably, the headline of the editorial referred to the opposition to the TPP as a “fact-free uproar.”

The Corporate Rule on Trade -- The Transatlantic and Transpacific Trade and Investment Partnerships have nothing to do with free trade. “Free trade” is used as a disguise to hide the power these agreements give to corporations to use law suits to overturn sovereign laws of nations that regulate pollution, food safety, GMOs, and minimum wages.  The first thing to understand is that these so-called “partnerships” are not laws written by Congress. The US Constitution gives Congress the authority to legislate, but these laws are being written without the participation of Congress. The laws are being written by corporations solely in the interest of their power and profit. The office of US Trade Representative was created in order to permit corporations to write law that serves only their interests. This fraud on the Constitution and the people is covered up by calling trade laws “treaties.” Indeed, Congress is not even permitted to know what is in the laws and is limited to the ability to accept or refuse what is handed to Congress for a vote. Normally, Congress accepts, because “so much work has been done” and “free trade will benefit us all.”  The presstitutes have diverted attention from the content of the laws to “fast track.” When Congress votes “fast track,” it means Congress accepts that corporations can write the trade laws without the participation of Congress. Even criticisms of the “partnerships” are a smoke screen. Countries accused of slave labor could be excluded but won’t be. Super patriots complain that US sovereignty is violated by “foreign interests,” but US sovereignty is violated by US corporations. Others claim yet more US jobs will be offshored. In actual fact, the “partnerships” are unnecessary to advance the loss of American jobs as there is nothing that inhibits jobs offshoring now.What the “partnerships” do is to make private corporations immune to the laws of sovereign countries on the grounds that laws of countries adversely impact corporate profits and constitute “restraint of trade.”

WikiLeaks reveals new trade secrets: Highly sensitive details of the negotiations over the little-known Trades in Services Agreement (TiSA) published by WikiLeaks reveals Australia is pushing for extensive international financial deregulation while other proposals could see Australians' personal and financial data freely transferred overseas. The secret trade documents also show Australia could allow an influx of foreign professional workers and see a sharp wind back in the ability of government to regulate qualifications, licensing and technical standards including in relation to health, environment and transport services. In its largest disclosure yet relating to the TiSA negotiations, WikiLeaks has published seventeen documents including draft treaty chapters, memoranda and other texts setting out the overall state of negotiations and individual country positions in a secret bargaining on banking and finance, telecommunications and e-commerce, health, as well as maritime and air transport. The leaked documents were to be kept secret until at least five years after the completion of the TiSA negotiations and entry into force of the trade agreement.

Trade in Services Agreement – Press release - Wikileaks -- WikiLeaks releases today 17 secret documents from the ongoing TISA (Trade In Services Agreement) negotiations which cover the United States, the European Union and 23 other countries including Turkey, Mexico, Canada, Australia, Pakistan, Taiwan & Israel -- which together comprise two-thirds of global GDP. "Services" now account for nearly 80 per cent of the US and EU economies and even in developing countries like Pakistan account for 53 per cent of the economy. While the proposed Trans-Pacific Partnership (TPP) has become well known in recent months in the United States, the TISA is the larger component of the strategic TPP-TISA-TTIP 'T-treaty trinity'. All parts of the trinity notably exclude the 'BRICS' countries of Brazil, Russia, India, China and South Africa. The release coincides with TISA meetings at the ministerial level at the OECD in Paris today (3–5 June). The 'T-treaty trinity' of TPP-TISA-TTIP is also under consideration for collective 'Fast-Track' authority in Congress this month. The TISA release today follows the WikiLeaks publication of the secret draft financial services annex of the TISA negotiations on 19 June 2014 showing the aim to further deregulate the financial sector, despite widespread consensus that lack of oversight and regulation was the main cause of the last global financial crisis of 2008. Today's release confirms the ongoing determination to deregulate. Furthermore, standstill clauses will tie the hands of future governments to implement changes in response to changing environment. Today's release is the largest on secret TISA documents and covers numerous previously undisclosed areas. It contains drafts and annexes on issues such as air traffic, maritime, professional services, e-commerce, delivery services, transparency, domestic regulation, as well as several document on the positions of negotiating parties. WikiLeaks has also published detailed expert analysis of the topics covered in today's release.

WikiLeaks releases secret TISA docs: The more evil sibling of TTIP and TPP --  WikiLeaks has released 17 secret documents from the negotiations of the global Trade in Services Agreement (TISA), which have been taking place behind closed doors, largely unnoticed, since 2013. The main participants are the United States, the European Union, and 23 other countries including Turkey, Mexico, Canada, Australia, Pakistan, Taiwan and Israel, which together comprise two-thirds of global GDP.  The 17 documents released today include drafts and annexes on issues such as air traffic, maritime transport, professional services, e-commerce, delivery services, transparency, and domestic regulation, as well as several documents on the positions of negotiating parties. The annexe on e-commerce is likely to be of particular interest to Ars readers, since, if adopted, it would have a major impact on several extremely sensitive areas in the digital realm. For example, the question of data flows—specifically the flow of European citizens' personal data to the US—is at the heart of disputes over the EU's proposed Data Retention rules, the Safe Harbour agreement, and TTIP. Here's what Article 2.1 of TISA's e-commerce annexe would impose upon its signatories: "No Party may prevent a service supplier of another Party from transferring, [accessing, processing or storing] information, including personal information, within or outside the Party’s territory, where such activity is carried out in connection with the conduct of the service supplier’s business." What that means in practice, is that the EU would be forbidden from requiring that US companies like Google or Facebook keep the personal data of European citizens within the EU—one of the ideas currently being floated in Germany. Article 9.1 imposes a more general ban on requiring companies to locate some of their computing facilities in a territory: "No Party may require a service supplier, as a condition for supplying a service or investing in its territory, to: (a) use computing facilities located in the Party’s territory."

The Volcker Rule Doesn’t Violate NAFTA -- This one is for the Finance Minister of Canada, Joe Oliver. He erroneously claims that the Volcker rule, implemented as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, violates The North American Free Trade Agreement (NAFTA), signed into law on December 8, 1993. Oliver says that the Volcker Rule prohibits US banks from trading AAA rated Canadian Government debt thereby violating free trade under NAFTA. The US government has denied any such violation. I think the US Government has the better of this one. And it’s interesting to consider why this is true. According to our fundamental legal document, the Constitution of the United States, NAFTA isn’t a treaty concluded by the United States with Canada and Mexico. Instead it is what is known as a Congressional-Executive Agreement (CEA). The difference between such an agreement and a treaty, is that a CEA requires presidential approval and plurality votes in both Houses of Congress legislating the agreement; while a treaty requires presidential submission of a negotiated agreement to the Senate for ratification by 2/3 of that body.  Another difference is that a treaty takes precedence over mere laws. It is subordinate only to the provisions of the Constitution itself. In contrast, Congressional-Executive Agreements have no explicit status in the Constitution and amount to no more than new legislation passing the Congress and signed by the President, superceding previous laws when in conflict with them, and being superceded by laws conflicting with them that are passed after the Congressional-Executive Agreement was.

Goldman lawyer becomes SEC chief of staff  — The Securities and Exchange Commission confirmed Thursday that it hired a managing director of Wall Street titan Goldman Sachs Inc. to serve as chief of staff, prompting critics to decry a revolving door that links the corridors of finance and power.Chairman Mary Jo White has hired Andrew “Buddy” Donohue, the SEC said in a news release, tapping the influential Wall Streeter to become chief of staff of the agency in charge of protecting investors. He’ll serve as a senior adviser to White on policy, management, and regulatory issues.Most recently, Donohue worked as a managing director and associate general counsel at Goldman Sachs. Previously, he led the SEC's Investment Management Division between May 2006 and November 2010, spanning two administrations and the worst financial crisis since the Great Depression.“I am thrilled that Buddy will be returning to the SEC to provide his extensive knowledge and expertise to the agency,” said SEC chief White said in a statement. “Buddy is a seasoned professional whose previous SEC and private sector experience will be invaluable in advancing all aspects of the agency’s mission.”White said Donohue’s background will be “especially useful” as the commission advances new rules for risk management and weighs a uniform fiduciary standard for the investment community.

Crony capitalism is crippling the economy - Robert Reich - When corporations get special handouts from the government – subsidies and tax breaks – it costs you. It means you have to pay more in taxes to make up for these hidden expenses. And government has less money for good schools and roads, Medicare and national defense, and everything else you need. You might call these special corporate handouts “corporate welfare,” but at least welfare goes to real people in need. In the big picture, corporate handouts are costing tens of billions of dollars a year. Some estimates put it over $100 billion – which means it’s costing you money that would otherwise go to better schools or roads, or lower taxes. Conservatives have made a game of obscuring where federal spending actually goes. In reality, only about 12 percent of federal spending goes to individuals and families, most in dire need. An increasing portion goes to corporate welfare. The oil, gas, and coal industries get billions in their own special tax breaks. Big Agribusiness gets farm subsides. Big Pharma gets their own subsidy in the form of a ban on government using its bargaining power under Medicare to negotiate lower drug prices. And hedge-fund and private-equity managers get a special tax loophole that treats their income as capital gains, at a lower tax rate than ordinary income.The real issue isn’t the government’s size. It’s whom government is for. Much of government is no longer working for the vast majority it’s intended to serve. If government were responding to the public’s interest instead of the moneyed interests, it would be providing more support for communities, families, and individuals who need it the most.

Raise the Estate Tax on Very Rich - Robert Reich -- At a time of historic economic inequality, it should be a no-brainer to raise a tax on inherited wealth for the very rich. Yet there’s a move among some members of Congress to abolish it altogether. If you’re as horrified at the prospect of abolishing the estate tax as I am, I hope you’ll watch and share the accompanying video. Today the estate tax reaches only the richest two-tenths of one percent, and applies only to dollars in excess of $10.86 million for married couples or $5.43 million for individuals. That means if a couple leaves to their heirs $10,860,001, they now pay the estate tax on $1. The current estate tax rate is 40%, so that would be 40 cents. Yet according to these members of Congress, that’s still too much. Abolishing the estate tax would give each of the wealthiest two-tenths of 1 percent of American households an average tax cut of $3 million, and the 318 largest estates would get an average tax cut of $20 million. It would also reduce tax revenues by $269 billion over ten years. The result would be either larger federal deficits or higher taxes on the rest of us to fill the gap. This is nuts. The richest 1 percent of Americans now have 42 percent of the nation’s entire wealth, while the bottom 90 percent has just 23 percent. That’s the greatest concentration of wealth at the top than at any time since the Gilded Age of the 1890s. Instead of eliminating the tax on inherited wealth, we should increase it – back to the level it was in the late 1990s. The economy did wonderfully well in the late 1990s, by the way. Adjusted for inflation, the estate tax restored to its level in 1998 would begin to touch estates valued at $1,748,000 per couple. That would yield approximately $448 billion over the next ten years – way more than enough to finance ten years of universal preschool and two free years of community college for all eligible students.

How a Carried Interest Tax Could Raise $180 Billion - When Hillary Rodham Clinton opened her campaign for the Democratic presidential nomination in Iowa, the first substantive issue she raised was a safe one: carried interest. “There’s something wrong when hedge fund managers pay lower tax rates than nurses or the truckers that I saw on I-80 as I was driving here,” she said.President Obama also raised the issue at a recent forum on inequality, calling fund managers our society’s “lottery winners.” Taxing carried interest at a low rate is, for many of us, a simple issue of fairness. The richest among us should not pay tax at a low rate on labor income.Private equity moguls and other defenders of the status quo object to the characterization of carried interest as labor income. But they also argue that there just isn’t that much money at stake.Taxing carried interest at ordinary income rates would raise about $18 billion over 10 years, according to a Treasury estimate of President Obama’s recent budget proposal. The Joint Committee on Taxation, which scores congressional legislation, has made similar estimates in the past.One or two billion dollars a year is more than most of us can find in between the seat cushions. It would roughly double what Congress gives the I.R.S. to spend on information technology. Still, the number is small enough that it makes raising the issue seem petty and vindictive. Referring to carried interest has become a badge of solidarity, a touchstone for measuring class allegiances.We should not overlook the substance of the issue. By my calculations, the government’s estimate is low by an order of magnitude. Taxing carried interest at ordinary rates would generate about $180 billion in revenue over 10 years.

Even Affluent American Strongly Support Higher Taxes on the Rich --  Via Steve Benen and Greg Sargent. The Washington Post/ABC News pollsters asked “Do you think the federal government should or should not pursue policies that try to reduce the gap between wealthy and less well-off Americans?”. 62% of respondents answered yes. This should be very unsurprising as it is roughly the same as the fraction who have been telling Gallup that high income people pay less than their fair of taxes for two decades now. It is also similar to the number who support higher taxes on high incomes to pay for the ACA and (in another poll) to prevent exaustion of the social security trust fund. I have been, partly ironically, referring to this solid majority opinion as “class war” but Benen mentioned something which tends to unermine the class war interpretation/joke What’s more, support for action in this area is quite broad. A majority of Americans regardless of race, for example, support actions to reduce the wealth gap. A majority of Americans regardless of age agree. Indeed, across the board – gender, level of education, household income, geographic region – there’s a broad consensus that this is an issue worthy of national action. Wait a majority in the highest income sub group (income over $100 thousand a year) answered yes ? That sure doesn’t sound like class war does it ?

Elizabeth Warren Declares War on SEC Chairman Mary Jo White  -- Yves Smith - Elizabeth Warren just put SEC Chairman Mary Jo White firmly in her crosshairs. White is a deserving target. After being approved based on the promise that she’d reinvigorate a diminished agency via her chops as a former highly respected Federal prosecutor, White instead had specialized in empty promises, foot dragging and financial services cronyism. While these are sadly too common in senior regulatory circles most incumbents do far better than White in presenting a plausible veneer of serving the public interest. By contrast, White’s performance has been so remiss that a fellow Democratic party commissioner, Kara Stein, has gone into open opposition against her, and is regularly joined by the other Democrat commissioner, Luis Aguilar.  Warren’s letter comes a mere week after another missive calling out White’s dereliction at duty, when three former SEC commissioners blasted White for failing to to move forward on long-overdue rulemaking to require public companies to disclose their political spending.  Warren’s letter is much broader and more damning. It includes the failure to create the long-promised political donations rules and gives a detailed recap of all the times White has given a time estimate as to when they’d be completed, merely to have White promise yet another clearly meaningless due date. Oh, and White had the bad judgment to tell Warren that they’d be done by the fall of this year, only to have the OMB publish the very same day that the SEC had told them they’d be done in April 2016. Warren also blasts White for her pathetic record of getting settlements without admissions of wrongdoing, after promising to change the agency’s course, of failing to restrict the issuance of waivers for companies that have broken securities law (a major target of Stein and Aguilar) and White having to rescue herself almost routinely due to her history as a Wall Street defense attorney and her husband being a senior partner at Cravath. And mind you, Warren doesn’t even get to other widely-criticized White decisions, like her not taking action on high-frequency trading by punting the matter over to further study, or hiring a former Goldman employee to be her chief of staff.

After Hey Hey, Ho, Ho, Mary Jo It's Time to Go -- Senator Warren has written a pretty stinging rebuke of the ineffectiveness of Mary Jo White as SEC Chair. The take-away from Senator Warren's letter is that it's time for MJW to go: the SEC needs new and effective leadership. The SEC was asleep at the switch during the lead-up to the financial crisis and its post-crisis performance has been less than impressive. In a target-rich environment, the SEC has not notched any major enforcement wins and its rulemaking has been milquetoast (and in many cases continues to be delinquent, five years after Dodd-Frank required the rules). The SEC has also been unwilling to seriously discipline large financial institutions, creating a double standard in which insider traders and boiler room operators are treated much harsher than recidivist institutions.    I don't know if MJW will be out the door in a month or if she'll tough it out until the next administration. But I think it's useful to ask why things went so wrong with MJW and how not to repeat the mistake of her appointment.   My view is that MJW had entirely the wrong background to be running the SEC. MJW's background was as a litigator:  a US Attorney and defense counsel at Debevoise Plimpton. She's got impressive litigation chops.  The SEC Chair, however, is not a litigation position. It's a policy and administrative position. The SEC Chair doesn't run litigation and cannot single-handedly direct litigation. The SEC in general does a lot more than litigation, including rulemaking and oversight. It's ambit extends far beyond the stupid, but headline grabbing insider trading cases and reaches into much more important things like regulation of rating agencies and safety-and-soundness issues with clearinghouses and broker-dealers.  So why would a litigation resume be what we want in an SEC Chair?  Many of the most important issues before the SEC never end up in litigation. In fact, the stuff that gets litigated is often the more minor stuff, like prosecution of penny stock frauds.

Goldman Sachs Is Questioning Record Stock Buybacks: American companies in April 2015 announced plans to buyback $133 billion of their own shares, a move that one Goldman Sachs analyst is calling a “questionable use of cash.” Stock buybacks can be troublesome because companies often initiate them as a signal that shares are undervalued and that there is nothing else they want to do with the money being held by their investors. In a letter to clients, Goldman Sachs equity strategist David Kostin says this spending is happening at a time when stocks are very expensive. Kostin forecasts that buyback spending will likely surpass $600 billion this year for a total of nearly 30% of total cash spending. Here’s what Kostin had to say in his letter to investors: We recognize activist investors often agitate for firms to return excess cash to shareholders via buybacks. However, while repurchases may lift share prices in the near term, they are a questionable use of cash at the current time when the median S&P 500 multiple is so high. In our view, acquisitions – particularly in the form of stock deals – represent a more compelling strategic use of cash than buybacks given the current stretched valuation of US equities.

Wolf Richter: Last Two Times This Happened, Stocks Crashed  - Global growth is languishing, corporate revenues too, but CEOs are trying to show they can grow their companies the quick and easy way. Cheap debt is sloshing through the system while yield-hungry investors offer their first-born to earn 5%. And this cheap debt along with vertigo-inducing stock valuations have created the largest M&A boom the US has ever seen, with May setting an all-time record.There may be a sense of desperation among CEOs as the Fed’s cacophony evokes interest rate increases, the first since July 2006. So companies are issuing all kinds of cheap debt while they still can. Bond issuance has totaled over $100 billion per month in the US for the past four months, the longest such streak ever, according to Bank of America Merrill Lynch. And that record issuance doesn’t account for the booming “reverse Yankee issuance,” where US corporations take advantage of the negative-yield absurdity Draghi has concocted in Europe and issue euro-denominated bonds into European markets. “Issuers should realize that the window to lock in low long-term yields for any purpose is closing,” Hans Mikkelsen, a senior strategist at BofA, wrote in a note, according to the Financial Times. And so in May, M&A deals hit an all-time record of $243 billion.

Bank Of America Says Investors Are Victims of ‘Stockholm Syndrome’: When we think of ‘Stockholm Syndrome” our thoughts often focus on someone being taken hostage and eventually sympathizing with their captor. Bank of America Merrill Lynch thinks that very same scenario is now happening to investors. According to BOAML, the captor is the Central Bank. The bank’s European Equity Strategy has issued a note saying investors are facing a “lose-lose” situation by piling into stocks. The note mentions that global shares are up 5% in 2015 as investors push risk to the side in the ultimate hopes of achieving major gains. In comparison, the more secure bond market is down 3%. According to BOAML’s report, investors believe central banks are pumping enough money into economies around the world, thus keeping their best interests in play. BOAML’s chief investment strategist, Michael Hartnett, says investors shouldn’t be so quick to put much of their faith in central bankers and urges investors to take more caution. He calls the situation a “lose-lose” scenario for bankers and central banks.

Banks assess exposure to energy sector as low oil, gas prices pose risk to loans -  Banks are bracing for deteriorating loans made to energy companies that have suffered losses amid months of low oil and gas prices, according to the Federal Reserve Bank’s most recent survey of loan officers. Bankers said in the survey that they expected oil and gas customers to have greater trouble meeting the terms of their loans. Some have stepped up oversight and monitoring of those borrowers and, in some cases, reined in lines of credit. Financial institutions in the Marcellus and Utica shale regions stand to be affected, as many banks have some exposure to the natural gas sector, said Jenni Frazer, an assistant vice president and deputy regional officer of the Federal Reserve Bank of Cleveland’s Cincinnati office. No one is sounding any alarms, Frazer said, but regulators are urging banks to dig deep into their loan books and make sure they understand their exposure to the industry. “Banks should understand this aspect of their portfolio just like they should understand any aspect of their portfolio,” Frazer said. “Make sure they have strong risk management practices in place and make sure they understand where the weaknesses lie.” Increased shale production and low demand have driven a glut of oil and gas that have pushed prices of both commodities to multi-year lows this year. Energy companies have responded by seeking price cuts from suppliers and service companies, as well as cutting back capital spending and laying off workers.

May 2015: Unofficial Problem Bank list declines to 324 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for May 2015. . During the month, the list fell from 342 institutions to 324 after 17 removals. Assets dropped by $13.9 billion to an aggregate $91.2 billion. Asset figures were updated during the month with the release of q1 financials, which added $2.2 billion. A year ago, the list held 496 institutions with assets of $154.1 billion. This past Wednesday, the FDIC released industry results for the first quarter of 2015 and an update on the Official Problem Bank List. The FDIC said the official list had fallen from 291 to 253 institutions and that assets had dropped from $86.7 billion to $60.3 billion. Thus, the institutions count fell by 13.1 percent and assets declined by 30.4 percent. The official list peaked at 888 institutions with assets of $397 billion, so it is not surprising to see the official list continuing to decline. However, what is surprising is the pace of the decline this quarter in the institution count and assets, which are at their fastest quarterly rate since the official list peaked. It is a challenge to identify how problem bank assets declined by $26.4 billion during the first quarter. Perhaps the FDIC pre-maturely included the $12.4 billion from the action termination in May against FirstBank Puerto Rico.

Justice Department Readies New Bank Settlements - WSJ: Up to nine banks are in line for the next round of billion-dollar payments related to soured mortgages as federal and state officials prepare their next set of cases, people familiar with the matter said. The Justice Department and state officials, which already have reaped almost $37 billion from the largest U.S. banks, are now targeting U.S. and European banks. Settlements with Goldman Sachs Group Inc. GS 0.76 % and Morgan Stanley MS 1.52 % could be finalized as early as late June, these people said. The settlements relate to securities backed by residential mortgages that plunged in value during the financial crisis. Banks are expected to pay from a few hundred million dollars to $2 billion or $3 billion each, depending on their size and the level of misconduct they allegedly employed in arranging the securities, some of these people said. The deals, which are expected to come individually rather than as a group, are likely to stretch out over months as details are worked out, these people said. Negotiations with most banks are still in early stages, these people said. The new parade would follow the pacts relating to residential mortgage-backed securities that the nation’s three largest banks by assets— J.P. Morgan Chase JPM 1.64 % & Co., Citigroup Inc. C 1.64 % and Bank of America Corp. BAC 2.44 % —paid between late 2013 and summer 2014. In those cases, the government accused the banks of selling shoddy mortgage securities to investors without fully disclosing their quality.

Justices Curb Bankruptcy Filers’ Ability to Have Second Mortgages Canceled -- Handing banks a victory, the Supreme Court ruled that financially struggling homeowners who file for bankruptcy may not expect to have their second mortgage loans canceled, even if they owe more on their homes than the properties are worth. In a unanimous decision on Monday, the court determined that second mortgages may not be “stripped off,” or voided, if the property is underwater, or worth less than the mortgage debt. The ruling keeps intact a major protection for mortgage lenders, which extended tens of billions of dollars of second mortgages during the housing boom on homes that are now worth much less than their values when they were purchased. It also closes a legal avenue for homeowners with limited incomes and overwhelming debt to shed their underwater properties, bankruptcy lawyers say.The ruling, written by Justice Clarence Thomas, stems from Chapter 7 bankruptcy cases filed in 2013 by homeowners who sought to strip off their second mortgages. One of the homeowners, David B. Caulkett, owed a first mortgage totaling $183,264 at the time of his bankruptcy filing, but his Florida home was valued at $98,000. The lender for Mr. Caulkett’s first mortgage could have expected to recover part of the loan by selling the home, since the house was considered collateral for the loan. But his lawyer argued that his home was so far underwater that the $47,855 second mortgage he took out from Bank or America was essentially unsecured, and thus should be stripped off as part of his bankruptcy filing.

Where the Housing Crisis Continues - FOR many Americans, the housing crisis is a distant memory. That includes the Supreme Court, which on Monday refusedto help out struggling homeowners with second mortgages, ruling that they could not get out from under those mortgages by filing for bankruptcy protection under Chapter 7.  But for many lower-income Americans, the housing bust of 2008 was just a prelude to a new crisis. In many areas, housing prices are stuck below their inflated pre-bubble levels. Until we deal with this fact, entire communities will continue to struggle with high foreclosure rates and a lack of economic mobility.The problem is rooted in a consequence of the post-2008 return to sane mortgage underwriting practices. Loan officers are no longer handing out mortgages left and right, but instead are tying them to borrowers’ income. As a result, housing prices can rise only if incomes rise, or if people can spend a greater share of their income on housing.  However, the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth, according to government data. Meanwhile, real wages for most Americans have been flat or falling for decades. Absent an extraordinary increase in income for low-income families, home prices in low-income areas aren’t going anywhere.This disparity between high- and low-income neighborhoods is evident in the numbers. The Standard & Poor’s/Case-Shiller National Home Price Index for March was over the March 2004 index, and national median home prices, according to the real estate website Zillow, are just over what they were 10 years ago.

Racial Penalties in Baltimore Mortgages -- The mortgage crisis that brought the economy to its knees seven years ago was especially devastating for black communities, where homeowners who qualified for safe, traditional mortgages were often steered into ruinously priced loans that paid off handsomely for brokers and lenders while leaving borrowers vulnerable to foreclosure. The crisis left many middle-class minority communities strewn with abandoned houses, further widening the already huge wealth gap between African-Americans and whites. A study published this month in the journal Social Problems lays out how this happened in Baltimore in the run-up to the recession and comes at a time when the banking industry and its friends in Congress are fighting proposed federal rules that would make it much easier to ferret out discrimination and enforce fair-lending laws. The research, by the sociologists Jacob Rugh, Len Albright and Douglas Massey, focuses on 3,027 loans made in Baltimore from 2000 to 2008 by Wells Fargo, which in 2012 agreed to pay $175 million to settle allegations of predatory lending in Baltimore and elsewhere. The study takes into account credit scores, income, down payments — all of the information that was available to brokers and lenders when these loans were made. It found that black borrowers in Baltimore, especially those who lived in black neighborhoods, were charged higher rates and were disadvantaged at every point in the borrowing process compared with similarly situated whites. Had black borrowers been treated the same as white borrowers, the authors say, their loan default rate would have been considerably lower. Instead, discrimination harmed individuals and entire neighborhoods. Over the life of a 30-year loan, the researchers say, these racial disparities would cost the average black borrower an extra $14,904 — and $15,948 for the average black borrower living in a black neighborhood — as compared with white borrowers. That money might otherwise have been put into savings, invested in children’s education, or used to improve health or living standards.

More older Americans are being buried by housing debt -  Of all the financial threats facing Americans of retirement age - outliving savings, falling for scams, paying for long-term care - housing isn't supposed to be one. But after a home-price collapse, the worst recession since the 1930s and some calamitous decisions to turn homes into cash machines, millions of them are straining to make house payments. The consequences can be severe. Retirees who use retirement money to pay housing costs can face disaster if their health deteriorates or their savings run short. They're more likely to need help from the government, charities or their children. Or they must keep working deep into retirement. "It's a big problem coming off the housing bubble," says Cary Sternberg, who advises seniors on housing issues in The Villages, a Florida retirement community. "A growing number of seniors are struggling with what to do about their home and their mortgage and their retirement." The baby boom generation was already facing a retirement crunch: Over the past two decades, employers have largely eliminated traditional pensions, forcing workers to manage their retirement savings. Many boomers didn't save enough, invested badly or raided their retirement accounts.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Index up 14% YoY  - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 7.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 29, 2015. This week’s results include an adjustment to account for the Memorial Day holiday. ... The Refinance Index decreased 12 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 14 percent compared with the previous week and was 14 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.02 percent from 4.07 percent, with points decreasing to 0.33 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.The first graph shows the refinance index. 2014 was the lowest year for refinance activity since year 2000. It would take much lower rates - below 3.5% - to see a significant refinance boom this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 14% higher than a year ago.

CoreLogic: House Prices up 6.8% Year-over-year in April 0 The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports National Homes Prices Rose by 6.8 Percent Year Over Year in April 2015 CoreLogic® ... today released its April 2015 CoreLogic Home Price Index (HPI®) which shows that home prices nationwide, including distressed sales, increased by 6.8 percent in April 2015 compared with April 2014. This change represents 38 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased by 2.7 percent in April 2015 compared with March 2015. Including distressed sales, 30 states plus the District of Columbia were at or within 10 percent of their peak prices in April. Eight states and the District of Columbia reached new price peaks not experienced since January 1976 when the CoreLogic HPI started. These states include Alaska, Colorado, Nebraska, New York, Oklahoma, Tennessee, Texas and Wyoming.  Excluding distressed sales, home prices increased by 6.8 percent in April 2015 compared with April 2014 and increased by 2.3 percent month over month compared with March 2015. ... “For the first four months of 2015, home sales were up 9 percent compared to the same period a year ago,” . “One byproduct of the increased sales activity is rising house prices, and, as a result, month-over-month home prices are up almost 3 percent for April 2015 and up more than 6 percent from a year ago.” This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 2.7% in April (NSA), and is up 6.8% over the last year. This index is not seasonally adjusted, and this was a solid month-to-month increase. The second graph is from CoreLogic. The year-over-year comparison has been positive for thirty eight consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

RealtyTrac: Average down payment falls to three-year low -- The average down payment for single-family homes, condos and townhomes purchased in the first quarter fell to 14.8% of the purchase price, a slight dip from 15.2% the previous quarter and 15.5% a year ago, RealtyTrac’s first quarter 2015 Home Purchase Down Payment Report said. This is the lowest level since the first quarter of 2012. Translated into dollars, the average down payment was $57,710 in the first quarter, up marginally from $57,618 the previous quarter and down from $57,992 the first quarter of 2014. “Down payment trends in the first quarter indicate that first time homebuyers are finally starting to come out of the woodwork, albeit it gradually,” said Daren Blomquist, vice president at RealtyTrac. “New low down payment loan programs recently introduced by Fannie Mae and Freddie Mac, along with the lower insurance premiums for FHA loans that took effect at the end of January are helping, given that first time homebuyers typically aren’t able to pony up large down payments,” he continued. At the  end of last year, both government-sponsored enterprises announced their individual 97% loan-to-value products, in the government’s latest attempt to expand the credit box for first-time homeowners.    The average down payment for FHA purchase loans originated in the first quarter was 2.9% of the purchase price while the average down payment for conventional loans was 18.4% of the purchase price.

The Improving State of the U.S. Housing Market: April 2015 saw the median sale prices of new homes in the U.S. continue the upward trajectory they've been on since January 2014. Our first chart below indicates that if the trailing twelve month average of those prices are presently rising at an average rate of $11.66 for every $1 increase that is being recorded in the median household income of Americans. That's about half the rate of increase that was seen during the main inflation phases of the first and second U.S. housing bubbles, and about three times the rate that we've typically observed outside those periods of time. Our second chart shows the long term picture. Essentially, housing prices are continuing to rise because shortage conditions have developed and are continuing in the U.S. housing market. Those shortages were most acutely felt during the main inflation phase of what we've described as the second U.S. housing bubble, as investors flooded into the market and bought up large numbers of new and existing homes at very favorable terms. Since July 2013 however, that activity has substantially slowed, but not so much that housing prices are not continuing to rise at an elevated pace.

Lawler: Characteristics Homes Built in 2014; Construction of “Moderately-Sized” SF Homes Remained Low in 2014. - From Housing economist Tom Lawler:  Earlier this week the Census Bureau released its annual report on the Characteristics of New Housing Units Completed/Sold for 2014. The report, based on data collected from the Survey of Construction, includes (among a lot of other things) estimates for the number of housing units completed or sold by square feet of floor area, number of bath rooms, and number of bedrooms. On the single-family home front, one of the most striking statistics for the last few years (including 2014) is the incredibly small number of moderately-sized (and priced) homes built. Here is a table from the report showing the number of single-family homes completed by square feet of floor area from 1999 to 2014. Compared to 2000, the number of single-family homes completed in 2014 was down by 50%. The number of homes completed in 2014 with square footage below 1,800 was down by a staggering 70%, while the number of homes completed with square footage of 4,000 or more last year was unchanged from 2000! And the number of single family homes completed with square footage below 1,800 last year showed no increase from 2013’s record low.

Construction Spending increased 2.2% in April  -- Earlier today, the Census Bureau reported that overall construction spending increased in April: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2015 was estimated at a seasonally adjusted annual rate of $1,006.1 billion, 2.2 percent above the revised March estimate of $984.0 billion. The April figure is 4.8 percent above the April 2014 estimate of $960.3 billion. Both Private and public spending increased:  Spending on private construction was at a seasonally adjusted annual rate of $725.2 billion, 1.8 percent above the revised March estimate of $712.1 billion. ...  In April, the estimated seasonally adjusted annual rate of public construction spending was $280.9 billion, 3.3 percent above the revised March estimate of $271.9 billion. Non-residential for offices and hotels is generally increasing, but spending for oil and gas has been declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.  As an example, construction spending for private lodging is up 20% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 31% year-over-year. This graph shows private residential and nonresidential construction spending, and public spending, since 1993. . Private residential spending has been moving sideways recently, and is 48% below the bubble peak.The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is down 2%. Non-residential spending is up 13% year-over-year. Public spending is up 3% year-over-year.

Hotels: Best April Ever -- It looks like 2015 will be the best year ever for hotels (record occupancy and RevPAR). It also looks like we are starting to see a pickup in supply growth (more rooms coming online). Most supply - in reaction to record demand - will eventually slow RevPAR growth, but will boost the economy by creating jobs. Some interesting numbers from Jan Freitag at Annualized occupancy at new high: April had the highest occupancy ever (66.8%) and the highest room demand (99.4 million rooms) ever. This pushed annualized occupancy (measured as a 12-month moving average) up to 65%. What does this mean? All key performance indicators (rooms available, rooms sold, revenue, average daily rate, occupancy and revenue per available room) are still at all-time highs....Demand was 3 million rooms higher than last year, and supply was only 1.7 million roomnights higher. Ultimately that will change and the industry will sell less new rooms than build new rooms, but we do not expect that to happen until 2017. This is the third consecutive month of +0.1% supply growth Supply growth hit 1.2% during the month. This is finally the acceleration of supply growth that we have been predicting after a slow 2014. Clearly there is momentum in the pipeline and the supply growth.

U.S. Consumer Debt Grows in April as Credit-Card Use Surges -  Americans’ debt grew in April as credit-card use surged, a sign of a rebound in consumer spending after a sluggish winter. Outstanding consumer credit—reflecting Americans’ total debt outside of mortgages—rose by a seasonally adjusted $20.54 billion in April, or at a 7.33% annual rate, the Federal Reserve said Friday. Debt jumped 7.66% in March. Economists surveyed by The Wall Street Journal had expected consumer debt to rise $16 billion in April. The latest increase reflected a sharp rise in revolving credit, reflecting mostly credit-card debt, which increased at an 11.57% annual rate. That marked the second-biggest jump since the recession ended nearly six years ago. Meanwhile, borrowing for cars and education grew at the slowest pace since July 2012. That category–so-called nonrevolving credit—expanded at a 5.8% rate in April after growing 8.05% in March. Consumer spending accounts for more than two-thirds of economic output in the U.S. When consumers rein in spending, as they did in the first three months of the year, the economy typically slows. Economists typically see a pickup in consumer debt as a sign Americans are gaining confidence and feel more secure. But the growth could also be a sign money is tight for many households and they have few other options than to borrow.

Consumer borrowing in US increased $20.5 billion in April - Consumer borrowing in the U.S. rose more than forecast in April, boosted by the biggest increase in revolving credit in a year. The $20.5 billion advance in total borrowing followed a $21.3 billion gain in the prior month that was larger than previously estimated, Federal Reserve figures showed Friday in Washington. Non-revolving credit, which includes student and automobile loans, increased at a slower pace. The report signals Americans are becoming more willing to use their credit cards and borrow for large-ticket purchases as interest rates stay low and rising home and stock values bolster household finances. An improving job market also will sustain growth in consumer spending, which accounts for almost 70 percent of the economy. The median forecast of 33 economists surveyed by Bloomberg called for a $16 billion rise in consumer borrowing. Estimates ranged from gains of $15 billion to $24 billion after a previously reported March advance of $20.5 billion. The Fed's report doesn't track debt secured by real estate, such as home equity lines of credit and home mortgages. Revolving debt, which includes credit cards, rose by $8.6 billion in April after a $4.9 billion advance. Non-revolving debt, such as that for college tuition and the purchase of vehicles and mobile homes, climbed $11.9 billion, the smallest gain since November 2013.

Personal Income and Outlays June 1, 2015: The consumer started off the second quarter slowly, putting income into savings and not spending. Consumer spending was unchanged in April with deep declines in spending on both durable and nondurable goods, down 0.7 percent and down 0.5 percent respectively, offset by another incremental increase in spending on services of plus 0.2 percent. Personal income, boosted by rents and dividends, rose a solid 0.4 percent though the gain for wages & salaries was less strong at 0.2 percent. The savings rate rose 4 tenths in the month to 5.6 percent. Inflation readings are very tame with the price index unchanged in the month and the core up only 0.1 percent. The core rate, unlike April's 1.8 percent core reading for the CPI where weightings on housing and medical costs are greater, is showing less pressure, down slightly to 1.2 percent. Overall prices are barely up at all year-on-year, at plus 0.1 percent. The April retail sales report first signaled trouble for second-quarter spending that today's report confirms. The consumer, the economy's bread-and-butter right now given weakness in manufacturing, is sitting on their hands. This report pushes back the outlook for the Fed's first rate hike.

Personal Income increased 0.4% in April, Spending decreased slightly -- The BEA released the Personal Income and Outlays report for April:  Personal income increased $59.4 billion, or 0.4 percent ... in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $2.6 billion, or less than 0.1 percent....Real PCE -- PCE adjusted to remove price changes -- decreased less than 0.1 percent in April, in contrast to an increase of 0.4 percent in March. ... The price index for PCE increased less than 0.1 percent in April, compared with an increase of 0.2 percent in March. The PCE price index, excluding food and energy, increased 0.1 percent in April, the same increase as in March. The April price index for PCE increased 0.1 percent from April a year ago. The April PCE price index, excluding food and energy, increased 1.2 percent from April a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through April 2015 (2009 dollars). The dashed red lines are the quarterly levels for real PCE. The increase in personal income was slightly higher than expected, The change in PCE was below the 0.2% increase consensus. On inflation: The PCE price index increased 0.1 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.2 percent year-over-year in April. For PCE, Q2 is off to a slow start. .

Real Disposable Income Per Capita Grew in April - With the release of today's report on April Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita.  The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The April nominal 0.31% month-over-month increase in disposable income drops to 0.29% when we adjust for inflation. The year-over-year metrics are 2.83% nominal and 2.71% real.  The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000.  Nominal disposable income is up 62.7% since then. But the real purchasing power of those dollars is up only 23.1%. Here is a closer look at the real series since 2007.

April 2015 Inflation Adjusted Personal Income and Expenditures Mixed. Weak Start to 2Q2015.: This noisy data series came in mixed. The data this month showed relatively strong income growth, but consumers decided not to spend it. Expenditures are no stronger than last month - and now indicating a poor start to 2Q2015 contribution to GDP.

  • The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, income trend is up and expenditures is down.
  • Real Disposable Personal Income is up 3.5 year-over-year (accelerated 0.3% from last month), and real personal expenditures is up 2.7% year-over-year (unchanged from last month) - and consumption year-over-year growth is the same as the year-over-year growth of 1Q2015 GDP.
  • this data is very noisy and as usual includes moderate backward revision (detailed below) - this month the changes were moderate.
  • The second estimate of 1Q2014 GDP indicated the economy was contracting at 0.7% (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - income and expenditure must grow at the same rate.
  • The savings rate continues to be low historically, but improved this month.

The Big Four Economic Indicators: Real Personal Income --Personal Income (excluding Transfer Receipts) in April rose 0.42% and is up 3.8% year-over-year. When we adjust for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) rose 0.40%. The real number is up 3.67% year-over-year.Real PI less TR is one of those indicators that seems logical to adjust for population growth. Here is a chart of the series since 2000 adjusted accordingly by using the Civilian Population Age 16 and Over as the divisor. The latest data point is fractionally below the interim high set in February. A Note on the Excluded Transfer Receipts: These are benefits received for no direct services performed. They include Social Security, Medicare & Medicaid, Unemployment Assistance, and a wide range other benefits, mostly from government, but a few from businesses. Here is an illustration Transfer Receipts as a percent of Personal Income.The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009.

Income Up 0.4%, Spending Flat (Lower Than Any Economist's Estimate); Rent, Dividend, Obamacare Analysis -- Those expecting a strong bounce in consumer spending did not get it in April even though personal income and disposable personal income each rose 0.4%. The Bloomberg Consensus estimate for April spending was for a 0.2% rise. Instead, spending came in at 0.0% lower than than any estimate in the consensus range of 0.1% to 0.4%.  The consumer started off the second quarter slowly, putting income into savings and not spending. Consumer spending was unchanged in April with deep declines in spending on both durable and nondurable goods, down 0.7 percent and down 0.5 percent respectively, offset by another incremental increase in spending on services of plus 0.2 percent. Personal income, boosted by rents and dividends, rose a solid 0.4 percent though the gain for wages & salaries was less strong at 0.2 percent. The savings rate rose 4 tenths in the month to 5.6 percent.  Inflation readings are very tame with the price index unchanged in the month and the core up only 0.1 percent. The core rate, unlike April's 1.8 percent core reading for the CPI where weightings on housing and medical costs are greater, is showing less pressure, down slightly to 1.2 percent. Overall prices are barely up at all year-on-year, at plus 0.1 percent. Half the growth in income was due to rents and dividends. Hmmm. Who collects rent and dividends and who pays the extra rent?   The personal saving rate, personal saving as a percentage of disposable personal income, was 5.6 percent in April, compared with 5.2 percent in March.  Where is saving coming from? Those collecting rent and dividends or the average Joe paying more for Obamacare and rent?   Economists keep expecting consumers to buy more junk, when consumers are struggling with rising rent, rising medical expenses, and a recent rise in the price of gasoline.It's pretty easy to see what's happening here, but economists continue to expect consumers to spend more money the consumers don't have, on junk consumers don't need.

US Savings Rate Jumps As Americans Again Spend Less Than Expected --This is not what the American Dream is made of... US consumers got a generous 0.4% rise in incomes in April - better than the 0.3% expectation - but none of it was spent! Personal Spending was unchanged - missing expectations for the 5th month of last 6. What this means is obvious, Americans are saving more (savings rate surged from 5.2% to 5.6%) and spending less... this is not the wealth effect creating 70%-of-GDP-consuming world that The Fed's textbooks say it should be... 5th miss of last 6 months in spending... despite all those low gas price tax savings.. Finally Personal Consumption Expenditure – a month The Fed's favored gauges of success - dropped to its lowest since Feb 2014 and missed by the most since September 2010... Charts: Bloomberg

May Consumer Spending Has Biggest Annual Drop Since Great Financial Crisis, Gallup Survey Finds - It may not have the clout of the official monthly Dept of Commerce Retail Sales report not due out for two more weeks, but in retrospect considering how many credibility issues with seasonal adjustments government data has had in recent months, the Gallup Consumer Spending report may have become far more realistic than official government data. In which case all hope of a Q2 GDP rebound abandon, ye who read this: after a strong April, in which the average consumer reported a daily spend of $91, $3 higher than a year prior, and the highest spending month since before the great financial crisis...... in May things quickly deteriorated, with average daily spending in April and May unchanged at $91, despite a consistent jump the just concluded month of May in recent years, and despite the substantial jump in gas prices, which in May 2008 led to a $28 jump in average spending, and $10 in 2014. Worse, on an apples to apples, year-over-year basis, average spending in May of 2015 was $7 less than 2014, and nearly identical to 2013, when the US unemployment rate was nearly 3% higher, and the economy was supposedly sputtering badly enough for the Fed to launch QE3. Finally, as the chart below shows, this was the biggest month of May consumer spending drop in nominal dollar terms since the 2008 financial crisis.

State sales tax receipts: poor consumer sales still look like an Oil Patch issue -In addition to poor industriall production, that appears to be a matter of an overly strong US$, the other part of the US economy that has failed to grow this year is consumer spending, particularly as measured by real retail sales.  Several months ago I looked at state sales tax receipts as a proxy for consumer spending, and concluded that the very harsh winter was responsible for poor sales at the beginning of this year. I updated the analysis one month ago, suggesting the effects of winter had passed, and the continuing weakness was an Oil patch phenomenon.  The latest information, through April, indicates that continues to be the case. Note that the actual sales may have taken place in the month before the revenue was remitted to the state.  The epicienter of poor winter sales numbers was New York and Massachusetts. That appears to have abated, at least in New York. In March, New York reported at +5.1% YoY increase in sales tax receipts.  In April, the increase was +4.5% YoY. In January New York reported sales tax receipts up +4.2%, and in February they were actually down -0.3% YoY. As to Massachusetts, the record is more subdued. In March it reported a +1..9% YoY increase in sales taxes.  In April that went down to +0.6% YoY. Campare that with than January's +0.6% YoY rate, and February's +0.2%. Now contrast that to what has happened in Texas.  When I first reported on state sales taxes, Texas had YoY comparisons of +11.2% in January and +11.7% in February. But look at the last two months, as reported by the Dallas News:  State sales tax collections in April grew by only 1.1 percent over the previous year, as a “significant slowdown” in oil and gas-related activity pinched previously robust growth, Comptroller Glenn Hegar said Wednesday.....   March receipts grew by just 1.5 percent over last year.Texas hasn’t seen sales tax growth that was so low, low, low in the single digits since spring of 2010..... That's a huge slowdown, and almost certainly means month-over-month decreases, if we were able to seasonally adjust!

Inflation Expectations Spur Consumption Expenditure - Higher inflation expectations increase households’ propensity to purchase durable goods. This positive association is higher for more educated, working-age, high-income, and urban households. We exploit a natural experiment, the unexpected announcement of a VAT increase in Germany in 2005, to show that the effect of inflation expectations on readiness to spend is causal. Our results imply that monetary and fiscal policies that increase inflation expectations can spur aggregate consumption in the short run.

Citation Debt: What’s really needed is a new approach. -- Over the past twenty years we’ve transformed a system of infraction based fines into a cycle of poverty. As it is now, it used to be that you had to pay the 35 dollar fine before you could contest your citation. Then the legislature started tacking on penalty assessments to fund every social cause near and dear to legislators hearts. While it used to require a $100.00 pre-payment to contest a traffic citation, some voodoo economics came into play that required defendants to not only come up with the fine but the penalty assessments. This brought the amount being required to be pre-paid to the courts from a hundred dollars to four hundred and ninety dollars for a whopping 500% increase – just to go to court. Let’s face it, if justice is truly blind and access to justice is as important to the judicial council as they say it is, then the only amount of money that should be required to schedule a court hearing over a citation should be equivalent to the dismissal fee; a fee that would be collected regardless of the disposition of the case. Today we have well over 10.2 billion dollars in uncollected fees and fines and that amount is increasing by well over a billion dollars a year. And the reason it is increasing is in part because people cannot afford to have their day in court. Since a payment plan also requires a court appearance and a day or two lost standing in long courthouse lines, the poor cannot afford to be penalized twice by having to drive up to 180 miles to the nearest courthouse only to have to stand in a line that winds around the block on one day only to return to a scheduled court date a few weeks or months out.

Preliminary May Vehicle Sales at 17.7 million SAAR: Best sales rate since 2005, On pace for Best Year since 2001 --From WardsAuto: May 2015 U.S. LV Sales Thread: May SAAR Should Top 17 Million May WardsAuto report forecasted LV sales for May at 1.6 million units, equating to a SAAR of nearly 17.5 million units. Wtih 6 of the Top 7 automakers reporting sales are trending at 1.63 million units, equating to a SAAR slightly above 17.7 million units. From the WSJ: Auto Makers Posted Stronger-Than-Expected U.S. Sales in May Several top auto makers logged stronger-than-expected U.S. vehicle sales in May, adding to the industry’s momentum this year....The results came despite one less selling day compared with last May, which was expected to result in slight year-over-year declines for most major manufacturers. Still, the U.S. auto industry is on its way to delivering 17 million new vehicles this year—a level unseen since 2001.

US auto sales breeze past forecasts in May -   — U.S. auto sales were stronger than expected in May, boosted by Memorial Day promotions and strong demand for new SUVs.Sales rose 2 percent over last May to more than 1.64 million cars and trucks, their fastest pace since July 2005, according to Autodata Corp. Analysts had expected sales to fall slightly because of lower sales to rental car companies and other auto fleets.Subaru led automakers with a 12 percent sales gain. General Motors' sales rose 3 percent, Fiat Chrysler was up 4 percent and Honda rose 1 percent. All four automakers benefited as buyers continued a steady shift from cars into small and medium-sized SUVs. Honda sold more than 6,300 HR-V small SUVs in the first two weeks it was on sale. Sales of the GMC Acadia SUV jumped 67 percent, while sales of the Jeep Cherokee were up 23 percent. Sales of Subaru's XV Crosstrek small SUV jumped 36 percent. Long-struggling Volkswagen surprised with an 8 percent sales gain thanks to its new Golf. Ford's sales fell 1 percent. Nissan and Toyota said sales were flat, while Hyundai's sales fell 10 percent.  May is typically one of the biggest sales months of the year, as buyers flush with tax returns look forward to summer road trips. Last May, sales jumped 11 percent to just over 1.61 million, their highest monthly total in nine years. After five years of blistering growth after the recession, it's getting increasingly difficult for the industry to match those kinds of numbers. U.S. sales are expected to hit 17 million this year, near their historic peak of a decade ago, and automakers will have to work harder to post big gains.

Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance -  There’s no question about it, Experian’s senior director of automotive finance Melinda Zabritski is an optimist.  Back in March, Zabritski chided the subprime Chicken Littles of the world, noting that “whenever there is an uptick in the number of loans to subprime and deep subprime customers, there is the potential for a 'sky is falling' type of reaction, [but] the reality is we are looking at a remarkably stable automotive-loan market, in part because consumers are continuing to stay on top of their payments.”  Fast forward to Monday and Zabritski was back at it, this time defending the proliferation of longer average terms for auto loans in the US. “While longer-term loans are growing, they do not necessarily represent an ominous sign for the market," Zabritski said, before explaining that extending the loan term is simply the most logical way for borrowers to buy cars they can’t really afford: "Most longer-term loans help consumers keep monthly payments manageable while allowing them to purchase the vehicles they need without having to break the bank.”  In other words, either car buyers are overreaching as homebuyers did in the McMansion era, or the American consumer is in bad shape courtesy of a sputtering economy and barely existent wage growth. To be clear, neither of those alternatives is a good thing.

SUVs are crushing it in the US market -- The US auto market is booming. It's at its highest level in a decade, on a pace to see sales of 17.8 million new cars and trucks this year. And in that market, you're doing fantastically well if you're selling trucks and SUVs. Sales of Ford Motor Co.’s newly redesigned Edge SUV rose 34 percent to a record 14,399 last month, while the Lincoln Navigator soared by 50 percent. Deliveries of most of General Motors Co.’s crossover SUVs increased, with the Cadillac SRX and extra-long Escalade ESV each gaining more than 20 percent. Fiat Chrysler Automobiles NV’s Jeep sales surged 13 percent to 79,652, led by the Wrangler and the Cherokee. There will be a temptation with results like this for automakers to go back to the future and neglect small cars. It's happened before. GM, for example, effectively abandoned the small-car market prior to the financial crisis, preferring to concentrate on more profitable big SUVs and full-size pickups. This worked out well for the Japanese and the Koreans, who were able to grab customers when gas prices spiked in the mid-2000s and into the financial crisis while Detroit suffered. But markets are obviously cyclical. And how! Five years ago, few would have predicted a massive resurgence in truck and SUV buyership in the US. But the few who did predict it were, fortunately, at the automakers currently building big trucks and SUVs (as well as smaller crossovers). Which is understandable, given that a Ford or GM executive could look at the US market and conclude that decades of solid truck sales were the norm rather than an exception. The bottom line is that Americans like big cars.

Gas Prices To Remain Near Record Lows All Summer - If you are planning to take a road trip this summer you are in luck, gas prices are expected to remain close to their six-year lows throughout the travel season. AAA spokesperson Michael Green claims that OPEC’s decision Friday to keep production levels steady, at 30 million barrels a day, was expected, but “it is still good news for drivers.” The national average for gas at this time is $2.758 per gallon. In California, drivers are paying $3.638 a gallon because of regional refinery problems following an explosion at Exxon Mobil’s (XOM) refinery in Torrance. The lower gas prices are a positive sign for the U.S. auto industry which sold 17.8 million annualized units in May, the best year since 2001. Truck sales are up 11% while passenger cars are flat. Experts believe truck sales will continue to remain solid until gas prices reach above the $4 to $5 per gallon levels. The increase in truck sales also increases demand for gasoline. Memorial Day sales for gasoline were the highest they have been since 2007 according to the Energy Information Administration (EIA).

Presenting The Next Great Source Of Middle Class Prosperity -- On the heels of yesterday's news that auto sales blew away expectations in May, posting their largest MoM increase since November 2013 on the back of record numbers across-the-board for financing (including average new car loan terms of 67 months and record high average payments of $488/month), we present the reincarnation of the home equity loan. With PNC's "cash out auto loan," you can put your vehicle "to work" by pledging it as collateral for a cash loan. Welcome to the Great American auto bubble.

U.S. factory orders weak, but auto sales brighten economic outlook - – New orders for U.S. factory goods fell in April as demand for transportation equipment and other goods weakened, suggesting that manufacturing remained constrained by a strong dollar and spending cuts in the energy sector. But the outlook for manufacturing and the broader economy got a lift from another report on Tuesday showing automobile sales in May on track for the quickest pace in more than nine years. “The outlook for manufacturing is modestly positive. Demand from consumers and businesses is growing slowly. Households are gradually boosting their spending on manufactured goods,” said Gus Faucher, a senior economist at PNC Financial in Pittsburgh. New orders for manufactured goods slipped 0.4 percent after increasing 2.2 percent in March. Factory orders have declined in eight of the last nine months. Economists had forecast orders to be unchanged in April. Excluding the volatile transport component, orders were flat for a second straight month. Manufacturing, which accounts for about 12 percent of the U.S. economy, has been hit by the dollar and lower crude oil prices, which are pressuring the profits of multinational corporations and oil-field firms. Orders for transportation equipment fell 2.4 percent in April. There also were declines in orders for information technology equipment, computers and related products, and consumer goods. Separate reports showed solid gains in auto sales in May as households bought a range of motor vehicles.

Factory Orders Not Off to a Good Start as April Down By -0.4%  -- The Manufacturers' Shipments, Inventories, and Orders report shows factory new orders declined by -0.4% for April.  That's not a good start for the second quarter although March new factory orders was a blow out of 2.2%.  Durable goods new orders doubled down on it's previously published decline and dropped by -1.0%.  Transportation new orders dropped by -2.4%.  The most frightening statistic is how manufacturing new orders have been negative for eight of the last nine months.  That's a pattern folks and not a good one.  The Census manufacturing statistical release is called Factory Orders by the press and covers both durable and non-durable manufacturing orders, shipments and inventories.While transportation equipment new orders plunged by -2.3% , motor vehicles bodies & parts new orders increased by 2.3%.  Volatile aircraft new orders declined in nondefense, -3.6% and defense, -11.4%. Core capital goods new orders decreased by -0.3%.  The previous month showed a 1.6% increase but February was a -5.1% bloodbath.  Just not a good way to start another quarter although one month does not investment gains make.  Core capital goods are capital or business investment goods and excludes defense and aircraft.  This is indicating slower economic growth.  Nondurable goods increased by 0.2%.  Manufactured durable goods new orders, decreased -1.0%, shown below.  Shipments had no change for the month, also not a good sign.  Nondurable goods shipments increased 0.2%as chemical product shipments increased by 0.5%.  Durable goods shipments on the other hand decreased -0.2% as primary metals shipments plunged by -2.2%   Inventories for manufacturing overall were up 0.1%. Durable goods inventories increased 0.2% while nondurables decreased -0.1%.  No one category stood out and petroleum's plunge seems to have ceased. The inventory to shipments ratio increased from ticked up to 1.35.   Unfilled Ordersdecreased -0.1%.  Core capital goods unfilled orders declined by -0.4% in durable goods decreased -0.1%.   Part of this report goes into calculating GDP.  The BEA takes this report, called M3, and uses the shipments values to calculate investment in private equipment, investment in software.  Manufacturing inventories also goes into the changes in private inventories GDP calculation. 

Factory Orders Down 8th Time in 9 Months; Durable Goods Inventories Highest Since 1992 -- Not only were Factory Orders down for the eighth time in nine months, last month's rise in core capital goods was revised away.  Chalk up another miss for economists. The Bloomberg Consensus estimate was -0.1% in a range of -0.6 to +1.5% with the actual report at -0.4%.  Factory orders fell 0.4 percent in April for the 8th decline in 9 months, a depressing streak interrupted only by March's revised gain of 2.2 percent, a gain inflated by a monthly swing higher for civilian aircraft. There are significant downward revisions to the durable goods side of the report that was first published last week, with durables orders now down 1.0 percent vs an initial decline of 0.5 percent. Capital goods in that report looked strong, but not with today's revision with orders for non-defense capital goods sinking 0.3 percent vs an initial and very strong gain of 1.0 percent. Ex-transportation, orders are unchanged, well down from the 0.5 percent gain in the durable goods report. Nondurable goods are a positive offset in today's report, up 0.2 percent and reflecting strength for chemical products. Outside of new orders, data show no change for shipments and a 0.1 percent dip for unfilled orders, both very weak. The lack of punch is putting pressure on inventory levels where the inventory-to-shipments ratio rose to 1.35 from 1.34 in March. The downward revision to core capital goods orders is a setback, pointing to much less business optimism than first reported. The factory sector did not get any lift at all coming out of the first quarter, reflecting weak exports and trouble in the energy sector. Manufacturing employment has understandably been very soft with the next update part of Friday's employment report.

Trade Deficit declined in April to $40.9 Billion  - The Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $40.9 billion in April, down $9.7 billion from $50.6 billion in March, revised. April exports were $189.9 billion, $1.9 billion more than March exports. April imports were $230.8 billion, $7.8 billion less than March imports. The trade deficit was smaller than the consensus forecast of $43.9 billion. The first graph shows the monthly U.S. exports and imports in dollars through April 2015.  Imports decreased and exports increased in April. Note: Imports surged in March due to the resolution of the West Coast port slowdown and the unloading of waiting ships, so a decrease in imports was expected in April. Exports are 14% above the pre-recession peak and down 3% compared to April 2014; imports are at the pre-recession peak, and down 3% compared to April 2014. The second graph shows the U.S. trade deficit, with and without petroleum. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products (wild swings over last few months due to port slowdown. Oil imports averaged $46.52 in April, up slightly from $46.47 in March, and down from $95.00 in April 2014. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China decreased to $26.5 billion in April, from $27.3 billion in April 2014. The deficit with China is a large portion of the overall deficit.

Trade Deficit Shrinks 19% In April Driven By Drop In Imports - After March's six-year high disastrous kitchen-sink trade deficit revised down to -$51.4 billion, April saw a bounce back to just $40.9 billion deficit (considerably lower deficit than the $44 billion expectation). The improvement was driven by a big shift in imports - dropping 3.3% (after a 6.5% jump in March) as exports rose just 1% (which is still the most in 2015). Charts: Bloomberg

Second Quarter GDP Estimate Gets Lift from Reduced Imports -- Last month imports surged in the wake of the West coast port strike settlement. This month imports declined, pretty much as expected.  Since exports add to GDP and imports subtract, second quarter GDP estimates get a lift. Let's take a peek inside today's Census Bureau report on International Trade in Goods and Services for April. Highlights

  • The goods and services deficit was $40.9 billion in April, down $9.7 billion from $50.6 billion in March, revised.
  • Exports were $189.9 billion, $1.9 billion more than March exports.
  • Imports were $230.8 billion, $7.8 billion less than March imports.
  • The goods and services deficit increased $1.5 billion, or 0.9 percent, from the same period in 2014.
  • Exports decreased $18.0 billion or 2.3 percent.
  • Imports decreased $16.5 billion or 1.8 percent.
  • The average goods and services deficit decreased $0.5 billion from the three months ending in April 2014
  • Average exports of goods and services decreased $4.9 billion from April 2014.
  • Average imports of goods and services decreased $5.4 billion from April 2014.
Year-to-date the deficit increased slightly from the same period last year, and year-over-year the deficit decreased slightly. Simply put, there is not a lot happening in the way of trade on a smoothed basis. However, the month-to-month improvement was bigger than expected, so the the second quarter GDP gets a lift in the Atlanta Fed's GDPNow Forecast.

As the China-U.S. Tire Battle Rolls On, American Consumers Pay More - When tire imports from China surged in 2013, Michelin’s Tuscaloosa, Ala., tire plant started feeling the pinch as it was forced to match falling prices, the local union president said. The factory started cutting production and laying off workers. It also took down a poster of the University of Alabama’s legendary former football coach Paul “Bear” Bryant, which had been used to rally tire workers to boost output. With the output goals now out of reach, his inspiration was no longer needed. “The threat posed by Chinese production was openly discussed” in contract talks between the United Steel Workers and Michelin. It all was indicative of an intensifying trade war between the U.S. and China over tires—one that economists say likely hurts consumers in the end through higher prices. In 2014, the USW petitioned the Commerce Department to impose tariffs on Chinese tire imports, which the union alleged were sold below market prices and improperly subsidized by the Chinese government. If heavy tariffs weren’t levied, the union said, Chinese imports would increase by about 20%, undercutting prices and threatening union jobs. Chinese tire makers deny the charges. In some respects, the case was unusual. It was brought by a labor union, rather than the companies c ompeting with Chinese firms, as is more common in manufacturing industries. It is also far from clear that the unionized U.S. tire plants will benefit, experts say. None of the eight big tire manufacturers that are members of the industry’s main U.S. trade group, the Rubber Manufacturers Association, joined the union’s suit. The manufacturers—only two of which are headquartered in the U.S.—have operations in China and said they were neutral on the union petition. Exports from their China factories could be hit by tariffs too.

ISM Manufacturing index increased to 52.8 in May -- The ISM manufacturing index suggested expansion in May. The PMI was at 52.8% in May, up from 51.5% in April. The employment index was at 51.7%, up from 48.3% in April, and the new orders index was at 55.8%, up from 53.5%. From the Institute for Supply Management: May 2015 Manufacturing ISM® Report On Business® "The May PMI® registered 52.8 percent, an increase of 1.3 percentage points over the April reading of 51.5 percent. The New Orders Index registered 55.8 percent, an increase of 2.3 percentage points from the reading of 53.5 percent in April. The Production Index registered 54.5 percent, 1.5 percentage points below the April reading of 56 percent. The Employment Index registered 51.7 percent, 3.4 percentage points above the April reading of 48.3 percent, reflecting growing employment levels from April. Inventories of raw materials registered 51.5 percent, an increase of 2 percentage points from the April reading of 49.5 percent. The Prices Index registered 49.5 percent, 9 percentage points above the April reading of 40.5 percent, indicating lower raw materials prices for the seventh consecutive month. Comments from the panel carry a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports. Also noted; however, are continuing concerns over the price of the US dollar and challenges affecting markets related to oil and gas industries."Here is a long term graph of the ISM manufacturing index. This was above expectations of 51.8%, and indicates slow expansion in May.

ISM Manufacturing Index: Growth of 1.3% - Today the Institute for Supply Management published its monthly Manufacturing Report for May. The latest headline PMI was 52.8 percent, an increase of 1.3% from the previous month and slightly above the forecast of 52.0. The indicator remains at the lowest PMI since May 2013. Here is the key analysis from the report: "The May PMI registered 52.8 percent, an increase of 1.3 percentage points over the April reading of 51.5 percent. The New Orders Index registered 55.8 percent, an increase of 2.3 percentage points from the reading of 53.5 percent in April. The Production Index registered 54.5 percent, 1.5 percentage points below the April reading of 56 percent. The Employment Index registered 51.7 percent, 3.4 percentage points above the April reading of 48.3 percent, reflecting growing employment levels from April. Inventories of raw materials registered 51.5 percent, an increase of 2 percentage points from the April reading of 49.5 percent. The Prices Index registered 49.5 percent, 9 percentage points above the April reading of 40.5 percent, indicating lower raw materials prices for the seventh consecutive month. Comments from the panel carry a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports. Also noted; however, are continuing concerns over the price of the US dollar and challenges affecting markets related to oil and gas industries." Here is the table of PMI components.

Nothing Contracts For May's Manufacturing Survey - The May ISM Manufacturing Survey shows nothing in manufacturing is shrinking again.  The composite PMI grew to a now safe 52.8% after a 1.3 percentage point increase.  Manufacturing employment came out of contraction as did inventories.  Exports move to no change.  Prices are still decreasing but not by much anymore.  Overall the report is a relief that things are not so bad.  Earlier many April economic indicators were pointing to another bad quarter.  The ISM Manufacturing survey is a direct survey of manufacturers.  Generally speaking indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments, which are part of their survey.  Strong and steady are mentioned to describe demand.  Manufacturers also complain of a strong dollar hurting their products  New orders increased 2.3 percentage points to 55.8%.  This shows a clear pick up in new manufacturing orders. The Census reported March durable goods new orders increased 4.0%, where factory orders, or all of manufacturing data, will be out later this month.  Note the Census one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.

US Manufacturing PMI Weakest Since Jan, ISM Beats, Construction Spending Spikes Most In 3 Years -- US Manufacturing PMI dropped to its lowest since January (54.0 May vs 54.10 April) but rose modestly from early month preliminary indications. So despite the harshness of the winter weather and the port strikes, US manufacturing is worse now than at any time since the peak of piss-poor-weatheriness. New orders rose at the weakest pace since Jan 2014 and input costs rose, and Markit suggests The Fed wait on rate hikes and despite Bill Dudley's utterances, Markeit notes the "survey provides further evidence that the strong dollar is hurting the economy." Against this weakness, ISM Manufacturing - in all its seasonally-adjusted glory, rose and beat by the most since Oct 2014 with new orders rising (umm?) and prices paid surging. And finally, construction spending - having not risen for 3 months - it recovered considerably, spiking 2.2% MoM - the most in 3 years. Markit is imploring The Fed to stay easy... Commenting on the final PMI data, Chris Williamson, Chief Economist at Markit said: “With manufacturers reporting the smallest rise in new orders since the start of last year, the survey provides further evidence that the strong dollar is hurting the economy. Falling exports and slumping profits were two weak links in the economy during the first quarter and look set to act as ongoing drags in the second quarter. “While the economy still looks set to rebound from the decline seen in the first quarter, the extent of the second quarter recovery therefore remains highly uncertain and could well disappoint.

Report: Manufacturing growth slows in Midwest, including Minnesota  -- Weaknesses in the agriculture and energy sectors are starting to trickle down to manufacturers. A widely watched economic report issued Monday by Creighton University found that manufacturers in nine Midwestern states, including Minnesota, are growing but at a slower pace than past months. “The regional index, much like [recent] national readings, is pointing to positive but slowing growth through the third quarter of 2015,” said Ernie Goss, director of Creighton’s Economic Forecasting Group. “Firms linked to energy and agriculture are experiencing pullbacks in economic activity. Job growth in [the] two energy-producing states [of] Oklahoma and North Dakota has moved into negative territory.” Creighton’s mid-America business conditions index slumped to 50.4 in May, from 52.7 in April. Any figure above 50 indicates growth. In Minnesota, the index was 51.1, down from 51.3 in April. While new orders and sales in Minnesota grew during the month, inventories and employment lagged. “Minnesota’s economy has expanded in 2015, but at a slower pace than for the same period in 2014,” Goss said. “Our surveys over the past several months point to even slower, but positive, growth in the month ahead for the state.” The slowdown seen regionally sat in contrast to a national report released Monday by the Institute for Supply Management [ISM]. It showed a slight uptick in overall manufacturing growth in May, to 52.8, from 51.5 in April.

ISM Non-Manufacturing Index decreased to 55.7% in May --The May ISM Non-manufacturing index was at 55.7%, down from 57.8% in April. The employment index decreased in May to 55.3%, down from 56.7% in April. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: May 2015 Non-Manufacturing ISM Report On Business®  . "The NMI® registered 55.7 percent in May, 2.1 percentage points lower than the April reading of 57.8 percent. This represents continued growth in the non-manufacturing sector although at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.5 percent, which is 2.1 percentage points lower than the April reading of 61.6 percent, reflecting growth for the 70th consecutive month at a slower rate. The New Orders Index registered 57.9 percent, 1.3 percentage points lower than the reading of 59.2 percent registered in April. The Employment Index decreased 1.4 percentage points to 55.3 percent from the April reading of 56.7 percent and indicates growth for the 15th consecutive month. The Prices Index increased 5.8 percentage points from the April reading of 50.1 percent to 55.9 percent, indicating prices increased in May for the third consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in May. Overall there has been a slight slowing in the rate of growth for the non-manufacturing sector. Respondents’ comments are mostly positive about business conditions and indicate economic growth will continue." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 57.2% and suggests slower expansion in May than in April.

ISM Services Plunges To 13 Month Lows As Post-Weather Bounceback Fades -- But the post-weather bounce? Markit's Services PMI in May missed expectations and dropped for the 2nd month in a row to its lowest since January. This notched the Composite PMI also down to its lowest since Jan, leaving Markit warning "the US economy has lost some momentum after an initial bounce-back from weather-related weakness at the start of the year." Worst still, ISM Services thenprinted a notably disappointing 55.7 (against 57.0 expectations) - its weakest since April 2014. The breakdown shows weakness across the board with prices rising. Finally, we note that an incredible 75 of 79 'qualified' economists had an ISM Services estimate that was too high... extrapolated hope springs eternal until it is smashed on the shores of reality.

Weekly Initial Unemployment Claims decreased to 276,000 -- The DOL reported: In the week ending May 30, the advance figure for seasonally adjusted initial claims was 276,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 282,000 to 284,000. The 4-week moving average was 274,750, an increase of 2,750 from the previous week's revised average. The previous week's average was revised up by 500 from 271,500 to 272,000.  There were no special factors impacting this week's initial claims. The previous week was revised to 284,000. The following graph shows the 4-week moving average of weekly claims since 1971.

Gallup U.S. Job Creation Index June 3, 2015: Gallup's U.S. Job Creation Index reached a new high of plus 32 in May, up from plus 31 in April. In the government sector, perceived job creation ticked up to a new high. Nationally, workers' improved perceptions of hiring activity in their workplaces are a good sign for the economy as summer begins. The positive trend on job creation matches other reports of low unemployment that Gallup and the U.S. Bureau of Labor Statistics have found. However, there have also been several negative economic news items. Gallup's measure of Americans' economic confidence in May, and consumer spending was flat, but was down from prior highs. Altogether, the economy appears to show a mixture of good signs and bad signs. However, this new high in perceived job creation is a good sign for U.S. employment. Within the government sector, the Job Creation Index score reached a new high of plus 25 in May. This is up from plus 22 in April and the previous high of plus 23 in August 2014. Despite the uptick in government job creation last month, perceptions of hiring among nongovernment workers have consistently been stronger than those of government workers since 2009. The index averaged plus 33 among nongovernment workers in May, consistent with the high found in April.

ADP: Private Employment increased 201,000 in May -- From ADP: Private sector employment increased by 201,000 jobs from April to May according to the May ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. ... Goods-producing employment rose by 9,000 jobs in May, after adding just 1,000 in April. The construction industry had another good month in May adding 27,000 jobs, up from 24,000 last month. Meanwhile, manufacturing lost 5,000 jobs in May, after losing 8,000 in April. Service-providing employment rose by 192,000 jobs in May, a strong rise from 164,000 in April. The ADP National Employment Report indicates that professional/business services contributed 28,000 jobs in May, down from April’s 35,000. Trade/transportation/utilities grew by 56,000, up from April’s 41,000. The 12,000 new jobs added in financial activities is double last month’s 6,000....Mark Zandi, chief economist of Moody’s Analytics, said, “The job market posted a solid gain in May. Employment growth remains near the average of the past couple of years. At the current pace of job growth the economy will be back to full employment by this time next year. The only blemishes are the decline in mining jobs due to the collapse in oil prices and the decline in manufacturing due to the strong dollar.”This was at the consensus forecast for 200,000 private sector jobs added in the ADP report. 

ADP Employment Bounces, Still Weaker Than All Of 2014 -- Having fallen for 5 straight months (and missed expectations for the last 4), much to the 'recovery meme' chagrin of Mark Zandi and his fellow extrapolators, May's 201k print (against expectations of 200k) was a modest bounce that will be seen as heralding the post-weather recovery. At 201k, ADP job change remains below every month of 2014 aside from January. Led by small business - which gained 122k of the 201k jobs, we note that large firms 500-999 employees actually saw jobs being shed. Furthermore, Service-providing jobs dominated with 192 of 201k jobs coming from that segment of the economy and just 9k growth in manufacturing. Zandi's helpful remarks provide the narrative, "I think the economy is doing much better than the data shows and when it is all revised will show strong growth." Brilliant.

Challenger Job-Cut Report June 4, 2015: Jobless claims are down and so is Challenger's layoff count, at 41,034 in May vs 61,582 in April. Layoffs in May last year totaled 52,961. What layoffs there were, were led by the financial sector, reflecting a 5,000 layoff announcement by JP Morgan, and by the government sector where a 4,500 announcement was made by Massachusetts. Challenger's count is low but hasn't been as impressive as the hard data from jobless claims, the latest news of which will be posted later this morning at 8:30 a.m. ET. Definition This monthly report counts and categorizes announcements of corporate layoffs based on mass layoff data from state departments of labor. The job-cut report must be analyzed with caution. It doesn't distinguish between layoffs scheduled for the short-term or the long term, or whether job cuts are handled through attrition or actual layoffs. Also, the job-cut report does not include jobs eliminated in small batches over a longer time period. Unlike most economic data, this series is not adjusted for seasonal variation.

Gallup US Payroll to Population June 4, 2015: The U.S. Payroll to Population employment rate (P2P was 44.5 percent in May. This is up 0.6 percentage points from the previous month and is identical to the rate measured in May 2014. It represents the strongest month-to-month change for P2P so far this year, in line with an expected seasonal rise in full-time employment. The percentage of U.S. adults participating in the workforce in May was 66.8 percent. While up from April, this is equal to the March reading. However, it is still 0.8 points lower than the rate measured in May 2014 which was 67.6 percent. Since January 2010, the workforce participation rate has remained in a narrow range, from a low of 65.8 percent to a high of 68.5 percent, but in the past two years it has most often remained below 67.0 percent. Gallup's unadjusted U.S. unemployment rate remained at 6.1 percent in May, near the low point in Gallup's five-year trend marked by the 5.8 percent measured in December 2014. Gallup's U.S. unemployment rate represents the percentage of adults in the workforce who did not have any paid work in the past seven days, for an employer or themselves, and who were actively looking for and available to work. Unlike Gallup's P2P rate which is a percentage of the total population, the unemployment rates that both Gallup and the U.S. Bureau of Labor Statistics report are percentages within the labor force. While both Gallup and BLS data are based on robust surveys, the two have important methodological differences. Additionally, the most-discussed unemployment rate released by the BLS each month is seasonally adjusted. Although Gallup's employment numbers strongly correlate with BLS rates, the BLS and Gallup estimates of unemployment do not always track precisely on a monthly basis.

Economy adds 280K jobs but unemployment ticks up -- If the Federal Reserve is looking for cover in raising interest rates, they got it with the May jobs report. The June 16-17 FOMC meeting will be interesting as the May employment report proved very strong led by payroll growth and, very importantly, an uptick in wage pressures. Non-farm payrolls rose 280,000, well above the consensus for 220,000 and near the top-end forecast of 289,000. Revisions added 32,000 to the two prior months.  Average hourly earnings came in at the high end of expectations, up 1 tenth to plus 0.3%. Year-on-year earnings are up 2.3%, a rate only matched twice during the recovery, the last time back in August 2013. Pressure here will be the focus of the hawks' arguments. The labor participation rate was up slightly, 1 tenth to 62.9%. The unemployment rate did tick 1 tenth higher to 5.5% which is unexpected but the gain reflects a solid gain in the labor force for both those who found a job and especially those who are now looking for a job. By industry, professional business services once again leads the list, up 63,000 following a 66,000 gain in April. Within this industry, the closely watched temporary help services sub-component is up 20,000 after two prior gains of 16,000. The rise in temporary hiring points to permanent hiring in the months ahead. Construction is up 17,000 but follows a 35,000 surge in April. Manufacturing, where exports are hurting, continues to lag, up only 7,000. And mining, which is being clobbered by contraction in the energy sector, is down 17,000 to extend a long run of declines.

May Employment Report: 280,000 Jobs, 5.5% Unemployment Rate --From the BLSTotal nonfarm payroll employment increased by 280,000 in May, and the unemployment rate was essentially unchanged at 5.5 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, leisure and hospitality, and health care. Mining employment continued to decline... The change in total nonfarm payroll employment for March was revised from +85,000 to +119,000, and the change for April was revised from +223,000 to +221,000. With these revisions, employment gains in March and April combined were 32,000 more than previously reported. ..In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $24.96. Over the year, average hourly earnings have risen by 2.3 percent. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 280 thousand in May (private payrolls increased 262 thousand). Payrolls for March and April were revised up by a combined 32 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In May, the year-over-year change was almost 3.1 million jobs. This is a solid year-over-year gain.  The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate increased in May to 62.9%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio increased to 59.4% (black line).

US Payrolls In May Deliver A Hefty Upside Suprise -- US private payrolls increased by a healthy 262,000 in May, the Labor Departmentreports—substantially more than the consensus forecast of a 215,000 gain, based on’s data. The news is another clue that boosts the odds for asecond-quarter rebound. But when we look past the noise of the monthly fluctuations, today’s update reminds that not much has changed, which is to say that a solid, steady year-over-year growth rate for private payrolls endures. The annual pace of growth ticked up in today’s report, but just barely. Nonetheless, the key point is that payrolls increased just slightly above the 2.5% rate in May vs. the year-earlier level. That’s virtually unchanged from April’s year-over-year gain. The main takeaway: the private sector continues to mint jobs at an encouraging pace. But that’s unremarkable. Why? Because that upbeat message has been with us all along from the perspective of the annual comparison.   Granted, the annual pace is slightly slower compared with last year’s fourth-quarter. But the deceleration is trivial in the grand scheme of the broad trend. The usual suspects prefer to play up the drama by sensationalizing the fluctuations in the monthly comparisons. That’s a useful tactic for attracting attention, but it’s misguided for analyzing the business cycle. The fact remains that the growth rate for payrolls has been fairly steady in terms of the year-over-year change, which is a far more reliable measure of the trend vs. the monthly changes that tend to dominate the headlines.

May Jobs Report – The Numbers - WSJ: U.S. employers added 280,000 jobs in May, while the unemployment rate rose to 5.5% from April’s 5.4%. Economists surveyed by The Wall Street Journal had forecast a gain of 225,000 jobs and an unemployment rate of 5.4%.  Over the past three months, job growth has averaged 207,000 a month, compared with 251,000 in the 12 months prior to May. April’s nonfarm payrolls were revised down to 221,000 and March’s tally up to 119,000, a net increase of 32,000. May marks the 56th consecutive month of job gains, the longest such stretch on record. At $24.96, average hourly earnings for private-sector workers were up 2.3% in May from a year earlier. That’s the fastest growth since the summer of 2013 and a little better than the 2% average during the latest economic expansion. With a tightening labor market, many economists are looking for signs of stronger pay gains, though those have been slow to materialize. “  The participation rate, representing the share of the population that either has a job or wants a job, was 62.9% in May, up only slightly from the prior month. The rate has been hovering near levels last seen in the 1970s for more than a year, in part because baby boomers are retiring but also because discouraged workers have given up on their job searches.  The headline unemployment rate checked in at 5.5% in May, up from April’s 5.4%, as both the number of people in the workforce and the number of unemployed climbed. A broader measure–which includes people who aren’t working or looking for work, and people who want a full-time job but can only find a part-time position—was unchanged at 10.8%, figure that remains above levels typical during this phase of an expansion.  The number of people working part time who want a full-time job rose to 6.7 million in May from 6.6 million in April. The figure remains historically high and is often cited as one reason for tepid wage gains. “In addition to those too discouraged to seek work, an unusually large number of people report that they are working part time because they cannot find full-time jobs, and I suspect that much of this also represents labor market slack that could be absorbed in a stronger economy,” Fed Chairwoman Janet Yellen said last week. 262,000 Private employers added 262,000 jobs in May. Gains were broad-based, led by professional and business services—everything from temporary workers to managers to engineers—leisure and hospitality, health care, retail and construction. The mining sector, which includes oil and gas companies, shed jobs; employment in the sector is down 68,000 this year.

Solid Jobs Report: Labor Force +397K, Establishment +280K Jobs, Employment +272K, Unemployment +125K, Unemployment Rate +0.1% --Today's job report (for May) showed good numbers for the labor force, establishment jobs, and household employment. In contrast to last April, this month's report was not marred by huge growth in part-time employment. Household survey employment rose by 272,000 while unemployment rose by 125,000. That means more people actively seek jobs. They are back in the labor force. As a result, the unemployment rate rose by 0.1% to 5.5%. Let's take a look at all the key numbers. BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +280,000 - Establishment Survey
  • Employment: +272,000 - Household Survey
  • Unemployment: +125,000 - Household Survey
  • Involuntary Part-Time Work: +72,000 - Household Survey
  • Voluntary Part-Time Work: -95,000 - Household Survey
  • Baseline Unemployment Rate: +0.1 to 5.5% - Household Survey
  • U-6 unemployment: +0.0 to 10.8% - Household Survey
  • Civilian Non-institutional Population: +189,000
  • Civilian Labor Force: +397,000 - Household Survey
  • Not in Labor Force: -208,000 - Household Survey
  • Participation Rate: +0.1 to 62.9 - Household Survey

The May Jobs Report in 12 Charts - The U.S. economy added 280,000 jobs in May, but the unemployment rate ticked up to 5.5% as more Americans entered the workforce. The strong hiring gains follow a mild deceleration in growth earlier this year. Beyond the headline figure, the jobs report provides a wealth of insights about slack in the labor market and the tenor of the recovery. Here’s a look at the latest release from the Labor Department, in 12 charts: The U.S. economy has added more than three million jobs over the previous 12 months. Job growth on a 12-month basis has stayed above the three million mark since last December. It had remained below the three million mark since the middle of 2000. The headline unemployment rate ticked up to 5.5% in May as more Americans entered the workforce. Several gauges of unemployment and underemployment have consistently edged lower over the past year. Wage growth has been relatively steady over the past year. Friday’s report showed that hourly earnings in May were 2.3% above their level of a year earlier, as were average weekly earnings. Since the recession officially ended in June 2009 (according to the National Bureau of Economic Research’s chronology) the economy has added 10.7 million jobs. Though the pace of job growth has been slow, the sheer duration of the economic expansion has helped this recovery climb the ranks in terms of total job creation. Nearly all of the increase in employment since the recession officially ended in June 2009 has been full-time jobs, which are up by more than eight million. But the economy still has around 550,000 fewer full-time workers than it did before the recession started at the end of 2007. Even though the U.S. has seen strong growth in full-time hiring since 2009, the pace of hiring hasn’t kept up with population growth, as seen in the employment-to-population ratio. While this number has climbed over the last year, to 59.4% in May, it’s still well off of its prerecession levels. Even those in their prime working years–defined here as ages 25 to 54–have lower workforce participation rates than before the recession. The median duration of unemployment has come down but remains higher than any other period of the past three decades. Unemployment hit much harder for those with less education. College graduates have by far the lowest unemployment rate. The share of the unemployed who have been without work for half a year or longer has dropped below 29% from around 45% during the worst of the recession. Today’s share of long-term unemployed is still higher than that seen in the previous three recessions. Here’s a different look of what that picture of long-term unemployed looks like over the recent recovery.

Job Growth Picks Up in May, by Dean Baker - The Labor Department reported that the economy added 280,000 jobs in May. With modest upward revisions to the prior two months' data, this brings the average over the last three months to 207,000. Almost all the job growth was on the service side as a drop of 18,000 jobs in mining largely offset a rise of 17,000 in construction and an increase of 7,000 jobs in manufacturing.  The household survey showed a mixed picture. More people entered the labor market, but this was associated with a small increase in the number of unemployed, causing the unemployment rate to edge up to 5.5 percent. On the positive side, the employment-to-population ratio (EPOP) rose to 59.4 percent, its highest level in the recovery. There were few noteworthy changes by demographic group, although the EPOP among college grads increased by half a percentage point to 73.0 percent. This brings their EPOP back to its level of a year ago; it had been lagging. The duration measures of unemployment all improved modestly, with the share of long-term unemployed falling to 28.6 percent, the lowest level for the recovery. The share of voluntary quits among the unemployed edged down to 9.5 percent. This measure of confidence in the labor market remains far below pre-recession levels. ...Job growth in manufacturing continues to be weak. Employment is up by 5.0 percent from the beginning of the recovery, but it is still down by more than 1.4 million from the pre-recession level. The weak growth of manufacturing jobs is undoubtedly due in large part to the trade deficit. While it is often claimed that productivity growth explains the loss of manufacturing jobs, this explanation does not fit the data. Productivity growth in manufacturing averaged almost 3.0 percent annually in the 1960s recovery, yet employment had increased by more than 20 percent at this point in the recovery. By comparison, manufacturing productivity growth in this recovery has averaged 2.6 percent. And, using the pre-recession level as a starting point, productivity growth has averaged just 1.3 percent. Clearly, productivity does not explain the weakness in manufacturing employment. The average hourly wage has risen at a 2.9 percent annual rate over the last three months compared with the prior three months. This compares to a 2.3 percent rise over the last year. While this report is mostly positive, the strong job growth remains out of line with other data showing a slowing economy.

Employment Gains, Long Duration Unemployment Remains « U.S. Economic Snapshot (9 graphs) According to the BLS payroll employment increased by 280,000 with nearly all of that coming from private sector jobs, which increased 256,000 . The report also included an upward revision to March of 34,000 and a slight downward revision to April, -2,000. The goods producing sector was weak, adding only 6,000, with evident weakness in the petroleum sector: mining and logging shedding 18,000 jobs.  Fortunately, now the March decline in new jobs looks like an outlier with the economy adding a healthy number of new private sector jobs each month. Other than the goods producing sector and a small decline in the services “information” category, the gains were robust across all sectors private and public. Although average hours were flat as were average hourly wages, but because inflation is so low, real earnings ticked up somewhat. From the household survey the BLS reports an increase in the labor force of 397,000 and a slight uptick in the labor force participation rate as well as the employment to population ratio. These are encouraging signs the employment opportunities may be seen as improving. There was also a decline in the number of persons unemployed less than 5 weeks, there are now 311,000 fewer. However, there is still a significant number of those unemployed over 27 weeks, that number fell by only 23,000, while those unemployed between 5 and 26 weeks increased by 379,000. The longer term unemployed are much less likely to find work and it has proved to be a persistent problem as those workers are likely losing skills while not at work. Moreover, those unemployed more than 27 weeks represent about 26% of those unemployed. However, there are other encouraging signs in the labor market. Quits continue to rise. And, there has also been a significant spike in those workers working part time for economic reasons transitioning to full time employment.

May Jobs Report, first impressions: Another solid report, outside of manufacturing (and that’s due to the strong $) --Payrolls were up 280,000 last month in a better-than-expected jobs report, with employers adding jobs across almost all of the service industries and government. Positive revisions for April and May added another 32,000 to the payroll count. Analysts had been expecting around 225K jobs, so put May’s initial print in the “upside surprise” column.  The jobless rate ticked up slightly from 5.4% to 5.5% but for the right reason: more people joining the labor force (in fact, the increase—from 0.0544 to 0.0551—was statistically insignificant). An important metric here is the labor force participation rate, which ticked up to 62.9%. While that’s a tick in the right direction, the LFPR has been hovering closely around 63% since late 2013, about three percentage points below its pre-recession peak. Given today’s working-age population, three percentage points is over seven million potential workers. Many—most, by some measures—of those “missing workers” are aging boomers leaving the labor force for retirement. But as many others—I’d guess a third to a half—are potential workers who could get pulled back into the job market as it tightens up. As usual, in order to get a better feel for the underlying trend in net job creation, the smoother chart below looks at monthly averages over 3, 6, and 12 month intervals. Over the past three months, payrolls are up about 200,000 per month, a slight deceleration over the longer term trends.

US Adds 280K Jobs In May, Much Higher Than Expected, As Yellen Gets Green Light To Hike -- Contrary to expectations of a modest 226K increase change in nonfarm payrolls, according to the BLS, in May the US added a whopping 280K jobs, with the April print revised from 223K to 221K, but March revised higher from 85K to 119K. This was the highest monthly increase in jobs since December of 2014.  The unemployment rate, curious, rose from 5.4% to 5.5% on the number, as the number of employed Americans according to the Household Survey also rose by an almost equal 272K.But while the strong number will surely grab Yellen's attention, what is most notable is the jump in average hourly earnings, which rose by 0.3%, above the 0.2% expected, and well above the 0.1% in April, suggesting the slack in the labor force is indeed evaporating. Another way of showing the wage growth, is that it rose 2.3% in May, which was the highest annual increase since 2009! Another way of seeing the wage growth is comparing it to the civilian employment rate, traditionally the best correlation, which rose from 59.3% to 59.4%, while wages grew by 2.3% in May, the biggest annual increase since 2009. Judging by the kneejerk market reaction, the data is strong enough to give Yellen a green light not only for a September rate hike, but even potentially keeps June in play.

93 Million Americans Remain Out Of The Labor Force Despite Nearly 400K Work Pool Increase -- The reason why despite the better than expected increase in jobs the US unemployment rate rose from 5.4% to 5.5% even as the number of Unemployed workers rose by 125K to 8,674MM was due to the 397K influx into the civilian labor force which rose to 157.459MM, a new record high in the series, which on the surface would suggest declining slack as more people who have been traditionally left out of the employment calculation go back into the labor pool.  Which aslo meant that since the total US civilian non-institutional population rose by half this number, the number of Americans not in the labor force declined by 208K to just about 93 million. And, as a result, the biggest malady affecting the US economy today, is still in place: as the chart below shows, the labor force participation rate rose just barely from 62.8% to 62.9%, a range it has been for the past year. Indicatively, the last time the US labor force was here, was in mid-1978.

Where The May Jobs Were: Teachers, Waiters, Retail, And Temp Help -- One of the defining features of jobs "recovery" and the main reason why wage growth has been so far below the Fed's expectations for years it has prevented wage inflation from appearing despite years of QE, is that the quality of jobs added month after month has disappointing. May was no difference. Yes, the headline print of 280K job additions was great, but a quick look at how the BLS got there shows that nothing has changed because four of the five main job additions were, as usual for the lowest paid jobs. Here is the breakdown:

  • Education and Health (i.e., teachers): +74,000
  • Leisure and Hospitality (i.e., waiters): +57,000
  • Retail Trade (i.e., minimum wage store clerks): +31,400
  • Temp Help: +20,100

In fact, these lowest quality jobs accounted for two-thirds of all jobs gains in May. As for the well paid jobs: Mining and logging (energy workers): down 18,000, Information: down: 3,000, Financial services: up 13,000, and Construction workers: up 17,000 which is not bad, however it is down more than half from April's +35,000.

May Employment Report Comments and Graphs  -- This was a solid employment report with 280,000 jobs added, and March and April were revised up by a combined 32,000 jobs. There was even some hints of wage growth, from the BLS: "In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $24.96. Over the year, average hourly earnings have risen by 2.3 percent." Weekly hours were unchanged. A few more numbers:  Total employment increased 280,000 from April to May and is now 3.3 million above the previous peak.  Total employment is up 12.0 million from the employment recession low.  Private payroll employment increased 262,000 from April to May, and private employment is now 3.8 million above the previous peak. Private employment is up 12.6 million from the recession low. In May, the year-over-year change was just under 3.1 million jobs. Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle. The 25 to 54 participation rate was unchanged in May at 81.0%, and the 25 to 54 employment population ratio was unchanged at 77.2%. As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s. Average Hourly Earnings This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees. Nominal wage growth increased 2.3% YoY, and the pace is increasing. Wages will probably pick up a little more this year. Note: CPI has been running under 2%, so there has been some real wage growth.

More Hope about the Labor Market Can Lead to a Higher Unemployment Rate --That’s what happened in May. We saw solid job growth in payroll employment (+280,000 jobs). At the same time, we saw a solid increase in the civilian labor force—nearly 400,000 more people in the labor force in May. It’s not surprising then that the unemployment rate (by definition, the number of unemployed people divided by the labor force) increased slightly (though not significantly, statistically speaking). Regardless, this “rise” is actually a positive sign. The weak labor market has sidelined millions of “missing workers,” or potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. An increase in optimism about the labor market leads to more people actively seeking employment. As expected, a rise in the labor force in May corresponded with a decline in the estimated number of missing workers.

Atlanta Fed's Wage Growth Measure Increased Again in April - Atlanta Fed's macroblog -- A measure of 12-month wage growth constructed here at the Atlanta Fed increased by 3.3 percent in April. This rate is up from 3.1 percent in March and at its highest level since March 2009 (see the chart).  As mentioned in an earlier macroblog post, this measure behaves broadly like the wage and salary component of the Employment Cost index (ECI). The ECI data pertain to the last month in the quarter and are published with about a four-week lag. In contrast, the Atlanta Fed measure uses individuals' hourly wage data, 12 months apart, from the Current Population Survey (CPS). The data come from publicly available CPS microdata produced by the U.S. Bureau of Labor Statistics (BLS) and are typically released two or three weeks after the monthly BLS labor report. Timeliness is one thing, but is it useful? It turns out there is a relatively strong correlation between this wage growth measure and the employment rate (100 minus the unemployment rate) lagged by 12 months (see the chart).

All But One of America’s Big Metro Areas Added Jobs in April - All but one of the biggest U.S. metropolitan areas added jobs over the past year, and only two had higher jobless rates in April than they did a year ago. Payrolls grew in 50 U.S. metro areas with a population of 1 million or more in April compared with a year earlier, the Labor Department said Wednesday. The biggest increase occurred in Silicon Valley’s San Jose-Sunnyvale-Santa Clara metro area, where payrolls grew 6%. That was followed by the areas surrounding Orlando, Fla., where payrolls grew 4.3%, and Riverside, Calif., which saw 4.1% payroll growth. Employment in New Orleans-Metrairie—the only metro area without an increase—held steady in April from a year ago. Expanding payrolls also helped push down the unemployment rate in the vast majority of big U.S. cities. Austin-Round Rock, Texas had the lowest rate in April, at 3%, followed by Salt Lake City, Utah, at 3.1%. The Las Vegas area had the highest jobless rate at 7.1%. The Detroit metro area had the biggest drop among big cities in its unemployment rate from a year earlier–a 2.7 percentage point decline. But that was because the labor force shrank faster than payrolls. Only two big cities had higher jobless rates in April than a year earlier: New Orleans-Metrairie, where more people have returned to the workforce, and Kansas City.

Nonfarm Productivity Collapses Greater Than Expected 3.1%, Unit Labor Costs Rise 6.7%; Transitory Weakness?  -- Economists overestimated Q1 productivity and underestimated Q1 unit labor costs in spite of blaming the weather and the port strike as transitory weakness. Let's take a look at Bloomberg Consensus Estimates for Productivity and Costs. The grinding halt that the economy came to the first quarter pulled nonfarm productivity down by 3.1 percent and inflated unit labor costs by 6.7 percent. These are more severe than the initial data released a month ago where productivity was pegged at minus 1.9 percent and unit labor costs at plus 5.0 percent. Output as measured in this report fell 1.6 percent in the quarter at the same time that hours worked rose 1.6 percent. Adding to labor costs was a sharp 3.3 percent rise in compensation. Looking year-on-year, productivity is on the plus side, though just barely, at 0.3 percent with labor costs more tame, at plus 1.8 percent. Should the second-quarter see the bounce as many suspect, productivity, compared to the first quarter, should improve and labor costs cool. Let's now turn our attention to the BLS Report on Productivity and Costs for Q1.

  • Nonfarm business sector labor productivity decreased at a 3.1 percent annual rate during the first quarter of 2015, the U.S. Bureau of Labor Statistics reported today, as output declined 1.6 percent and hours worked increased 1.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)
  • Unit labor costs in the nonfarm business sector increased 6.7 percent in the first quarter of 2 015, reflecting a 3.3 percent increase in hourly compensation and a 3.1 percent decline in productivity.
  • Manufacturing sector labor productivity decreased 1.0 percent in the first quarter of 2015, as output decreased 1.1 percent and hours worked edged down 0.1 percent.
  • Productivity decreased 3.3 percent in the durable manufacturing sector and increased 1.5 percent in the nondurable goods sector.

Rise of the 'precariat,' the global scourge of precarious jobs -- With relatively little notice, the world passed a modern milestone recently, one that makes any yearning for more stable times seem very farfetched — the global jobless total passed 200 million.  To help put that in perspective, that's 30 million more without work than at the height of the global recession in 2008, according to the UN report that crunched the numbers.This is a shocker on its own. But even more ominous is the growing precariousness of the job situation for those that have them, according to the UN study, "The changing nature of jobs."  It warns of "widespread insecurity" spreading as momentum shifts from societies with full-time jobs to shaky short-term employment across much of the globe.Another scary fact the study unearths is how many people these days have stable work contracts of any kind. That's barely one in four of the globe's workforce.   The overwhelming majority of people on the planet struggle with temporary work, informal or illegal jobs, long spells of unemployment and unpaid family work. In other words, most are caught in a disadvantageous spiral where exploitation is a real risk.

Pink Slips at Disney. But First, Training Foreign Replacements. - — The employees who kept the data systems humming in the vast Walt Disney fantasy fief did not suspect trouble when they were suddenly summoned to meetings with their boss.While families rode the Seven Dwarfs Mine Train and searched for Nemo on clamobiles in the theme parks, these workers monitored computers in industrial buildings nearby, making sure millions of Walt Disney World ticket sales, store purchases and hotel reservations went through without a hitch. Some were performing so well that they thought they had been called in for bonuses.Instead, about 250 Disney employees were told in late October that they would be laid off. Many of their jobs were transferred to immigrants on temporary visas for highly skilled technical workers, who were brought in by an outsourcing firm based in India. Over the next three months, some Disney employees were required to train their replacements to do the jobs they had lost.“I just couldn’t believe they could fly people in to sit at our desks and take over our jobs exactly,” said one former worker, an American in his 40s who remains unemployed since his last day at Disney on Jan. 30. “It was so humiliating to train somebody else to take over your job. I still can’t grasp it.”Disney executives said that the layoffs were part of a reorganization, and that the company opened more positions than it eliminated.But the layoffs at Disney and at other companies, including the Southern California Edison power utility, are raising new questions about how businesses and outsourcing companies are using the temporary visas, known as H-1B, to place immigrants in technology jobs in the United States. These visas are at the center of a fierce debate in Congress over whether they complement American workers or displace them.

Et Tu, Mickey Mouse? Disney Pads Record Profits by Replacing U.S. Workers with Cheaper H-1B Guestworkers - There was a lot to celebrate in the Magic Kingdom this year. The Disney Corporation had its most profitable year ever, with profits of $7.5 billion—up 22 percent from the previous year. Disney’s stock price is up approximately 150 percent over the past three years. These kinds of results have paid off handsomely for its CEO Bob Iger, who took home $46 million in compensation last year. Disney prides itself on its recipe for “delighting customers,” a recipe it says includes putting employees first. They tout this as a key to their success in creating “a culture where going the extra mile for customers comes naturally” for employees. One method of creating this culture is referring to its employees as “cast members.” In fact, Disney is so proud of its organizational culture that it’s even created an institute to share its magic with other businesses (for a consulting fee, of course). So, you would expect a firm that puts its employees first to share the vast prosperity that’s been created with the very employees who went above and beyond to help generate those record profits. Well, how did Mr. Iger repay his workers—sorry, I mean cast members—for creating all this profit? Not with bonuses and a big raises. Instead, as the New York Times just detailed in a major report, he forced hundreds of them to train their own replacements—temporary foreign workers here on H-1B guestworker visas—before he laid them off.

Simple solution that is an impossible task. Put people to work. - Instead of giving people a reason to die. e.g. Promising virgins or some other spiritual reward. Give them a reason to live. e.g. A life style sustaining job. Poor broke disheartened people are easy prey for any radical. Money tends to solve problems. Jobs that can actually sustain life with a little extra discretionary cash would give people a reason to live and plan for the future. There are references to higher levels of crime and violence in low or no income neighborhoods. Eliminate those neighborhoods and there may be a drop in crime and violence. The challenge to creating jobs is enormous because increasing jobs is not in very many business plans. The typical plan is to cut costs of production to increase profit margins. Left to it's own means industry will never create jobs as a priority. Industry will find ways to make things quicker cheaper. That leads to job losses. The solution is to guide investing by regulation. Entice money using the tax code. Tax breaks to brick and mortar and punitive taxes to lazy money. There are not very many successful entrepreneurs that do not tribute hard work to great accomplishments. Simply apply that positive to money. Make money work. Increase the velocity of money and prosperity from jobs should follow.

"Where's My Raise?": American Workers Suddenly Realize "Recovery" Isn't Real --In March, we solved the mystery of America’s missing wage growth. Here is the conundrum facing PhD economists: One of the biggest conundrums, one that has profound monetary policy implications, and that has been stumping the Fed for the past year is how can it be possible that with 5.5% unemployment there is virtually no wage growth. The mystery only deepens when the Fed listens to so-called economist experts who tell it wage growth is imminent, if not here already, and it is merely not being captured by the various data series. In fact, the Fed is still trying to understand why wages aren’t rising more quickly. After all, once you triple-adjust the Q1 GDP print, the economy is on sound footing. Here's an excerpt from Janet Yellen’s speech in Rhode Island last month: Finally, the generally disappointing pace of wage growth also suggests that the labor market has not fully healed. Higher wages raise costs for employers, of course, but they also boost the spending and confidence of customers and would signal a strengthening of the recovery that will ultimately be good for business. In the aggregate, the main measures of hourly compensation rose at a rate of only around 2 percent through most of the recovery.The answer to this apparent quandary, lies in the distinction between what the BLS classifies as “non-supervisory” workers and “supervisory" workers. The following charts tell the story nicely.

Half of All American Families Are Staring at Financial Catastrophe -- The most frightening finding in the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2014 concerns a matter of $400. Four-hundred bucks. Twenty twenties. Four Benjamins.  Or just enough to crush half of all American households.  “Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money,” reads this year’s annual report. Maybe Americans are feeling better about their finances, as The Wall Street Journal puts it, but that figure is a downer. Several years into the recovery, almost half of all U.S. households could not withstand a minor financial shock without incurring debt or liquidating assets.   Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services. According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too. While that figure might seem small—it’s an increase of about 750,000 households total—it’s a significant figure for the economy in recovery. Families that are looking for credit aren’t finding it in mainstream financial institutions. “You used to be able to get small loans for reasonable rates, below 36 percent,” Mills says. “That’s what’s opened the door for more predatory products.”

Wal-Mart to raise wages for 100,000 U.S. workers in some departments -  Wal-Mart said it would raise minimum wages for over 100,000 U.S. employees including some department managers and deli workers, its second wage hike this year. Wal-Mart, the largest private employer in the United States with 1.3 million U.S. workers, has been targeted by labor groups for its minimum wages. The company said in February that it would raise minimum wages for 500,000 U.S. employees. The wage increases seem aimed at discouraging worker unionization, said Gary Chaison, professor of industrial relations at Clark University. "The general feeling is, 'Why join the union to negotiate with Wal-Mart when Wal-Mart takes care of its own?'" he said. Retailers and fast food chains including McDonald's, Target Corp and TJX  have also raised wages as they struggle to retain workers, who switch between the two industries in a tightening labor market. "We do think this (wage increases) will help reduce turnover and increase retention," Wal-Mart spokesman Kory Lundberg said. Wal-Mart does not disclose its workforce turnover rate. Lundberg said the rate was below the industry average. The company said on Tuesday that it would increase hourly wages for managers of service-oriented departments such as electronics and auto care from July to $13-$24.70 from $10.30-$20.09.

Picking Up The Tab for Full Service Restaurants -- In the news, great attention has been paid to the activities of fast food workers striking to increase their salary up from minimum wage, their plight with fast food restaurants, and their heavy reliance on public assistance to get-by. Included with fast restaurant workers whose employers are represented by the National Restaurant Association are full service restaurant workers who make up the bulk of the worker in the restaurant industry. The plight of full service restaurant workers is documented in an article by Sarah Anderson at IPS.   Of the 4 million people working in the restaurant industry, 50% rely on public assistance to get by at a cost of $9.5 billion. This rivals WalMart and other low wage retailers who also depend on public assistance and communities for their employees. While restaurants like Papa John’s complain about having to pick up the tab for healthcare insurance or having to raise prices 10 cents for a medium pizza, they fail to mention taxpayers are paying the hidden cost to their low wages. 8 of the 10 lowest paid jobs are represented by restaurant workers of which 5 are in the full service restaurant segment. To supplement underpaid restaurant workers (which also subsidizes their employers) and is paid by taxpayers are public assistance programs such as Medicaid and CHIP health Insurance programs, the federal earned income tax credit (EITC), food stamps (SNAP), basic household income assistance (TANF), the national school lunch program, childcare assistance, low income home energy assistance program, section 8 housing, and housing choice vouchers. What has not been mentioned is a second form of subsidy to full service restaurants through the sub minimum wage, which also requires customers to pay these workers’ wages directly through tips.

Inequality Troubles Americans Across Party Lines, Times/CBS Poll Finds - Americans are broadly concerned about inequality of wealth and income despite an economy that has improved by most measures, a sentiment that is already driving the 2016 presidential contest, according to a New York Times/CBS News poll.The poll found that a strong majority say that wealth should be more evenly divided and that it is a problem that should be addressed urgently. Nearly six in 10 Americans said government should do more to reduce the gap between the rich and the poor, but they split sharply along partisan lines. Only one-third of Republicans supported a more active government role, versus eight in 10 of Democrats. These findings help explain the populist appeals from politicians of both parties, but particularly Democrats, who are seeking to capitalize on the sense among Americans that the economic recovery is benefiting only a handful at the very top.Continue reading the main story  Far from a strictly partisan issue, inequality looms large in the minds of almost half of Republicans and two-thirds of independents, suggesting that it will outlive the presidential primary contests and become a central theme in next year’s general election campaign.

A Choice for Recovering Addicts: Relapse or Homelessness - After a lifetime of abusing drugs, Horace Bush decided at age 62 that getting clean had become a matter of life or death. So Mr. Bush, a homeless man who still tucked in his T-shirts and ironed his jeans, moved to a flophouse in Brooklyn that was supposed to help people like him, cramming into a bedroom the size of a parking space with three other men.Mr. Bush signed up for a drug-treatment program and emerged nine months later determined to stay sober. But the man who ran the house, Yury Baumblit, a longtime hustler and two-time felon, had other ideas.Mr. Baumblit got kickbacks on the Medicaid fees paid to the outpatient treatment programs that he forced all his tenants to attend, residents and former employees said. So he gave Mr. Bush a choice: If he wanted to stay, he would have to relapse and enroll in another program. Otherwise, his bed would be given away.In the past two and a half years, Mr. Bush has gone through four programs, just to hold onto his upper bunk bed. Mr. Bush had fallen into a housing netherworld in New York City, joining thousands of other single men and women recovering from addiction or with nowhere to go. The homes are known as “three-quarter” houses, because they are seen as somewhere between regulated halfway houses and actual homes. Virtually unnoticed and effectively unregulated, the homes have multiplied over the past decade, driven by a push to reduce shelter rolls, a lack of affordable housing and unscrupulous operators. One government official estimated recently that there could be 600 three-quarter houses in Brooklyn alone. But precise numbers are elusive. The houses open and close all the time, dotting poor neighborhoods mostly in the Bronx, Brooklyn and Queens.

Missouri Reports Wide Racial Disparity in Traffic Stops — Police officers in Missouri were 75 percent more likely to stop black drivers than white drivers last year, and 73 percent more likely to search black drivers, according to a report released Monday by Chris Koster, the state’s attorney general. The data also showed that although blacks were more likely to be stopped and searched than whites, they were less likely to be found with contraband than whites, the report said. Nearly 27 percent of whites who were searched possessed something illegal, compared with 21 percent of blacks. The figures represent the largest disparity in stops between black and white drivers since the state began keeping records in 2000, and came in the year that the killing of an unarmed black teenager by a white police officer in Ferguson, Mo., sparked a national conversation about race and policing.

We Pay A Shocking Amount For Police Misconduct, And Cops Want Us Just To Accept It. We Shouldn’t. -- In November 2012, Cleveland patrolman Michael Brelo joined more than 100 fellow officers in an armada of 62 police cruisers to pursue a 1979 light blue Chevy Malibu. After a 22-mile chase that reached upwards of 100 miles per hour, the vehicle came to a halt in East Cleveland.  Neither the driver, 43-year-old Timothy Russell, nor his passenger, 30-year-old Malissa Williams, ever got a chance to explain why they fled. Moments after they stopped, 13 officers, including Brelo, unleashed a hail of 137 bullets into their car. Brelo fired 49 of those rounds, reloading his weapon twice and finishing the assault from atop the hood of the rusty Malibu. When the shooting subsided, Russell and Williams were both dead, each suffering more than 20 bullet wounds.  Though the Cleveland Police Department's astonishing trigger-happiness led to a Justice Department review that culminated this week in an expansive set of reforms (which the head of a Cleveland police union has already denounced), the city's taxpayers have been on the hook for the tragic mistake for months. In November 2014, a county judge approved a $3 million out-of-court settlement resulting from a wrongful death lawsuit, to be paid by the city of Cleveland to the victims' families and their lawyers. That money, like the rest of the police department's budget, comes from taxpayers.

The Missing Statistics of Criminal Justice - After Ferguson, a noticeable gap in criminal-justice statistics emerged: the use of lethal force by the police. The federal government compiles a wealth of data on homicides, burglaries, and arson, but no official, reliable tabulation of civilian deaths by law enforcement exists. A partial database kept by the FBI is widely considered to be misleading and inaccurate. (The Washington Post has just released a more expansive total of nearly 400 police killings this year.) “It’s ridiculous that I can’t tell you how many people were shot by the police last week, last month, last year,” FBI Director James Comey told reporters in April. This raises an obvious question: If the FBI can’t tell how many people were killed by law enforcement last year, what other kinds of criminal-justice data are missing? Statistics are more than just numbers: They focus the attention of politicians, drive the allocation of resources, and define the public debate. Public officials—from city councilors to police commanders to district attorneys—are often evaluated based on how these numbers change during their terms in office. But existing statistical measures only capture part of the overall picture, and the problems that go unmeasured are often also unaddressed. What changes could the data that isn’t currently collected produce if it were gathered?

Illinois Budget Deal Collapses, Intensifying Financial Crisis - Illinois’s financial crisis deepened Sunday as the Democratic-controlled legislature and Republican Governor Bruce Rauner failed to reach an accord over a spending plan for the budget year beginning July 1. The collapse of negotiations occurred hours before the scheduled end of the legislature’s budget session, meaning any compromise to close a $6.2 billion deficit now will require a tougher-to-obtain three-fifths vote to approve. The stalemate leaves the nation’s lowest-rated state in danger of another downgrade. “Today’s the last day before we need a change in the number of votes needed to pass a bill,” Senate President John Cullerton, a Democrat, told reporters in Springfield. “It’s unlikely we can get anything done.” “Once again, we find ourselves trying to work with a governor who continues to run campaigns rather than run the state that elected him,” Cullerton said in a statement. “Rather than roll up his sleeves and work on solutions, he dictates demands and threatens those who defy him.” Rauner, a former private equity executive and the first Republican elected as Illinois governor since 1998, has been increasingly critical of Democrats’ insistence on tax increases to help deal with the deficit. Democrats hold supermajorities in both chambers. Rauner said he wouldn’t agree to tax increases unless Democrats approve more spending cuts and ease business regulations.

To Fill Budget Hole, Kansas G.O.P. Considers the Unthinkable: Raising Taxes - — With the state facing a $400 million budget hole for the coming fiscal year, the conservatives who dominate the Legislature here say they are agonizing over the likelihood of doing something that did not seem to be in their DNA: raising taxes.Just three years ago, many of these lawmakers passed the largest tax cuts in state history, saying they would lead to economic growth. But that growth did not appear, and after repeatedly trimming spending to close shortfalls, legislators again find themselves in a prolonged budget battle with no easy answers, where both houses of the Republican-controlled Legislature are proposing tax increases.The reason: even anti-tax Republicans are acknowledging that there is not much more to cut without significantly hurting popular programs, including education.The fault lines now seem to run along the question of which taxes to raise. Some believe that income taxes are off limits and that they should raise sales taxes to shoulder the entire burden. Others advocate a mixed approach and said income taxes should be on the table. Democrats argue that increasing sales taxes would be another blow to low-income Kansans to the benefit of the business class. And many worry that the only solution will be to repeal the signature piece of the law they passed in 2012: the elimination of taxes on certain types of small businesses.

Are state laws in the cross-hairs of trade deals?  For two years, along with other state legislators, I have waved yellow flags about the Pacific and European trade deals being negotiated by the Obama Administration. As Congress moves to give the president authority to "fast-track" trade treaties with other nations -- meaning Congress would give up its ability to change the agreements -- those flags are turning red. Why do state legislators care? Proposed language in the Trans-Pacific Partnership agreement could threaten our ability to enforce state laws. This undermines the 10th Amendment of the U.S. Constitution: "Powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States." Congress may give the President the ability to effectively negotiate this amendment away. The contested provision relates to "investor-state dispute settlement," where "state" refers generically to governments and "investor" refers generally to private corporations. Foreign corporations could use such language to seek millions of dollars in damages challenging state laws that supposedly "restrain trade," "discriminate" against them or otherwise create burdens that affect their sales and profits. Cases would come before special arbitration tribunals involving corporate trade lawyers rather than independent judges accountable to voters or appointed by people we elect. Iowa's consumer protection laws and Attorney General Miller's own storied tobacco settlement could be unraveled through investor-state proceedings that apply vague standards such as "regulatory coherence" and "minimum standard of treatment."

Fracking and the Texas Non-Miracle -- Krugman - I’ve been meaning to write about the Texas economic stumble, but have to some extent been scooped by the business desk. Still, there’s more to say, particularly about the role of the energy sector in the previous boom. There are various estimates out there, many of which seem to me to understate the case. Here’s the approach that makes sense to me: look at the BEA data on state-level real GDP by sector, and ask how much of the growth in overall GDP can be accounted for by growth in mining, including both direct output and support activities. Here’s what I get, for Texas and the nation as a whole: How I read this: if mining growth had been the only thing driving overall Texas growth, it would have caused the state economy to grow by 6.7 percent over the period 2005-2013, compared with 1 percent for the nation as a whole. Meanwhile, overall Texas growth was 22 points more than overall US growth; so I’d say that a quarter of the difference can be attributed to the energy-sector surge.  But we don’t want to stop there: there’s also a multiplier effect, as energy jobs boost demand for other goods and services. Nakamura and Steinsson put regional multipliers at 1.5. Including that effect, I get the mining boom accounting for 35 or more percent of the excess Texas growth — let’s say a third. It’s not the whole story; cheap housing and the still-ongoing southward shift thanks to air conditioning are also likely factors. But fracking-related growth has been big enough that the Texas slowdown now that oil prices are way down makes a lot of sense.

California Set For A 10-Cent Gas Tax Hike --When gas prices tumbled in late 2014 and early 2015, many states quietly considered, and some proposed, to take advantage of the "gas savings" and quietly institute a tax surcharge to fill up empty state coffers: after all it is much easier to implement price increases when the prevailing prices are lower than recent benchmark levels. So now that gas prices have resumed their climb in the footsteps of the price of crude oil, many assumed such "tax" proposals would quickly disappear, especially since all the speculation about a gas savings-driven spending surge by the US middle class turned out to be bogus. It turns out such assumptions would be incorrect. According to the Hill, California is now officially considering increasing the amount of money drivers in their state will have to pay at the pump to help pay for transportation projects as federal road funding dries up.  Legislation has been in introduced in the California state Senate that would increase the state’s approximately 47 cents-per-gallon gas tax by 10 cents.

TX teachers mock special ed students with ‘ghetto award' - a Texas school district has launched an investigation into two middle school teachers’ years-long practice of distributing “Ghetto Awards” to children receiving special education services, a CBS affiliate reports.  A 14-year-old Sulphur Springs Middle School student came home from school this week with a certificate that read “8th Annual Ghetto Classroom Awards” on top. The document stated the boy had specifically earned a “huh?” award this year for expressing so much confusion in class. Teachers had handed the certificates out to a classroom of students receiving supportive services for learning disabilities.  The child’s mother, Jerrika Wilkins, tells Fox 4 she “felt angry and a bit confused as to what was meant by ‘ghetto’,” when her son showed her the certificate his teachers had given him. “He feels pretty inferior,” Wilkins says of her son’s emotional reaction. “You know, he wants to succeed. You know, [the “ghetto” award] just kind of hurt his feelings.” Wilkins posted a picture of the document to Facebook.  Wilkins’ social media post caused a stir in the community, and quickly caught the attention of Michael Lamb, superintendent of Sulphur Springs Independent School District. Lamb describes his reaction to learning about the “Ghetto Awards” middle school teachers were mockingly bestowing on students.  “Shocked. Shocked. Truly, it goes in layers,” Lamb says. “You kind of ask yourself, had anything else been used, the ‘teacher’s name’ award, would it start to seem more acceptable. The ‘huh?’ award just begs questions. And then the 8th annual brings questions too.”

The #1 Problem Among College Students Is Now Anxiety: For many years the number one problem among college students was depression. In an ever growing competitive atmosphere, the biggest concern in higher education has shifted to anxiety. According to a recent study by the Center for Collegiate Mental Health at Penn State, of the 100,000 college student observed, more than half of students seeking help at campus clinics reported anxiety as an issue. Researchers spoke with mental health counselors at various colleges and found that students are having a harder time dealing with the stress of college than previous generations. The main cause of this anxiety? Helicopter parents. “They can’t tolerate discomfort or having to struggle,” Dan Jones, director of counseling and psychological services at Appalachian State University in Boone, North Carolina, told the New York Times. “A primary symptom is worrying, and they don’t have the ability to soothe themselves.” In 2010, a national study showed that nearly half of college students seeking counseling had serious mental illness. Those students outnumbered a 2000 study by 100%.

The Academic Manifesto: From an Occupied to a Public University -- Abstract - Universities are occupied by management, a regime obsessed with ‘accountability’ through measurement, increased competition, efficiency, ‘excellence’, and misconceived economic salvation. Given the occupation’s absurd side-effects, we ask ourselves how management has succeeded in taking over our precious universities. An alternative vision for the academic future consists of a public university, more akin to a socially engaged knowledge commons than to a corporation. We suggest some provocative measures to bring about such a university. However, as management seems impervious to cogent arguments, such changes can only happen if academics take action. Hence, we explore several strategies for a renewed university politics.

Twilight of the Professors -- Twenty-eight years ago Russell Jacoby argued in The Last Intellectuals that the post-WWII expansion of higher education in the U.S. absorbed a generation of radicals who opted to become professors rather than freelance intellectual troublemakers. The constraints and rewards of academic life, according to Jacoby, effectively depoliticized many professors of leftist inclinations. Instead of writing in the common tongue for the educated public, they were carrot and sticked into writing in jargon for tiny academic audiences. As a result, their political force was largely spent in the pursuit of academic careers. Jacoby acknowledges that universities gave refuge to dissident thinkers who had few other ways to make a decent living. He also grants that careerism did not make it impossible to publish radical work or to teach students to think critically about capitalist society. The problem is that the demands of academic careers made it harder to reach the heights achieved by public intellectuals of the previous generation. We thus ended up with, to paraphrase Jacoby, a thousand leftist sociologists but no C. Wright Mills.  Since Jacoby’s book was published, things have gotten worse. There are still plenty of left-leaning professors in U.S. colleges and universities. But as an employment sector, higher education has changed. There are now powerful conservatizing trends afoot that will likely lead to the extinction of professors as a left force in U.S. society within a few decades.. When the market for professors was growing, as it was in the 1960s and 1970s, radicals could get jobs in universities, earn tenure, and do critical intellectual work, even if it was often muted by a desire for conventional academic rewards. Today, tenure-track jobs are fewer and farther between. In response to reduced budgets and out of a desire for a more “flexible”—that is, cheap, pliable, and disposable—labor force, university administrators have cut tenure-track lines, preferring to hire faculty on a temporary, part-time, non-tenure-track basis.

‘Chipping Away At My Soul': Insiders Detail The Decline And Fall Of Corinthian’s For-Profit College Empire - Dave Dayen --In lawsuits, official complaints to state and federal regulators, sworn declarations submitted in Corinthian’s bankruptcy proceeding, and conversations with The Huffington Post, dozens of former Corinthian students and several former Corinthian employees said that Corinthian drowned students in debt and sent them off with meaningless diplomas that did not help -- and sometimes even harmed -- their job prospects. It illegally padded job placement statistics and gave students college credit for “externships” at fast-food restaurants. It charged students up to 10 times what a comparable community college degree would cost. More than 1 in 4 Corinthian graduates defaulted on their student loans, according to Education Department data. And for years, the Education Department not only failed to recognize the depths of the abuse, but effectively funded Corinthian’s business model, sending the company billions of dollars in financial aid to help cover students’ bills. Amid the lawsuits and enforcement actions from state and federal regulators, Corinthian filed for bankruptcy in May -- the most spectacular in a series of for-profit college failures. By late April, the company had already sold or closed all its campuses. But students lured in by Corinthian have not received comprehensive loan relief, leaving them as the ultimate victims of the for-profit college bubble. Now, a growing contingent of former students calling themselves the Corinthian 100 have refused to pay their debts, arguing that they were duped by a predatory lending scheme. Despite support for the debt strike from Democratic lawmakers and advocates, the Education Department has resisted demands for blanket loan relief.  “If I was dealing with people fraudulently, the government would take action against me,” said Catrina Beverly, a Heald College graduate from Concord, California, and a member of the Corinthian 100. “They defrauded us, and we shouldn’t have to pay for it.”

How US students get a university degree for free in Germany - BBC News: Hunter Bliss told his mother he wanted to apply to university in Germany. Amy Hall chuckled, dismissed it, and told him he could go if he got in. "When he got accepted I burst into tears," says Amy, a single mother. "I was happy but also scared to let him go that far away from home." Across the US parents are preparing for their children to leave the nest this summer, but not many send them 4,800 miles (7,700km) away - or to a continent that no family member has ever set foot in. Yet the appeal of a good education, and one that doesn't cost anything, was hard for Hunter and Amy to ignore. "For him to stay here in the US was going to be very costly," says Amy. "We would have had to get federal loans and student loans because he has a very fit mind and great goals."More than 4,600 US students are fully enrolled at Germany universities, an increase of 20% over three years. At the same time, the total student debt in the US has reached $1.3 trillion (£850 billion). Each semester, Hunter pays a fee of €111 ($120) to the Technical University of Munich (TUM), one of the most highly regarded universities in Europe, to get his degree in physics. Included in that fee is a public transportation ticket that enables Hunter to travel freely around Munich. Health insurance for students in Germany is €80 ($87) a month, much less than what Amy would have had to pay in the US to add him to her plan. "The healthcare gives her peace of mind," says Hunter. "Saving money of course is fantastic for her because she can actually afford this without any loans."

Same Education, Different Pay: Young Female College Grads Earn Substantially Lower Wages than Their Male Counterparts Economic Policy Institute Today’s young college graduates face a more challenging labor market—higher unemployment, higher underemployment, and lower wages—than their older siblings did before the Great Recession. In fact, the average wages of young college graduates—college graduates between 21 and 24 who are not enrolled in further schooling—are 2.5 percent lower than they were 15 years ago. In 2015, young college graduates had an average hourly wage of $17.94, which translates into an annual income of roughly $37,300 for a full-time, full-year worker. In 2000, the average hourly wage of a young college graduate was $18.41. While wage stagnation is not unique to the newest labor market entrants, what is particularly stunning is the fact that stark wage disparities between men and women occur even at this early part of their careers. By definition, young college graduates have the same level of education—which is to say, they all have college degrees. (It should be noted that these data do not allow for differentiation between college major or college quality, whether measured in quality of education or access to career connections via alumni networks.) Young college graduates also likely have similar levels of experience. Despite these similarities, male and female expected wages upon graduation differ greatly: while young male college grads earn an average hourly wage of $19.64 early in their careers, their female counterparts earn an average hourly wage of just $16.56, or 18.6 percent less than men.

Michigan School Pension Fund Liability Grows to $26.5 Billion - The unfunded liability of the Michigan public school pension system increased from $25.8 billion to $26.5 billion from 2013 to 2014, according to an actuarial report released in May. The system's growing costs have been called a “budget killer” and are taking an increasing amount from the funding Michigan devotes to schools. The state has agreed in recent years to essentially pick up increases in the cost of the school pension system. These payments have risen from $155 million in 2012 to $796 million in 2015, according to the Senate Fiscal Agency. Democratic politicians and union representatives have claimed that increased state payments are taking money away from the classroom, although the cost of the system is the same either way, with the money ultimately all coming from the same source: taxpayers. The claim also presumes that expenses for teacher fringe benefit should be excluded from what are considered "classroom costs." Meanwhile, the retirement system's growing costs affect every school district in the state.

Illinois Cuts Chicago a Pension Break as Its Own Finances Spiral -- Chicago won some relief from its pension burden as Illinois’s legislature cut required payments into police and fire retirement systems. Yet lawmakers failed to agree on a budget, deepening a crisis that threatens the state and city alike. The Senate voted 38 to 20 Sunday for a bill that would reduce Chicago’s payments over the next five years in a move meant to relieve immediate pressure, though it doesn’t address the city’s risk of insolvency from $20 billion in unfunded liabilities. Meanwhile, budget talks between the Democratic-controlled legislature and Republican Governor Bruce Rauner broke down hours before the session’s scheduled end, meaning any compromise to close a $6.2 billion deficit for the year starting July 1 now will require a three-fifths vote rather than a simple majority. “We find ourselves trying to work with a governor who continues to run campaigns rather than run the state,” Senate President John Cullerton said in a statement. “He dictates demands and threatens those who defy him.” Rauner, a former private-equity executive, has criticized Democrats’ insistence on tax increases to deal with the deficit. He said he won’t back them unless Democrats approve spending cuts and ease business regulations. Rauner called the session “stunningly disappointing.”

Chicago mayor mum on status of school pension payment -- Chicago Mayor Rahm Emanuel declined to say on Tuesday whether the city's school system will make a $634 million payment due at the end of June to its teachers' pension fund, the Chicago Tribune reported. He told reporters that his goal is to work with state of Illinois officials so as not to undermine the progress that has been made at the nation's third-largest public school system, the newspaper reported.   The district is facing a $1.1 billion deficit in its upcoming budget mainly fueled by higher pension payments. Spokeswomen for the mayor did not immediately respond to a request for comment. Emanuel, who controls the Chicago Public Schools, named four new school board members on Tuesday, a day after announcing the district's chief executive officer, Barbara Byrd-Bennett, resigned amid a federal probe into a contract the school system awarded to her previous employer. Pension relief for the Chicago Public Schools was on the mayor's wish list for the Illinois Legislature's spring session, but lawmakers only passed a bill to give the city some breathing room for a looming spike in contributions to its public safety workers' retirement funds.

Illinois governor attacks bill to ease Chicago pension payments - Illinois Governor Bruce Rauner on Monday criticized a bill passed over the weekend by Democratic state lawmakers to ease a looming spike in Chicago's contributions to two of its pension funds. "We need to stop kicking the can down the road on our pensions," the Republican governor said in a WBEZ radio interview, adding he was disappointed that Chicago Mayor Rahm Emanuel supported the measure. His spokeswoman declined to comment on what the governor plans to do with the bill. The mayor wanted the pension payments restructured to avoid a big property tax increase. Under a 2010 state law, the city's contribution to its police and fire fighter funds next year increases by $550 million to about $839 million. The bill would reduce that amount by about $220 million, to $619 million. Chicago's payments would increase every year from 2017 to 2020, but not as much as under the 2010 law. After 2020, the city's contributions would be calculated at amounts that would enable the two pension systems to become 90 percent funded by 2055, which is 15 years longer than in the 2010 law. The bill also ensures Chicago makes required payments and allocates proceeds from any future city casino to the public safety worker pension funds.

CalPERS Admits It Has No Idea What it is Paying in Private Equity Carry Fees  -- Yves Smith - As we’ve mentioned, many of the fees and costs that private equity investors bear are hidden from them by virtue of being shifted to the portfolio companies. For instance, private equity firms charge what Oxford professor Ludovic Phalippou has called “money for nothing” or “monitoring fees”. Many also charge “transaction fees” on top of the large fees they pay to investment bankers for buying and selling companies. The reason that those charges are opaque to private equity limited partners is that they have no right to see the books and records of the investee companies. But surely limited partners like private equity investor heavyweight CalPERS know what they are paying in contractually specified fees, namely the annual management fee and the so-called carried interest fee, which is a profit share (usually 20%) which usually kicks in after a hurdle rate has been met (historically, 8%). Think again. Private equity firms simply remit whatever they realize upon the sale of a company, net all those lovely fees and expenses (which include hefty legal fees) and any carry fee they think they’ve earned.  Put it this way: if you were selling your house, would you hire a firm to provide a turnkey service (spruce up the house, negotiate the sale with a buyer, and take care of all the closing costs) and not demand an accounting of the gross price and what was deducted to arrive at your net proceeds? Yet it’s standard practice all across the industry for private equity investors simply to receive distributions with no explanation at all.

Medicare paid doctors $90 billion in 2013, up 17 percent: officials -- Medicare, the government-run health insurance program for elderly and disabled Americans, paid physicians $90 billion in 2013, up 17 percent from $77 billion in 2012, U.S. healthcare officials reported on Monday. Physician payments accounted for less than one-fifth of Medicare's 2013 net outlays of $492 billion, which rose from $466 billion in 2012. Payments to hospitals for the top 100 inpatient stays cost Medicare $62 billion in 2013, while the rest went for drugs, privately run Medicare Advantage plans and other program costs. The payments went to about 950,000 doctors, nurse practitioners and other individual healthcare providers who participate in the program. That was up from 880,000 providers in 2012. The hospital data offer a glimpse of what ails America's elderly - and the quality shortfalls in U.S. healthcare. The single-greatest hospital expense was to replace knees, hips and other joints in 446,148 operations, with $6.6 billion paid to hospitals. The second-greatest hospital payment, $5.6 billion, went for 398,004 cases of septicemia, or blood poisoning, often a sign of poor in-patient care. In a significant change from the data released last year, the Center for Medicare and Medicaid Services differentiated between what it paid physicians for their services and what it paid to cover the costs of drugs they administered. Some physicians had complained that they were portrayed as exorbitant billers because the cost of drugs was included in what Medicare paid them.

Data Shows Large Rise in List Prices at Hospitals - The prices that hospitals ask customers to pay for a series of common procedures have increased by more than 10 percent between 2011 and 2013 — more than double the rate of inflation.But the amounts paid by Medicare, the government health care program for seniors and the disabled, has stayed flat, according to data released Monday by the federal government. The hospitals’ rising list prices mainly affect the uninsured and people who use hospitals outside their insurance network.The information about charges and payments was part of a large release of data, representing about $62 billion in Medicare payments and more than seven million hospital discharges. The data release also included information about roughly 950,000 doctors and health care practitioners who received $90 billion in Medicare payments. Cancer and eye doctors again topped the list of high earners.The list of doctors receiving the highest reimbursements in 2013 included two familiar names from a year earlier, both of whom are facing legal action for their billing practices.The second-highest earner in 2013 was Dr. Asad Qamar, a Florida cardiologist who received $16 million in 2013, according to an analysis by The New York Times. In January The Times reported that he is being sued by the federal government as part of two whistle-blower lawsuits that claim he performed unnecessary surgeries.

Insurers seek sizable rate increases on Affordable Care Act health plans — Blue Cross Blue Shield of North Carolina has asked state regulators for a 25.7 percent average rate increase on individual insurance plans purchased under the Affordable Care Act for 2016. The request, which still needs to be approved by the North Carolina Department of Insurance, doesn't include employer-sponsored health plans or to any existing coverage grandfathered in under the federal health care law. Two other insurers, Coventry Health Care of the Carolinas and United Healthcare, also offer plans through the marketplace to North Carolina residents. Coventry, which is merging with Aetna, has asked for an average 18 percent increase, while United submitted a request for an average 12.5 percent increase. Blue Cross Vice President and Chief Actuary Patrick Getzen said more than 325,000 people statewide enrolled in the insurer's plans offered on the marketplace for 2015. Although the demographics are similar to those who enrolled in 2014, he said, the current group of clients has more chronic health conditions, such as cancer, heart disease and diabetes.

Many Health Insurers Go Big With Initial 2016 Rate Requests - Dozens of health insurers say higher-than-expected care costs and other expenses blindsided them this year, and they're going to have to hike premiums for individual policies well-beyond 10 percent for 2016. The proposed double-digit hikes would apply to plans sold on the health insurance exchanges created under President Barack Obama's law, as well as individual coverage sold through brokers and agents. Insurers point to costs from customers they gained under the health care overhaul's coverage expansion and the rising expense of prescription drugs among other reasons for their planned increases, according to preliminary rate information released Monday on the federal government's website. Blue Cross and Blue Shield of North Carolina is seeking a roughly 26 percent premium increase, while plans in Illinois and Florida, among other states, are asking for hikes of 20 percent or more. Individual health insurance policies are a relatively small slice of the overall market. Many more people are insured through an employer. And it is not clear whether any of these preliminary rate hikes will stick. Regulators in many states have the power to reject price increases, and many who don't are expected to at least pressure insurers to soften their plans. Health insurance price hikes have been the subject of growing scrutiny for years. Health insurance experts say it's tough to draw broad conclusions about prices from the requests released Monday. The health care law only requires insurers to report proposed hikes of 10 percent or more. That's only a partial picture of the market that tilts toward a worst-case scenario.

The best health care system in the world? Nonsense! | Center for Public Integrity: Americans spend more per capita on health care than people anywhere else in the world, yet outcomes in every other developed country are better on almost every measure, from infant mortality to life expectancy. A big reason for that is our collective gullibility. We continue to believe what many politicians tell us, despite evidence to the contrary: that we have the best health care system in the world.  Similarly, we continue to be persuaded by insurance companies that they’re essential to the system and better than any government program could possibly be at controlling health care costs. And we are still buying the pharmaceutical industry’s argument that if Americans don’t keep paying more for prescriptions than anyone else on the planet, drug companies—which have gargantuan profit margins­­—won’t be able to keep developing the drugs we need. To understand how foolish we are, let’s consider the war of words that recently erupted between health insurers and drug companies.

America The Obese: Is There A Multibillion Dollar Conspiracy To Make Sure Americans Stay Overweight? - According to Gallup, America is now fatter than it has ever been before.  But how can this possibly be?  After all, Americans spend an astounding 60 billion dollars a year on weight loss programs and products.  After putting so much time, effort and energy into losing weight, shouldn’t we be some of the healthiest people on the entire planet? Sadly, the truth is that obesity has become a national epidemic, and we are known around the globe for our huge size.  The term “fat Americans” has become synonymous with overweight tourists, and other cultures mock us for our apparent sloth. But could there be more to this than just the fact that we eat too much?  Could it be possible that we have been fattened up by design? One of the primary reasons why most of us are overweight is due to how our food is made.  The American diet is highly processed and it is absolutely packed with obesity-causing ingredients such as sugar and high fructose corn syrup.  And it is well documented that some of the additives that they put into our food are highly addictive and actually make you want to eat more.  In fact, it has been reported that some of the additives are about as addictive as “opiates“, “heroin” and “cocaine“.  The big food corporations want us to eat as much as possible, because when we eat more of their food they make more money.

Patients Get Extreme to Obtain Hepatitis Drug That's 1% the Cost Outside U.S. - This is how far one Express Scripts Holding Co. executive was willing to go to secure inexpensive versions of Gilead Sciences Inc.’s hepatitis C drug Sovaldi, unavailable to U.S. consumers under federal drug import and patent laws. His plan: Dock a cruise ship flying an Indian flag off the coast of Miami. Stock the ship with versions of Sovaldi sold in India for $83,000 less than the U.S. retail price for 12 weeks of treatment. Ferry U.S. patients to the boat and send them home with the potentially life-saving medicines at a huge discount. The only wrinkle in his plan wasn’t the absurdity of a pharmacy benefit manager manning and operating a cruise ship full of drugs from India. The problem, after doing some quick research into the idea, was that it would probably violate U.S. drug re-importation laws that limit the value of drugs brought into the country to $1,500 -- the price of one and a half Sovaldi tablets in the U.S., said Steve Miller, chief medical officer at Express Scripts, who came up with the idea.

Big Pharma seeks special trade deal - A revolutionary class of drugs with the potential to treat intractable diseases like cancer and other killers — as well as to explode health spending globally — is at the center of the toughest negotiations of the biggest trade deal in history. The pharmaceutical industry has been pressing the Obama administration to insist that the Trans-Pacific Partnership include 12 years of monopoly pricing power for the makers of these complex and costly drugs. But critics and international relief organizations warn that the deal would lock in higher costs and mean that far fewer people in developing countries would be able to afford life-saving medication. For lawmakers opposed to giving broad trade-negotiating authority to the administration, the drug dispute highlights the danger of setting policies on life-and-death matters through a mostly closed-door process. “This deal is being negotiated largely in secret, but what we do know is that the pharmaceutical and financial industries have had a heavy hand in the process, and nothing good can come from that,” Rep. Louise Slaughter, a New York Democrat, said Thursday. “This kind of outsized influence on the trade process hurts everyone involved.”

When The "Sharing" Economy Goes Too Far: Syphilis Cases Soar 79% In A Year -- "What's mine is yours, for a fee," is the mantra of the new normal "sharing economy," as various segments of our heretofore under-utilized assets are variously 'rented' out for the enjoyment of others. However, as a report by the Rhode Island Department of Health suggests, perhaps we are sharing just a little too much. Sexually transmitted diseases are on the rise in the US, with health officials pointing the finger at casual sex arranged through social media as "the perfect storm." With gonorrhea up 30%, HIV infections up by 33%, and syphilis soaring a shocking 79% in the last year alone, perhaps they have a point.

Welcome to the Red State HIV Epidemic - It wasn’t supposed to happen here.  Not in rural, impoverished Scott County, which had reported fewer than five new cases of HIV infection each year, and just three cases in the past six years. Not in a state where, of the 500 new cases reported annually, only 3 percent are linked to injection drug use. But it did. And it could happen in many more backwoods towns just as unprepared as Austin. As the largest HIV/AIDS outbreak in Indiana’s history roils this Hoosier hamlet, it reflects the changing face of the epidemic in the U.S., as a disease that once primarily afflicted gays and minorities in deep-blue cities rises in rural red states. This new evolution of HIV is also forcing a new generation of Republican policymakers to confront its orthodox opposition to remedies such as government-funded needle-exchange programs. Over the past decade, the virus cascaded from urban cities like San Francisco, New York and Washington, D.C., into poor, rural swaths of red states in middle America—opening a new front in the national fight against the spread of HIV. “It started in the coastal states among middle-class white gay men, and then the epidemic evolved into affecting more and more minorities in the South,” says Carlos del Rio, an AIDS researcher at Emory University in Atlanta. “Obviously, now the epidemic is changed. Now, what we're seeing is it impacting the rural communities.”

South Korea MERS outbreak grows as 1,369 in quarantine -  (CNN)The World Health Organization warned that the MERS outbreak in South Korea is likely to grow, as the number of people under quarantine crept up to 1,369 on Wednesday. The Korean Centers for Disease Control and Prevention confirmed five new cases -- increasing the number of people with the disease to 35. These new cases were contracted within hospitals. So far, three people have died after contracting the respiratory virus in South Korea, the country's Health Ministry said Thursday, in the largest MERS outbreak outside Saudi Arabia. The first case, concerning a man who returned to South Korea after traveling to Saudi Arabia, Qatar, the UAE and Bahrain, was reported on May 20. The person had not been ill during his travels, according to the World Health Organization. More than 900 schools have shut to prevent the spread of the virus, according to South Korea's education ministry. The extent of the outbreak in South Korea has taken many by surprise -- mainly because the virus has not been shown to spread easily between humans and the health care system in the country is considered to be sophisticated and modern. South Korean President Park Geun-hye acknowledged problems in the country's early response earlier this week. "Initial reaction for new infectious diseases like MERS is very important, but there were some insufficiency in the initial response, including the judgment on its contagiousness," she said.

MERS death toll rises; 1,600 quarantined: Another person has died from Middle East Respiratory Syndrome (MERS), according to health authorities Thursday. The male patient was the first death from a tertiary infection, and brings the number of fatalities from the disease to three, and that of confirmed MERS cases to 36 ― including the deceased ― the Ministry of Health and Welfare said. Of the 36, six are cases of tertiary infection. The 83-year-old man died at a hospital in Daejeon, Wednesday, and tests Thursday confirmed he was infected with the virus. He had been in isolation since May 30 after sharing a ward with the 16th patient there. More than 1,600 people have also been isolated either at home or in state-run quarantine centers after coming in to contact with confirmed or suspected sufferers of MERS, 300 more than the previous day. The ministry said an Air Force chief master sergeant in Osan, Gyeonggi Province, is being quarantined after showing MERS symptoms of coughing and fever. If confirmed, he will be the first military personnel to be infected with the virus. The Ministry of National Defense said about 100 of his colleagues are being kept in isolation. Of the 36 confirmed patients, five are medical personnel, triggering concerns that they may have spread the disease to other patients they treated. In particular, one of them is a doctor at a general hospital in Seoul, raising concern of the capital coming under attack by the spreading virus. He treated a MERS patient in May and his infection was confirmed Thursday, meaning he may have transmitted the virus before this. According to the Seoul Metropolitan Government, the doctor attended medical symposiums in southern Seoul before the confirmation, contacting some 1,000 people. He was showing MERS symptoms when he took part in the events, meaning his incubation period was over and he was contagious.

Study links exposure to common pesticide with ADHD in boys - A new study links a commonly used household pesticide with attention deficit hyperactivity disorder (ADHD) in children and young teens. The study found an association between pyrethroid pesticide exposure and ADHD, particularly in terms of hyperactivity and impulsivity, rather than inattentiveness. The association was stronger in boys than in girls. The study, led by researchers at Cincinnati Children's Hospital Medical Center, is published online in the journal Environmental Health.  ADHD was determined by meeting criteria on the Diagnosic Interview Schedule for Children, a diagnostic instrument that assesses 34 common psychiatric diagnoses of children and adolescents, or by caregiver report of a prior diagnosis. The DISC is administered by an interviewer. Boys with detectable urinary 3-PBA, a biomarker of exposure to pyrethroids, were three times as likely to have ADHD compared with those without detectable 3-PBA. Hyperactivity and impulsivity increased by 50 percent for every 10-fold increase in 3-PBA levels in boys. Biomarkers were not associated with increased odds of ADHD diagnosis or symptoms in girls.

Big Ag Claims Cancer-Causing Glyphosate No More Dangerous Than ‘Coffee or Working the Night Shift’ - News that the world’s cancer experts are taking a fresh look at 2,4-D has farm organizations worried. Two months ago, the World Health Organization (WHO) concluded that glyphosate—the world’s most heavily-used weed killer—is “probably carcinogenic” to human health.  Any day now, the same body is planning to issue its findings on the weed killer 2,4-D. As weeds have evolved to withstand glyphosate, more farmers are turning to a mixture of glyphosate and 2, 4-D being marketed by Dow as “Enlist Duo” to be used in fields of genetically modified crops (GMOs). Since scientists have found evidence that farmers are twice as likely to get certain kinds of cancers—and are also far more likely to be exposed to weed killers—it makes sense that farm organizations are worried, right? It turns out that the National Corn Growers Association and the American Soybean Association aren’t worried that farmers might get cancer from this potent pesticide. They’re worried that the WHO review might create “confusion” about two weed killers that have been “mainstays for farmers for decades.” The trade organizations for the producers of corn and soybeans, crops now dominated by genetically engineered varieties, are already on the defensive. Instead of protecting farmers, the National Corn Growers Association and the American Soybean Association said in a statement this week that weed killers linked to cancer and Parkinson’s disease are no more dangerous than “coffee, using aloe vera, or working the night shift.” Perhaps, farmers’ organizations should be as dedicated to “farmer protection” as they are to “crop protection.” Studies show that exposure to 2,4-D is linked to non-Hodgkin lymphomaParkinson’s disease, immune system problems and hypothyroidism.

Editors of World’s Most Prestigious Medical Journals: “Much of the Scientific Literature, Perhaps HALF, May Simply Be Untrue".....Lancet and the New England Journal of Medicine are the two most prestigious medical journals in the world.  It is therefore striking that their chief editors have both publicly written that corruption is undermining science.  The editor in chief of Lancet, Richard Horton, wrote last month:  Much of the scientific literature, perhaps half, may simply be untrue.Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness. As one participant put it, “poor methods get results”. The Academy of Medical Sciences, Medical Research Council, and Biotechnology and Biological Sciences Research Council have now put their reputational weight behind an investigation into these questionable research practices. The apparent endemicity [i.e. pervasiveness within the scientific culture] of bad research behaviour is alarming. In their quest for telling a compelling story, scientists too often sculpt data to fit their preferred theory of the world. Or they retrofit hypotheses to fit their data. Journal editors deserve their fair share of criticism too. We aid and abet the worst behaviours. Our acquiescence to the impact factor fuels an unhealthy competition to win a place in a select few journals. Our love of “significance” pollutes the literature with many a statistical fairy-tale. We reject important confirmations. Journals are not the only miscreants. Universities are in a perpetual struggle for money and talent, endpoints that foster reductive metrics, such as high-impact publication. National assessment procedures, such as the Research Excellence Framework, incentivise bad practices. And individual scientists, including their most senior leaders, do little to alter a research culture that occasionally veers close to misconduct.

Avian Flu Epidemic Prompts CDC Warning of ‘Potential for Human Infection’ -- The U.S. Centers for Disease Control and Prevention (CDC) has released an official advisory to warn health workers and clinicians of the potential for human infection of the devastating avian flu currently ravaging the Midwest.  While there have been no cases of human transmission, the purpose of the CDC advisory is “to notify public health workers and clinicians of the potential for human infection with these viruses” and offer recommendations on how to work safely with the infected birds or in infected environments. The CDC considers the risk to the general public from the avian flu strains (H5N2, H5N8, H5N1) to be low. However, the agency noted that “people with close or prolonged unprotected contact with infected birds or contaminated environments may be at greater risk of infection.” The agency added that clinicians should consider the possibility of H5 virus infection in persons showing signs or symptoms of respiratory illness and have relevant exposure to infected or potentially infected birds. Health departments have been urged to notify the CDC of any bird flu investigations within 24 hours.

Bird flu epidemic exposes our weak biosecurity measures: The worst outbreak of avian flu in the history of the U.S. has now affected 20 states, and health officials are still assuring people the virus poses no threat to humans. More worrisome is the lack of sufficient preparedness seen in this outbreak. Secretary of Agriculture Tom Vilsack spent last week talking to farmers, producers, and government officials in Iowa and Wisconsin, and according to NPR's Linda Wertheimer, Vilsack assured people that while the H5 bird flu posed no health threat to consumers, it is devastating to farmers and producers. The bird flu has hit 20 states as of this week, affecting tens of millions of birds and ravaging over 220 farms in the Midwest. Most of them are large production facilities. The roughly 47 million birds affected include turkeys, chickens, and laying hens. This means 10 percent of egg producing hens and 7 to 8 percent of turkeys are affected.  Vilsack touched on the importance of biosecurity measures, and according to a story in Digital Journal on March 15, farms and production facilities at that time were "increasing their biosecurity standards and practices. This includes putting on sanitary clothing and showering when entering and leaving the barns."  This effort does raise red flags about the nation's biosecurity measures and our ability to fight more virulent diseases in the future. Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, posed that question and added, "In the Midwest, we've always said our biosecurity efforts were sufficient to deal with this, but we've never really been challenged."

Washington farmers, wildlife managers prepare for drought - With Washington state experiencing the worst mountain snowpack in decades and a drought emergency declared two weeks ago, farmers, growers and wildlife managers are preparing for a tough summer as conditions are expected to worsen. Some farmers and irrigators are forgoing watering crops and pastures for all or part of the season in exchange for lease payments from the state. Others are seeking permission to tap emergency wells or drill new ones. A large irrigation district in the Yakima River basin shut off the water for a few weeks this month to save supply for later. Fish managers are keeping close watch on rivers where salmon heading upstream may get stranded or could be harmed by shallow, warmer stream temperatures. The statewide snowpack level is less than 10 percent of normal, and about one-fifth of the state's rivers and streams are at record low levels, prompting Gov. Jay Inslee to declare a statewide drought emergency on May 15. He said agriculture, wildlife and communities with small water systems will be hit hardest. The declaration allows the Department of Ecology to buy and lease water for farmers, protect salmon and help those facing hardships, but the agency is still waiting for the money. The state Senate approved $18 million over two years in emergency drought relief as the first special session closed Thursday, but the House hasn't taken action yet.

Drought, water shortages become top worry for Californians: poll: (Reuters) - California's devastating drought has become the top concern for residents for the first time, as the most populous U.S. state experiences mandatory water cutbacks, according to a poll released on Wednesday. More than one-third, or 39 percent, of likely voters surveyed by the Public Policy Institute of California named water shortages and the drought as the state's most pressing issue, followed by 20 percent who said jobs and the economy were of biggest concern. It was the first time the state's record drought, now in its fourth year, has ranked as the top concern for residents, the poll said. Nearly half of those surveyed, or 46 percent, said they believe Governor Jerry Brown's order imposing the state's first-ever mandatory cutbacks in urban water consumption does enough to address the issue. Another 36 percent said the restrictions, which require reductions of up to 36 percent in some communities, do not do enough. "Public concern about the drought is at a record-high level today," Mark Baldassare, the institute's president said. "Most Californians are satisfied with the governor's actions, but a sizable number say the mandatory water reductions have not gone far enough."

Drought May Cost California's Farmers Almost $3 Billion In 2015 --The University of California, Davis is out with a new report, and some of the numbers are steep. The study found that in 2015 alone, the drought will cost the state's farmers industry $2.7 billion and more than 18,000 jobs, with 564,000 acres fallowed. And that's just for one year. "This study does not address long-term costs of groundwater overdraft, such as higher pumping costs and greater water scarcity," it reads. "The socioeconomic impacts of an extended drought, in 2016 and beyond, could be much more severe." But Richard Howitt, a professor emeritus at UC Davis, and one of the authors of the study, says the situation for farmers could be worse. "Despite really big cuts — 60 percent in the surface water supplies — access to underground water has allowed [farmers] to compensate for at least 70 percent of that," Howitt tells The Salt. "So the net cut is around 8 percent of total water." But groundwater is now running low as well, especially in the Central Valley of California, the heart of California farm country. "This is concentrated in those areas that don't have access to underground water," Howitt says. "These places are in what we call the Central Valley, the San Joaquin Valley. The impacts are hitting small farmers and farm workers [there]."Big Ag, Howitt says, has reserves to deal with the ongoing drought in a way that smaller farmers do not.

Third straw at plunging Lake Mead nearly complete -- Six hundred feet down an elevator shaft near the shore of Lake Mead, the weight of Las Vegas’ future rests on a 19,000-pound plug at the mouth of a three-mile tunnel.  The plug sits atop a domed cavern beneath the lake, holding back the pressure of millions of acre-feet of water. Later this summer, the tunnel will be flooded and a crane will pull out the plug, connecting the lake's third intake straw to nearby pumping stations and providing a new level of protection against a blistering drought that has sent Lake Mead's elevation to record low levels. The new intake — basically a steel and concrete tube that uses gravity to feed water into the valley's pumping facilities — will keep working even if the lake's elevation drops below 1,000 feet, a point at which two already existing intakes will have stopped functioning. With Lake Mead's elevation currently at 1,076 feet and dropping, the third intake provides a much-needed insurance policy to ensure the drought doesn't cut off the source of 90 percent of Las Vegas' drinking water. Pulling the plug situated at the end of tunnel will be the final step of a seven-year, $817 million project that has seen construction crews pull off a feat of engineering unlike anything else in the world.  The process started with a 600-foot access shaft excavated and blasted straight down near the shore of Lake Mead. From there, 14-person crews traded off guiding a 620-foot, 1,700-ton tunnel boring machine along a three-mile route under the lake. Progress has been slow moving, at a rate of about 35 feet per day. Several floods, cave-ins and setbacks along the way have led to delays and forced engineers to rejigger the tunnel's path. There's also been tragedy following the death of a construction worker in 2012 who was struck in the head by a pressurized jet of grouting material that was ejected when one of the concrete rings lining the tunnel slipped.

The Dead Sea Lives! -  For more than 100 years, Israeli planners have dreamed of merging the low-lying Dead Sea with a higher-altitude sea, either the Mediterranean Sea or the Red Sea, to generate hydroelectric power as water tumbled down. In recent years, a merger with the Red Sea has been seen as a means of refilling the Dead Sea to healthy levels of yore. But as plans take shape to engineer a conduit, some scientists who have studied the Dead Sea for the past decade say the merger may not help but harm the sea. In November, looking out over the azure water, Michael Lazar, a marine geologist at the University of Haifa, questioned the very idea of “saving” the ancient sea. Water levels have risen and fallen with changing climate over eons of geologic time, he explained. Given the natural cycles, he wondered out loud, “What does saving the Dead Sea really mean?”Given regional hostilities, the merger was no more than a pipe dream until 1994, when Israel and Jordan signed a treaty to develop their shared border—including the shrinking Dead Sea. The centerpiece of that plan was an engineering colossus: an $800 million pipeline transporting water 110 miles across the region and 1,000 feet downhill. Stopping the Dead Sea’s decline was just part of the benefit. The project included a hydroelectric plant to generate power at the mouth of the Dead Sea, where it would be used to desalinate half the water coming through. The result would be 900 million cubic meters a year of potable water for Israel, thirsty Jordan, and the Palestinian Territory—and another 900 million cubic meters to stabilize the Dead Sea shore. It was a “Peace Conduit,” leaders said, a project with practical value that would foster cooperation and goodwill.

The state with the Arctic Circle running through it is warmer than most of the US.- Alaska, usually frozen until June, has recently been experiencing something of a heatwave. Long-held temperature records have been broken and the winter roads that are made entirely of ice, are melting earlier than usual. On Saturday, Alaska, the 49th state of the US, was warmer than Arizona. To get this into some perspective, the Arctic Circle runs through Alaska, while Arizona contains Death Valley, a place which holds, or shares, the record for the highest air temperature recorded on Earth. Whilst Fairbanks, Alaska reached 30C on Saturday, Phoenix, Arizona managed a mere 28C. Even Bettles, a town to the north of Fairbanks and within the Arctic Circle, recorded 28C. On this same day, the small city of Eagle, east of Fairbanks, soared to 33C, the highest temperature ever recorded so early in the calendar year. Between May 16 and May 24, Eagle hit 27C or higher daily - its second longest such streak on record for any time of the year. The immediate cause of this early year warmth is the persistent high-pressure system over northwestern Canada. This is but one consequence of a developing El Nino in the eastern Pacific. Such a major movement of warm water has worldwide weather effects - drought, flood, heatwave and chill. As Alaska baked and its famous “ice road” melted a month early, in the rest of the United States, only Florida was hotter. Texas was enduring repeated heavy rain and a tornado of very rare strength, so far south, formed on the Texas/Mexico border.

Insane Heat Wave in Alaska Put Temperatures Higher Than in Arizona -- Alaska, along with the rest of the Arctic, has been warming even faster than other regions of the world due to climate change. That was the findings of a report this spring from the Department of Energy’s Pacific Northwest National Laboratory, which found that the rate of warming will only continue to increase in the coming decades. The signs of rapid warming in Alaska were everywhere this past winter. The Iditarod was moved north 300 miles to Fairbanks because Anchorage had record low snowfall. A ski resort outside of Juneau had to close because of low snowfall and warm temperatures that inhibited snow-making.  Now the 49th state experienced a heat wave at the end of May. Over Memorial Day weekend, while Texas was being inundated with floods, parts of Alaska were warmer than Arizona. On May 23 in Fairbanks, the temperature reached 86 degrees Fahrenheit, while Phoenix topped out at 83 for the day, reports Al Jazeera. Even the town of Bettles, which is north of Fairbanks and falls within the Arctic Circle, recorded a temperature of 82. That same day, Eagle, Alaska hit 91 degrees Fahrenheit, marking the earliest 90-degree day in state history, according to NASA Earth Observatory. And it wasn’t just one unusually warm day. “Between May 16 and May 24, Eagle hit 27 degrees Celsius (80 degrees Fahrenheit) or higher daily—its second longest such streak on record for any time of the year,” says Al Jazeera.

North American Moose dying in droves as climate warming fuels disease, pests --North American moose are dying by the thousands as they struggle with soaring temperatures and health problems linked to disease and parasites that thrive in the heat, scientists are finding. In north east Minnesota alone, moose numbered about 8,000 a decade ago. Today, the population is down to 3,500. The story is similar throughout Canada, New Hampshire and Maine. "All across the southern edge of the range, from Nova Scotia, New Brunswick, Minnesota, Michigan, all across the southern fringe of their range, moose numbers are in a significant decline," Eric Orff, biologist with the National Wildlife Federation, told PBS.  Biologist Seth Moore has been taking samples of the Minnesota population since 2009. Of the 80 percent of collared moose that have died, 40 percent died from an infection known as brain worm, 20 percent died from a heavy winter tick load that sucks the blood from the animals, and the rest died from a combination of both, reports Motherboard. Both scourges are linked to warmer temperatures.   Minnesota has had unusually warm winters for the last few years. Warmer temperatures also overheat the shaggy, cold-loving animals.  In addition, calves appear to be far weaker now, or abandoned, leaving them more vulnerable to predators.

April vows to stop clearing Indonesia's rainforests -- Pulp and paper giant April will stop logging natural forests four years earlier than planned as part of a renewed effort to halt deforestation across its supply chain. The Indonesia-based company announced that it had halted harvesting of all natural forest as of 15 May and will only use supplies from its own plantations. The move brings forward the company’s goal to end natural forest clearance by 2019. The latest pledge forms part of a new sustainable forest management policy, which also commits the company to work with green groups to avoid developing forested peatland, expand conservation areas, and resolve conflicts with local communities. April said it had already achieved 70% of its goal to develop conservation areas to match its 480,000 hectare plantations. “This is a major step in our 15‐year sustainability journey,” said April group president Praveen Singhavi. “This is about elimination of deforestation from our supply chain and builds on our longstanding commitment to conservation. We are delivering on conservation, social and economic benefits for Indonesia and a sustainable future for the company and our customers.”

'It Is Climate Change': India's Heat Wave Now The 5th Deadliest In World History-- A searing and continuing heat wave in India has so far killed more than 2,300 people, making it the 5th deadliest in recorded world history. If the death toll reaches more than 2,541, it will become the 4th deadliest heat wave in the world, and the deadliest in India’s history. As temperatures soared up to 113.7 degrees Fahrenheit and needed monsoon rains failed to materialize, the country’s minister of earth sciences did not mince words about what he says is causing the disaster. “Let us not fool ourselves that there is no connection between the unusual number of deaths from the ongoing heat wave and the certainty of another failed monsoon,” Harsh Vardhan said, according to Reuters. “It’s not just an unusually hot summer, it is climate change.” According to the U.N. Intergovernmental Panel on Climate Change, India is getting hotter as humans continue to pump carbon dioxide into the atmosphere. With these increases in heat, the report — produced by 1,250 international experts and approved by every major government in the world — said with high confidence that the risk of heat-related mortality would rise due to climate change and population increases, along with greater risk of drought-related water and food shortages.

India minister blames climate change for deadly heatwave, weak monsoon: (Reuters) - India's earth sciences minister has blamed climate change for a heatwave that has killed 2,500 people and for deficient monsoon rains, after the government said on Tuesday the country was headed for its first drought in six years. "Let us not fool ourselves that there is no connection between the unusual number of deaths from the ongoing heat wave and the certainty of another failed monsoon," Harsh Vardhan said. "It's not just an unusually hot summer, it is climate change," he said. The minister's comments affirm warnings from the U.N. Intergovernmental Panel on Climate Change that India will be hit by frequent freak weather patterns if the planet warms. The arrival of the June-September monsoon rains, on which nearly half of the India's farmland depends, has already been delayed by about five days, and Vardhan said there was no certainty about when the rains would arrive. India, the world's No. 3 emitter of greenhouse gases, is under growing pressure to tackle its carbon emissions after the world's top two emitters - China and the United States - last year agreed to new limits starting in 2025. But Prime Minister Narendra Modi has said he would not bow to foreign pressure and instead focus on increasing the country's use of renewable energy. His ministerial colleagues have said that because India's per-capita energy consumption is lower than Western countries, its economy should not be unfairly shackled by commitments to curb carbon when it needs to grow its economy to cut poverty.

El Nino Could Cause Serious Trouble Across Asia --You may recall a time in the mid-1990s when American citizens were worried about El Niño, the tropical weather pattern that can cause global changes in temperature and rainfall. Now, according to a new Citigroup report, the next group to pin concerns to El Niño may be bankers.  The report, produced by Citi analysts Johanna Chua and Siddharth Mathur, suggests that the current El Niño (the weather anomaly takes places at unpredictable times, sometimes more than five years apart) could have a deleterious effect on economies in countries in and around Asia.   India, Thailand, The Philippines, and others, where agriculture contributes a major percentage of GDP, might see inflation in food prices, since a severe El Niño can brings dry spells and cause crop damage. In Indonesia, for example, the agriculture sector makes up more than 50% of overall employment.  In economies dependent on farming, long-lasting weather that upends crops will naturally impact farming output, and thus commodity pricing.  With these countries especially vulnerable to economic disruption, it may be more bad news that recent reports indicate we are about to see a particularly violent El Niño.

A Global Tour of 7 Recent Droughts - World Resources Institute: Every inhabited continent, to varying degrees, faces extremely high water stress. That means that in certain areas more than 80 percent of the local water supply is withdrawn by businesses, farmers, residents and other consumers every year. Not all of that water is consumed - it may flow back into a river after it’s used and be available again downstream - but the demand still creates competition where it is needed.These “stressed” areas are also the ones most vulnerable to episodic droughts. With chronic over-use of water resources, it only takes a string of a few bad rainfall years or poor management decisions to plunge a region into crisis and chaos. .And indeed, that is what we appear to be seeing across the world over the past few years. Here’s a look at seven extreme droughts that have occurred in the past decade:

Scientists Warn to Expect More Weather Extremes - Torrential rains and widespread flooding in Texas have brought relief from a yearslong drought to many parts of the state. Such unpredictable and heavy rains are a big part of what climate scientists say that many Texans can expect in years to come.The relief has come at a great cost. The death toll from storms across the state and Oklahoma has reached at least 19, by some estimates, and the property damage is so extensive that Gov. Greg Abbott of Texas has declared some 40 counties disaster areas.It was not long ago that the state was dealing with a searing drought. In 2011, the drought was so pronounced that the governor then, Rick Perry, proclaimed three days in April “days of prayer for rain in Texas.” John W. Nielsen-Gammon, Texas’ state climatologist and a professor at Texas A & M University, said that Texas weather was heavily influenced by long-term weather phenomena, including El Niño and natural variations of temperatures in both the Atlantic and Pacific oceans. For now, he said, the slight rise in sea surface temperatures may have added 4 or 5 percent to the recent rainfall, but the longer-term trends for much of the state call for “a decrease of a few percent” in rainfall. It could take many decades, he said, before the effects of warming become a more important factor in the state’s weather than the natural variability. Andrew E. Dessler, a climate researcher at Texas A & M, compared the question of climate change and weather to trying to figure out which of Barry Bonds’s home runs were caused by his steroid use. “You know statistically some of them were, but you don’t know which ones,” he said. “Almost certainly, it would have rained a lot even without climate change — but it’s possible climate change juiced it, added a little bit.”

Red Cross Spent Half a Billion Dollars to Build Six Homes in Haiti -- Despite taking in more than $500 million in donations, the Red Cross has only built six houses in Haiti.  The American Red Cross raised more than half a billion dollars to bring relief to Haiti after the devastating 2010 earthquake there, but it grossly overstated what the money bought.  Although the organization claimed to have provided housing to more than 130,000 people, it actually only built six permanent homes, according to a report by ProPublica and NPR.That year, the Red Cross kicked off a big project to revitalize the neighborhood of Campeche in Haiti’s capital, Port-au-Prince. However, it has yet to build any homes in the neighborhood, and its residents still live in shacks without access to clean water, electricity, and basic sanitation.Much of the Red Cross’s failure stems from passing on the money to other groups with more expertise in building projects, which resulted in less of the funds reaching those in need, ProPublica found.

Glacier loss raises high concern over water supplies  The glaciers of the Everest region of the Himalayan massif – home to the highest peak of all – could lose between 70% and 99% of their volume as a result of global warming. Asia’s mountain ranges contain the greatest thickness of ice beyond the polar regions. But new research predicts that, by 2100, the world’s highest waters – on which billions of people depend for their water supply – could be at their lowest ebb because of the ice loss. Many of the continent’s great rivers begin up in the snows, fed by melting ice in high-peak regions such as the Hindu Kush, the Pamir and the Himalayas.  Joseph Shea, a glacial hydrologist at the International Centre for Integrated Mountain Development in Kathmandu, Nepal, and French and Dutch colleagues report in The Cryosphere journal that they used more than 50 years of climate data and sophisticated computer models of predicted climate change to study the pattern of snowpack and seasonal melt in the Everest region.They found a decrease of 20% since 1961, and signs that most, if not quite all, of the stored ice could disappear in the next 85 years.“The signal of future glacier change in the region is clear: continued and possibly accelerated mass loss from glaciers is likely, given the projected increase in temperatures,” Dr Shea says. ”Our results indicate that these glaciers may be highly sensitive to changes in temperature, and that increases in precipitation are not enough to offset the increased melt.”

Arctic warming is causing organic carbon deep-frozen in the soil for millennia to be released rapidly into the air as CO2, with potentially catastrophic impacts on climate − An international team of scientists has settled one puzzle of the Arctic permafrost and confirmed one long-standing fear: the vast amounts of carbon now preserved in the frozen soils could one day all get back into the atmosphere. Since the Arctic is the fastest-warming place on the planet, such a release of greenhouse gas could only accelerate global warming and precipitate catastrophic climate change.That the circumpolar regions of the northern hemisphere hold vast amounts of deep-frozen carbon is not in question. The latest estimate is 17 billion tonnes, which is twice the level of carbon dioxide in the atmosphere and perhaps 10 times the quantity put into the atmosphere by burning fossil fuels since the start of the Industrial Revolution.  Researchers have checked the mouths of the Arctic rivers for the telltale evidence of ancient dissolved organic carbon – partly-rotted vegetable matter deep-frozen more than 20,000 years ago − and found surprisingly little. Now Robert Spencer, an oceanographer at Florida State University, and colleagues from the US, UK, Russia, Switzerland and Germany report in Geophysical Research Letters that the answer lies in the soil − and in the headwater streams of the terrestrial Arctic regions.  Instead of flowing down towards the sea, the thawing peat and ancient leaf litter of the warming permafrost is being metabolised by microbes and released swiftly into the atmosphere as carbon dioxide.

Arctic Methane Alert — Ramp-Up at Numerous Reporting Stations Shows Signature of an Amplifying Feedback -- Over the past few months, reporting stations around the Arctic have shown a ramping rate of atmospheric methane accumulation. The curves in the graphs are steepening, hinting at a growing release of methane from a warming Arctic environment. Canada methane graph shows atmospheric methane increases in the range of 20 parts per billion in just one year. This rate of increase is 2-3 times the global average for the past five years. A skyrocketing rate of increase. The science is pretty settled. There’s a massive store of ancient carbon now thawing in the Arctic. In the land-based permafrost alone, this store is in the range of 1.3 billion tons — or nearly double the volume in the atmosphere right now. Arctic Ocean methane hydrates in the East Siberian Arctic Shelf add another 500 billion tons. A rather vulnerable store that does not include hundreds of billions of additional tons of carbon in the deeper methane hydrates around the Arctic in places like the Gakkel Ridge, in the Deep Waters off Svalbard, or in the Nares Strait. Massive carbon stores of high global warming potential gas locked in frozen ground or in ice structure upon or beneath the sea bed. But now human beings — through fossil fuel emissions — are dumping heat trapping gasses into the atmosphere at an unprecedented rate. These gasses are most efficient at trapping heat in the colder, darker regions of the world. And, due to a combination of massive Northern Hemisphere burning, and release from the Arctic carbon stores themselves, the highest concentrations of greenhouse gasses can be found exactly where they are needed least — in the world’s far northern zones .

NOAA Study Confirms Global Warming Speed-Up Is Imminent -- A major new study from NOAA finds more evidence that we may be witnessing the start of the long-awaited jump in global temperatures. As I reported in April, many recent studies have found that we are about to enter an era of even more rapid global warming. Indeed, one March study, “Near-term acceleration in the rate of temperature change,” warns the speed-up is imminent — with Arctic warming rising a stunning 1°F per decade by the 2020s. The new study in Science from a team of NOAA scientists, “finds that the rate of global warming during the last 15 years has been as fast as or faster than that seen during the latter half of the 20th Century,” as NOAA explains. The director of NOAA’s National Centers for Environmental Information, Thomas Karl, told the UK Guardian that “considering all the short-term factors identified by the scientific community that acted to slow the rate of global warming over the past two decades (volcanoes, ocean heat uptake, solar decreases, predominance of La Niñas, etc.) it is likely the temperature increase would have accelerated in comparison to the late 20th Century increases.” What happens when these various temporary factors stop? Karl explained: “Once these factors play out, and they may have already, global temperatures could rise more rapidly than what we have seen so far.” In other words, the long-awaited jump is global temperatures is likely imminent. How big is the jump? As I reported in April, top climatologist Kevin Trenberth has said it would be as much as 0.5°F. Given that 2015 is crushing it for the hottest year on record, we appear to be already witnessing a big piece of that jump.

The U.S. Isn’t Doing Enough To Tackle Emissions From Agriculture In Its International Climate Plan -- The United States and European Union aren’t doing enough to address emissions from land use — such as agriculture — in their carbon reduction plans for the upcoming climate talks in Paris, France, according to a new report.The Union of Concerned Scientists (UCS) analyzed the “intended nationally determined contributions” (INDCs) of the U.S., Mexico, and the E.U. in a report released Tuesday. These INDCs are proposed plans to tackle climate change that each country must submit ahead of the Paris climate talks, a conference with the goal of reaching a binding international agreement on climate change. The UCS researchers found that, in the plans of the E.U. and U.S., there is “practically no mention of specific actions that they plan to take in the land sector.”“It is disappointing to see the U.S. neglect to address emissions from agriculture and forestry — especially when the potential for reductions is so considerable,” Doug Boucher, director of UCS’s Tropical Forest and Climate Initiative, said in a statement.Mexico, on the other hand, “goes into considerable detail, putting forth plans to reduce deforestation to zero by 2030, restore forests and other biomes, increase carbon capture, and give greater protection to coastal ecosystems.”

Climate Deal Badly Needs a Big Stick - Few economists are as versed in the global diplomatic effort to combat climate change as Nicholas Stern of Britain.So it was particularly distressing to hear him say, at a debate in New York a few weeks ago, that the international effort to achieve a worldwide climate agreement in Paris next December is already falling short on its most critical goal. The various pledges by nations to cut their emissions of heat-trapping greenhouse gases, he noted, will not be enough to prevent the Earth’s temperature from rising beyond the level scientists consider the tipping point to devastating environmental disruption. Professor Stern does not call this “failure.” At least emissions will be lower than without a deal. And he expects the agreement to include a mechanism to review progress every few years, so countries might ramp up their efforts to cut emissions as needed. “This is very much worth having,” he said.  Perhaps the word failure fits, however. More than a quarter-century of fruitless efforts to induce the world’s major greenhouse gas polluters like China and the United States to significantly cut their emissions suggests the entire approach may be fundamentally flawed.Such failure indicates that getting countries to make the costly but necessary investments to reduce their greenhouse gas emissions will require more than diplomacy. It will require a big stick. Consider the United States, the world’s second-largest greenhouse gas emitter. What if every other advanced nation, as a way to encourage energy efficiency and spur investments in alternatives to fossil fuels, agreed to put a price of $25 per ton on carbon dioxide emitted into the atmosphere? As a tax, that would add some 22 cents to the price of a gallon of gas, something few American politicians — fearing public anger — are yet ready to consider. According to calculations by William Nordhaus, an expert on the economics of climate change at Yale, the United States, on net, would gain $8 billion a year by benefiting from everybody else’s efforts to slow down the Earth’s warming without having to exert any effort itself.

U.S. Congress Should Have No Part In International Climate Deal, French Minister Says -- On Day 1 of the newest round of the United Nations’ climate change negotiations, the French foreign minister warned delegates that any agreement to lower emissions would have to avoid needing approval from the United States Congress.  “We know the politics in the U.S.,” Laurent Fabius told African delegates, the AP reported. “Whether we like it or not, if it comes to the Congress, they will refuse.” The United Nations is seeking to develop an agreement that will keep global warming to below the scientifically recognized two-degree limit to avoid cataclysmic climate change. Two weeks of negotiations began Monday, and the final agreement is scheduled for a December meeting in Paris.  The threat — almost guaranteed — of congressional refusal to ratify the United States’ participation in an international climate agreement might not be as meaningful as some would think. A successful, legal agreement to keep global warming to below two degrees could take a number forms, David Waskow, director of the World Resource Institute’s International Climate Initiative, told ThinkProgress. Under U.S. law, any international treaty must be ratified by Congress. International agreements that bind or prohibit the United States from actions not otherwise mandated by law must also be ratified by Congress. But there have been hundreds of executive agreements that do not trigger Congressional action, Waskow said.

The fossil-fuel industry’s campaign to mislead the American people - US Sen Sheldon Whitehouse --Fossil fuel companies and their allies are funding a massive and sophisticated campaign to mislead the American people about the environmental harm caused by carbon pollution. Their activities are often compared to those of Big Tobacco denying the health dangers of smoking. Big Tobacco’s denial scheme was ultimately found by a federal judge to have amounted to a racketeering enterprise.  The Big Tobacco playbook looked something like this: (1) pay scientists to produce studies defending your product; (2) develop an intricate web of PR experts and front groups to spread doubt about the real science; (3) relentlessly attack your opponents. In the case of fossil fuels, just as with tobacco, the industry joined together in a common enterprise and coordinated strategy. In 1998, the Clinton administration was building support for international climate action under the Kyoto Protocol. The fossil fuel industry, its trade associations and the conservative policy institutes that often do the industry’s dirty work met at the Washington office of the American Petroleum Institute. A memo from that meeting that was leaked to the New York Times documented their plans for a multimillion-dollar public relations campaign to undermine climate science and to raise “questions among those (e.g. Congress) who chart the future U.S. course on global climate change.” The shape of the fossil fuel industry’s denial operation has been documented by, among others, Drexel University professor Robert Brulle. In a 2013 paper published in the journal Climatic Change, Brulle described a complex network of organizations and funding that appears designed to obscure the fossil fuel industry’s fingerprints. To quote directly from Brulle’s report, it was “a deliberate and organized effort to misdirect the public discussion and distort the public’s understanding of climate.” That sounds a lot like Kessler’s findings in the tobacco racketeering case.

Corn Ethanol Is Worse for the Climate Than the Keystone XL Pipeline, According to EPA’s Own Estimates -- Do you think the federal government couldn’t order something worse for the environment than the Keystone XL oil pipeline?  Think again.  Using the U.S. Environmental Protection Agency’s (EPA) own estimate, we calculate that the corn ethanol mandate has been worse for the climate than projected emissions from the controversial Keystone XL pipeline. Last week the EPA proposed new minimum volumes of corn ethanol that refiners would be required to  blend into gasoline this year and the next. Congress set this policy, called the Renewable Fuel Standard, in the Energy Independence and Security Act of 2007. At the time, lawmakers hoped that using ethanol and other renewable fuels would reduce carbon emissions and American dependence on foreign oil. Last year, corn ethanol producers churned out 14 billion gallons, about 13.4 billion gallons of which were blended into the 135 billion gallons of gasoline the nation’s drivers used. Extracting tar sands and turning them into oil is more energy-intensive than traditional drilling for petroleum. According to the Natural Resources Defense Council, dirty oil transmitted from Alberta, Canada, to the Gulf Coast by the Keystone XL pipeline would emit 24 million tons of carbon per year. But our calculations show that last year’s production and use of 14 billion gallons of corn ethanol resulted in 27 million tons more carbon emissions than if Americans had used straight gasoline in their vehicles. That’s worse than Keystone’s projected emissions. It’s the equivalent of emissions from seven coal-fired power plants.*

Climate benefits of a natural gas bridge 'unlikely to be significant'-- Natural gas can only be a worthwhile bridge to a low carbon future if a series of tough conditions are met, according to a working paper from the influential New Climate Economy initiative. The paper says the climate benefits of gas, including shale gas, could in theory be significant. It suggests a 10% increase in global gas supplies could prevent 500 gigawatts (GW) of new coal capacity being added by 2035, avoiding 1.3 billion tonnes of annual carbon dioxide (CO2) emissions. But it warns that any theoretical benefits could easily be wiped out without controls on methane leakage, limits on total energy use and targets to ensure low-carbon energy sources are not displaced. The North American shale gas revolution has helped drive down emissions from US electricity supplies. The US shift from coal- to gas-fired power stations has been driven, though perhaps only in part, by market forces because fracking has made US gas cheaper. The US example is often cited as evidence that gas can act as a lower-carbon bridge to a low-carbon future. Gas advocates argue it could help the world avoid new coal-fired power stations and close down old ones, halving carbon emissions per unit of electricity in the process. For instance in a recent interview with Energy Post, Jérôme Ferrier, president of the International Gas Union says that gas, the "cleanest fossil fuel", can play a key role in limiting global warming. He says that the great challenge for the world is to move from coal to gas. The new working paper, jointly authored by the New Climate Economy initiative and the Stockholm Environment Institute, questions the premise of the gas bridge.

Cutting soot and methane distracts from 2C goal, says Oxford scientist -- Politicians have agreed that global temperatures need to be limited to below 2C, and scientists say that this will mean drastically reducing emissions of greenhouse gases. But which one should be cut first? Humans emitted 35.3 billion tonnes of carbon dioxide (CO2) in 2013 - a volume that is increasing every year, putting the world on course to exceed its goal to keep temperature increase since the start of the Industrial Age below 2C. But this is not the only pollutant that causes the planet to warm. Methane, ozone, black carbon (soot) and hydrofluorocarbons have an even more powerful warming effect, per tonne, than CO2.  Yet unlike CO2, which can last in the atmosphere for up to millennia, these stick around in the atmosphere for a matter of years or even days. As a result, they are known as short-lived climate pollutants (SLCPs). Most countries are focusing on reducing CO2 and SLCPs at the same time.  But a new policy paper by Myles Allen, professor of geosystem science at the Oxford Martin School at the University of Oxford, says that reducing SLCPs while CO2 emissions are still rising could make it more difficult to hit the 2C goal. He argues that, while there are good reasons to cut SLCPs, they should not be used as an excuse to put off cutting CO2 emissions.

Geo-Engineering Doesn’t Reduce Long-Term Risk — Mark Buchanan — who is actually a physicist, after all — makes a compelling argument against relying on geo-engineering to deal with our climate change problem. For one thing, some of the proposed technologies simply won’t work, because they do nothing about the fact that the poles are warming faster than the rest of the planet. For another, the geo-engineering fairy is being used to lobby against other approaches — conservation and renewable energy sources — that would deal with climate change at its source.  Another reason to be skeptical of geo-engineering is the effect it has on the risk profile of humanity’s future. Technology has produced some amazing things in the past century. But, with zero exceptions that I can think of, they weren’t things that our species needed to survive, or to prevent widespread natural and societal devastation. If we’re talking about technologies that can make our lives better in all sorts of ways, like the Internet or DNA sequencing or quantum computing, then risk is good: we want to place lots of bets that have a high chance of failure but high potential returns. But that’s not true when it comes to our climate. Even if we stipulate that geo-engineering has a, say, 90 percent chance of solving all the significant problems of climate change — an estimate that is almost certainly way too high — who wants to take that risk?

Twenty-Three Geniuses - Kunstler - If there is a Pulitzer Booby Prize for stupidity, waste no time in awarding it to The New York Times’ Monday feature, The Unrealized Horrors of Population Explosion. The former “newspaper of record” wants us to assume now that the sky’s the limit for human activity on the planet earth. Problemo cancelled. The article and accompanying video was actually prepared by a staff of 23 journalists. Give the Times another award for rounding up so many credentialed idiots for one job. Apart from just dumping on Stanford U. biologist Paul Ehrlich, author of The Population Bomb (1968), this foolish “crisis report” strenuously overlooks virtually every blossoming fiasco around the world. This must be what comes of viewing the world through your cell phone. One main contention in the story is that the problem of feeding an exponentially growing population was already solved by the plant scientist Norman Borlaug’s “Green Revolution,” which gave the world hybridized high-yielding grain crops. Wrong. The “Green Revolution” was much more about converting fossil fuels into food. What happens to the hypothetically even larger world population when that’s not possible anymore? And did any of the 23 journalists notice that the world now has enormous additional problems with water depletion and soil degradation? Or that reckless genetic modification is now required to keep the grain production stats up? No, they didn’t notice because the Times is firmly in the camp of techno-narcissism, the belief that the diminishing returns, unanticipated consequences, and over-investments in technology can be “solved” by layering on more technology — an idea whose first cousin is the wish to solve global over-indebtedness by generating more debt. Climate change, for instance, is only mentioned once in passing, as though it was just another trashy celebrity sighted at a “hot” new restaurant in the Meatpacking District. Also left out of the picture are the particulars of peak oil (laughed at regularly by the Times, which proclaimed the US “Saudi America” some time back), degradation of the ocean and the stock of creatures that live there, loss of forests, the political instability of whole regions that can’t support exploded populations, and the desperate migrations of people fleeing these desolate zones.

Humans Are The Cause Of The Sixth Extinction. But Will We Also Be The Victims? - “Homo sapiens is poised to become the greatest catastrophic agent since a giant asteroid collided with the Earth 65,000,000 years ago, wiping out half the world’s species in a geological instant.” So wrote anthropologist Richard Leakey in his 1995 book, “The Sixth Extinction: Patterns of Life and the Future of Humankind.”  Because of the vital dependence we have on the “ecosystem services” provided by the rest of nature, Leakey warned, “unrestrained, Homo sapiens might not only be the agent of the sixth extinction, but also risks being one of its victims.” Twenty years later, the great climate journalist Elizabeth Kolbert has won a very deserved Pulitzer prize for her nonfiction book “The Sixth Extinction: An Unnatural History.”  In her book, Kolbert quotes Leakey and explains that there’s no way of knowing if humanity will be wiped out in this self-inflicted disaster. For her, “what’s most worth attending to” right now, is the fact that “we are deciding, without quite meaning to, which evolutionary pathway remain open and which will forever be closed.” As she notes, “no other creature has ever managed this.”  I personally doubt homo sapiens will go fully extinct. The more important question for me is whether the planet can support upwards of 10 billion people post-2050 given that we have already overshot the Earth’s biocapacity — and the overshoot gets worse every year.Most significantly, we are in the process of destroying a livable climate upon which so many species, including our own, rely. We are currently on a trajectory to warm the planet 4°C (7°F) or more this century and then continue warming in the next. In 2011, the UK Royal Society devoted a special issue of one of its journals to “Four degrees and beyond: the potential for a global temperature increase of four degrees and its implications.” The concluding piece warned:

E.P.A. Proposal Will Put Bigger Trucks on a Fuel Diet - This week, the E.P.A. is expected to propose regulations to cut greenhouse gas emissions from heavy-duty trucks, requiring that their fuel economy increase up to 40 percent by 2027, compared with levels in 2010, according to people briefed on the proposal. A tractor-trailer now averages five to six miles a gallon of diesel. The new regulations would seek to raise that average to as much as nine miles a gallon. A truck’s emissions can vary greatly, depending on how much it is carrying. The hotly debated rules, which cover almost any truck larger than a standard pickup, are the latest in a stack of sweeping climate change policy measures on which President Obama hopes to build his environmental legacy. Already, his administration has proposed rules to cut emissions from power plants and has imposed significantly higher fuel efficiency standards on passenger vehicles. The truck proposals could cut millions of tons of carbon dioxide pollution while saving millions of barrels of oil. Trucks now account for a quarter of all greenhouse gas emissions from vehicles in the United States, even though they make up only 4 percent of traffic, the E.P.A. says. But the rules will also impose significant burdens on America’s trucking industry — the beating heart of the nation’s economy, hauling food, raw goods and other freight across the country. It is expected that the new rules will add $12,000 to $14,000 to the manufacturing cost of a new tractor-trailer, although E.P.A. studies estimate that cost will be recouped after 18 months by fuel savings.

Nuclear Giants Take a Huge Hit - The European nuclear industry, led by France, seems to be in terminal decline as a result of the cancellation of a new Finnish reactor, technical faults in stations already under construction and severe financial problems. The French government owns 85 percent of both of the country’s two premier nuclear companies—Areva, which designs the reactors, and Électricité de France (EDF), which builds and manages them. Now it is amalgamating the two giants in a bid to rescue the industry. Even if the vast financial losses involved in building new nuclear stations can be stemmed, there is still a big question mark over whether either company can win any new orders. Their flagship project, the European Pressurised Reactor (EPR), billed as the most powerful reactor in the world, has two prototypes under construction—one in Finland and the second in France. Both of the 1,650 megawatt reactors are years late and billions of  Euros over budget, with no sign of either being completed. The Finnish government, once the most enthusiastic nuclear cheerleader in Europe, has lost patience with Areva, and the Finnish electricity company TVO has scrapped plans to build a second EPR in Finland. This is because the first one, under construction at Olkiluoto since 2005, and which was supposed to be finished by 2009, is not expected to be producing electricity until 2018—and even that may yet prove optimistic. It was intended  to be the first of a “worldwide fleet.” The second EPR under construction, at Flamanville in France, is also seriously delayed, and possibly in even deeper trouble because of concerns about the quality of steel in the pressure vessel.

The energy revolution will not be televised - Three recent news items remind us that energy transitions take time, a lot of time--far too much time to be shrunk down into a television special, a few talking points, or the next big energy idea. Despite nine years of effort, the international fusion research project called the International Thermonuclear Experimental Reactor (ITER) has resulted in estimated final costs that have tripled since the 2006 launch, has yet to carry out a single experiment; and, the project is not expected to do so for another four years. . One of the most promising tests was performed last year at the National Ignition Facility of the Lawrence Livermore National Laboratory in California. This test produced about 17 kilojoules which was more energy than was used to create the fuel. Problem is, the lasers that initiated the fusion consumed about 2 megajoules or 118 times the amount of energy created by the test. Also, just recently the U.S. Environmental Protection Agency (EPA) announced that it will be reducing industry production quotas enacted by Congress for renewable liquid fuels such as ethanol and biodiesel. The EPA has the statutory authority under the 2007 law to adjust such quotas. But few back then anticipated that the quotas would be adjusted downward so severely. The law set the quota at 20.5 billion gallons for 2015. The EPA has reduced the quota to 15 billion gallons. The nation's corn growers--who provide the feedstock for most of the ethanol produced in the United States--say they may sue because the EPA is ignoring the law. But the corn growers and the nation will likely find out in the course of such a suit that the EPA is merely bowing to the laws of chemistry and the dictates of economics. The previously hailed quick advances in what is called cellulosic ethanol--which can be made from practically anything containing cellulose such as wood chips and plant waste--have not materialized.

If It Ain’t Broke, Don’t Fix It!: Potential Impacts of Privatizing the Tennessee Valley Authority -- The Obama administration is considering whether to divest all or part of the federally owned Tennessee Valley Authority (TVA) as a means to pay down the U.S. debt. The selling off of all or part of the TVA to private ownership would have far-reaching consequences, especially for the 9 million people in the 80,000-square-mile region—encompassing parts of Tennessee, northern Alabama, Mississippi, Kentucky, Georgia, North Carolina, and Virginia—to whom the TVA provides electricity and other services. The proposal has sparked a debate about the benefits and problems that divestiture might bring. Conservatives have long opposed the TVA on the grounds that it is an illegitimate government intrusion into the marketplace. The Obama administration’s fiscal year (FY) 2014, 2015, and 2016 budget proposals have called for reducing or eliminating the federal government’s role in programs such as the TVA “which have achieved their original objectives or no longer require Federal participation.” Worried that the TVA’s bond debt, then at $26 billion, could exceed its $30 billion statutory cap and thus impact the federal debt, the administration has suggested ending federal ties in order to “help mitigate risk to taxpayers” and “put the Nation on a sustainable fiscal path”  At the same time, the TVA’s major stakeholders have come out against divestiture. Opposition has been broad-based, from conservative congressional lawmakers from states and districts in the TVA service area; to the municipally owned and cooperative local power companies and the Tennessee Valley Public Power Association, which represents these distributors; to labor unions representing TVA employees. This report presents an overview of the debate. It evaluates the pros and cons; summarizes the agency’s organizational, financial, and economic situation; and examines the potential implications of privatization for ratepayers, communities, and the regional economy.

The Secret 1949 Radiation Experiment That Contaminated Washington - The physicists who invented the nuclear bomb worked out of Los Alamos in New Mexico, but the people who did the dirty work of making the bombs were in Hanford, Washington. Throughout the Cold War, Hanford churned out plutonium for our nuclear arsenal. It was also, conveniently, a place to experiment with radiation. Today, Hanford is the most contaminated radioactive site in America—the site of a massive (and troubled) cleanup effort. Radioactive material is still accidentally leaking into the ground. Though Hanford’s plants routinely released small doses of radioactive material into the air, most of this damage came from an event in 1949 called Green Run.  Green Run was a secret Air Force experiment that released Hanford’s largest single dose of radioactive iodine-131. On the night of December 2, 1949, at the behest of the military, scientists at Hanford let 7,000 to 12,000 curies of iodine-131 into the air, where it rode the wind as far as 200 miles. For a sense of scale, the Three Mile Island nuclear power plant accident released an estimated 15 to 24 curies of iodine-131 and the Chernobyl accident 35 million to 49 million curies. The Green Run stayed secret until the 1980s, when it was revealed by Freedom of Information Act requests from local newspapers. The military details are still classified. More than half a century later, suspicion and controversy continue to lurk around Green Run, especially among the residents who lived downwind of Hanford. There’s still much that we don’t know about the Green Run, but here is what we do.

Burning Coal Is Hot; Its Warming Is Far Hotter  -- Think of a holiday road trip’s effect on the climate this way: The amount of heat a car  contributes to the atmosphere because of its carbon emissions may be 100,000 times greater than the actual heat given off by its engine. That’s the conclusion of a Carnegie Institution for Science study published Tuesday that shows two things: Emissions from burning a lump of coal or a gallon of gas has an effect on the climate 100,000 times greater than the heat given off by burning the fossil fuel itself. And, the heat trapped by those emissions can be felt within just a few months of the fuel being burned. Burning fossil fuels is the globe’s biggest source of human-caused greenhouse gases and the primary cause of climate change.Warming caused by burning coal in a power plant can be felt in the atmosphere within 95 days — the time it takes for the emissions released from the plant to trap enough heat to exceed the amount generated from the plant itself, according to the study. That process takes 124 days for a crude oil-fired power plant and 161 days for a power plant burning natural gas.  “If a power plant is burning continuously, within three to five months, depending on the type of power plant, the carbon dioxide from the power plant is doing more to heat the earth than the fires in its boiler,” “As time goes on, the rate of burning in the power plant stays the same, but the carbon accumulates, so by the end of the year, the greenhouse gases will be heating the earth much more than the direct emissions of the power plant.”

The coal conundrum - By using his executive powers to go around a Republican-controlled Congress that won’t pass climate legislation, President Obama is likely to set off a chain reaction in energy markets in June when the U.S. Environmental Protection Agency finalizes his sweeping plan for tighter rules on coal-fired power plants. Mr. Obama’s Clean Power Plan is one of his administration’s most controversial environmental programs. Major utilities such as Akron-based FirstEnergy Corp. and coal-rich states such as Ohio are fighting to keep it from getting enacted, while advocacy groups such as the Natural Resources Defense Council and the American Lung Association claim it is essential to improve air quality and set the nation on a path toward meaningful reductions in carbon dioxide and other climate-altering greenhouse gases. The dynamics go deeper than the far-reaching issue of climate change: The Clean Power Plan is intensifying a national debate over how much newer technology is reasonable before its costs drive monthly electric bills beyond the reach of low-income Americans and those on fixed incomes. It is a delicate balancing act between the need for blue collar jobs, energy security, and society’s ability to absorb rising costs of treating asthma, chronic obstructive pulmonary disease, and other respiratory conditions. States will have a year to write their own implementation rules, with the plan scheduled to take effect in 2020.

In Stunning Reversal, 'Big Oil' Asks for Carbon Price -- Let’s see if you can guess the source for the following quote. “We want to be a part of the solution and deliver energy to society sustainably for many decades to come.” If you guessed a major solar, wind or renewable energy company, you’d be wrong. If you guessed six of the world’s largest oil and gas companies, give yourself a gold star. In a stunning reversal of years of obstructionism to creating a global framework to deal with climate change, CEOs from global oil and gas behemoths Shell, BP, Total, Statoil, Eni and the BG Group have signaled that they’re ready for a price on carbon. The CEOs of the companies, with nearly $1.4 trillion in annual revenue, sent a letter on Friday, which was released publicly on Monday, to Christiana Figueres, the United Nation’s climate chief, as well as Laurent Fabius, France’s Foreign Affairs and International Development Minister who will also lead the Paris climate talks later this year.

Kasich Still Fighting To Get 'Fracking' Tax Approved This Year -- Senate leaders are talking about possibly creating a so-called "fracking" tax through this year’s budget plan. The fight over increasing the oil and natural gas tax has been a long battle on many fronts.The Senate plans on releasing a revised budget any day now and it might include an increase to what’s known as the severance tax—this is a tax on the oil and gas extracted from Ohio’s shale. If that happens, it could be Gov. John Kasich’s closest shot at getting an increase to pass in three years.Right now, the rate is at $.20 per barrel of oil and $.03 per 1,000 cubic feet, or MCF, of natural gas. Kasich says that’s way too low for a state with a booming shale natural gas industry. “That’s unbelievable. We wanted to raise it like 4 or 4.5 percent - we would have the lowest severance tax in America,” Kasich said. His fight to raise the severance tax officially began in 2012 when he proposed, in his budget update, hiking the rate to 1.5 percent of the value of the well in the first year then 4 percent every year after that. For Kasich’s 2013 budget proposal he stayed consistent, asking for a straight 4 percent severance tax rate. Then, in last year’s budget update, Kasich sought a more modest rate of 2.75 percent. The House ended up passing an increase at 2.5 percent, with some breaks attached, a proposal with which Kasich was not happy. “The House passed version on oil and gas is a joke—ok—it’s a joke. It’s an insult to Ohioans,”

Kasich "optimistic" he'll finally get fracking tax increase in Ohio - During a busy day of campaigning in New Hampshire, Ohio Gov. John Kasich also addressed one of the issues that has dogged him with his fellow Republicans in the state legislature: a proposed severance tax increase. Kasich has been shot down three times in trying to up the fees paid by oil and gas producers - who are some of the legislature's biggest campaign contributors - but the Senate is considering whether to restore a severance tax to its version of the $70 billion-plus two-year budget that will be unveiled next week. "We’ve made virtually no progress on that, although I am now more optimistic that something is going to make it through," Kasich told radio interviewer Hugh Hewitt. "You know, I can’t talk about this, Hugh, because if I do, I could blow this thing up, and I want to get a severance tax. But there’s activity going on right now in regard to moving forward on that issue, and I want to use the revenue from it to cut our income tax." Kasich proposed the fracking tax increase in his budget this year, but it again was removed by the House. When Hewitt suggested that the federal government also should levy a severance tax, Kasich replied: "Well, I think it should all be part of tax reform, because what you don’t want to do, in my judgment, at this point in time, is give the people in Washington more money to spend." Kasich - interviewed as he was driven between events yesterday - again sounded as if a presidential run is almost inevitable.

Report finds fault with Ohio pipeline routes for fracked gas - The potential for sinkholes could pose problems along interstate gas pipeline routes through northwest Ohio, warns a report submitted to federal regulators last month. At a minimum, the situation merits further study, according to the report’s authors, Robert Vincent and Charles Onasch of Bowling Green State University, and public advocate Leatra Harper of the FreshWater Accountability Project. Current plans call for Spectra Energy’s Nexus Pipeline and Energy Transfer’s twin Rover pipelines to carry natural gas from Michigan through Ohio to points east. An industry spokesman calls it “insulting” to suggest the pipeline developers might not factor the risk into their route planning and engineering.  Fracking of horizontal shale formations has led to a boom in natural gas production in much of the Midwest. The resulting jump in production has strained the current infrastructure for getting natural gas to its markets.The new pipelines are part of the industry’s efforts to relieve that strain. Proposed routes for both projects will cross Wood County in northwest Ohio. According to the report, both pipelines will cross the Bowling Green fault line as well as areas of karst geology. Karst landscape forms in soluble carbonate rock formations, such as limestone and dolomite. “Water will dissolve both of those over time,” said Vincent. “Acid dissolves them much faster.”

Ohio: Natural gas production going strong despite rig cuts - For the first three months of the year, natural gas and oil drilling started off strong, but growth in production has taken a downturn due to companies pulling back rigs. According to the Ohio Department of Natural Resources (ODNR), during the first three months of 2015 natural gas production increased by more than 11 percent when compared to the previous three months. Gas production also saw an increase of 25 percent when comparing third-quarter and fourth-quarter results. However, production has seen a decrease due to the number of rigs operating. Companies operating in the Utica Shale play have pulled back rigs that are more expensive to operate and are focusing on wells in which production is less expensive. As reported by the Columbus Business First, “Hydraulic fracturing and horizontal drilling started in Ohio later than most of its state peers. Partly because of that, Ohio is home to a sizable amount of wells drilled but not completed, so it could take some time to see the impact of fewer drilling rigs on production figures, mostly in the natural gas arena.” During the first-quarter of the year, Ohio’s horizontal wells produced 183.6 billion cubic feet of natural gas, and oil production rose to 4.4 million barrels. According to the ODNR’s report, of the 926 wells drilled in Ohio, 877 of them produced some amount of oil or gas during the first-quarter of the year.

And now… Ohio operators top producing wells - Natural gas production in Ohio for the first three months of the year started off strong despite the cut backs in rigs, and operators in Ohio have definitely proved that the cuts won’t be affecting their production levels.The following is a list of each company drilling in Ohio that recorded natural gas production during the first-quarter of year.  The companies listed are mainly operating in Belmont, Monroe and Guernsey counties.  The information is provided by the Columbus Business First and is organized by the name of the operator, location of the well, the name of the well and how much natural gas was produced.  According to the list, Rice Energy’s Blue Thunder 10H well takes first place and is also the best producing well this quarter.  Antero Resources’ DK Carpenter 1H well takes second place, Eclipse Resources’ Shroyer Unit 4H well wins third place and Gulfport Energy’s Perkins 2-4H well steals fourth place with 1 billion cubic feet of natural gas produced.

Marcellus permit activity in Pennsylvania --The Marcellus Shale formation in Pennsylvania didn’t see a lot of action over the last week, but it did gain 8 new well permits and added a new company to its energy market. Last week, the world’s seventh largest construction company shared it will be opening a new office in Pennsylvania and is seriously interested in the state’s energy market.  Skanska, a Sweden-based company, gave its American division a new office in Pittsburgh and is looking for new opportunities in power and energy.   Skanska’s new office will serve Pennsylvania, Ohio and West Virginia. Along with being one of the largest construction companies in the world, Skanska is also known for being extremely environmentally friendly.  Back in April, the Bullitt Center in Seattle, Washington, which was constructed by Skanska, was declared “the world’s greenest commercial building.”  For more information regarding the Bullitt Center and its eco-friendly features, click here.  The following information is provided by the Pennsylvania Department of Environmental Protection and covers May 25th through May 31st.  New: 8 - Renewed: 0

Huge Pipeline Company Kinder Morgan Hired Off-Duty Cops to “Deter Protests” in Pennsylvania - Kinder Morgan, the self-proclaimed “largest energy infrastructure company in North America,” paid $50,000 for off-duty police officers from a Pennsylvania department to patrol a controversial gas pipeline construction site. The hiring came after a request from the corporation for uniformed officers that could “deter protests and prevent delays,” according to a report by Earth Island Journal’s Adam Federman. What’s unique about the case is not that a corporation paid off-duty officers to protect oil and gas infrastructure — a common but rarely acknowledged practice — but that a document indicates that the explicit purpose of the police presence was to stymie dissent. Federman published a May 2013 letter from Kinder Morgan’s manager of corporate security to the police chief of the Eastern Pike Regional Police Department, requesting use of its officers “to provide a visible presence in our construction areas to create a deterrent effect.” The corporation asked the department to monitor its Northeast Upgrade Project, an expansion of the Tennessee Gas Pipeline, which would cut through environmentally sensitive areas of Pennsylvania. The officers were paid $54.80 per hour for their work. The document adds, “The objective is for a uniformed officer to be seen frequently making spot checks of our construction areas and be available to respond should protesters attempt to block those sites.”

Study ties fracking to low birth weight in newborns -  Pregnant women who live close to multiple fracking wells were more likely to have babies with lower birth weights than those who live farther away, according to new research.  The study – Perinatal Outcomes and Unconventional Natural Gas Operations in Southwest Pennsylvania – was published in the journal PLOS One. The researchers analyzed data related to 15,451 babies born in three southwestern Pennsylvania counties from 2007 through 2010, logging birth weight and tracking how close the mother lived to fracking wells. During that time, there were as many as 2,864 wells.  They divided the data into four groups based on proximity to areas that had the most dense number of fracked wells. They found that pregnant women who lived closest to the most wells were 34 percent more likely to give birth to babies who were small for their age than mothers who lived farther away. The researchers considered babies to be of lower weight if they were among the lowest 10th percentile. The researchers also factored in outside variables that could affect birth weight, including whether the mother smoked, the type of prenatal care she received, her race, education, age, the baby’s gender and whether the mother had other children. Their findings still held, according to the university. Pitt said the study does not mean that pollutants from fracking wells, which can include benzene, toluene and xylene, caused the lower birth weights. But, he said, more research should be done to help parents and doctors make better choices for their children.

Citizens need protection from fracking pollution - Pittsburgh Post-Gazette  The recent study on pollution from fracking exceeding U.S. Environmental Protection Agency standards for safety (“Study: Pollutant Levels High in Ohio Area With Fracking,” May 25) is the most recent addition to the ever-growing list of studies suggesting that shale gas infrastructure harms our health and environment. In April alone a study by Johns Hopkins researchers suggested that oil and gas drilling is increasing indoor radon levels, and Pennsylvania’s Department of Environmental Protection reported that volatile organic compounds (VOC) emissions rates have increased across Pennsylvania’s natural gas industry. Last fall, DEP released information on more than 240 cases of private water supply contamination from oil and gas drilling. Our leaders are long overdue to address gas industry pollution that has been linked by independent studies to asthma, heart disease, endocrine disruption, cancer and birth defects. But these public health impacts are not the only reason for alarm. Air pollution leaking from shale gas infrastructure is accompanied by methane, a greenhouse gas 86 times more potent than carbon dioxide over 20 years. Methane accelerates climate change, and the legacy of climate change for our children and grandchildren will be an unprecedented humanitarian crisis. Allowing the industry to continue polluting at such rates is irresponsible. The people’s right to clean air and pure water is guaranteed by the Pennsylvania Constitution, and we need our leaders to protect that right. Pennsylvania must adopt best-in-the-nation regulations for air pollution leaks from shale gas infrastructure.

New water rule could cause changes for energy companies -- Energy companies in Pennsylvania will be impacted by the new federal water rule that has been added to the Clean Water Act. The Clean Water Rule is an extension of the Clean Water Act and expands the protection of waterways to small tributaries and other waterways that are connected to major rivers that are a source of drinking water. Energy companies, specifically, oil and gas companies, can expect to see stricter rules when it comes to operating near waterways that flow into major rivers. As reported by State Impact Pennsylvania, “Businesses of all kinds will have to apply for a permit to operate near the waterways, and the Environmental Protection Agency (EPA) will determine on a case-by-case basis whether their activities would be in compliance with the 1972 law, which is the basis for the new rule.” According to Adam Garber, field director for PennEnvironment, as of now, it isn’t a sure thing if the oil and gas industry will be impacted by the Clean Water Rule. However, he did say that in the future the rule will have an effect on natural gas companies:  “The reality is that there will be places where the drillers are developing whether it’s gas drilling platforms, if it’s pipelines, where the Clean Water Act may play a role in protecting those streams.” While the energy sector in Pennsylvania may or may not see changes caused by the rule, the city of Philadelphia will. With the Clean Water Rule, the streams and wetlands that flow into the Schuylkill and Delaware Rivers “will be subject to new protections that would prevent the entry of potentially harmful contaminants before they make their way downstream to water-treatment plants.” The new rule also implies stricter rules on upstream drainage, which will benefit swimmers, kayakers and fisherman, explained Garber.

NY Congressman (“Frack-Shill”) Reed Meets Fracktivists  -- OMG! Anti-frackers, watch this 5-minute citizen serenade of gasser Congressman Tom Reed (R 23rd CD) Tuesday in Watkins Glen, New York. Savor the community’s satirical lyrics to the tune of “Danny Boy”. These wonderful folks hit ALL the hot buttons, even growing marihuana instead of piping gas! I’m finding the joy in writing a comic novel about NY’s glorious anti-fracking victory includes life imitating art, and now–shhhhh– art stealing from life!)     Flash Mob @ Congessman Reed’s Town Hall Meeting

Maryland “Gets It” – Fracking Moratorium Voted In  -- “You’ll never get a fracking moratorium through the Maryland Legislature” was the common refrain I heard as we at Food & Water Watch joined with more than 100 groups from throughout the state to work on preventing fracking in Maryland. But we didn’t let that stop us. And today, thanks to the tireless efforts of business owners, health professionals, activists and countless concerned Maryland residents, we proved those naysayers wrong.  Today, a two and a half year fracking moratorium became law in Maryland. Over Memorial Day weekend, Gov. Hogan let it be known that he would not veto the bill. At the end of March, the Maryland General Assembly passed a bill, originally introduced by Delegate David Fraser-Hidalgo and Senator Karen Montgomery, which would prohibit any permits for fracking in the state for two and a half years. The bill passed with veto-proof majorities in each house. This critical moratorium was made possible by a coalition of more than 100 community and advocacy groups who don’t want to see Maryland fracked. The Don’t Frack Maryland Coalition worked throughout the 2015 legislative session to carry the message that Marylanders do not want fracking in their state. The organizing efforts of the coalition came in waves over several months.

DIXIE Landowner Rebellion: Take Your Pipeline and Shove It Kinder Morgan!!  -- Zipperer, 60, is one of many Southern landowners challenging the nation’s largest energy infrastructure company, Kinder Morgan, as it plans to run a petroleum pipeline through 360 miles of bottom land, river forests and freshwater coastal wetlands across South Carolina, Georgia and Florida. The pipeline’s opponents argue it represents an unconstitutional use of eminent domain and an environmental threat. Georgia Gov. Nathan Deal, a Republican, entered the fray May 7, announcing that the state would fight the $1-billion project in court. The Georgia Department of Transportation rejected the pipeline plan May 19, declaring it would not serve a public need. The dispute is one of a growing number of skirmishes over pipelines nationwide. With the U.S. producing more oil and gas than it has in decades, private companies are clamoring to build new transportation infrastructure. One of two pipelines being proposed in Georgia, the Palmetto pipeline is particularly contentious because it would cross land owned by the state’s House majority leader, Jon Burns, and a local media tycoon, William S. Morris III, who owns newspapers in Augusta, Savannah and Jacksonville, Fla. “What’s different about this project — unprecedented — is that a landowner controls three major newspapers along the pipeline route,” said Allen Fore, vice president of public affairs for Kinder Morgan. It was also highly unusual, he added, for a leading oil company, Colonial Oil, to work with local river keepers to oppose a pipeline. The Palmetto pipeline would carry up to 167,000 barrels of refined petroleum a day from Belton, S.C., to Jacksonville. It would cross the Savannah River and work its way down the Georgia coast, crossing four more major rivers.

Pipeline in Arkansas River ruptures, releases natural gas - A 2-mile section of the Arkansas River near Little Rock remained closed Wednesday following the rupture of a pipeline that released enough natural gas to fuel about 65 homes for a year. U.S. Coast Guard spokesman Brian Porter said the section of the swollen river, which is near Arkansas’ busiest airport, will remain closed until Spectra Energy Corp. crews can check whether the pipeline poses a danger to boats. He said there have been no reports of injuries since the leak was reported Monday, and that the closure hasn’t affected boat traffic because the river was already mostly closed due to flooding. Spectra Energy Corp. spokesman Creighton Welch said the cause of the leak isn’t known, and he declined to estimate how much it cost the company. The leak occurred Sunday or Monday on a 24-inch-wide backup pipeline buried 4 feet below the riverbed. The line was closed when it ruptured and the roughly 4 million cubic feet of natural gas that escaped had been what was left over inside, he said. An incident report submitted by the company to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration indicates a boat might have struck the pipeline. Welch said investigators are still working to determine if a boat was involved. Porter said a towboat reported an explosion and sustained unspecified damage.

Texas, Louisiana hold their own amid global production numbers -- Low oil and natural gas prices have many in the industry thinking about global mass layoffs and impending production decreases. It’s hard to believe, then, that the United States is still staying competitive on a global scale on its journey to energy independence. But the U.S. doesn’t just compete as a nation. Several states hold their own when compared to other major fossil fuel-producing countries, Texas and Louisiana not the least among them. When it comes to dry natural gas production, the U.S. tops the list at #1 with 65.73 billion cubic feet per day (bcf/d). Russia comes in second at 59.46 bcf/d. The next competitor pales in comparison; Iran produces just 15.43 bcf/d in third place. According to the American Petroleum Institute, though, if Texas were considered amongst its global players, it comes in just after Russia, producing a whopping 18.84 bcf/d of the U.S. total. Qatar, Canada, Norway, China, Saudi Arabia and Algeria all make the ranks of the top 10 in dry natural gas production, according to the API’s list. Each nation produces more than 8 bcf/d. If Louisiana were included in the list for natural gas production in the state, it would rank 10th out of the 30 nations on the list with 7.98 bcf/d, even beating out Pennsylvania’s 6.13 bcf/d. Texas isn’t just a competitor in the natural gas department, though. The state is a serious competitor when it comes to crude oil production on a global scale, producing 3.14 million barrels per day (MMbd), putting it in 8th place behind Russia, Saudi Arabia, the U.S. as a whole, China, Canada, Iraq and Iran. The Lone Star state beats out countries like United Arab Emirates, Venezuela and Nigeria, all oil producers that hold their own in the global market.

Fracking Resumes In Denton, Texas, After Governor Outlaws Local Bans On Oil Drilling  -  Natural gas drilling is starting up again in Denton, Texas, despite the city’s 7-month-old ban on hydraulic fracturing. Vantage Energy resumed operations Monday at its Denton well just weeks after Gov. Greg Abbott passed a law prohibiting cities from banning fracking on their home turf. Three activists were arrested at the drill site Monday morning after attempting to block an access road. The Texas ban is part of a broader movement in oil- and gas-rich states to restrict decisions about fracking, drilling, wastewater disposal and pipelines to state regulators and commissioners -- leaving municipalities, local agencies and citizens with limited control over energy activities. In Ohio, the state Supreme Court ruled in February that the state has “exclusive authority” and that cities can neither ban nor regulate fracking. On Saturday, Oklahoma Gov. Mary Fallin signed a bill that similarly prohibits cities from enacting drilling bans, despite local concerns over the rising number of earthquakes tied to fracking activity in the state.  “The alternative is to pursue a patchwork of regulations that, in some cases, could arbitrarily ban energy exploration and damage the state’s largest industry, largest employers and largest taxpayers,” Fallin said after approving the measure. Vantage Energy, a Colorado natural gas developer, said it ceased operations at its Denton drill site in November, after nearly 60 percent of voters approved the fracking ban.

Six arrested in Denton protest -- Two members of satirical Cabaret troupe The Frackettes were among three arrested Monday morning at a protest in Denton, Texas.  According to the Star-Telegram, Adam Briggle, Tara Linn Hunter and Nikki Chochrek were arrested without incident after staging a sit-in to block Vantage Energy employees from resuming the newly-legal natural gas operations.  The protest, which drew in about 20 participants, was staged in response to Gov. Greg Abbot’s recent approval of House Bill 40, which prohibits fracking bans in Texas and effectively nullifies the city’s Nov. 2 ruling to ban the practice within city limits. As Texas lawmakers finalized the bill, activists and fuel companies stood by with bated breath. Vantage moved quickly, resuming its Denton operations the next day.“It just became obvious that we had exhausted all legal means to block fracking and that this unjust law is being forced on a community that voted on it,” Hunter told the Star-Telegram. “We saw that it was about to happen so we decided it was more important to do what was right than go along.” Briggle, who heads Denton Drilling Awareness Group and teaches at the University of North Texas, particularly took issue with the energy industry’s tendency to buy land that then sits unused in order to avoid more stringent regulation via grandfathering.“This is a huge problem with mineral development in Texas,” Briggle told VICE News. Briggle also expressed frustration over legislatures’ neglect of zoning issues in their approval of HB40.  “We won’t allow bakeries in certain neighborhoods, but we’ll allow fracking in all of them,” he said. “The legislature never even touched these issues… They exacerbated the problem that led to the fracking ban. It’s irrationality on a grand scale.”

Oklahoma Just Became The Second State To Outlaw Fracking Bans -- Oklahoma’s towns and cities are no longer allowed to ban fracking under a bill signed into law on Friday by Republican Gov. Mary Fallin.  The new law prohibits localities from choosing whether or not to have oil and gas operations within their jurisdictions, with exceptions for “reasonable” restrictions like noise and traffic issues. Other than that, the Oklahoma Corporation Commission will retain control over oil and gas drilling.  The state commission is run by three elected commissioners, all of whom are Republican. Chairman Bob Anthony is a member of the National Petroleum Council, a group that advises the U.S. Department of Energy on oil and gas industry interests. And Vice Chairman Dana Murphy is a geologist and attorney with “more than 22 years experience in the petroleum industry,” according to her bio page.  Fracking is prolific in Oklahoma, and Fallin said the new law would be necessary to prevent a “patchwork of inconsistent municipal regulations across the state.” In addition, Fallin said, allowing cities and towns to have control over whether fracking occurs could “damage the state’s largest industry, largest employers and largest taxpayers.”  Oklahoma is the second state to ban fracking bans. Last month, Texas became the first, when Republican Gov. Greg Abbott signed legislation to prohibit cities from banning the process.  Oklahoma’s new ban comes amid warnings from the state’s own government that a recent dramatic spike in earthquakes is linked to wastewater injection, a key part of oil and gas activity and particularly fracking.

Oil, gas spill reports for June 1 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks.

  • Kerr McGee Oil & Gas Onshore LP reported on May 28 that during routine activities a release was discovered outside of Fort Lupton. It is approximated that seven barrels of condensate and produced water released, outside of containment. Excavation activities are ongoing and vacuum trucks will also be on the scene.
  • Bill Barrett Corp. reported on May 27 that a corroded fitting on a vapor line was releasing gas and fluid outside of Briggsdale. It is approximated that more than one barrel of condensate was released. Contaminated soil was removed.
  • DCP Midstream LLC reported on May 26 that a drip valve broke off, releasing condensate to the adjacent soil, outside of Fort Lupton. The valve was replaced and the release was stopped.
  • Kerr McGee Oil & Gas Onshore LP reported on May 22 that a polishing rod liner loosened on a wellhead’s pumping unit, causing one barrel of crude oil to spray the area outside of Platteville. The spill was released outside of containment.
  • Kerr McGee Oil & Gas Onshore LP reported on May 14 that during abandonment procedures, historical impacts were discovered, outside of Fort Lupton. It is unknown the amount of oil and produced water that was spilled, but it is estimated that less than five barrels of release.
  • Kerr McGee Oil & Gas Onshore LP reported on May 13 that a line valve was improperly closed, outside of Frederick. It is approximated that two barrels of oil spilled outside of containment and onto the ground surface. A sample of the soil will be collected for confirmation with COGCC standards.

EPA finds drinking water vulnerable to fracking -- A five-year investigation by the U.S. Environmental Protection Agency of the boom in natural gas drilling and production has identified potentially serious vulnerabilities that could cause contamination of drinking water systems related to the use of hydraulic fracturing. While saying they found no “widespread, systematic impacts,” EPA officials say in a new report that they found “above and below ground mechanisms” through which fracking activities “have the potential to impact drinking water resources.” Among those mechanisms: fracking directly into underground water resources, water withdrawals in areas with or in times of low water availability, spills of various fluids used in or produced by fracking processes, below-ground migration of liquids and gases, and inadequate treatment and discharge of wastewater. EPA said that its investigators found “specific instances” where one or more mechanisms affected drinking water, including contamination of wells. The agency said that the number of identified cases “was small compared to the number of hydraulically fractured wells,” but conceded it wasn’t sure why. “This finding could reflect a rarity of effects on drinking water resources, but may also be due to other limiting factors,” EPA said. “These factors include: insufficient pre- and post-fracturing data on the quality of drinking water resources; the paucity of long-term systematic studies; the presence of other sources of contamination precluding a definitive link between hydraulic fracturing activities and an impact; and the inaccessibility of some information on hydraulic fracturing activities and potential impacts.”

Fracking Has Had No ‘Widespread’ Impact on Drinking Water, EPA Finds - WSJ: Fracking isn't causing widespread damage to the nation’s drinking water, the Obama administration said in a long-awaited report released Thursday. The U.S. Environmental Protection Agency—after a four-year study that is the U.S. government’s most comprehensive examination of the issue to date—concluded that hydraulic fracturing, as being carried out by industry and regulated by states, isn't having “widespread, systemic impacts on drinking water.” However, EPA said there were a small number of contaminated drinking wells and highlighted potential vulnerabilities, including the disposal of wastewater and construction of durable wells. The report was issued nearly a decade since fracking began helping unlock vast reserves of oil and natural gas across the U.S. It also bolsters the position staked out by the energy industry and its supporters: that fracking can be carried out safely. “Hydraulic fracturing activities in the U.S. are carried out in a way that have not led to widespread, systematic impact on drinking water resources,” said Thomas Burke, deputy assistant administrator of the EPA’s office of research and development, on Thursday. “In fact, the number of documented impacts to drinking water is relatively low when compared to the number of fractured wells.” Rob Jackson, an earth sciences professor at Stanford University who has published several papers on the environmental impacts of fracking, said he generally agrees with agency, although he hoped its report would be more comprehensive.

It’s Official: EPA Says Fracking Pollutes Drinking Water - In 2010, Congress commissioned the U.S. Environmental Protection Agency (EPA) to study the impact of fracking on drinking water. The U.S. EPA released its long-awaited final draft version of its report today, assessing how fracking for oil and gas can impact access to safe drinking water. Today’s results will likely not please the “drill everywhere” faction of Congress. It refuted the conclusion arrived at by the U.S. EPA’s 2004 study that fracking poses no threat to drinking water, a conclusion used to exempt the fracking process from the Safe Drinking Water Act.  The report looked at water use at five stages of the water-intensive process: use of the available water supply for fracking; the mixing of chemicals with water to create fracking fluid; the flowback of the fluid after it has been injected underground to fracture shale deposits to release oil or gas; treatment of the wastewater byproduct of fracking; and the injection wells frequently used to dispose of fracking wastewater when the process is complete.  The report also pointed out the declining amount of water that could be available for drinking purposes due to extended drought, saying, “The future availability of drinking water sources that are considered fresh in the U.S. will be affected by changes in climate and water use. Declines in surface water resources have already led to increased withdrawals and cumulative net depletions of ground water in some areas.”n response to these findings, Mark Ruffalo, actor and advisory board member of Americans Against Fracking, said, “Today’s EPA fracking water contamination study confirms what both the oil and gas industry and the Obama Administration have long denied—that fracking poisons American’s drinking water supplies. . It’s time to stop poisoning the American people and shift rapidly to renewable energy.”

EPA: Fracking is safe for drinking water --The issue and large debate surrounding hydraulic fracturing, or fracking, is whether or not it is safe for drinking water. Well, our questions have finally been answered thanks to a long awaited study conducted by the Environmental Protection Agency (EPA). The EPA’s five year long study concluded that tracking, in most cases, is not harmful to drinking water. However, the study did find that risks for contamination are greater in areas that have a scarce water supply. As reported by Shale Plays Media, “Some of the notable possible examples where fracking could pose a threat highlighted from the analysis include: ‘water withdrawals in times of, or in areas with, low water availability; spills of hydraulic fracturing fluids and produced water; fracturing directly into underground drinking water resources; below ground migration of liquids and gases; and inadequate treatment and discharge of water.'” The EPA’s study also found there have been instances where one or more mechanisms have affected drinking water resources, such as contaminated drinking wells. However, these instances are very rare and the number of cases where something of the sort has occurred is much smaller that number of wells that have been drilled by fracking. To read the entire article regarding the EPA’s fracking and drinking water study, click here.

EPA: Fracking has caused isolated, not widespread, water pollution - A federal Environmental Protection Agency study has for the first time determined that hydraulic fracturing, used in oil and gas development throughout the United States, has contaminated water supplies in isolated incidents but has not caused widespread, systematic damage to water resources. The study, ordered by Congress in 2010, concluded that the number of actual problems caused by the process was relatively small compared to the thousands of wells that have been drilled. Hydraulic fracturing involves pumping millions of gallons of water mixed with chemicals and sand deep underground under high pressure to crack shale formations and release the gas and oil it holds. But the study also identified a series of “vulnerabilities” created by the process. Those vulnerabilities or risks include: water withdrawals from limited water sources; groundwater contamination; inadequate well cementing and casings that allowed migration of gas and liquids into drinking water aquifers; releases of inadequately treated wastewater; and surface spills of chemical fracking fluids and wastewater. The report does acknowledge, unlike a 2004 EPA study, that the fracking process has contaminated water supplies.“I think the study recognizes instances where fracking activity impacted surface and groundwater,” said Thomas Burke, EPA’s science advisor and deputy assistant administrator of the agency’s Office of Research and Development. Mr. Burke said the study “followed the water” through collection, use, flowback and disposal and found instances of fracking releasing methane gas that strayed into groundwater and the release or leaking of fracking wastewater from surface impoundments that contaminated surface and groundwater.

EPA: Fracking's no big threat to water - The Environmental Protection Agency’s long-awaited report on fracking dismayed liberal green groups Thursday while pleasing the oil and gas industry — the latest episode in both sides’ fraught relationship with President Barack Obama.The study, more than four years in the making, said the EPA has found no signs of “widespread, systemic” drinking water pollution from hydraulic fracturing. That conclusion dramatically runs afoul of one of the great green crusades of the past half-decade, which has portrayed the oil- and gas-extraction technique as a creator of fouled drinking water wells and flame-shooting faucets. The report also jibes with Obama’s global warming policies, which have openly promoted the use of natural gas as a more climate-friendly alternative to coal. But for both anti-fracking groups and the industry, it came as yet another example of Obama’s mixed messages on fossil fuels — from the same administration that has stalled the Keystone XL pipeline and pushed to wipe out the oil industry’s tax breaks, yet is also moving to open up much of the East Coast and the Arctic to offshore drilling.“This study’s main finding flies in the face of fracking’s dangerous reality,” Rachel Richardson, director of Environment America’s Stop Drilling program, said in a statement. “The fact is, dirty drilling has caused documented, widespread water contamination across the country.”

EPA: Fracking doesn't systematically pollute water -Hydraulic fracturing, or fracking, does not lead to widespread or systematic contamination of drinking water resources, the U.S. Environmental Protection Agency (EPA) said Thursday, although the agency acknowledged that its conclusion could have been affected by a lack of available data. The EPA identified key areas of vulnerability in the fracking process for its draft report on the practice’s potential effects on drinking water resources. But it said that, based on available data, fracking did not lead to systematic contamination. “We did not find evidence that these mechanisms have led to widespread, systematic impacts on drinking water resources in the U.S.,” the report said, adding that the finding was based on the low number of contamination cases compared to number of wells. The EPA report said the finding “could reflect a rarity of effects on drinking water resources” — or it could simply be the result of “insufficient pre- and post-fracturing data on the quality of drinking water resources.” An estimated 25,000 to 30,000 wells have been drilled and fracked every year in the U.S. between 2011 and 2014 — mostly concentrated in Texas, Colorado, Pennsylvania, and North Dakota — the EPA report said. About 6,800 sources of drinking water, serving more than 8.6 million people, are located within one mile of a fracking well, the report added.The EPA estimated the number of spills already taking place across the U.S. could range from 100 to 3,700 a year.

Ecologist Not Buying EPA Fracking Study -- A new EPA report on fracking found that, while the drilling technique has several “potential vulnerabilities” in the process, it has no “widespread, systemic impacts on drinking water.” But according to one ecologist, the dangers are still “quite serious.” “What they say is it’s not yet widespread and systematic … the operative word here is ‘not yet,’” ecologist and anti-fracking activist Sandra Steingraber told FBN’s Stuart Varney. Steingraber said the EPA study found multiple examples of water contaminated by fracking during “routine operations” in well-casing failures, which allowed fracking fluids to travel through unseen cracks and infiltrate into nearby drinking water. Last December, New York state declared a ban on fracking after a report found “significant uncertainties” about the oil and gas extraction technique. “New York State has made a wise decision in banning fracking … the fact that they already found cases of drinking water contamination means we have to take this very seriously. All drinking water is connected … any contamination is serious. As a biologist and cancer survivor … it is wrong to develop a form of energy that poisons people; we can do better than that in the U.S.,” she said.

Fracking Reporting a Widespread Problem? --The EPA released a draft report June 4 on fracking and water use and contamination that has already generated some screaming headlines. "No Widespread Problem with Fracking Water, EPA says!" If you believe that, I'll alert a couple of companies who will be happy to drill in your backyard. Let's be clear. The EPA is doing its job. The Congress asked for a report on the effects of fracking on water and they got it. Case closed, right? The problems with this approach are so numerous as to be called widespread. First, the headlines. The EPA is an official source and assumed in the media narrative to be friendly to, if not in league with, environmentalists. Some folks even believe they will seize your land if it has puddles on it (wetlands) or a snail darter or two. And fracking is a major bugaboo for their allies in the backpacking and demonstrating set. Headlines grab readers, bizarre or unexpected twists are news, and having the EPA seem to support fracking is surprising and controversial. Hence, your Uncle Joe, a Fox News fan, and maybe even Aunt Sarah, an NPR listener, will soon be telling you that they've heard that fracking is OK. Then there is that slippery word, widespread. The EPA was tasked to see if fracking was using up or contaminating water nationwide. Fracking has gone on in 25 states between 1990-2013, and the EPA has analyzed 20 states with fracking, so it can seem widespread. But only a few states have substantial fracking, with Texas ahead by far with about half of all fracking wells. And all of the nation's fracking occurs in just 400 counties. In Colorado, a distant second to Texas in fracking, 85% of the wells are in just two counties. And liberally defined, water systems within range of potential fracking contamination serve only 9.6 million Americans. The EPA, in its careful scientific and bureaucratic language, says that fracking is really a localized problem. But they were asked to talk about the whole nation. So of course fracking and fracking water problems are not widespread, given the question EPA was required to answer.

Both sides claim victory, after EPA issues fracking-water review - The American shale drilling industry and national environmental groups both claimed victory, after the U.S. Environmental Protection Agency on Thursday released its long-awaited draft national report on whether hydraulic fracturing or fracking threatens drinking water. The EPA said that fracking has “not led to widespread, systemic impacts on drinking water resources.” But the agency acknowledged that the whole drilling process, not just fracking, has impacted drinking water in some locales. The agency in a teleconference said drinking water remains vulnerable to these problems in drilling Ohio’s Utica Shale and other shale areas:

  • •Water withdrawals in areas with little water.
  • •Fracking conducted into formations containing drinking water.
  • •Inadequately cased or cemented wells allowing below-ground migration of gases and liquids.
  • •Inadequately treated wastewater being discharged into drinking water.
  • •Spills of hydraulic fluids and fracking wastewater.

But the number of water-pollution problems from drilling was “small compared to the number of hydraulically fractured wells,” the EPA said in its 28-page executive summary. EPA spokesman Dr. Thomas A. Burke called the EPA’s assessment — it is thousands of pages in length and includes 20 peer-reviewed scientific reports — the most complete scientific compilation of scientific data to date with more than 950 sources. It will provide state regulators, the drilling industry and others “a critical resource to identify how best to protect public health and their drinking-water resources,” he said.

All The Spin About EPA Fracking Study's Confusing Results In Just One Hilarious Picture - When the Environmental Protection Agency released its landmark study of the impact of fracking yesterday, there was, as our contributor Tom Zeller pointed out, something for everyone in there. The energy industry latched on to the big headline finding: That four years of study by the EPA had found there exists no evidence fracking has had any “widespread, systemic impact on drinking water.” Anti-fracking activists said the devil was most definitely in the details of the report, and focused attention on the half-empty side of the glass. Groundwater pollution had occurred in some places, and thus, fracking was potentially hazardous anywhere. The result of all this spin, as Zeller pointed out on Twitter Twitter, is a confusing hodgepodge of headlines that leave readers about as confused about fracking safety as they were before the report came out. See “EPA Fracking Study” on Google Google news. Here’s what the feed looked like this morning:  So what’s the bottom line? Perhaps the best way to find out is to just read the report for yourself and draw your own conclusions.

Don’t Be Fooled by Yesterday’s Headlines, EPA Finds Fracking Contaminates Drinking Water - Don’t be fooled. Headlines in the New York Times and other news media about the U.S. Environmental Protection Agency’s (EPA) long-awaited study on the impacts of fracking on drinking water are another tragic case of not looking beyond the timid agency’s spin. Despite the lack of new substantive data and the limited scope of the study, the EPA did find instances of water contamination and outlined the areas where this could happen in the fracking process. The multi-million dollar study did not answer the fundamental questions about the pollution of water from hydraulic fracturing. The oil and gas industry pressured the agency in the design of the study, narrowing its scope and focusing it on theoretical modeling conducted by researchers that often conduct research favorable to the industry. In a shocking display of the power of oil and gas interests, they successfully blocked the agency from gathering data from direct monitoring of fracking operations. Rather than demanding that companies like Exxon (the largest fracker in the U.S.) or Chesapeake allow them to monitor water wells near fracking operations, the EPA caved to industry pressure. For the study to be meaningful, the agency needed to conduct baseline water testing at prospective wells that would provide a snapshot of water quality before fracking and that would be retested after a year or more after oil or gas production began. Yet even with the study’s poor design and the deceptive headlines, the 600-page document does include concrete examples that fracking does indeed contaminate groundwater resources, a fact already confirmed by numerous studies based on existing scientific data. The study confirmed cases of water contamination with five after-the-fact, or retrospective, case studies, each focused on a community where residents have complained about water problems for years. This embarrassingly limited review of the impacts from spills and releases, water withdrawals, and issues with waste disposal provide proof that fracking negatively impacts our water resources.

Fracking Does Cause ‘Widespread, Systemic’ Contamination of American’s Drinking Water --In a draft report five years in the making, the U.S. Environmental Protection Agency (EPA) has confirmed that fracking does indeed contaminate drinking water, a fact the oil and gas industry has vehemently denied.  But instead of dismantling the industry’s “not one single case of groundwater contamination caused by fracking” refrain, the EPA decided to go with the misleading headline “there is no evidence fracking has led to widespread, systemic impacts on drinking water resources.” It’s a puzzling conclusion since their study was conspicuously narrow (they did no new case studies, dropped three marquee cases that proved water contamination and dropped all air quality studies from the report).Our Map of the Week shows 313 cases where families reported water contamination due to drilling in just six counties in North Eastern, Pennsylvania. Seems pretty widespread to me for a fracking and drilling campaign that’s still in its infancy. So far there’s been around 9,000 wells drilled in Pennsylvania. One report showed the potential for 200,000 – 600,000 fracked wells in the state. If the EPA is looking for proof of “widespread” contamination before declaring fracking unsafe, they may not have to wait long. The industries own data shows that 5 percent of fracking wells leak upon drilling and that number only grows over time. What the EPA presented to the public yesterday was PR, not science and proof of the widespread, systemic contamination of our regulatory bodies by the oil and gas industry. This isn’t the first time the EPA has released a report burying the science with a misleading headline that supports the Obama Administration’s pro-fracking policies rather than reveal the true dangers of fracking. It’s a disturbing trend we reported on extensively in GASLAND Part II with cases in Dimock, Pennsylvania; Parker County, Texas; and Pavilion, Wyoming.

EPA’s Fracking Study: Another Waste of Taxpayer Money!  --Long-Awaited EPA Study Says Fracking Pollutes Drinking Water - In 2010, Congress commissioned the U.S. Environmental Protection Agency (EPA) to study the impact of fracking on drinking water. The U.S. EPA released its long-awaited final draft of its report today, assessing how fracking for oil and gas can impact access to safe drinking water. The report refuted the conclusion arrived at by the U.S. EPA’s 2004 study that fracking poses no threat to drinking water, a conclusion used to exempt the fracking process from the Safe Drinking Water Act.   The report looked at water use at five stages of the water-intensive process: use of the available water supply for fracking; the mixing of chemicals with water to create fracking fluid; the flowback of the fluid after it has been injected underground to fracture shale deposits to release oil or gas; treatment of the wastewater byproduct of fracking; and the injection wells frequently used to dispose of fracking wastewater when the process is complete. . “The growth in domestic oil and gas exploration and production made possible by the expanded use of hydraulic fracturing, has raised concerns about its potential for impacts to human health and the environment. Specific concerns have been raised by the public about the effects of hydraulic fracturing on the quality and quantity of drinking water resources.”  It noted the reason for that concern: “Millions of people live in areas where their drinking water resources are located near hydraulically fractured wells. While most hydraulic fracturing activity from 2000 to 2013 did not occur in close proximity to public water supplies, a sizeable number of hydraulically fractured wells (21,900) were located within 1 mile of at least one PWS source (e.g., infiltration galleries, intakes, reservoirs, springs and ground water wells). Approximately 6,800 sources of drinking water for public water systems, serving more than 8.6 million people year-round, were located within 1 mile of at least one hydraulically fractured well. An additional 3.6 million people obtain drinking water from private water systems.” 

EPA Didn’t Fracking Find What It Didn’t Fracking Look For --  As noted here and by others at the outset of the EPA Frack Study – they were not likely to find evidence of fracking pollution that they said at the outset they were not looking for. To wit, they did not look for any of the following:

  • 1. Methane migration up gas well bores – ie. “flaming faucets” – perhaps the most common form of groundwater pollution in NE Pennsylvania. The EPA said they did not have the resources to look into that in depth. So they didn’t.
  • 2. Air pollution – by definition, not part of the study
  • 3. Soil pollution – ditto, not considered. Note this includes frack waste spreading on roads, TENORM frackwaste dumped in landfills, etc.
  • 4. Frackquakes – were not even on the radar when the study commenced.
  • 6. Methane Contamination of Atmosphere – ie. greenhouse impacts, were not considered.

Not only is the EPA not permitted to regulate fracking by the Halliburton Loophole, they aren’t even permitted to study fracking in any comprehensive fashion. If you want more of the same from Washington, by all means be sure to vote for any one of the presidential candidates in the Republican Clown Bus or the Distaff Member of the Bonnie & Clyde of American Politics

EPA's Fracking Finding May Prove a Boon for Industry - US News: In the few hours following the release of a 998-page, $33 million federal report on fracking five years in the making, supporters of shale oil and gas development took to news opinion pages and social media to churn out what’s proving a potent narrative – one that may ultimately drown out the opposition.   The Environmental Protection Agency announced Thursday that, while hydraulic fracturing activities had contaminated some drinking water supplies, the agency “did not find evidence” of “widespread, systemic impacts on drinking water resources” by the controversial oil and gas extraction process.     Almost immediately, advocates on both sides of the fracking debate – industry groups, workers and landowners who have benefited from the energy boom it sparked, and advocates and local residents concerned about its health and environmental impacts – claimed victory in hastily issued press releases and on platforms like Facebook and Twitter. But it is industry supporters who perhaps have the most to cheer. “This further removes EPA under this president or any other president from doing the big jump into fracking,”   “We’re not going to see any more big shifts in EPA on fracking on lands not held by the federal government.” Its role boosting the economy, not to mention the oil and gas industry’s immense lobbying power, has also allegedly tempered federal regulation – a trend experts say is only strengthened by the EPA report. And while the agency did say Thursday that fracking activities can and have leaked harmful chemicals into current and potential future drinking water supplies, some local residents, environmental advocates and researchers say the paper's narrow scope and nuanced findings pose a public relations challenge.

Corroded pipeline, insufficient repairs to blame for California oil spill - It is a truth universally acknowledged that pipelines will inevitably leak. However, it is something quite different when a pipeline is left to corrode and an oil spill is the result. Investigators have discovered that the oil pipeline which spilled roughly 2,409 barrels of oil into the Pacific Ocean off the coast of Santa Barbara was heavily deteriorated, The Guardian reports. Federal regulators released preliminary findings this week that indicated the pipeline had reached a mere 1/16 of an inch in thickness before it finally ruptured and began to leak. The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) indicated that over 80 percent of the pipeline’s wall had been eaten away by corrosion. The PHMSA also reported that corrosion was a sizeable problem in the expanse of pipeline where the rupture took place. Three other repairs had been completed since 2012. Many in California are likely wondering why the pipeline’s operator, Plains All American Pipeline, failed to take the appropriate preventative action, given the known poor state of the infrastructure. The state’s leadership has also stated that the company’s response to the spill has been insufficient.

Owner of ruptured oil pipeline has history of big spills, fines -- Nearly two decades ago, Plains All American Pipeline embarked on a buying spree across the United States and Canada, acquiring thousands of miles of aging pipeline. The purchases turned Plains into one of North America’s biggest energy pipeline companies. But it also left the firm with a patchwork of pipes, some in need of crucial maintenance. Mechanical failures on the company’s network have contributed to more than a dozen spills that have released nearly 2 million gallons of hazardous liquid in the U.S. and Canada since 2004. That does not include more than 100,000 gallons of oil spilled along the Santa Barbara County coast on May 19, about 20,000 gallons of which went into the Pacific Ocean, prompting a massive and ongoing cleanup. Several beaches have been closed since the spill. More than 100 birds and 58 mammals, including sea lions and dolphins, have died from contact with the oil. The spill occurred on a section of a 1,750-mile-long pipeline built in 1987 that carries heavy crude from offshore in the Pacific to the Gulf of Mexico in Texas. Plains bought it in 1998 at the start of its acquisition boom. In preliminary findings released this week, the Pipeline and Hazardous Materials Safety Administration determined the section of pipe was severely corroded and had lost nearly half its wall thickness. One six-inch crack in a section of pipe had been repaired repeatedly, officials noted..  Regulators have cited cracked joints, failed screws, faulty pins and an undersized storage tank as causes of previous spills that led to millions of dollars in fines against the company, according to court records and regulatory filings.

Bakken & Eagle Ford production up overall, flat in April -- Oil production from major shale plays in North Dakota and Texas were flat in April compared to March, according to Bentek Energy, an analytics and forecasting branch of Platts, a leading provider of energy, petrochemicals, metals and agriculture information. As reported by PennEnergy, production in North Dakota’s Bakken shale only increased about 2,000 barrels per day (b/d) in the month of April, a growth rate of less than 1 percent. The production trajectory from the Eagle Ford basin in Texas also continued on its flat path in April and grew only 1,000 b/d. Despite the flat growth trajectory for April compared to last month, both regions are producing more than this same time last year. Crude production in the Williston Basin averaged 1.2 million b/d according to Bentek data, about 173,000 b/d higher than a year ago. Production in the Eagle Ford formation reached an average 1.6 million b/d last month, a 284,000 b/d increase (22 percent) from last year’s figures. “The number of active rigs in the Eagle Ford basin currently stands at 116 rigs, down 27 rigs from the previous month. The efficiency gains noted in the region – such as the trimming of average drill time per well from 12 to 11 days between [the fourth quarter of] 2014 and [the first quarter of] 2015 – have helped in preventing oil production decline so far. Nonetheless, we do expect to see declines, however marginal, in Eagle Ford oil production as soon as next month.”  Oil production in the Bakken formation, however, is anticipated to continue growing, but at a slower pace.

North Dakota to sink $40M in highway beat up by oil traffic - — Heavy oil truck traffic has prematurely beat up North Dakota’s northernmost U.S. highway, which was widened to four lanes between Williston and Minot in recent years, and officials say parts of it are in need of major repairs. The 100-mile stretch of U.S. Highway 2, the last to be converted to four lanes in the state, was completed in 2008 at a cost of $124 million, with the federal government footing 80 percent of the bill. It was to last more than two decades, yet North Dakota will spend $40 million this year to fix rutted, broken and cracked portions. It’s one of many projects tied to a spending bill that was rushed through the House and Senate with overwhelming support and signed by Gov. Jack Dalrymple in February so infrastructure projects could begin by summer. Engineers couldn’t have known that the highway would eventually be overrun by the state’s oil boom, which was only in its infancy when the project was completed. Planners had predicted only 2,000 vehicles daily along the route but at least 11,000 have been using the highway each day since 2012, state Transportation Department engineer Steve Salwei said. “No one ever dreamed there would be so much traffic and the road would deteriorate so quickly,” said Ken Munson, the mayor of Ray, a town along U.S. Highway 2. “No one could have imagined anything like this.”

After oil, ex-North Dakota Indian leader forms marijuana firm – The former chairman of a North Dakota Indian nation that controls one-third of the state’s oil output has formed a marijuana company to help tribes around the United States produce and distribute the drug. Tex “Red-Tipped Arrow” Hall, who until last fall led the Three Affiliated Tribes of the Mandan, Hidatsa and Arikara (MHA) Nation, has formed Native American Organics LLC with California-based Wright Family Organics LLC, a medical marijuana company, the companies said in a statement. Native American Organics said it will help Indian tribes grow and distribute marijuana to wherever legally possible, as well as offer expertise on hydroponics and genetics and advice on how best to work with state and federal officials. “In a matter of time, this industry could be just as big as gaming is for tribes, if not bigger,” Hall said in an interview on Tuesday. While legal jurisdiction can be complex, most Indian reservations are technically sovereign nations within the United States, with some federal law enforcement oversight. Last December, the U.S. Department of Justice said it would no longer enforce laws that regulate the growing and selling of marijuana on reservations, a ruling that paved the way for Native American Organics.

The U.S. oil fracker's dilemma: crouch or pounce? – U.S. shale oil producers, having weathered the worst price plunge in their industry’s brief history, now face a dilemma: whether to stay in a defensive crouch after slashing their rig fleets, or start drilling more wells to capture a partial recovery in prices. In a way, the conundrum is as old as the first oil well. If producers start pumping more crude, as some executives have said they might do if prices edge a bit higher, they risk contributing to another slump in a fragile global market; if they hold back, they forego regaining revenue lost during a price slide of 60 percent that started in June. Yet it is also a changed world. For decades the global industry has been dominated by a handful of mega-majors, which made shifts to the supply and demand balance less rapid and more predictable. Today, about 100 public firms and many more private ones are shaping the North American shale industry, raising the risk that hundreds of rigs might quickly reenter service, even if individual companies tread lightly.

Grand Central: Easy Money Finds its Way into Energy - It ought to make central bankers sit up and notice when easy money causes investors, lenders or businessmen to start making odd choices. My colleague Russell Gold documents what might fall into this category in a story about the continued flow of funds into the U.S. energy belt. Banks, private-equity firms and institutional investors have poured money into the energy sector even as oil prices collapsed and oil companies slashed billions of dollars in spending from their budgets, Russell reports. Private-equity firms are on pace to invest a record $20.6 billion in startup oil and gas companies this year, according to Preqin, which tracks private-equity expenditures. Investors and lenders appear to be of the view that now is the right time to put money into the sector, because oil prices are low. Buy low, sell high. Simple as that. The flow of money is likely to keep U.S. drillers pumping. Taken together with Saudi Arabia’s plan to keep pumping, oil prices could see continued downward pressure. That’s good news for American households. For financial regulators, however, this reach for returns in a slumping sector might be a sign that this era of super-easy money is breeding the kind of behavior that leads to excess or instability.

The Shale Boom Shifts Into Higher Gear - WSJ: Have the American entrepreneurs who developed horizontal drilling and hydraulic fracturing—“fracking”—done their jobs too well? The increase in domestic crude oil production of 3.6 million barrels a day in less than four years, reversing almost four decades of decline, has created a spectacular macroeconomic anomaly—a crash in oil prices without a recession to cause it. Now, in response to sharply lower prices, domestic oil producers have shed jobs and cut operating rigs by more than half. This has sent shock waves through the entire U.S. economy. The drop in fixed assets for drilling, alone, slashed about half a percentage point off first quarter gross domestic product. The crash in oil prices wasn’t due to lower demand. Petroleum demand in the U.S. is at its highest since 2010, and demand in China is higher than ever. Nor was the crash due to monopolistic OPEC manipulation. To be sure, the cartel, led by Saudi Arabia, chose not to cut production to support falling prices. But looking at the fracking tidal wave in the U.S., OPEC was only following the old Chinese proverb: When faced with the inevitable, try to enjoy it. Now the question is whether U.S. frackers can adapt to the lower prices they created.  The nimblest and smartest competitors have worked relentlessly to increase their productivity. Leading-edge operators report that they can produce more profitably today at a price of $65 a barrel than they could at $95 a barrel three years ago. Where can they be profitable three years hence—$40 a barrel? $30? The oil patch today is afire with the same technological imperative and competitive mission that has powered the U.S. electronics revolution—think Moore’s Law—to dash headlong down the learning curve, crushing costs and prices and making up for it in volume.

How Wall Street Helps US Oil Producers Extend-And-Pretend - In “When QE Leads To Deflation: A Look At The Global Supply Glut”, we outlined, for all to see, how the monetary policies pursued by the world’s central banks have not only failed to create demand and meaningfully lift inflation expectations, but have in fact the opposite effect, creating a global supply glut and, in an irony of ironies, deflation.   The cycle, which Citi says is “how zombies are born”, is nowhere more evident than among US oil drillers. Companies who would have otherwise been rendered insolvent by plunging crude prices have been able to keep drilling thanks to i) record low borrowing costs and ii) voracious demand for corporate issuance and ‘undervalued’ equity attributable to the fact that risk free assets fetch at best an inflation adjusted zero and at worst have a negative carry.   Access to cheap cash keeps the supply coming which in turn keeps prices suppressed in a cycle that feeds on itself creating Citi’s “zombie” companies in the process. We’ve bemoaned this central bank-assisted aberration for quite a while now have variously warned that given the completely illiquid conditions that exist in the secondary market for corporate credit, the last thing anyone needs is a primary market bonanza for junk-rated borrowers. As for equity issuance, what gullible investor wouldn’t want to jump on a secondary from an otherwise insolvent producer. After all, prices will rebound eventually. BTFD, people. Once the revolver raids start up again in October (when banks will once again assess credit lines to oil and gas producers) the defaults may be just around the corner. Then comes the rush to the HY ETF exits at which point horrified fund managers seeking to unload the underlying bonds will discover that there’s no one home at dealer desks thanks to the post-crisis regulatory regime.   Now, everyone is picking up on the narrative. Here’s WSJ on how Wall Street is keeping the sector afloat and the world awash in crude: Wall Street’s generous supply of funds to U.S. oil drillers helped create the American energy boom. Now that same access to easy money is keeping them going, despite oil prices that are languishing around $60 a barrel. The flow of money into oil has allowed U.S. companies to avoid liquidity problems and kept American crude production from falling sharply… Helped by a ready supply of money, the flow of oil from the U.S. could keep crude prices low for the remainder of 2015 and beyond…

Video: oil company debt and the oil price - See below for short view videographic, corporate credit related thoughts, as well as some additional sauce. The credit team at UBS deserve credit for pushing the concern about oil corporates. Here they are in early May: We believe the rubber will hit the road later this year for HY Energy. The recent rally in oil prices is insufficient for lower-quality energy firms who have most of 2016 production unhedged. Not to be forgotten for many E&Ps, natural gas prices are still struggling, and haven’t enjoyed the same bounce as oil prices YTD (Figure 3). Banks may not have cut reserve bank lending facilities aggressively yet, but the October review may be less forgiving with this backdrop. And again, more recently: Won’t defaults be limited to a small handful of issuers? There is some truth to that statement with respect to US high yield issuers; however, investors should not dismiss the bigger picture. The total debt of the oil and gas sector globally stands at roughly $2.5tn, two and a half times what it was at the end of 2006. According to the BIS this figure is comprised of 1.4tn of bonds and over 1.6tn in loans (but some of this portion represents undrawn facilities). But what is the credit worthiness of that debt?We would make a few key points: first, about one-third of the debt is tied to E&P companies; roughly 20% is integrated while 15% are oil service and pipeline firms. Second, of the bonds 35% are rated BBB, 17% BB, 7% B and 7% CCC. However, a large share of the loans outstanding are unrated. Third, just over 50% and 10% of debt is from US and European issuers, respectively, with a majority of the rest from EM firms. Finally while under 5% (c100bn) is due in 2015, 50% matures through 2019 with 30% (c650-700bn) due in 2018-19…

Federal Reserve finds a huge reduction in oil service costs -- The newest monthly assessment from the Federal Reserve claims that oil production companies are experiencing lower than usual service costs. For the most part, the June issue of the Beige Book prepared by the Federal Reserve Bank of Dallas regurgitated what most already know about the state of the industry. Oil and natural gas activity continued to decline for majority of the 12 districts which the analysis splits the U.S. into. In addition, well over half of the districts were reported to have experienced job cuts and a “tempered manufacturing growth” due to the oil slump.  Company contacts for the energy industry told the Federal Reserve that the cost of drilling and bringing wells into production have dropped 20 to 30 percent since the beginning of the year. Data to back up the claims of reduced service cost has been scarce at best, until the respected voice of the Fed that is. Last month, market analysis Wood Mackenzie found service companies are slashing costs of drilling tools, fracturing proppants and rigs by an average 16 percent this year. According to them, the slash in costs could reduce a breakeven barrel value in the Eagle Ford shale Play from $56 to as low as $41 by summer 2016. The newest statements from the Fed could mean this prediction is right on track. The Fed also noted that energy production and extraction companies are cut spending 30 to 40 percent this year. Nonetheless, with more efficient drilling of horizontal wells and advancing technology, a dollar in the field will do much more this time around if service companies keep costs low.

This time, low price signals longer-lasting retrenchment for oil industry – The slump in crude prices has jolted the oil industry into deep cost cutting which, unlike the previous downturn, could last for a few years at least. After overspending by the industry during the boom years, the collapse in prices in the second half of last year laid bare the need to reduce costs and introduce efficiencies. Oil producers globally have embarked on billions of dollars in savings in recent months, forcing oil service providers and contractors, in turn, to slash rates by as much as 50 percent in some cases. A partial rebound in crude prices this year will give service companies such as Baker Hughes, Schlumberger and Petrofac little respite. Unlike the previous collapse in 2009, when prices plunged 75 percent only to rebound within months, industry analysts forecast a very gradual recovery in prices this time, which means costs will need to fall a lot further still. “Higher prices have led to cost inflation over the past years and now we need to reverse that trend,” BP’s Chief Executive Officer, Bob Dudley, told the OPEC seminar in Vienna on Wednesday. “This will be tough and will require some very new thinking, but I believe it will lead the industry leaner and thinner into the future to use capital more efficiently.”

Amazing Proof of Shale’s Seismic Shift —  Last December the Energy Information Administration (EIA) updated its estimate of U.S. Crude Oil and Natural Gas Proved Reserves. Both natural gas and oil reserves rose, with the EIA reporting that U.S. proved reserves of crude oil and lease condensate had increased for the fifth year in a row, exceeding 36 billion barrels for the first time since 1975:  Increases to proved reserves can occur either through new discoveries, or because higher oil prices have pushed previously uneconomic-to-produce oil resources into the reserves category. The latter is the primary reason why over the past decade Venezuela’s proved oil reserves jumped from 77 billion barrels in 2003 to a world-beating 289 billion barrels  in 2013 — more even than Saudi Arabia at 266 billion barrels and more than six times the volume of proved U.S. reserves. Venezuela’s heavy crude resource in the Orinoco region of the country became economically viable as oil prices rose dramatically over the past decade and oil resources became classified as proved reserves. (Such additions can also be declassified as proved reserves should oil prices fall and remain low.) In the same way, higher prices are partially responsible for the increase in U.S. reserves. Higher oil and gas prices enabled economical production from the combination of horizontal drilling and hydraulic fracturing (“fracking”) for the first time, pushing shale oil and gas resources in North Dakota, Texas, and Pennsylvania into the proved reserves category. But the role of new discoveries in adding to new reserves can also be significant. In March 2015 the EIA released its update to the Top 100 U.S. Oil and Gas Fields as a supplement to the December report. This was the EIA’s first update on the Top 100 fields since 2009. The map has changed substantially since 2009, because there were no significant oil fields in South Texas at that time. With the new update, the largest field in the U.S. is now in South Texas:

Canadian shale field could rival the Bakken - The Canadian oil industry is associated mostly with the bitumen recovered from reserves such as the Alberta tar sands, but recent data from the National Energy Board (NEB) and the Northwest Territories Geological Survey has revealed a shale oil reserve that could rival the Bakken formation. Money Morning reports that the massive, untapped oil reserve could hold upwards of 200 billion barrels of shale oil. Of these reserves, though, officials predict that with current technology approximately 7 billion barrels of oil could be recovered economically. For comparison, the U.S. Geological Survey estimates that the Bakken shale formation could produce around 7.4 billion barrels. The area, located in the Northwest Territories, is north of British Columbia and east of the Yukon 90 miles south of the Arctic Circle. One of the formations, known as the Canol field, is already being explored by several major oil producers such as Royal Dutch Shell and ConocoPhillips. As reported by Peter Krauth for Money Morning, since 2010, there have been 14 exploration licenses granted with $628 million in commitments. The Canol field is estimated to hold up to 145 billion barrels of oil. The other formation, the Bluefish field, has yet to be explored but is estimated to contain as much as 46 billion barrels of oil.

Appeals Court: KXL South Approval Legal, Lifts Cloud Over TransCanada -- In a 3-0 vote, the U.S. Appeals Court for the Tenth Circuit has ruled that the southern leg of TransCanada's Keystone XL pipeline was permitted in a lawful manner by the U.S. Army Corps of Engineers.   Keystone XL South was approved via a controversial Army Corps Nationwide Permit 12 and an accompanying March 2012 Executive Order from President Barack Obama. The pipeline, open for business since January 2014, will now carry tar sands crude from Cushing, Oklahoma to Port Arthur, Texas without the cloud of the legal challenge hanging over its head since 2012. As previously reported here on DeSmog, the Sierra Club and co-plaintiffs already lost their Appeals Court legal challenge to impose an injunction and stop diluted bitumen (“dilbit”) from flowing through Keystone XL South back in October 2013. Now that same Court, albeit different judges, have ruled that the pipeline approval process itself was also legally acceptable.  At its core, the case centered around legal issues pertaining to the March 2012 Obama White House Executive Order and accompanying Army Corps' Nationwide Permit 12 issued to TransCanada to build Keystone XL South. Sierra Club and co-plaintiffs had argued that by issuing a Nationwide Permit 12, the Army Corps helped TransCanada dodge the more rigorous National Environmental Policy Act (NEPA) process, thus violating NEPA.  The judges begged to differ, saying no violation of NEPA transpired because Sierra Club never mentioned concerns during the public commenting period, such as potential oil spills. In turn, argued one judge, that was not something “obvious” the Corps should have examined.  Not mentioned: the Nationwide Permit 12 process, unlike a NEPA review, does not allow for public comment. Nor does it have public hearings.

Banks Behind Hillary Clinton's Canadian Speeches Really Want The Keystone Pipeline: Two Canadian banks tightly connected to promoting the controversial Keystone XL pipeline in the United States either fully or partially paid for eight speeches made by former Secretary of State Hillary Clinton in the period not long before she announced her campaign for president. Those speeches put more than $1.6 million in the Democratic candidate's pocket. Canadian Imperial Bank of Commerce and TD Bank were both primary sponsors of paid Clinton speeches in 2014 and early 2015, although only the former appears on the financial disclosure form she filed May 15. According to that document, CIBC paid Clinton $150,000 for a speech she gave in Whistler, British Columbia, on Jan. 22, 2015. Clinton reported that another five speeches she gave across Canada were paid for by tinePublic Inc., a promotional company known for hosting speeches by world leaders and celebrities. Another speech was reported as paid for by the think tank Canada 2020, while yet another speech was reportedly funded by the Vancouver Board of Trade. But a review of invitations, press releases and media reports for those seven other speeches reveals that they, too, were either sponsored by or directly involved the two banks. Both banks have financial ties to TransCanada, the company behind the Keystone XL pipeline, and have advocated for a massive increase in pipeline capacity, including construction of Keystone. Further, Gordon Giffin, a CIBC board member and onetime U.S. ambassador to Canada, is a former lobbyist for TransCanada and was a contributions bundler for Clinton’s 2008 presidential campaign.

Rick Perry Says He’ll Approve Keystone XL ‘On Day One’ If Elected President -- If elected president, former Texas Governor Rick Perry said that he would immediately approve the Keystone XL pipeline, authorize natural gas exports, and freeze the Obama administration’s proposed regulations on carbon dioxide.  m“On my first day of office I will issue an immediate freeze on pending regulations from the Obama administration,” Perry said while announcing his second bid for the White House at an event in Addison, Texas on Thursday. “On day one I’ll also sign an executive order approving the construction of the Keystone pipeline. … On day one I’ll sign an executive order authorizing the export of american natural gas and freeing our allies from the dependence of Russia’s energy supplies.”

For green activists, Arctic drilling could be the next big thing - Michael Brune is pleased that activists in kayaks are training for another "Paddle in Seattle" to confront an expected Royal Dutch Shell rig on its way to the Arctic to explore for oil. What makes the head of the Sierra Club just as happy is the effect Shell's Arctic ambitions are having on his own environmental organization. Sierra's funding drive against the resumption in Arctic drilling has taken in three times more money than usual campaigns by the nation's oldest green group, said Brune, though he wouldn't reveal specific amounts. And the group's petition opposing President Barack Obama's decision in favor of Shell last month has collected more signatures than any appeal in two years. "Our members are outraged because they believe fighting climate change is a moral challenge and they ask how the president can reconcile this move with his goals on climate change," Brune said. "All of it is getting a much higher response rate than we expected."  For environmental groups from the Sierra Club to Greenpeace, that combination makes Arctic drilling a powerful symbol for the broader fight over climate change. Global activists are increasingly focused on stopping major extraction projects, with the aim of keeping carbon reserves buried to avoid emissions many scientists say would result in runaway global warming.  The stakes are also high for Shell, which has already invested $7 billion in Arctic operations, though commercial oil production remains 10 to 15 years away. Shell understands some people oppose Arctic drilling, but global energy demand is expected to double by 2050, said spokesman Curtis Smith. "We'll need energy in all forms, and Alaska's outer continental shelf resources could play a crucial role in helping meet that challenge," he said.

Should Arctic drilling opponents take on Shell, or our own craving for crude? - Ok, admit it — you’re a little queasy about the recent “Paddle in Seattle” protests against Shell. It’s not that you questioned their cause: the Arctic is highly sensitive, the risks of an accident are high and Shell’s record in the Arctic is hardly inspiring. Nor did you doubt the effectiveness of a flotilla of tiny Davids standing up — okay, sitting down — against an oily Goliath: Shell’s operational window in the Chukchi Sea is so narrow that any delay in the port permitting process could cause Shell to rethink the whole project. Rather, what bothered you was the small-picture feel to the campaign. Even if Greenpeace and others involved do stop Shell from wintering its Arctic fleet in Seattle, the victory will be short-lived. As soon as oil prices rise, Shell or a rival will be back for the billions of barrels under the Chukchi. Why? Because, what is actually driving this drama isn’t oil-industry greed, or even the wimpiness of the Obama administration. It is our own insatiable appetite for crude.  Put another way, unless the zeal we saw on Elliott Bay can somehow be channeled toward the more complicated, and less glamorous, task of curbing that demand, the “Paddle for Seattle” will ultimately be less political action than performance art. This isn’t a dig at the protestors, exactly. Groups like Greenpeace, for all their emphasis on immediacy and real-time spectacle, recognize that these “events” must be part of a larger campaign to shift the global economy away from fossil fuels. The problem, really, is the way that larger story is being articulated and received — by activists, but also by journalists, politicians, citizens and the larger culture. And cynical as it may sound, when it comes to stories about social change, ours is a culture that increasingly insists on, not only obvious conflict and identifiable heroes and villains, but plot lines that move swiftly and uncomplicatedly toward concrete resolution, whether it’s a success or failure. “Reducing oil demand” just doesn’t fit that criteria.

This Week in Energy: Oil Glut Easing At A Snail’s Pace - The EIA released fresh weekly data this week that solidified a trend underway in the US. Oil inventories posted their fourth weekly decline, falling by another 2.8 million barrels. The US has now burned through 10 million barrels of oil from storage in a month, indicating that the supply glut continues to ease, although at a very slow rate. At the same time, however, the EIA also revealed a shocking jump in weekly production. Crude output across the country jumped by 300,000 barrels per day, an eye-grabbing number considering many other indicators point to an overall contraction. Still, that figure should be treated with a large grain of salt, as it is not the EIA’s most reliable metric. Weekly figures tend to be less accurate than forthcoming monthly data, which usually captures a clearer picture of the state of play.  The draw on inventories is largely attributable to the demand from downstream. Refineries are running at their highest levels in several months, providing a further boost to oil prices. Gasoline consumption is rocketing towards a ten-year high for the season. But there is a lot of hesitation in the oil markets. After two solid months of price gains between March and May, prices have hit a plateau and have even pulled back a bit. Global supplies are still elevated, and while demand is rising, it is not accelerating fast enough to significantly relieve the glut. It appears it will take some more time for things to balance out. Meanwhile, the cost to use oil tankers is shooting through the roof as more are being called upon to ship and store oil. Chartering an oil tanker now costs 57 percent higher than it has in recent weeks. On May 20, tanker rates hit $83,412 per day, up from just $52,987 at the beginning of the month. Part of the reason for the huge jump in daily tanker rates is because more oil is being exported from OPEC countries.  The massive increase in oil exports from Iraq, in particular, is a huge development for oil markets.   Another reason for high tanker rates is the ongoing use of ships to store oil. With oil prices expected to rise in the future, oil traders are parking their crude on ships, waiting for prices to bounce upwards. There are an estimated 20 million barrels floating somewhere out there in the oceans.

Oil cuts gains after industry group API forecasts U.S. stockpile build - (Reuters) - Oil pared gains in post-settlement trade on Tuesday after industry group American Petroleum Institute (API) estimated a stock build for last week versus market expectations for a draw. API said U.S. crude inventories rose by 1.8 million barrels in the week to May 29. Analysts polled by Reuters had forecast stocks to drop instead by 1.7 million barrels, for a fifth straight week of declines. U.S. crude was up 81 cents at $61.01 a barrel by 4:56 p.m. EDT (2056 GMT), after settling up $1.06. Brent crude was up 44 cents at $65.32, after closing 61 cents higher.

Oil Prices Slide as High Supplies Persist - WSJ: —Oil prices slumped Wednesday on concerns that the global crude market continues to be oversupplied. Robust production from the U.S. and member nations of the Organization of the Petroleum Exporting Countries sent oil prices plunging last year, and prices remain more than 40% below their June highs. The market rallied earlier this year on expectations that spending cuts would help shrink the global glut of crude, but large supply cuts haven't materialized so far. U.S. data released Wednesday showed domestic oil production at a new weekly high, and OPEC is widely expected to keep its production target unchanged at its June 5 meeting. Light, sweet crude for July delivery settled down $1.62, or 2.6%, at $59.64 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.69, or 2.6%, to $63.80 a barrel on ICE Futures Europe. Traders have closely scrutinized weekly U.S. inventory data this year for hints of when spending cutbacks by oil companies will lead to lower U.S. production. Commercial stockpiles of crude oil fell by 1.9 million barrels last week, the fifth straight weekly decline, the U.S. Energy Information Administration said Wednesday.   Stocks now stand at 477.4 million barrels, 2.7% below the high reached in April. Though stockpiles are declining, they are not shrinking as quickly as they grew earlier in the year. Inventories are 23% above year-ago levels.

WTI Crude Pumps-And-Dumps As Increased Production Trumps Surprise Inventory Draw -- Following last night's inventory build report from API, expectations adjusted to a 818k build for the DOE data this morning. However, for the 5th week in a row, DOE reported a draw (this time of 1.95 million barrels).  WTI Crude had rallied into the data but was still in the red from yesterday's close and spiked on the inventory news. However, once the machines had a chance to see that production rose once again - to a new cycle record - prices began to slide.... 5th weekly inventory draw...

Oil prices dip as crude glut overshadows strong fuel demand - Oil prices dipped on Thursday as a large crude glut and a sliding dollar overshadowed strong global fuel demand. Crude markets remain oversupplied ahead of Friday's meeting of the Organization of the Petroleum Exporting Countries, which is expected to continue to produce about 2 million barrels per day above demand, adding to a glut that has left millions of barrels stored on tankers without a buyer. Front-month Brent futures were down 9 cents at $63.71 per barrel by 0606 GMT. U.S. crude futures dropped 8 cents to $59.56. Energy advisory Wood Mackenzie said that it was very unlikely that OPEC would agree to cut output at its June 5 meeting and that it expected the group's crude output to remain just above its 30 million bpd production ceiling through 2016. The company said it forecast Brent to average $60 a barrel in 2015 and $70 in 2016. But strong global fuel demand curbed declines in prices. In China, almost 2 million new gasoline-thirsty cars are sold every month despite its economic slowdown. Asian refiners are also consuming a lot of crude for processing fuel as they benefit from near-record gasoline margins.

Oil extends losses ahead of OPEC meeting --  Crude oil prices fell more than $1 on Thursday as investors prepared for a widely expected decision by OPEC members to maintain current production levels, despite worries over a global supply glut. The Organization of the Petroleum Exporting Countries is expected on Friday to keep a group output target of 30 million barrels per day (bpd), ignoring calls from some producers to cut supply to support prices. The cartel is now pumping about 2 million bpd more than needed, analysts say, feeding a glut that has left millions of barrels in storage and kept prices at close to half their peak levels last year. "A roll-over in OPEC's production target is built into prices," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates. "Given the exciting fundamental backdrop, volatility is all but guaranteed." Brent for July LCOc1 was down $1 at $62.80 a barrel by 1400 GMT. U.S. crude futures CLc1 were also $1 lower at $58.64. Energy analysts at Morgan Stanley, who earlier this week raised the possibility of an OPEC production rise, said on Thursday the cartel was "highly unlikely" to change its target. Strong global fuel demand has helped support oil prices despite the glut. In China, almost 2 million new cars are sold every month despite its economic slowdown.

Is $60 the new normal for oil? -- Weak global economic growth momentum and a supply glut will cap oil prices at around $60 for the rest of 2015 and into 2016, analysts say.  "WTI oil futures will remain range bound at around $60 for the rest of 2015 and will only start trending up towards $70 a barrel heading into the end of 2016," Mizuho Research Institute senior economist Jun Inoue told CNBC in a phone interview. "Global economic growth looks soft, but there are no signs that oil supplies will fall," he said.  After falling to six-year lows earlier this year, oil prices have stabilized over the past two months. WTI futures have hovered in a $50-$60 a barrel range since early April.  Ahead of Friday's Organization of Petroleum Exporting Countries (OPEC) meeting, ministers from oil-producing countries such as Iraq, Venezuela and Angola, have been touting a higher target of around $75—$80 range, Reuters reports.  But analysts don't see much scope for upside to those levels.  "Oil prices appear to be settling in a range of $60 to $70 per barrel," said Capital Economics in a note on Wednesday. "We think that prices are more likely to fall than to rise over the remainder of this year." Capital Economics is forecasting Brent at $60 by the end of the year. Brent futures were trading at $63.38 a barrel at mid-day Asia Thursday.

The Last Three years Of Global Crude Oil Production --The EIA publishes every possible energy stat for the USA and hardly anything for the rest of the world. Well, anything current for the rest of the world anyway. Their International Energy Statistics report is already five full months behind and working on six. December 2014 is the last international oil production data we have. Anyway during this lull in other data I decided to look at the last three years of international data, from December 2011 to December 2014. All data is in thousand barrels per day. World C+C production was flat for most of 2012 and 2013 but in late 2013 production took off and has increased by about 3 million barrels per day above the average for 2012 and 2013. December C+C production was 79,300,000 BPD.  While total C+C production has increased by 3,000,000 BPD over the last three years the top ten gainers have increased just over twice as much, 6,200,000 BPD. Related: Three Eagle Ford Stocks Worth A Look And just who were the big C+C production increasers for the last three years. Keep in mind this is the total change, or increase, over the last three years, not total production. (Click to enlarge) The largest gainer, by a wide margin, was the USA. Iraq and Canada were runners up and the rest were also rans. Almost everyone else had declines. (Click to enlarge) Here are the 20 biggest decliners. Iran of course declined the most but surprisingly, the second largest decliner was Mexico, not Libya. Saudi, the fourth largest decliner has, since December, increased production by about half a million barrels per day.

OPEC likely to keep output unchanged at June 5 meeting: delegates - OPEC is likely to keep its output target unchanged when it meets on Friday because the global oil market appears to be in good shape and prices are expected to firm up from current levels, a senior Gulf OPEC delegate told Reuters. Two more OPEC delegates said they expect no change in policy on June 5 when oil ministers from the Organization of the Petroleum Exporting Countries (OPEC) are scheduled to meet in Vienna. Oil prices have rallied after falling to a near six-year low close to $45 a barrel in January due to a global glut. Brent crude settled at $65.56 on Friday, up $2.98, or 4.8 percent, on the day. [O/R] "It is unlikely that OPEC will make a decision regarding its production ceiling for two reasons: the first one that Russia and other non-OPEC producers have expressed their non-desire to cooperate in any idea of a production cut," the Gulf delegate said on Sunday. "And the second one is that the market is firming up. Prices are expected to continue at current levels and most likely will go higher. Demand is also strong and the inventories are balanced. The market seems to be in good shape," the delegate said. Crude oil inventories are above the five-year average but oil products stocks are within the five-year average, the delegate added.

Expect The Recent Oil Rally To End Badly If OPEC Doesn’t Cut -- The U.S. rig count dropped by 10 rigs this week after only falling by 3 last week. No doubt some analysts will say that this increase is somehow important and that a return to normal–i.e., high oil prices–is around the corner. Well, don’t get too excited because the rig count that matters–the horizontal Bakken, Eagle Ford and Permian plays–only fell by 2 rigs after not falling last week. This is a normal fluctuation when oil is $100/barrel.   Production has fallen and will fall more but rig count is the wrong measure at this time. The real measure is capital given to U.S. tight oil companies. And there seems to be plenty of really stupid capital that thinks that investing now means buying low. Good luck with that once oil prices fall.  There have been a steady stream of articles championing the ingenuity of U.S. tight oil producers for figuring out how to maintain production with fewer rigs. It doesn’t strike me as ingenious to produce more oil at low prices that ensure losing money.  OPEC will meet on Friday and most doubt that a production cut will result. If that is the outcome, expect the recent rally in oil prices to end badly. If producers cared about their investors and shareholders, they would be slashing production by shutting in wells. That might help oil prices rebound sooner and then, they could sell the oil at a profit instead of losing money while celebrating their own ingenuity.

Busting The Myth Of Saudi America --  The Saudi reticence to cut production was just a catalyst. The bigger theme was an already overdue bust that was happening in U.S. shale oil. This oil bonanza had been built on a house of cards, ready at any moment to topple over. The list of fragile flaws in the system was long. Each state had its own set of regulations and oversights on leases and operations, with no consistent framework for oil shale fracking. Despite (or because of) the complete freedom in oversight, fracking for oil from shale had grown at a frightening and undisciplined pace. As prices declined, it became clear that much of this breakneck activity had been financed by very risky and highly leveraged capital investments that mirrored some of the worst pyramiding schemes I had ever seen. But because prices had been high, many of the shortcomings had been conveniently overlooked: oil was being taken out of the ground as quickly as it could be drilled. The months following the OPEC announcement showed me just how rickety the entire structure for retrieving shale oil had become. Oil companies that had been the darlings of Wall Street not one year earlier were now losing 70-80% of their share value, as their corporate bonds, which were already poorly rated, risked complete default. Virtually every company involved in shale production was forced to slash development budgets, hoping to ride out what they prayed was a temporary dip in the price of oil. Yet projected production numbers from all of these players continued to rise, almost insuring that prices would stay cheap. What had been a universally optimistic industry not 6 months prior had changed overnight into a frightened group playing a collective game of chicken, as oil producers hunkered down with reduced budgets and hoped like mad that the “other guy” would go broke first. That shale oil had folded like a cheap suitcase so quickly and completely was incredible to witness and, I thought, incredibly important: it was undeniable proof that as a nation, we had completely bolloxed this once-in-a-lifetime opportunity.

U.S. shale and OPEC, the altered balance of power --  Two landmark events this month will underscore the extent to which the oil market’s balance of power has been transformed by the shale revolution. In Washington, Congress will begin considering legislation to permit the export of crude oil from the United States, reversing a four decade ban put in place after the first oil crisis in 1973/74. In Vienna, the Organization of the Petroleum Exporting Countries (OPEC) is expected to roll over its crude production target of 30 million barrels per day (bpd) even though prices have fallen more than 40 percent over the last 12 months. Rather than reduce production to boost prices, Saudi Arabia and the other OPEC members are prepared to continue pumping to defend market share and maximize revenue. After 40 years when OPEC appeared to play the dominant role balancing supply and demand and influencing prices (sometimes successfully, sometimes not), power has passed to the shale drillers of North America. Now it is the shale drillers who must decide whether to respond to the recent price rebound by re-activating rigs and completing more wells, at the risk of sending the price tumbling again.

OPEC oil output in May reaches highest since 2012 - survey - OPEC oil supply in May climbed further to its highest in more than two years as increasing Angolan exports and record or near-record output from Saudi Arabia and Iraq outweighed outages in smaller producers, a Reuters survey showed. The boost from the Organization of the Petroleum Exporting Countries puts output further above its target of 30 million barrels per day (bpd), underlining the focus of top exporter Saudi Arabia and other key members on market share. OPEC supply rose in May to 31.22 million bpd from a revised 31.16 million bpd in April, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. The group meets on Friday and is not expected to alter policy as oil has risen to $65 a barrel from a low close to $45 in January and there are signs of slowing growth in the higher-cost supplies that have been eroding OPEC’s market share. “Anything but a renewed confirmation of the production target at the forthcoming OPEC meeting would be a major surprise,” Commerzbank analyst Carsten Fritsch said. “The rapid rise in U.S. crude oil production has been stopped and the oil price has recovered considerably.”  The biggest increase came from Angola, which exported 58 cargoes in May, more than originally planned in April, according to loading schedules. Top exporter Saudi Arabia has not reduced output from April’s record high of 10.30 million bpd, sources in the survey said, as it meets higher demand from export customers and in domestic power plants.

How OPEC Hurt Big Oil - WSJ: The world’s biggest oil companies have taken a beating since the Organization of the Petroleum Exporting Countries let prices fall last year in favor of pumping more crude, injecting a note of tension into a long-standing marriage of convenience. Oil company earnings plunged 50% in the first quarter from a year earlier. Some of the industry’s biggest projects are on ice, and a new mood of uncertainty hangs over the sector as it goes through a rough patch after years of stability.  The meeting of the cartel this week amounts to a counseling session of sorts for global integrated oil companies and OPEC, as they all converge on Vienna. But no one expects the good times to return soon. OPEC, at its meeting here on Friday, appears likely to stay the course it set last November, keeping production levels the same. The shale-oil boom has accounted for the bulk of supply growth globally in recent years. Its persistence is the main reason OPEC’s leadership, particularly that of Saudi Arabia, saw little point in cutting production last year and likely now, as well. Any shortfall would likely be quickly met by producers outside the cartel. “It’s clear that we don’t have any more a balance because as soon as the price recovers shale oil can shift and start again production,” said Claudio Descalzi, chief executive of Eni, the Italian energy giant. “We have to get used to a different dynamic.” But the abdication by OPEC of its longtime role of swing producer has thrown the business models of big oil into disarray. “By jettisoning its ‘swing supply’ role, OPEC is dumping that burden upon the market. The international oil companies are now carrying some of the load,” On the one hand, the oil majors are seeing their revenues plunge with lower prices. For instance, BP’s measure of earnings fell 40% in the first quarter from a year earlier, while its cash flow dropped by more than 75%. On the other, the companies have been able to use that pressure to cut expenses and operate more cost-effectively. Eni slashed its dividend, and Exxon trimmed a share-buyback program. All of the big firms have pushed contractors to lower costs.

Big Oil chiefs tell OPEC they're adapting to price shock - (Reuters) – Six months after OPEC upended oil markets and sent prices crashing, the head of U.S. oil giant ExxonMobil has an unusual message for the cartel: thanks. While Exxon and other large oil companies have been forced to slash spending, cut staff and sacrifice tens of billions of dollars in revenue as oil prices halved, they have also watched with quiet satisfaction as upstart rivals from the U.S. shale patch struggle simply to survive through the downturn. The price collapse has helped shine a sharper light on the highest-cost producers, Rex Tillerson, head of the world’s largest publicly traded oil company, told a rare meeting of oil executives and OPEC ministers. “We’re trying to discover where the marginal barrels are around the world. It’s important for all of us to know,” he said. “We are constantly chasing the price against the cost of supply.” “We live with a lot of uncertainty and we’re rewarded for how well we manage it,” said Tillerson, one of the best-paid CEOs in the world. If you can’t live with uncertainty, “be a librarian,” he said.

Tight oil is here to stay, Conoco CEO tells OPEC - The U.S. tight-oil boom is here to stay despite low crude prices as technological breakthroughs will allow steep reductions in costs, the head of U.S. firm ConocoPhillips told a seminar organized by oil-producing group OPEC. “Innovations have already led to a U.S. energy renaissance. Tight-oil reservoirs can remain viable today, breakeven costs are already down by 15 to 30 percent,” Ryan Lance, chairman and CEO of Conoco, said on Thursday. The North American shale oil industry “will survive at $100 and it will survive at $50 or $60 Brent pricing too,” Lance told an audience packed with OPEC officials, including Saudi Arabia’s influential oil minister Ali al-Naimi. International benchmark Brent crude was trading just below $64 a barrel at 1015 GMT. Oil prices crashed over the past year after OPEC decided against cutting production to tackle a global glut that arose from a U.S. shale oil boom. OPEC chose instead to fight for market share, betting that a price drop would depress output in higher-cost producers such as the United States. Lance said cost reductions had been partly achieved due to cuts in service costs. “We’re in the second inning of a nine-inning game. We’re still trying to figure out how to get the optimum amount of flow through the reservoir. There are more (gains) to come.” Breakeven costs for tight oil would likely go down another 15-20 percent by 2020, he said. “So the message – unconventional production is here to stay,”

Saudis Believe They are Winning The Oil Price War -  It’s almost a foregone conclusion that OPEC won’t cut its production levels at its June 5 meeting in Vienna. Anyone needing strong evidence, if not proof, of this need only listen to Ali al-Naimi, the architect of the cartel’s effort to reclaim market share. In fact, some observers say OPEC not only won’t cut overall production levels from 30 million barrels a day to shore up prices, but may even increase them.It’s important to remember that shoring up oil prices is not the highest priority on al-Naimi’s list right now. While some OPEC members may have trouble making ends meet, wealthier Gulf Arab states can withstand lower revenues. This is especially true for Saudi Arabia, which has currency reserves of nearly $750 billion. Instead, the strategy was a price war against non-OPEC members who were ramping up production, particularly those in the United States exploiting the boom in shale oil. The question, posed to the Saudi minister when he arrived June 1 in Vienna in advance of the cartel’s meeting, was whether that strategy was working. “The answer is yes,” al-Naimi replied. “Demand is picking up, supply is slowing.” This isn’t just wishful thinking. OPEC is, in fact, gradually reclaiming its market share, according to a June 2 report from Barclays. It said that the cartel captured an average market share of 33 percent in April, up by 1 percentage point from the same month last year, but still 35 percent below the share it controlled in the middle of 2012.

What's OPEC Going to Do With Iran's Million Barrels a Day? - Just when it looked like OPEC was winning the war with U.S. shale-oil drillers, a new front is opening up within its own ranks. The Organization of Petroleum Exporting Countries’ summit on June 5 to determine the group’s output will come three weeks before a deadline for a deal on Iran’s nuclear program. The government in Tehran says it can add almost 1 million barrels to daily production within six months of sanctions being lifted. That’s a million barrels that OPEC hasn’t had to worry about since it adopted a new strategy in November of favoring market share over propping up prices. The group is already pumping the most oil in more than two years to quash higher-cost producers, and while Iran’s return would add to the pressure on OPEC’s rivals, it will also heighten competition within the group for buyers. “The Saudis are increasing production and anyone else in OPEC who can is also doing the same. If OPEC’s not willing to cut output to make room for Iran, they have to look for reductions from producers outside the group.” OPEC will maintain its output target of 30 million barrels a day when it meets in Vienna, according to all but one of 34 analysts and traders surveyed by Bloomberg last month. In reality, the group has been pumping more than that for a year, a sign of its determination not to cede a single barrel of market share to rival producers. OPEC’s strategy is working: The number of active U.S. oil drilling rigs has fallen by a record 60 percent to 646; output from American shale formations fell in May for the first time since February 2011; and producers have cut billions of dollars from their spending plans. In contrast, Saudi Arabia, OPEC’s biggest member and the architect of its strategy, is deploying the most rigs in at least two decades and operating with the lowest spare production capacity in about three years.

OPEC Keeps Production Limit At 30mln Barrels Daily: The Organisation of Petroleum Exporting Countries (OPEC) has said it has decided to maintain its maximum production limit at 30 million barrels of oil a day. The decision was made at the cartel’s meeting in Vienna on Friday. The cartel sticks to its strategy of unconstrained oil production which seeks to fight for its market share and curb production from high-cost instead of boosting the oil price by cutting output. OPEC refused to cut its output in the November meeting. The cartel signaled it would not cut output alone without a coordinated production reduction with other Non-OPEC oil producers. OPEC, an international organisation with headquarters in Vienna, Austria, was established in Baghdad on September 1960. Its mandate is to “coordinate and unify the petroleum policies of its members.” It also works to ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers. OPEC also maintains a steady income for producers and a fair return on capital for investments in the petroleum industry.

OPEC to maintain current oil output (video) The oil producers' organisation OPEC has decided to maintain current production levels despite calls from the industry to push oil prices higher. The Organisation of the Petroleum Exporting Countries took the decision to keep the "same" output target of 30 million barrels per day, Saudi Arabia's Oil Minister Ali al-Naimi said in Vienna on Friday. He dismissed rumours of disagreement between poorer members, who are believed to have been pressing for a drop in production at the gathering of the 12-nation group in Austria's capital. "The ceiling is the same. You will be surprised how amicable the meeting was," Naimi said after the meeting. Angola, Ecuador, Iran, Iraq and Venezuela had all appealed that the organisation, which produces one-third of global oil output, increases output for higher prices. OPEC is pursuing its plan to maintain market share and exert pressure on high-cost US shale producers. The decision leaves OPEC's official collective target at a level where it has stood for more than three and a half years. However, OPEC, which comprises nations from Africa, Latin America and the Middle East, is actually pumping 31.2 million billion barrels per day, due to increased supplies from Saudi Arabia and Iraq, according to International Energy Agency estimates.

OPEC - As Expected - Maintains Production At 30 Million Barrels, Crude Pops -- When OPEC did not cut production last November, the oil market collapsed in shock and awe that the cartel would not just give in and allow non-OPEC members to walk away with market share. Today, in Vienna, "exactly as expected," OPEC once again confirmed production will remasin at 30 million barrels per day in the face of the global oil glut and prices forWTI and Brent have jumped $0.50 to $1.00 (we presume on machines and removal of a worst case boost to production). Saudi oil minister Ali Al Naimi described as an “amicable” OPEC meeting. Prices wer weask going in and have reflexively bounced on the news that this was not a worst case scenario boost in production... “No surprise, exactly what was expected,” says Marina Petroleka, head of oil & gas at BMI Research, after the OPEC decision to leave its output target unchanged. According to Ms. Petroleka, the cartel’s 30 million notional production target remains, but production will remain well above it – especially in the summer months as Middle East produces more to meet higher domestic demand. “Eyes are now to the next meeting in end November, depending on what happens with the Iranian nuclear negotiations. The next meeting could be where a lot more internal negotiation and change of policy may need to take place,” she said.

OilPrice Intelligence Report: No Surprises From OPEC: Unless you have been living under a rock, by now you have read that OPEC has decided to leave its production target unchanged. A widely expected move, OPEC’s decision to leave its collective output at 30 million barrels per day will likely not have an enormous effect on the oil markets in the short-term. Prices were down a bit on June 5, but the markets had largely baked OPEC’s move into the price already. In fact, there were rumors that the group may even lift its production target, but that was not generally seen as likely. If that had occurred, prices would have been crushed. But with the status quo affirmed for now, OPEC appears comfortable with its strategy to play for market share, and the markets will have to continue on their path towards slowly balancing out. Heading into the meeting, OPEC officials cited the early success of its market share strategy. Having forced US shale production to level off and rig counts to drop by more than half, Saudi Arabia and its OPEC companions are maintaining their share. They expect that to continue. Also, prices have rebounded from their lows, jumping from the mid-$40s per barrel for Brent to above $60, and that didn’t come on the backs of OPEC. One interesting development during the OPEC meeting in Vienna was the difficulty Iran had at getting its voice heard. Iranian officials insisted that OPEC make room for its expected increase in oil output, assuming that western sanctions are lifted following an historic agreement with the West over Iran’s nuclear program. Iran may be able to rapidly ratchet up its oil output, with expected increases ranging from 400,000 barrels per day within a few months, to as much as 1 million barrels per day by next year. That would require some change in policy on behalf of OPEC. If a deal with the West is secured and sanctions are lifted, the November 2015 OPEC meeting will be much more interesting than the one that just concluded.

North Sea Oil Weighing Down British Economy - The output of oil and gas from Britain’s North Sea energy sector, plus disappointing export numbers, are beginning to weaken manufacturing in the kingdom and threatening the new Conservative government’s efforts to improve the overall economy. Manufacturing appeared healthy at the start of 2015, but orders and production have diminished so far in the second quarter, mirroring to some extent the reduction in North Sea output caused by the plunge in oil prices during the past year. The British manufacturers’ association, the EEF, says the industries most affected were mechanical engineering and metals. The latest quarterly report by EEF – which once stood for the Engineering Employers’ Federation – said the problem also has affected the British industrial morale, leading to a reduction in investment and employee recruitment. The conclusions are based on a survey of more than 400 companies. Certainly the fall in energy prices has been both good and bad news for British industry. For example, Mark Carney, governor of the Bank of England, has described the phenomenon “unambiguously positive” for the economy by controlling costs. But the EEF report shows its unfavorable impact on the supply chain that manufacturers rely on. In the survey, the manufacturers pointed to a decline in demand over the past three months, particularly due to falling orders for British energy. Its source is primarily from the North Sea, which has become less productive over the past 15 years.

Russia Weathering Oil Price Plunge Better than Expected - The World Bank says Russia’s economy may not be headed for as bad a recession as previously forecasted, yet it stressed that global economic ambiguities leave the outlook uncertain. The report, posted on the bank’s website on June 1, said Russia’s economy, hit hard by the drop in energy prices over the past year as well as by Western sanctions, attributed its improved forecast to a modest revival of oil prices, a stronger ruble and “a slightly faster retreat of inflation.”  As a result, the Bank of Russia, the country’s central bank, would be able to ease its monetary policy more quickly, further bolstering the economy, according to Birgit Hansl, the World Bank’s lead economist for Russia. Hansl’s report forecasted a contraction of 2.7 percent in gross domestic product (GDP) for 2015, an improvement over the 3.8 percent contraction it said it expected in its report on the Russian economy as recently as April 1. The June 1 report also projected GDP growth of 0.7 percent in 2016, compared to the contraction of 0.3 percent expected in the April report. Despite the World Bank’s more optimistic view, Hansl’s statement said the overall outlook is subject to economic factors, some of them outside of Russia’s control.

Nigeria's "petrocalypse" to be new president's first test - Nigeria, a nation which received 85 percent of its federal budget from oil and gas revenues in 2012, has a new president. Sworn in on May 29, Muhammadu Buhari now faces the monumental task of fulfilling his campaign promises, at least if he wants Nigerians to continue wishing him well. But first, Buhari will have to deal with the country’s current crisis: a wide scale fuel shortage that’s crippling the nation’s day-to-day operations. Despite the fact that Nigeria is Africa’s top oil producing nation (and ranks 12th globally), it has almost no refining capacity. As a result, about 80 percent of Nigeria’s fuel is imported. Right now, there’s very little to go around. The BBC recently reported that a crumbling deal between the Nigerian government and the nation’s fuel suppliers has left Nigeria without the much-needed resource. The country’s distributors choked off shipments over a massive $1 billion debt owed by the government. The shortfall has shut down businesses and grounded planes, and it is altogether hampering the economy. Although more recent talks have eased the issue slightly, Buhari still needs to resolve the problem entirely in order for Nigeria to get back to normal.

Young homegrown extremists pose threat in Saudi Arabia - Nearly 2,300 Saudis are believed to have joined the ranks of Islamic State and other groups fighting in Syria and Iraq. Hundreds have now returned home, bringing with them fighting skills honed on foreign battlefields and a lethal agenda. On Friday, Islamic State claimed to have carried out its second suicide bombing on Saudi soil in a week, part of a rash of attacks that have hit the normally battened-down kingdom since November. The bombings, which together killed 25 people and injured more than 100, were aimed at the country's Shiite Muslim minority, viewed by Sunni extremists such as Islamic State as apostates. Security officials have also linked the group to an assault that killed a general in charge of security on the kingdom's northern border with Iraq, and a string of shootings aimed at police, Westerners and Shiites. For years, wealthy Saudis have been accused of nurturing the fundamentalist brand of Islam that inspires many jihadists in the Middle East and beyond. Of the 19 hijackers involved in the Sept. 11, 2001, attacks against the United States, 15 were Saudi citizens. Weapons and cash from Saudi Arabia have flowed to armed groups fighting the government of President Bashar Assad in Syria, who is allied with the kingdom's chief regional rival, Shiite-led Iran. Now Saudi Arabia itself is increasingly becoming a victim of Islamist violence, aimed not only at Shiite minorities, but also the royal family, seen by militants as corrupt, oppressive and beholden to allies in the United States and Europe.

China upbeat on gasoline demand as gas guzzlers become popular - The Chinese bought nearly 49% more gasoline-guzzling sports utility vehicles, or SUVs, in the first quarter of 2015 compared with Q1 2014 -- a statistic that is expected to support China's gasoline demand growth. According to data from the China Association of Automobile Manufacturers, sales of multi-purpose vehicles, or MPVs, rose by 19.3% year on year in Q1. The trend of strong sales growth in these gasoline guzzlers more than offset the adverse impact on gasoline demand due to overall slowdown in vehicle sales growth in China. According to CAAM, total vehicle sales rose just 4% year on year in Q1 compared with 9% a year earlier. In a research note covering state-owned PetroChina published April 29, Nomura Research said the increasing popularity of SUVs in China could translate into higher-than-expected gasoline sales.

How China’s SUV Craze Will Drive Oil to $80 - Barron's: China oil demand for the first four months in 2015 has been stronger than expected and decoupled from weak industrial production growth. Lower oil prices have helped stimulate SUV sales which are in turn pushing up demand for gasoline. As demand proves more elastic to price than many expect, we anticipate further positive revisions to demand, which will be positive for oil price and oil linked equities in the near term.

  • • China has surpassed US as the largest oil importer of crude oil as lower prices have led to stronger apparent demand growth and increased stockpiling.
  • - Chinese oil imports reached an all-time high of 7.4MMbls/d (+9% y-o-y, +0.6MMbls/d) in April, exceeding US crude oil imports for the same month (7.2MMbls/d).
  • - Stripping out crude purchases for the strategic petroleum reserve and commercial inventories, underlying apparent demand increased by 6% y-o-y.
  • - While industrial output growth has been a good proxy for oil demand in the past, there are clear signs of decoupling, as oil demand becomes increasingly a function of demand for transports than industrial activity.
  • • China oil demand is being driven by exceptionally strong gasoline sales, which reflects stronger underlying demand for transportation fuels.
  • - Apparent gasoline demand increased by 20% y-o-y in April to 10MMT per month (2.8MMbls/d), which was an all-time high and double the level from 2008.
  • - While jet fuel (kerosene) demand was also strong, diesel demand remains relatively sluggish on weak industrial growth in China. Further loosening of monetary conditions could help boost demand near term.
  • • Stronger gasoline demand has in turn been driven by stronger SUV sales which we partially attribute to the 30% decline in gasoline prices in 1Q15.
  • - SUV sales have been growing at 50% y-o-y in China and now represent over 25% of passenger vehicle sales in mainland China

Why is Obama Goading China? » US Secretary of Defense Ashton Carter is willing to risk a war with China in order to defend “freedom of navigation” in the South China Sea. Speaking in Honolulu, Hawaii on Wednesday, Carter issued his “most forceful” warning yet, demanding “an immediate and lasting halt to land reclamation” by China in the disputed Spratly Islands. Carter said: “There should be no mistake: The United States will fly, sail, and operate wherever international law allows, as we do all around the world.” He also added that the United States intended to remain “the principal security power in the Asia-Pacific for decades to come.” In order to show Chinese leaders “who’s the boss”, Carter has threatened to deploy US warships and surveillance aircraft to within twelve miles of the islands that China claims are within their territorial waters. Not surprisingly, the US is challenging China under the provisions of the UN Convention on the Law of the Sea, a document the US has stubbornly refused to ratify. But that’s neither here nor there for the bellicose Carter whose insatiable appetite for confrontation makes him the most reckless Sec-Def since Donald Rumsfeld. So what’s this really all about? Why does Washington care so much about a couple hundred yards of sand piled up on reefs reefs in the South China Sea? What danger does that pose to US national security? And, haven’t Vietnam, Taiwan and the Philippines all engaged in similar “land reclamation” activities without raising hackles in DC?

China Says It Could Set Up Air Defense Zone in South China Sea - A Chinese admiral said Sunday that Beijing could set up an air defense zone above disputed areas of the South China Sea if it thought it was facing a large enough threat, according to Chinese news media.Adm. Sun Jianguo, deputy chief of staff of the People’s Liberation Army, speaking at a regional security forum in Singapore, said that China had not definitely said it would create a so-called air defense identification zone, but that any decision would be based on an aerial threat assessment and the maritime security situation. He also said other nations should not overemphasize the issue.The creation of an air defense zone would be viewed by the United States and Southeast Asian nations as a huge provocation. In recent years, foreign officials have speculated whether one of Beijing’s next moves in the South China Sea would be to set up such a zone, which would further solidify China’s military presence in the waters.

South China Sea dispute: Strong indication Australia will join push back on China's island-building: Defence Minister Kevin Andrews has issued the Abbott government's strongest signal yet that Australia is prepared to join the United States and other countries in pushing back against China's island-building and militarisation in the South China Sea. Further hardening Australia's stance, Mr Andrews has used a speech at a key Asian security conference to state unequivocal opposition to large-scale land reclamation – a clear dig at China's island-building and positioning of military hardware on the disputed Spratly Islands chain.  Mr Andrews issued a thinly veiled warning that other countries in the region will respond if Beijing persists, saying that actions in international security tend to produce "a corresponding counter-reaction". "As with Newton's principles, aspects of international security are often characterised by an action and a corresponding counter-reaction," he said. "In making decisions, countries and leaders should always be wary of the consequences, intended or otherwise, of a particular course of action and the potential for these actions to lead to escalation and miscalculation."

Exclusive: Vietnam eyes Western warplanes, patrol aircraft to counter China -- Vietnam is in talks with European and U.S. contractors to buy fighter jets, maritime patrol planes and unarmed drones, sources said, as it looks to beef up its aerial defenses in the face of China's growing assertiveness in disputed waters. The battle-hardened country has already taken possession of three Russian-built Kilo-attack submarines and has three more on order as part of a $2.6 billion deal agreed in 2009. Upgrading its air force would give Vietnam one of the most potent militaries in Southeast Asia. The previously unreported aircraft discussions have involved Swedish defense contractor Saab, European consortium Eurofighter, the defense wing of Airbus Group, and U.S. firms Lockheed Martin Corp and Boeing said industry sources with direct knowledge of the talks. Defense contractors had made multiple visits to Vietnam in recent months although no deals were imminent, said the sources, who declined to be identified because of the sensitivity of the matter. Some of the sources characterized the talks as ongoing. One Western defense contractor said Hanoi wanted to modernize its air force by replacing more than 100 ageing Russian MiG-21 fighters while reducing its reliance on Moscow for weapons for its roughly 480,000-strong military. Vietnam has ordered about a dozen more Russian Sukhoi Su-30 front-line fighters to supplement a fleet of older Su-27s and Su-30s.

The South China Sea Word War » As Cold War 2.0 between the U.S. and Russia remains far from being defused, the last thing the world needs is a reincarnation of Bushist hawk Donald “known unknowns” Rumsfeld. Instead, the — predictable — “known known” we get is Pentagon supremo Ash Carter. Neocon Ash threw quite a show at the Shangri-La Dialogue this past weekend in Singapore. Beijing is engaged in reclamation work in nine artificial islands in the South China Sea; seven in the atolls of the Spratlys, and two others in the Paracel archipelago. Ash virtually ordered Beijing to put an “immediate and lasting halt” to the expansion; accused it of behaving “out of step” with international norms; and capped the show by flying over the Strait of Malacca out of Singapore in a V-22 Osprey. Washington never ceases to remind the world that “freedom of navigation” in the Strait of Malacca – through which China imports a sea of energy – is guaranteed by the U.S. Navy. After Shangri-la, U.S. President Barack Obama also felt the need to play ball, stressing China should respect the law and stop “throwing elbows,” even though he admitted, “it may be that some of their claims are legitimate.” So what? When you are a “Pacific power,” you have the right to remain not silent on, well, everything. Looking at the Big Picture, Singapore Prime Minister Lee Hsien Loong at least tried to put on a brave face, insisting the Pacific Ocean is “vast enough” for both Washington and Beijing.

Why China has the upper hand in the South China Sea: Washington’s failure in recent years to keep careful watch over what goods are made where — especially when it comes to such vital items as electronics and drugs — means the United States now depends far more on China than vice versa. Back in the 1990s, advocates of liberalizing U.S. trade with China said economic interdependence would inevitably lead to peaceful coexistence. But one-sided dependencies invite adventurism, as China’s growing belligerence today proves. Washington must now address the fundamental flaws in the international trade system that gave China such a big advantage. The White House claims the proposed Trans-Pacific Partnership will help offset China’s increasing heft. Unfortunately, the pact, which includes 11 Pacific Rim allies but excludes Beijing, will do nothing to fix the problems. The fact that the global trading system is not working as promised is most dramatically evident in the seas around China. Beijing is engaged in a pattern of provocation bordering on recklessness. In late 2013, China unilaterally imposed an “air defense declaration zone” covering portions of the East China Sea. Earlier this year, the Chinese navy set about transforming a reef in the Spratly Islands into a military base. International relations in East and South Asia are tenser than at any time since the 1960s. Japanese Prime Minister Shinzo Abe last year compared the situation to 1914 just before World War One. .This is the opposite of what was supposed to happen when the United States and its allies created the World Trade Organization in the mid-1990s and then invited Beijing to join. President Bill Clinton asserted that “growing interdependence would have a liberalizing effect in China.”Worse, the extreme industrial interdependence fostered by the World Trade Organization appears to have put powerful levers into China’s hands.

“One Belt, One Road”, or the New Silk Road for China? -- That is the new China initiative to rebuild the Old Silk Road along modern principles.  The plan is a bit of a grab bag, but seems to include the following:

  • a. A deepwater naval base in Pakistan, plus a $42 billion aid/investment package for Pakistan.  Here is some background on what already has been done.
  • b. A Chinese route to the sea through Myanmar and Bangladesh.
  • c. Northern shipping routes to Europe, through the Arctic, as the ice melts.
  • d. A rail line from Zhengzhou through Russia to Hamburg (already running, a 17-day trip).
  • e. Power stations and manufacturing plants for the Central Asian republics, in return for gas supply.  This infrastructure transfer is also supposed to limit excess capacity in China by sending infrastructure abroad.
  • f. A railway and highway to connect China to the Arabian Sea.

US Congress pushed China into launching AIIB, says Bernanke - Beijing was pushed into launching the Asian Infrastructure Investment Bank by US lawmakers’ refusal to give China greater clout in existing multilateral institutions, Ben Bernanke has said. “The US Congress is largely at fault for all that’s happening,” the former chairman of the Federal Reserve said in Hong Kong on Tuesday. America’s legislature blocked a 2010 International Monetary Fund agreement to shift 6 per cent of quota — and voting rights — to emerging economies, which Mr Bernanke believes would have “better reflected the increasing role of China” and other nations. “The US Congress has not approved it. They should, they haven’t,” Mr Bernanke said. “So I understand why other countries say, ‘well let’s take our marbles and go home’.” The AIIB, which will be capitalised at $100bn, now has 57 members including most big European economies. Mr Bernanke’s remarks add to those of other senior US figures who argue that Washington has mishandled its response to China’s ambition to play a bigger role in the international economy. Lawrence Summers, former US Treasury secretary, wrote recently that US cold-shouldering of the AIIB may be remembered as the moment it “lost its role as the underwriter of the global economic system”.

China’s Jobless Growth Miracle – Chinese Prime Minister Li Keqiang recently cited job creation as vital to his country’s “ultimate goal of stability in growth.” His observation could not be more accurate. In fact, one of the most baffling features of China’s economic rise is that, even amid double-digit GDP growth, employment grew at a measly 1.8% average annual rate from 1978 to 2004. Households, it seems, have largely missed out on the benefits of economic development in China. The superficial explanation of the discrepancy between GDP growth and job gains attributes the gap to the restructuring of inefficient state-owned enterprises (SOEs), which caused public-sector employment to plummet, from 112.6 million to 67 million, from 1995 to 2004. But there is a more fundamental cause: China’s bias toward industrialization. China’s government has long viewed industrialization as the key to modernization. During Chairman Mao’s Great Leap Forward, scrap metals were melted to meet wildly optimistic steel-production targets and thus to propel rapid industrial development. Today, the government promotes industrial and infrastructure projects that, by encouraging investment and generating tax revenues, enable the economy to meet ambitious – though no longer harebrained – growth targets. The problem is that the manufacturing sector does little to create jobs, largely because relatively high productivity growth in the sector – averaging more than 10% annually over the last two decades – constrains demand for more workers. By contrast, China’s services sector has registered only about 5% annual productivity growth, and thus is a much more effective engine of job creation. In fact, services are responsible for the lion’s share of employment in most advanced economies. But, whereas 80% of the American labor force was employed in service industries in 2012, only 36% of China’s workers worked in the sector.

China May Double Down On Debt Swap As ABS Issuance Stumbles - Chinese stocks jumped nearly 5% on Monday on disappointing macro data which betrayed a third consecutive monthly contraction in the manufacturing sector (remember, bad news is good news in a world hooked on central bank-dispensed monetary heroin). But a poor macro print wasn’t the only hint that more stimulus may be just around the corner, as Beijing is now reportedly set to double the local debt swap quota to CNY2 trillion.  Via Bloomberg: China’s Ministry of Finance may set additional quota of 500b-1t yuan for local governments to swap debt into municipal bonds, according to people familiar with the matter. Plan needs State Council approval, according to the people, who asked not to be identified because deliberations are private. This should come as no surprise. As we’ve documented in excruciating detail, the country’s local governments are sitting on a pile of debt that amounts to around 35% of GDP. Visually, that looks like this…

China Limits Mainland Visits to Hong Kong -- Chinese authorities curbed some travel from mainland China to Hong Kong on Monday to cool tensions over a growing influx of shoppers that has angered residents of the Asian financial hub. The public security bureau in neighboring Shenzhen will stop issuing multiple visit passes to people who live in the border city and instead issue only once-a-week travel passes, according to the official Xinhua News Agency. The move comes as anger simmers over the rising numbers of cross-border mainland Chinese travelers, who have been blamed for voracious buying of smartphones, cosmetics, medicine and luxury goods that distorts the local economy. Chinese especially favor baby formula bought in Hong Kong over domestic brands after repeated food safety scares and because of the city's reputation for authentic goods.

Tepid factory data add to Asian gloom - Manufacturing and exports across Asia remained weak in May, painting a gloomy picture of economic activity in the region and raising questions about global demand. The slowdown at Asian factories correlates with limp demand in many overseas markets that buy their shoes, chips and ships. Although the official Chinese purchasing managers’ index showed modest growth last month, a private survey conducted by Markit and HSBC pointed to continued weakness in Asia’s largest economy. HSBC said the reading of 49.2 was slightly higher than the April figure but signalled that “operating conditions in China’s manufacturing sector continued to deteriorate”. A figure below 50 indicates contraction. China’s economy grew 7 per cent in the first quarter of this year, in line with expectations. However, some economists believe growth will drop further in the second quarter, with Nomura forecasting a figure of 6.6 per cent. Meanwhile, Indian PMI rose again in May, reaching 52.6 from 51.3 in April, according to HSBC. India has overtaken China as Asia’s fastest-growing economy, after reporting a 7.5 per cent expansion during the first quarter of 2015. The Chinese PMI data chimed with gauges from Asia’s other manufacturing hubs that showed tepid activity. South Korean May PMI dropped at its fastest pace since August 2013, which HSBC said highlighted “worsening conditions” in the sector. Korea also posted a 10.9 per cent slump in exports, its steepest decline since the summer of 2009. Taiwan, a key link in the global supply chain for electronics, also suffered a contraction in manufacturing in May for the second month in a row.

Problems Mount for Asia’s Exporters - Exports have been slackening across Asia as the global recovery continues to disappoint. A weaker-than-hoped pickup in the U.S. has capped demand for Asian goods. Even a resurgent U.S. dollar, which makes imports from abroad cheaper in local-currency terms, hasn’t encouraged Americans to buy. The data challenges some optimistic themes investors and economists had baked in for the rest of 2015: more robust U.S. growth after a port strike on the West Coast and winter weather; Japan moving past last year’s recession; a bond buying-fueled recovery in Europe; and China’s many stimulus measures starting to pay off,  “But, if we let the data speak: so far, there’s no convincing sign of a bounce. If anything, it’s the contrary,” he writes. In manufacturing bellwethers South Korea and Taiwan exports have fallen 5.6% and 6.2%, respectively, year-to-date in U.S. dollar terms, according to CEIC. In India, exports have fallen 14.8% and in Thailand, where exports account for two-thirds of gross domestic product, the figure is down 4% over the same period. China’s exports are up a feeble 1.5%. Setting aside the effects of currency, export volumes tell a similar story. Sure, emerging Asia export volumes are near record highs, but “rarely have we seen such a prolonged period of flat shipments,” The latest surveys of factory-floor conditions are equally discouraging. In China, Indonesia, South Korea and Taiwan, HSBC purchasing managers index readings were in contraction territory, with the subindex for new export orders also shrinking in each country.

S. Korea's soaring household debt choking the population - The China Post: It is unwelcome news for many indebted households in South Korea that mortgage interest rates have been rising recently. The increase in the interest rates for home-backed loans extended by major banks has ranged from 0.23 percent to 0.68 percent over the past month. This trend is expected to continue for the coming months, with the U.S. Federal Reserve set to raise rates in the second half of this year. Household debt soared to an all-time high of 1,099 trillion won (US$992.1 billion) as of end March, up 11.6 trillion won from the end of last year, according to data compiled by the Bank of Korea. It is natural that calls are rising for the government to step up efforts to slow the growth of household debt.  Before interest rates rise further, household debt needs to be managed at a proper level to avoid a credit crisis being triggered. The ballooning debt will also make it difficult to increase consumer spending to help revive the economy as Korea's exports remain sluggish due to faltering global demand and a weak Japanese yen. The Ministry of Strategy and Finance is likely to revise down its growth forecast for this year by 0.5 percentage point to 3.3 percent later this month. This downgraded outlook will still be higher than forecasts by other economic institutes.

This Is Why The Army Sent Anthrax To South Korea, Australia, and 11 States - DoD officials issued a new statement saying that they had discovered that the anthrax had actually gone to 24 labs in 11 U.S. states plus facilities in South Korea and Australia. Deputy Defense Secretary Bob Work ordered a “comprehensive review of DoD laboratory procedures, processes, and protocols,” Pentagon spokesman Col. Steve Warren said in a statement. Work has also ordered all DoD labs to cease work with these samples until further notice. A full report is due within 30 days. Is it possible that CDC procedures, rather than human error, caused the mistakes? Does this reveal gaps in the way packages are screened for harmful agents in shipment? And why was DoD mailing itself anthrax, anyway? Why was the Army sending anthrax to South Korea? To help test new detection gear. In April, DoD officials began a series of key tests of their Joint U.S. Forces Korea Portal and Integrated Threat Recognition program. Abbreviated JUPITR, the program combines large and small devices to help soldiers detect biological agents sooner and at a greater distance. It goes beyond traditional amino acid-based chemical assays to use acoustic, seismic and even laser sensors.

Japan Monetary Base Surges 35.6% In May - The monetary base in Japan soared 35.6% on year in May, the Bank of Japan said on Tuesday - coming in at 307.384 trillion yen. That follows the 35.2% annual surge in April. Banknotes in circulation added 4.5% on year, while coins in circulation added 0.7%. Current account balances surged 56.9% on year, including a 57.8% jump in reserve balances. The adjusted monetary base soared 42.1% in May

BOJ's Kuroda "Believes He Should Fly", Says Central Bankers Should Think Happy Thoughts --BoJ Governor Haruhiko Kuroda is running what is perhaps the greatest (or worst, depending on how one is predisposed to view centrally planned economies) monetary experiment in history.  True, Kuroda is monetizing the entirety of JGB gross issuance, stripping the market of liquidity and setting the stage for heightened volatility, (more) VaR shocks, and all manner of other central bank-induced aberrations in the process. But that’s par for the central banker course in today’s market. As outlined extensively here, the BoJ has taken things a step further by providing plunge protection for the Nikkei, stepping in to support stocks whenever sentiment looks weak and accumulating an equity portfolio somewhere on the order of $95 billion in the process.  With each passing soundbite, it becomes increasingly apparent that Kuroda is detached from reality in terms of recognizing that the BoJ’s policies (and Abenomics more generally) have failed to stoke inflation expectations even as they have exacerbated the divide between rich and poor and embedded an as yet unknowable amount of risk into the financial system in the process. Against this backdrop, the only thing keeping the dream alive is blind faith in the omnipotence of central bankers. Consider that point, and then consider the following, excerpted from Kuroda’s opening remarksat the 2015 BOJ-IMES Conference: I trust that many of you are familiar with the story of Peter Pan, in which it says, "the moment you doubt whether you can fly, you cease forever to be able to do it." Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.

Australian MPs allowed to see top-secret trade deal text but can’t reveal contents for four years –  Australian politicians have been told they can view the current confidential negotiating text for the Trans-Pacific Partnership agreement, but only if they agree not to divulge anything they see for four years, despite expectations the deal could be finalised within months. As 10 years of highly secret negotiations over the 12-nation trade and investment pact draw to a close and the US Congress debates whether to grant president Barack Obama fast-track authority, MPs and senators were briefed on the deal Monday night by the Department of Foreign Affairs and Trade assistant secretary Elizabeth Ward and other officials.  The MPs were told that, despite the negotiations being “in the final stages” and “at the end game”, key provisions had not been agreed – including intellectual property clauses of deep concern to the Australian government and controversial legal avenues for corporations to take action against governments – so-called investor state dispute settlements (ISDS). They were also told the ISDS process itself was still being negotiated, including provisions on transparency. They were told they could view the current TPP negotiating text on Tuesday “subject to certain confidentiality requirements” and were shown a document they would be required to sign before any viewing.

Bond Crash Continues - Aussie & Japan Yields Burst Higher -- The carnage in Europe and US bonds is echoing on around the world as Aussie 10Y yields jump 15bps at the open (to 3.04% - the highest in 6 months) and the biggest 2-day spike in 2 years.  JGBs are also jumping, breaking to new 6-month highs above 50bps once again raising the spectre of VAR-Shock-driven vicious cycles... The spectre of a self-feeding dynamic is something we’ve discussed at length before, most notably in 2013 when volatility-induced selling — reminiscent of the 2003 JGB experience — hit the Japanese bond market again, prompting us to ask the following rhetorical question:  What happens to JGB holdings as the benchmark Japanese government bond continues trading with the volatility of a 1999 pennystock, and as more and more VaR stops are hit, forcing even more holders to dump the paper out of purely technical considerations?  The answer was this: A 100bp interest rate shock in the JGB yield curve, would cause a loss of ¥10tr for Japan's banks. What we described is known as a VaR shock and simply refers to what happens when a spike in volatility forces hedge funds, dealers, banks, and anyone who marks to market to quickly unwind positions as their value-at-risk exceeds pre-specified limits. Here’s more from JPM on the similarities between the Bund sell-off and the JGB rout that unfolded two years ago: The sharp rise in bond volatility over the past week or so is reminiscent of the VaR shocks of October 2014 in US rates and April 2013 in Japanese rates. The common feature of these rate volatility episodes was that there was no clear fundamental trigger. Instead, positions and flows experienced a sharp swing making these VaR episodes appearing more technical and unpredictable in nature. In October 2014, a violent capitulation on short positions at the front-end of the US curve had caused a collapse in UST yields. In April 2013, profittaking in long duration exposures post BoJ's QE announcement caused a sharp rise in JGB yields that started reversing two months after.

Bond-Market Volatility Reflects Reality, Not Regulation - Bonds are supposed to be boring, but this year they’ve been anything but. After plumbing the lowest levels in memory earlier this year, German yields have skyrocketed, and yields around the world have largely followed suit.  Market participants complain that the volatility is aggravated by illiquidity, that is the absence of many buyers and sellers willing to transact at a given yield and price, for which they blame increased regulations. Stiffer capital regulations make it expensive for banks to hold big inventories of bonds for trading with customers, and the Dodd-Frank law’s “Volcker rule” bans banks from certain types of proprietary bond-trading. It is not easy to apportion all the drivers of something as complex as the bond market, but regulations do not appear to be the driving force behind higher volatility. In 2013, several Fed economists studied how various dealers responded to the “taper tantrum,” when anticipation of an end of the Federal Reserve’s bond-buying program (quantitative easing) sparked a big jump in yields and a decline in prices. The economists found that dealers did indeed reduce the size of their positions—a measure of how much they were willing to buy or sell to help their customers—during the selloff. Dealers’ leverage (i.e. the ratio of total assets to capital) fell. “Value at risk,” (VaR) a gauge of how much dealers stand to lose in the majority of market scenarios, also shrank. But they also found that the dealers who reduced their positions most were those who were most comfortably above their capital requirements. In other words, they did not seem to be driven by regulatory constraints. The authors’ conclusion, which was echoed in a similar study detailed in the 2014 annual report of the Financial Stability Oversight Council, was that dealers were “driven more by differences in risk appetites than by regulatory constraints.”

The Future Of India's Monetary Policy Is Now "Monsoon Dependent" --  As it turns out it is not just a US "thing" to blame the weather. Enter the Bank of India, which overnight cut its benchmark rate from 7.5% to 7.25%, as had been largely expected, taking India's interest rate to the lowest since September 2013. The punchline, however, was when RBI's governor Raghuram Rajan gave his outlook for the possibility of future rate cuts, saying he would have to wait to assess monsoon rains before acting again, an outlook that according to Bloomberg disappointed investors looking for more cuts to spur weak economic growth. While “a conservative strategy would be to wait” for more certainty on how monsoon rains will affect inflation, weak investment means “a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty,” Rajan said. He also lowered the RBI’s growth forecast and said inflation risks are tilted on the upside.

India's Central Bank Cuts Key Interest Rate to Boost Growth - ABC News: India's central bank cut a key interest rate by a quarter percentage point Tuesday, the third such reduction this year in support of government efforts to boost growth. The latest rate cut lowers the policy repo rate, at which commercial banks can borrow from the Reserve Bank of India, to 7.25 percent. The Reserve Bank of India cut interest rates by a quarter percentage point in January and March. The cut comes after the Indian economy registered 7.5 percent growth in the January to March quarter compared with a year earlier. That made India the world's fastest growing major economy, overtaking China's 7 percent growth in the same quarter. The central bank, however, left all other policy instruments such as the cash reserve requirement unchanged at 4 percent and Statutory Liquidity Ratio at 21.5 percent. "With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate," Reserve Bank of India Governor Raghuram Rajan said. India's stubbornly high inflation has moderated in recent months to just below 5 percent, giving the central bank more leeway to lower borrowing costs. Leaders of Indian industry were pressing for a cut in interest rates. They said high credit costs were a dampener for business and investment. Rajan said if the impending monsoon season is weak as forecast it could give rise to inflationary pressures.

Faster than China? India's road, rail drive could lay doubts to rest --  Prime Minister Narendra Modi's reformist, but hard-up government has begun a splurge on road and rail building that analysts say could remove doubts over whether economic growth in India really is overtaking China. Having roughly doubled spending allocations for roads and bridges in fiscal 2015/16, and raised the rail budget by a third, Modi is banking on India going faster. "They have acknowledged that infrastructure is the big elephant in the room," said Vinayak Chatterjee, head of infrastructure services company Feedback Infra. "Once these measures are implemented, the elephant would start dancing, and with it the overall economy." Modi's chief economic advisor, Arvind Subramanian, reckons growth could increase by more than one percentage point this year provided ministries don't underspend, though the central bank saw it adding just half a point. Data released on Friday showed the economy grew 7.5 percent in the quarter ending in March, easily outpacing China. Many economists suspect, however, that the government statisticians' new way of counting GDP overstates how well India is doing. Those worries might fade if Subramanian is right about the impact infrastructure spending will have on India's under-achieving economy. Success rests on whether ministries spend the extra $11 billion they were allocated for infrastructure this fiscal year. They got off to a fast start in April, spending $6 billion of the $38 billion capital expenditure budget for 2015/16.

How Will Robots Impact Late Industrializers Like India and Pakistan?  -- Export oriented manufacturing industries have helped a succession of newly industrialized countries like Indonesia, Japan, Hong Kong,  Malaysia, South Korea, Taiwan and China create more and better jobs and rise from low-cost manufacturing base to more advanced, high-end exports.  As a country's labor gets too expensive to be used to produce low-value products, some poorer country takes over and starts the climb to prosperity.  Will this formula help create more and better jobs in late industrializing countries like Bangladesh, India and Pakistan? Will programs like Indian Prime Minister Narendra Modi's "Make in India" help create more and better manufacturing jobs to bring prosperity to his country? To answer this question, let's look at a recent World Bank report.   A 2015 World Bank report titled "Manufacturing Conundrum" says this formula of creating more manufacturing jobs for greater prosperity is unlikely to continue to work in the future. Here are two reasons it offers:
1. Labor productivity has risen faster in manufacturing than in the wider economy. Higher levels of manufacturing output are now compatible with lower levels of manufacturing employment. the following figure confirms this, showing that peak manufacturing employment shares have fallen over time. Peak output shares have not.
2. Manufacturing activity is now more apt to leave for other countries as labor costs rise. Therefore deindustrialization kicks in at lower income levels. Moreover, this premature deindustrialization is more apparent in employment than in output data. Output can be sustained in the face of rising labor costs by replacing workers with machinery. A key factor this report does not fully acknowledge is the dramatic advance in artificial intelligence (AI) leading to the rise of much more capable robots.

Bangladesh files murder charges in 2013 building collapse - (AP) — Authorities in Bangladesh filed murder charges Monday against dozens of people for their roles in the 2013 collapse of a garment factory building that killed more than 1,100 people. The charges were filed against 41 people, including the building's owner, Sohel Rana, and his parents and more than a dozen government officials, for their direct role in the deaths of 1,137 people in the collapse of Rana Plaza, said the lead investigator, Bijoy Krishna Kar of the Criminal Investigation Department. Investigators initially had said the accused, who also include the owners of the five factories that the building housed, would be charged with culpable homicide, but they later changed their plans due to the gravity of the accident, Bangladesh's worst industrial disaster. If convicted of murder, the defendants could face the death penalty. The maximum punishment for culpable homicide is seven years in jail. Investigators said the shift from the culpable homicide charges came after the investigation found that Rana, his staff and the management of the five factories had forced the workers to enter the building despite their unwillingness to work on the day of the accident after the building developed major cracks a day earlier. The police report called the deaths a "mass killing." About 2,500 people were injured in the disaster.

Fleeing by the Millions: Migration Crises Around the World - The Atlantic: (dozens of captioned photos) In record numbers, people are escaping regions plagued by warfare, instability, disasters, poverty, or systemic persecution. The United Nations announced last year that forced displacement had topped 50 million globally, and early tracking indicates that number may increase yet again this year. Multiple crises worldwide are driving the record migrations, which include Africans and Middle Easterners entering Europe, Rohingya Muslims fleeing Burma, Central Americans traveling to the U.S., civilians escaping violence in Syria, Yemen, Burundi, Somalia, Iraq, and more—all undertaking risky journeys to find better lives. Nations targeted by asylum seekers are working with the UN to address the increased number of migrants, providing humanitarian aid and encouraging solutions to the problems driving millions from their homes. The photos of the migrant journeys below were taken over the past few months.

40 Million People Will Be Out Of Work Next Year, OECD Warns - While today's IMF cut in US growth estimates served merely to reestablish long positions in the long end of the curve and to serve as a basis for this quarter's IMF "comedy of errors" update, a more concerning update was presented by the far more credible OECD whose latest forecast is truly troubling for all those who claim the global economy is in a recovery. As reported by AFP, in the latest economic forecast from the Organization for Economic Cooperation and Development, the Paris-based body made up of 34 of the world’s most developed countries, the conclusion is that the world economy risks being bogged down in a low-growth spiral unless measures are taken to spur demand and incite businesses to boost their stubbornly sluggish investments. Hint: raise rates now, send the economy into a tailspin, do QE4 imminently, pretend it is to "boost the economy", send the S&P500 to 3000. Rinse. Repeat. Coming just hours ahead of the IMF's own slashing of US growth forecasts, yesterday the OECD cut its forecast for the U.S. economy. The OECD now expects U.S. economic growth to slow to 2% this year from 2.4% in 2014, compared to March when it forecast an acceleration to 3.1% in 2015. Odd: today's IMF revised cut is nearly identical. One wonders if the IMF's economists don't merely read the OECD's work and present it as their own? Canada's growth estimate was also lowered to 1.5% from a March prediction of 2.2% and November’s estimate of 2.5%. It must have snowed harshly there too.

The Anti-Poverty Experiment - WSJ: The U.S. and other wealthy nations have spent trillions of dollars over the past half-century trying to lift the world’s poorest people out of penury, with largely disappointing results. In 1966, shortly after President Lyndon B. Johnson declared war on poverty, 14.7% of Americans were poor, under the official definition of the U.S. Census Bureau. In 2013, 14.5% of Americans were poor. World-wide, in 1981, 2.6 billion people subsisted on less than $2 a day; in 2011, 2.2 billion did. Most of that progress came in China, while poverty has barely budged in large swaths of sub-Saharan Africa, South Asia and Latin America. Is it time for a new approach? Many experts who study poverty think so. They see great promise in a new generation of experimental programs focusing not on large-scale social support and development but on helping the poor and indebted to save more, live better and scramble up in their own way.Just as health care has been modernized by “evidence-based medicine” and professional sports by the rigorous statistical analysis that inspired Michael Lewis’s book “Moneyball,” bands of upstarts in the world of anti-poverty policy are applying the scientific method to their own work. Many of these poverty fighters call themselves “randomistas,” after the randomized controlled trials that are at the heart of their methods. In such field experiments, people are randomly assigned either to a treatment group that receives an “intervention” or to a control group that does not. The experimenters meticulously collect and analyze data, then try to replicate the results elsewhere to see if they hold up. A report published in the journal Science in May found that the randomistas’ methods not only work but stick. In Ethiopia, Ghana, Honduras, India, Pakistan and Peru, 10,495 households—about half of them earning less than the equivalent of $1.25 a day—took part in two-year experiments intended to help them become more self-sufficient.

Leading Mexican Journalist Explains Why Everything You're Hearing About The Drug War Is Wrong -- As one of Mexico's leading investigative journalists, Anabel Hernández has dedicated the past decade to investigating her country's drug war -- one of the most dangerous projects a reporter could ask for. Her 2010 book Los señores del narco, translated into English as Narcoland, detailed the extensive government corruption that allowed Joaquín "El Chapo" Guzmán and his Sinaloa cartel to become one of the most powerful criminal enterprises in the world.   Working in partnership with journalist Steve Fisher at The Investigative Reporting Program (IRP) at U.C. Berkeley's Graduate School of Journalism , Hernández has also been at the forefront of one of the leading investigative reports into the case of the missing 43 students from the Ayotzinapa teachers college who were attacked by Mexican police in September.  Hernández spoke with The WorldPost about the misconceptions surrounding Mexico's drug war, the role the U.S. plays in Mexico's violence and why we shouldn't assume that drug cartels are behind the disappearance of the missing 43 students.

Canada’s Forced Schooling of Aboriginal Children Was ‘Cultural Genocide,’ Report Finds - — Canada’s former policy of forcibly removing aboriginal children from their families for schooling “can best be described as ‘cultural genocide.’ ”That is the conclusion reached by the country’s Truth and Reconciliation Commission after six years of intensive research, including 6,750 interviews. The commission published a summary version on Tuesday of what will ultimately be a multivolume report, documenting widespread physical, cultural and sexual abuse at government-sponsored residential schools that Indian, Inuit and other indigenous children were forced to attend.The schools, financed by the government but run largely by churches, were in operation for more than a century, from 1883 until the last one closed in 1998.The commission documented that at least 3,201 students died while attending the schools, many because of mistreatment or neglect, in the first comprehensive tally of such deaths.

Toronto home prices soar: ‘No relief’ to meet pent-up demand - Toronto home prices are surging, with no end in sight of satisfying the “pent-up demand.” Sales in the area climbed 6.3 per cent in May to 11,706 from a year earlier, the Toronto Real Estate Board said today, while the average price for all types of homes rose 11 per cent to $649,599. The average price for a detached home in the so-called 416 area code now tops $1.1-million, up more than 18 per cent from a year earlier, the realtors group said. You can see what’s happening by looking at new and active listings, which fell from a year earlier by 0.8 per cent and 10.1 per cent, respectively. “Tight market conditions, especially for singles, semis and town homes in the [Greater Toronto Area], have resulted in strong price growth regardless of the price metric being considered,” Jason Mercer, the group’s director of market analysis, said in today’s report. “With no relief so far on the listings front, expect similar rates of price growth as we move through the remainder of 2015,” he added. “At this point, a number of months where listings growth outstrips sales growth would be required to satisfy pent-up demand.” Toronto and Vancouver are Canada’s two hot spots. As The Globe and Mail’s Brent Jang reports, prices for detached homes in the Vancouver area climbed 16.3 per cent in May to more than $1.4-million. Economists, too, see Canada’s housing markets holding up, though those in Alberta and other oil-producing regions have been hit by the slump in crude prices.

Canadian household debt levels rise to $1.82 trillion: RBC --Canadian households have reached record levels of debt, expanding their debt balances by $81 billion from a year ago in April to $1.82 trillion. The new debt level marks a 4.6 per cent increase from April 2014, according to a new report from RBC. RBC Economist Laura Cooper said there appears to be little abatement in Canadians' appetite for credit."A reluctance to spend, as evident in softer consumer expenditures in Q1/15, has done little to curb demand for credit with the annual increase in April matching the pace of growth reported in each of the past three months," she said in the report. The report found that consumer credit accumulation increased year-over-year by 3 per cent from April 2014. "A bump in outstanding credit card balances in the month accompanied ongoing accumulation on personal lines of credit to boost overall non-mortgage loans by $15 billion from a year ago to $532 billion," the report said. However, the "robust" housing activity in recent months did not spur an increase in mortgage loans in April, Cooper said. "Growth in this component remained unchanged at 5.3 per cent for the third consecutive month," the report said.

IMF Economists: Stop Obsessing Over Debt - It may be one of the brashest and most contrarian ideas out of the International Monetary Fund in years. Or it could be seen as an act of desperation amid mounting worries the global economy is stuck in a decadelong low-growth rut. Rather than being obsessed by debt, some countries should spur growth by not paying down their debt, argue top economists from the IMF, the institution largely tasked with helping countries cut their debt burdens. “Recent debates have centered on the pace at which to pay down this debt, with few questions being asked about whether the debt needs to be paid down in the first place,” argue Jonathan Ostry, deputy director of the IMF’s Research Department, and two other economists in his division, Atish Ghosh and Raphael Espinoza. “A radical solution for high debt is to do nothing at all—just live with it,” they said in a new working paper published by the fund Tuesday. In the wake of the financial crisis, debt ballooned in advanced and emerging market economies. Governments bailed out the financial sector, tried to juice growth with state spending and revenues fell amid stagnant output.

Stop Obsessing Over Debt and Watch Growth Flourish, IMF Economists Argue - Rather than being obsessed by debt, some countries should spur growth by not paying down their debt, argue top economists from the IMF, the institution largely tasked with helping countries cut their debt burdens. ... Jonathan Ostry, deputy director of the IMF’s Research Department, and two other economists in his division, Atish Ghosh and Raphael Espinoza. ... say that many policy makers—here’s looking in particular at you, Berlin—have a “debt obsession” and aren’t fully factoring in the cost of insuring against future crises by paying down the debt. “Advocates of ‘fixing the debt problem’ stress the crisis-insurance benefit, without mentioning the upfront cost of insurance,” Mr. Ostry said. “Insurance can be expensive in terms of the higher taxation needed to run a budget surplus.” ... They aren’t arguing for all countries to halt their plans to cut debt. Rather, they contend that some countries have room in their budgets to spend more to stimulate growth without raising borrowing costs and fueling investors’ concerns. ... “For countries that have fiscal space, the cost of insurance is likely to be much larger than the benefit,” Mr. Ostry said.

IMF to Rich Countries: Don’t Sweat the Debt - With European officials huddling this week in an effort to find a way out of the debt crisis threatening to push Greece out of the European currency union, a new working paper from the International Monetary Fund that challenges much of the conventional thinking about how countries that have accumulated substantial sovereign debt ought to prioritize their spending. First mentioned in a Wall Street Journal piece this morning by David Wessel, who directs the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, the paper has an unmistakable message for policymakers in the U.S.: Don’t sweat the debt.  The IMF paper When Should Public Debt Be Reduced?  argues that in cases where countries have adequate “fiscal space,” the benefits of paying down public debt outweigh the costs. There’s a lot to unpack in the idea of fiscal space, but essentially the authors -- Jonathan D. Ostry, Atish R. Ghosh, and Raphael Espinoza -- maintain that if a country is near full employment, can borrow at reasonable (or given today’s climate, historically low) interest rates, and has ample space between its debt limit and its debt-to-GDP ratio, it makes sense not to pay down debt but to let it decline organically as a share of GDP through economic growth.

When Is Repaying Public Debt Not Of The Essence? - IMFdirect - Financial bailouts, stimulus spending, and lower revenues during the Great Recession have resulted in some of the highest public debt ratios seen in advanced economies in the past forty years. Recent debates have centered on the pace at which to pay down this debt, with few questions being asked about whether the debt needs to be paid down in the first place. A radical solution for high debt is to do nothing at all—just live with it. Indeed, from a welfare economics perspective—abstracting from real world problems such as rollover risk—this would be optimal. We explore this issue in our recent work. While there are some countries where clearly debt needs to be brought down, there are others that are in a more comfortable position to fund themselves at exceptionally low interest rates, and that could indeed simply live with their debt (allowing their debt ratio to decline through growth or windfall revenues). A simple way to understand the basic intuition for just living with debt is to recall Robert Barro’s “tax-smoothing” principle (whereby constant tax rates are efficient because distortionary costs are typically convex—rising at a faster rate—in the tax rate). The economic burden of public debt is the distortionary cost associated with the taxes needed to service it, potentially in perpetuity. But that is a sunk cost, already incurred, and— short of default—now unavoidable. It provides no reason to further distort the economy by temporarily raising taxes only to lower them again once the debt has been paid down

Stop Obsessing Over Debt and Watch Growth Flourish, IMF Economists Argue - Rather than being obsessed by debt, some countries should spur growth by not paying down their debt, argue top economists from the IMF, the institution largely tasked with helping countries cut their debt burdens. ... Jonathan Ostry, deputy director of the IMF’s Research Department, and two other economists in his division, Atish Ghosh and Raphael Espinoza. ... say that many policy makers—here’s looking in particular at you, Berlin—have a “debt obsession” and aren’t fully factoring in the cost of insuring against future crises by paying down the debt. “Advocates of ‘fixing the debt problem’ stress the crisis-insurance benefit, without mentioning the upfront cost of insurance,” Mr. Ostry said. “Insurance can be expensive in terms of the higher taxation needed to run a budget surplus.” ... They aren’t arguing for all countries to halt their plans to cut debt. Rather, they contend that some countries have room in their budgets to spend more to stimulate growth without raising borrowing costs and fueling investors’ concerns. ... “For countries that have fiscal space, the cost of insurance is likely to be much larger than the benefit,” Mr. Ostry said.

The ‘fiscal space’ charade – IMF becomes Moody’s advertising agency - Bill Mitchell --The IMF has taken to advertising for the ratings agency Moody’s. It is a good pair really. Moody’s is a disgraced ratings agency and the IMF has blood on its hands for its role in less developed nations and for its incompetence in estimating the impacts of austerity in Europe. Neither has produced research or policy proposals that can be said to advance the well-being of nations. Moody’s has shown a proclivity to deceptive behaviour in pursuit of its own advancement (private largesse). The IMF struts around the world bullying nations and partnering with other institutions to wreak havoc on the prosperity of citizens. Its role in the Troika is demonstrative. Anyway, they are now back in the fiscal space game – announcing that various nations have no alternative but to impose harsh austerity because the private bond markets will no longer fund them. They include Japan in that category. Their models would have drawn the same conclusion about Japan two decades ago. It is amazing that any national government continues to fund the IMF. It should be disbanded.

Biden says Europeans questioning Russia sanctions 'inappropriate, annoying' – Spiegel — US Vice President Joe Biden has called on European countries to show unity when it comes to sanctions against Russia, labeling the dissenting voices “inappropriate and annoying”, reported ‘Der Spiegel’, quoting the participants of the Brussels meeting. Germany’s Der Spiegel magazine said that the US vice president’s remarks were made at a special meeting of leaders of the European parliament factions at the EU headquarters in Brussels. Biden called on European countries to ‘stand firm’ against Russia’s alleged threats to the region's unity. “Putin continues to call for new peace plans as his troops roll through the Ukrainian countryside and he absolutely ignores every agreement that his country has signed in the past... including in Minsk,” Biden said, referring to “little green men”, but failing to provide any exact details of Russia's alleged military presence in the region.   Critics of the policy of sanctions against Moscow should be aware that they also benefited from the current low price of oil, Biden said. He deemed complaints made by some European states about costly sanctions against Russia “inappropriate and annoying.”

Russian Pivot: Greece Will "Probably" Join BRICS Bank, Official Says - Greece still has one card left to play in fractious negotiations with creditors: the so-called 'Russian pivot'.Over the course of difficult talks between Syriza and the troika Moscow has, at various times, sought to take advantage of the hostilities between Athens and Brussels by making a series of overtures including the possibility of Greece joining the BRICS bank. Now, at least one Greek official says the country will likely accept the invite.  Greece is preparing and will probably submit a request to participate in the new development bank for BRICS countries and has secured Russia’s support on the issue, Productive Reconstruction, Environment and Energy Minister Panagiotis Lafazanis told ANA-MPA news agency on Friday evening. “During my meeting with Russian Deputy Finance Minister Sergey Storchak, we secured the decisive Russian support to Greece’s request for participation in the new development bank of BRICS countries. The relevant request for Greece’s participation…will be symbolic and will be paid in installments, while right after operations begin, it will be able to accept financial support,” the minister said. Lafazanis added that technical details were also discussed on how to submit the request so that it will be accepted after discussions within the Greek government conclude.

Greek energy minister held gas pipeline talks in Moscow (Reuters) - Greece's energy minister has discussed in Moscow the construction of a pipeline that will transport Russian gas to Europe through its territory, the Greek energy ministry said on Saturday. Cash-strapped Greece has been making overtures to Russia since the leftist government of Alexis Tsipras took power in January. Athens says Moscow is considering paying it in advance for the Turkish Stream pipeline after abandoning the South Stream project last year. Energy Minister Panagiotis Lafazanis, part of the government's far-left faction that is keen to boost ties with Russia, travelled to Moscow on Friday for talks with his Russian counterpart Alexander Novak, Deputy Finance Minister Sergei Storchak and Gazprom Chief Executive Alexei Miller. Lafazanis and Storchak discussed the funding of the pipeline which will be built by a consortium of Russian and European firms, including a Greek state company, Greece's energy ministry said in a statement. Russian banks have expressed interest in funding the project, the ministry added. After aborting a $40 billion South Stream pipeline last year, Russia is planning to build the Turkish Stream project to Turkey and further on to Greece via the Black Sea, in line with its plans to stop exporting gas via Ukraine by 2019. Greece and its EU/IMF creditors have been locked in talks for months on a cash-for-reforms deal and pressure is growing for a deal, since Athens risks default without aid from a bailout programme that expires on June 30. During his visit in Moscow, Lafazanis also expressed Greece's interest in taking part in a development bank that a bloc of emerging economies - Brazil, Russia, India, China and South Africa (BRICS) - plan to launch in July, aiming at funding infrastructure. Storchak said Russia will support the Greek request and made clear the country's contribution to the fund will be very low.

Last Exit Before Chaos: There’s an odd summer-of-1914 feel to the current state of the Greek crisis. While some of the main players are, rightly, desperate to find a way to head off Grexit and all it entails, others – on the creditor as well as the debtor side — seem not just resigned to collapse but almost as if they’re welcoming the prospect, the way, a century ago, far too many Europeans actually seemed to welcome the end of messy, frustrating diplomacy and the coming of open war.  Is there still a way out? There should be. As I and others have been saying for a while, the arithmetic is actually quite clear: Greece cannot run a primary deficit, it cannot be forced to run a large primary surplus, so a small primary surplus is the obvious solution and better for all concerned than euro exit.  There is, one must admit, a new problem caused by the current confrontation itself: uncertainty has pushed Greece back into recession, and the primary surplus achieved last year has vanished. But given a deal it should be possible to arrange some temporary financing while a modest recovery puts the primary balance back into the black. The big problem is how to get a deal given lack of trust on all sides. ... Yet from what I hear there is still room for at least a temporary deal. ... There are just a few days left. Let’s hope that cool heads prevail.

Greece open to compromise to seal deal this week: interior minister | Reuters: Greece's government is confident of reaching a deal with its creditors this week and is open to pushing back parts of its anti-austerity program to make that happen, the country's interior minister said Saturday. Greece and its EU/IMF creditors have been locked in talks for months on a cash-for-reforms deal and pressure is growing for a deal, since Athens risks default without aid from a bailout program that expires on June 30. "We believe that we can and we must have a solution and a deal within the week," Interior Minister Nikos Voutsis, who is not involved in Greece's talks with the lenders, told Skai television. "Some parts of our program could be pushed back by six months or maybe by a year, so that there is some balance," he said. He did not elaborate on what parts of the ruling Syriza party's anti-austerity program could be pushed back, but the comments suggested a greater willingness to compromise on pre-election pledges.  The government earlier this week said it hoped for a deal by Sunday, though international lenders have been less optimistic, citing Greece's resistance to labor and pension reforms that are conditions for more aid. Voutsis said Athens and its partners agreed on some issues, such as achieving low primary budget surpluses in the first two years. But they still disagreed on a sales tax, with Greece pushing so any VAT hikes will not burden lower incomes.

Greek bank deposits hit decade low as bailout talks continue -- Deposits held by Greek banks have fallen to their lowest level in a decade, according to statistics released on Friday by the European Central Bank.Total deposits from households and businesses in April stood at €139.4 billion, a €5.6 billion decline - equivalent to 3.9 percent - from March, the ECB reported. Deposits fell by €27 billion over the first four months of 2015, a rate of around €1.5 billion each week.(Photo: Tonton Bernardo) Capital flight from Greek banks has been going on steadily since Greece’s first bailout package was agreed in 2010. At that time, banks held deposits totaling €220 billion.The decision by panicked savers to withdraw their money from Greek lenders is the result of the difficult talks - now in the fifth month - between Greece’s left-wing government and its EU and IMF creditors on the remaining €7.2 billion of Greece’s bailout package.Athens continues to argue that an agreement could be reached by Sunday (31 May), but their optimism has not been reciprocated by their creditors. On Thursday, the International Monetary Fund (IMF) insisted that a deal would require the Greek government to agree to a sizeable economic reform package and to budget surplus targets.

EU's Juncker warns against Greek exit from euro: paper | Reuters: European Commission President Jean-Claude Juncker said on Sunday a Greek exit from the euro zone could damage trust in the single currency. "I don't share the idea that we will have fewer worries and restraints if Greece gives up the euro," Juncker said in an advanced copy of an interview to be published in the Sueddeutsche Zeitung on Monday. He told the paper that if a country were to withdraw from the euro, "it would fix the idea in heads that the euro is not irreversible." This could prompt international investors to pull out of Europe, Juncker said, adding that Japan's prime minister made clear to him during his visit to Tokyo that Japan's investment in Europe depended on having confidence in the euro. Greece and its euro zone and International Monetary Fund (IMF) creditors have been locked in talks for months without any signs of a breakthrough. Pressure to strike a deal has intensified as Athens faces a debt payment on June 5 as well as the expiration of its bailout program on June 30. Juncker will meet with German Chancellor Angela Merkel and French President Francois Hollande in Berlin on Monday, and he told the paper that Greece would be on the agenda, even if it isn't the official reason for their talks.

Tsipras accuses Greece bailout monitors of making ‘absurd’ demands - Greece’s chances of striking a deal to access a much-needed €7.2bn in rescue aid looked even bleaker on Sunday after Alexis Tsipras, prime minister, accused bailout monitors of making “absurd” demands and seeking to impose “harsh punishment” on Athens. Mr Tsipras’s accusations, made in Le Monde newspaper, came only days after his government claimed an agreement was imminent. They have increased the sense of chaos around negotiations in the week many believe a deal is needed to avoid a Greek default. On Friday, Athens is scheduled to make a €300m loan repayment to the International Monetary Fund that is being closely watched by creditors after some Greek ministers hinted that it might not be met without bailout aid. A further €1.2bn of IMF payments fall due over the subsequent two weeks. Several eurozone officials fear that, without a deal this week, there will not be time for Greece to legislate and implement an agreed list of new economic reforms before the end of the month, when its bailout expires. The uncertainty has sparked large-scale withdrawals from Greek banks, with about €800m taken out in just two days last week — renewing fears of a full-scale bank run. Greece’s three bailout monitors — the IMF, European Commission and European Central Bank — must sign off on the new reforms before the funds will be released, but in his Le Monde article, Mr Tsipras accused them of being unyielding in the face of significant Greek concessions. “The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance,” Mr Tsipras wrote. “It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.” The criticism appears directed at the IMF, which has taken the hardest line of the three institutions, particularly regarding cuts in public sector pensions, which Mr Tsipras described as already having been excessively slashed. EU leaders, including Chancellor Angela Merkel of Germany, have specifically warned Mr Tsipras that no deal is possible without IMF approval.

Tsipras Accuses Troika of "Creditor Monstrosity", Urges Eurozone Leaders to Read "For Whom the Bell Tolls" -- It appears the eurozone is one step closer to an "accident" today. In a Le Monde editorial Defiant Tsipras Threatens to Detonate European Crisis Rather than Yield to Creditor "Monstrosity"Greek premier Alexis Tsipras has accused Europe's creditor powers of issuing "absurd demands" and come close to warning that his far-Left government will detonate a pan-European political and strategic crisis if pushed any further. Writing for Le Monde in a tone of furious defiance after the latest set of talks reached an impasse, Mr Tsipras said the eurozone's dominant players were by degrees bringing about the "complete abolition of democracy in Europe" and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the "doctrines of extreme neoliberalism"."For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim," he said.  "If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”," he said.

Defiant Tsipras threatens to detonate European crisis rather than yield to creditor "monstrosity" - Greek premier Alexis Tsipras has accused Europe's creditor powers of issuing "absurd demands" and come close to warning that his far-Left government will detonate a pan-European political and strategic crisis if pushed any further. Writing for Le Monde in a tone of furious defiance after the latest set of talks reached an impasse, Mr Tsipras said the eurozone's dominant players were by degrees bringing about the "complete abolition of democracy in Europe" and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the "doctrines of extreme neoliberalism". "For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim," he said. The Greek leader, head of the radical-Left Syriza government, issued a stark warning that his country will not submit to these demands and will instead take action "to entirely transform the economic and political balances throughout the West."

Greece suffering as insecurity surrounding debt crisis kills businesses across the country - The onset of warmer weather in Athens is usually accompanied by locals flooding the streets of their capital, shopping, eating and drinking out. This year, the shopfronts are empty. As insecurity surrounding Greece’s debt crisis grows, more and more small businesses are folding. Since Syriza’s arrival in power, with its radical approach to debt negotiations, doubts have increased as to whether Athens can clinch a deal at all. The government has remained optimistic about its ability to reach a deal with its creditors by 31 May, but with each confident statement in recent days has come a careful qualification from the European side. On Friday, Economy Minister George Stathakis said that Greece would pay back the €304m (£219m) due to the International Monetary Fund on 5 June, as Christine Lagarde, head of the IMF, maintained that a Greek exit from the euro was still a possibility. The world has been left wondering whether the country will manage to stay solvent and a member of the EU. And this uncertain climate has sounded the death knell for thousands of businesses that had been clinging on in the hopes of change after Syriza’s electoral triumph. “Since the elections, the market is completely frozen – people won’t spend a dime because of the insecurity. They don’t know what to do with their money, [whether] to spend it or to hide it,” says Efi Chrisolomou, a shoe shop owner who is in the process of closing her business in the central neighbourhood of Kypseli after nearly 20 years. New figures released on Friday showed that bank deposits had fallen to their lowest in more than a decade.

Greece’s Shortening Negotiating Runway and Possibly Erroneous Assumptions - Yves Smith -- Le Monde published a defiant op ed by Alex Tsipras over the weekend. I can’t fathom what Tsipras thought it would accomplish, beyond appealing to Greek voters. The article restates how the program that Greece has followed has led to disastrous economic performance and worsening debt to GDP ratios, paints the creditors as being unreasonable and inflexible, and depicts the EU as undemocratic and dominated by a “core” that increasingly inflicts anti-democratic austerity policies on other countries.  The wee problem is that Greece is well past the point where political appeals will work. It has been trying for months to escape the negotiating framework that was imposed in the February Eurogroup memo that it signed, that Greece would provide detailed structural reforms that had to be vetted and approved by the Troika first, and then by the Eurogroup. Greece has again and again tried to circumvent that process by going to European leaders, most important of all, Merkel. The not-triival impediment is that Merkel, a week ago, backed the process set forth in the Eurogroup memo and effectively told Greece that they had to satisfy the IMF. This missive is not only a blistering set of complaints about the IMF but also about Germany, and thus amounts to a poke in her eye. As Peter Speigel wrote in the Financial TimesGreece’s chances of striking a deal to access a much-needed €7.2bn in rescue aid looked even bleaker on Sunday after Alexis Tsipras, prime minister, accused bailout monitors of making “absurd” demands and seeking to impose “harsh punishment” on Athens…  In an apparent attack on Berlin, Mr Tsipras also accused some within the EU of trying to break up the eurozone by centralising power among “core” euro members and tying the rest to “extreme neoliberalism” through EU budget rules. Now we can agree that the Troika is being rigid, that their austerity policies are misguided and have been an abject failure. However, that is all moot. Greece is a supplicant. It needs the financing to stay current with its creditors. Its banks also depend on the continued munificence of the ECB.

Hans-Werner Sinn Warns Europe - Don't Underestimate Varoufakis - Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B – the implied threat that drives forward negotiations on Plan A. Greece’s finance minister, Yanis Varoufakis, knows this very well. As the Greek government’s anointed “heavy,” he is working Plan B (a potential exit from the eurozone), while Prime Minister Alexis Tsipras makes himself available for Plan A (an extension on Greece’s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of “good cop/bad cop” – and, so far, to great effect. Plan B comprises two key elements: First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone. Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls. But doing so would weaken its negotiating position, and that is not an option. Capital flight does not mean that capital is moving abroad in net terms, but rather that private capital is being turned into public capital. Basically, Greek citizens take out loans from local banks, funded largely by the Greek central bank, which acquires funds through the European Central Bank’s emergency liquidity assistance (ELA) scheme. They then transfer the money to other countries to purchase foreign assets (or redeem their debts), draining liquidity from their country’s banks.  A Greek exit would not damage the accounts that its citizens have set up in other eurozone countries – let alone cause Greeks to lose the assets they have purchased with those accounts. But it would leave those countries’ central banks stuck with Greek citizens’ euro-denominated TARGET claims vis-à-vis Greece’s central bank, which would have assets denominated only in a restored drachma. Given the new currency’s inevitable devaluation, together with the fact that the Greek government does not have to backstop its central bank’s debt, a default depriving the other central banks of their claims would be all but certain.

Draghi, Lagarde joining Berlin meeting on Greece - officials | Reuters: European Central Bank President Mario Draghi and IMF chief Christine Lagarde will join the leaders of Germany, France, and the European Commission for talks on Monday evening in Berlin on Greece, European Union officials said. The goal of the meeting was to reach a joint position on how to negotiate with Greece, the officials said. Athens and its creditors from the euro zone countries and the International Monetary Fund are trying to hammer out a deal that would prevent the country from defaulting on its debt and potentially leaving the euro zone.  Earlier, German Chancellor Angela Merkel, French President Francois Hollande and European Commission President Jean-Claude Juncker gave brief statements before meeting to discuss the digital economy. They made no mention of Greece.

Greece’s Creditors Meet to Prepare Offer (Updated – Creditors Agree on Terms) -- Yves Smith - The press is awash with reports of a high-level meeting convened yesterday by Angel Merkel and attended by Francois Hollande, Christine Lagarde and Mario Draghi. The upshot is that Greece’s creditors have agreed to sort out their differences and come up with a proposal to present to Greece in the next few days. Greece is generally believed to be able to make its €300 milllion payment due to the IMF on Friday; if not, it has the expedient of asking to bundle payments under an existing IMF rule, which would give it till the end of the month to remit the €1.5 billion it has coming due in June. While this emergency meeting would seem to indicate anxiety on the part of the lenders, and hence willingness to make concessions, the media reporting if anything is treating this as a last-ditch offer. Some of the reports are close to sanguinary; the Wall Street Journal, for instance, saber-rattles: Greece’s international creditors late on Monday were preparing the text of a final bailout deal to present to the Athens government, in a sign that lenders are running out of patience after months of stalled talks…. Earlier on Monday, Germany signaled a tough stance on Greece’s bailout package, doubling down on demands for broad economic overhauls ahead of the top-level Berlin meeting. Ms. Merkel’s spokesman, Steffen Seibert, said Greece has to agree to a “far-reaching reform package.” The finance ministry echoed the call, saying Greece must overhaul its labor market, change its service sector and pursue privatization. Yet both reports in the German press (FAZ and Die Welt), the Telegraph and the well-connected Peter Spiegel at the Financial Times all say that the creditors are reaffirming the structural reforms. That means they are not prepared to give much issues where Greece and the Troika have been at an impasse for months, most importantly over pensions and labor market “reforms”.

Varoufakis Outlines Plan for Greece’s Return to Market Borrowing – Greek Finance Minister Yanis Varoufakis outlined a plan that he said will allow Greece to return to market borrowing, in an interview to Greek newspaper “Avghi.” Among others, the plan called for the issue of a low-interest, 30-year loan from the European Stability Mechanism (ESM) to replace the debt currently held by the European Central Bank (ECB), while simultaneously restructuring the rest of Greece’s debt. According to Varoufakis, the government’s priority is a “combination of debt restructuring, investment injections and reforms that go beyond the inhumane practice of cutting pensions, benefits and wages.” Such a combination, he added, will help Greek society escape the “vortex” of a self-reinforcing crisis of debt and recession. Varoufakis slammed the ENFIA single property tax introduced by the previous government, saying it was a “hideous” tax that needs to be abolished. “As long as it is not abolished, we all feel accountable to the Greek people. But its abolition, even if gradual, will take place when the negotiation has ended and we can find equivalent taxes from large property taxation and from gradated taxation of incomes that are now evading,” he said. The Greek Finance Minister was also critical of a position expressed by European Commission President Jean-Claude Juncker, who called for an additional 1.8 billion euros to be raised by increasing VAT. “In an economy in the throes of deflation and debt, with a tax system that burdens the have-nots, how can we increase public revenues by 1% of GDP via indirect taxation without causing even greater damage to the economy’s engine, to production and the markets?” Varoufakis wondered. Replying to those speculating about his possible resignation, Varoufakis stressed that “none of us is going to throw down his shield.”

Greece, creditors exchanging documents to reach deal - Commission -- Greece and its creditors are exchanging documents on reforms that need to be implemented in exchange for more funds and talks are continuing at technical level because the two sides have not yet reached agreement, the European Commission said on Tuesday. Asked if the Commission has received a new, comprehensive Greek plan of reforms that Greek Prime Minister Alexis Tsipras said Athens sent to the creditors late on Monday , Commission spokeswoman Annika Breidthardt told a daily news briefing: "Many documents are being exchanged between the institutions and the Greek authorities to clarify how to implement the February 20 Eurogroup agreement. The fact that documents are being exchanged is already a good sign." ADVERTISING The February 20 agreement between Greece and euro zone finance ministers -- the Eurogroup -- said that the new government in Athens must implement reforms agreed to by the previous Greek government before any new funds are released. Breidthardt said technical talks would continue to reach a deal with Athens: "We are not there yet," she said

Dijsselbloem Crushes Greek Deal Optimism, Says Deal "Not Theoretically Possible" This Week --Remember a couple of hours ago when WSJ reported that, after an emergency meeting between the IMF and EU creditors, the troika decided to help Greek PM Alexis Tsipras out by simply drafting an agreement for him and placing an X next to the line where he needed to sign? Well, it now appears that either those reports were misinformed or Tsipras has come back and politely asked to the troika to read the alternative proposal he sent over on Monday evening because Eurogroup President Jeroen Dijsselbloem has just thrown quite a bit of cold water on the idea that a deal will be struck this week.  And in case there was any doubt about our contention that the institutions intend to break Syriza’s campaign mandate once and for all: Dusselbloem Says Creditors WOn't Meet Greece Half Way.   As for the IMF payment on Friday, that looks like a no: So: default on the IMF's June 5 payment?  Or perhaps it was all just a scramble to push the EUR lower after one of its sharpest surges in the past decade.

Seeking compromise deal, Greece warns it might skip IMF payment | Reuters: Greece's international creditors signaled on Wednesday they were ready to compromise to avert a debt default even as Athens warned it might skip an IMF loan repayment due this week. Prime Minister Alexis Tsipras visits Brussels later on Wednesday to see senior European officials, where he is expected to hear the terms of the plan drawn up this week at a meeting of top leaders, including German Chancellor Angela Merkel. With time running out, and looking to draw a line under months of acrimonious negotiations, the creditors have effectively come up with a take-it-or-leave-it offer. However, Tsipras has produced a plan of his own and said he intended to discuss this document in Brussels, calling on euro zone partners to show some "realism" and urging a deal that would let Greece escape from "economic asphyxiation". German Finance Minister Wolfgang Schaeuble said an initial look at Greece's reform suggestions indicated that talks aimed at securing an aid-for-reforms deal will take time.Looking for a compromise, the creditors will suggest that Greece should post a budget surplus before interest payments of one percent of gross domestic product this year and two percent in 2016, against 3 percent and 4.5 percent under the terms of the current plan, sources familiar with the proposal said. By contrast, the sources said the Greek government, elected in January pledging to end years of bitter austerity, had suggested a primary surplus of 0.8 percent this year and 1.5 percent next year.

Greek default draws closer as opposing sides swap ultimatums - Greece and its European creditors have both issued “last ditch” demands in their bail-out talks that appear incompatible, raising the stakes in an increasingly dangerous showdown. The eurozone’s negotiators and the International Monetary Fund have been putting the finishing touches on what amounts to a package of take-it-or-leave-it conditions that offer scant leeway on Greece’s austerity or debt relief. It is understood that the proposals offer no real concessions on Greece’s “red lines” on pensions and labour rights. The creditors have promised a degree of flexibility but continue to insist that the far-Left Syriza government comply with the chief sticking points of the old EU-IMF Troika”Memorandum”. Alexis Tsipras, Greece’s prime minister, pre-empted the move by rushing through his own set of proposals, more or less conceding in advance that his plans will not be accepted by the technocrats. “The decision now lies with the political leadership in Europe,” he said. Mr Tsipras seemed determined to show that Greece is still the master of its fate, if only before his own people. “We are not waiting for them to submit their own plan back to us. Greece is the one that submits the plan,” he said.

Alexis Tsipras Grounded by Dissent from Within Syriza - After four hours of discussions with EU leaders in Brussels on Wednesday night, Alexis Tsipras was planning to return on Friday in hopes of at last sealing a bailout deal with creditors.  But the Greek prime minister has been grounded by a torrent of anger and resistance from his Syriza party. Instead of flying to Brussels, he will on Friday be appealing to a restive parliament in Athens with his government — and the country’s financial future — on the line.  “The overwhelming sentiment in the [Syriza] parliamentary group will be one of rejection,” Antonis Kamaras, a Greek political commentator, said of the bailout terms being offered by creditors. “It’s hard to see how the leadership can prevail.”  Mr Tsipras had called Wednesday’s talks “constructive and friendly.” But a senior Greek official said the International Monetary Fund, which was not represented at the meeting, had imposed new conditions that had not been tackled in earlier negotiations in Brussels.  Sitting in a cramped office at party headquarters, Alecos Kalyvas, Syriza’s economic strategy chief, captured the mood of the party’s mainstream. Greece faced big problems and “time was running out”, he said, but he “cannot accept” more pensions reductions, energy price rises and public sector job cuts. Asked if a deal would be reached before the current bailout extension runs out at the end of June, Mr Kalyvas responded: “I’m optimistic but only moderately.”

Bundling IMF Payments Buys Greece Time, But Now What? - - With Greece’s coffers running dry as it continues bailout talks, its government is using every trick in the book to avoid default. The  latest move–postponing its four June payments to the International Monetary Fund until the end of the month—buys Athens a few more days to negotiate a deal. It’s not the first time the Greek government has used obscure IMF rules to pay the international lender. But it is likely the last trick Athens has left to put off the inevitable reckoning with creditors. “They’re grasping at straws,” says Jacob Kirkegaard, a senior fellow and Europe expert at the Peterson Institute for International Economics in Washington. In fact, according to Athens’ latest proposal, the bundling of payments to the IMF is just the first step of the government’s plan to restructure emergency loans due to the fund. IMF officials say there is no way the fund would allow its loans to be restructured.  Realistically, the government appears to have only one choice: Agree to the economic overhauls required by its creditors to unlock the bailout cash needed to cover more than $10 billion in bills due in the coming months, or face economic and political chaos. If Greece refuses to bow to the creditors’ conditions, it risks default to the IMF by July 1. “At close of business on the date of the payment that’s due, a country would be declared in arrears,” said IMF spokesman William Murray last week.

Greek Prime Minister Calls Proposal by Creditors Irrational - WSJ: Greek Prime Minister Alexis Tsipras called the conditions set by international creditors for fresh aid irrational and an “unpleasant surprise,” but said a final deal after months of negotiations is closer than ever. In an emergency parliamentary session called to inform lawmakers about the state of the talks, Mr. Tsipras repeated his opposition to key measures that creditors want to see, including pension cuts and sales-tax hikes, to unlock financing from Greece’s bailout. He had voiced that stance directly to European officials in Brussels on Wednesday. Greece’s lenders—other eurozone governments and the International Monetary Fund—agreed this week amongst themselves on a proposal that European officials said can’t be sweetened more than marginally. It requires Greece to impose further austerity measures on its deeply depressed economy, without which lenders insist Greek debt can’t be brought under control. But the demands go against the antiausterity promises that swept Mr. Tsipras and his left-wing Syriza party into office in January. Mr. Tsipras’s harsh rhetoric suggested that negotiations are likely to go to the brink. Analysts and European officials don’t expect an agreement to unlock urgently needed bailout financing until just before Greece runs out of money to avoid a debt default.

Greek PM rejects 'absurd' offer from lenders, delays IMF payment - Greek Prime Minister Alexis Tsipras on Friday spurned "absurd" terms of proposed aid from lenders and delayed a debt payment to the International Monetary Fund, prolonging an impasse that threatens to push Greece into default and out of the euro zone. In a defiant speech aimed at winning parliament's backing for his rejection of the austerity-for-aid package, Tsipras balanced indignation with confidence that a deal was "closer than ever before" to keep his country inside the currency bloc. The contradictory message underscored the growing pressure on Tsipras to quickly sign a deal before cash-strapped Athens runs out of money, while also trying to placate hardliners in his leftist party who oppose the terms creditors are demanding. One far-left deputy minister suggested snap elections as a way out, by obtaining public legitimacy for difficult decisions to secure aid. But Tsipras made no mention of elections in an address that focused on attacking the aid plan offered by euro zone and IMF creditors. "The Greek government cannot consent to absurd proposals," Tsipras told parliament. "I want to believe that this proposal was a bad moment for Europe or at the very least a bad negotiating trick and will soon be withdrawn by the masterminds themselves," he said. He was speaking after Athens delayed a 300 million euro payment due to the IMF on Friday, a highly unusual step that rattled financial markets and sent Greek stocks .ATF down 5 percent but that does not yet signal a formal default.

IMF has betrayed its mission in Greece, captive to EMU creditors - The International Monetary Fund is in very serious trouble. Events have reached a point in Greece where the Fund's own credibility and long-term survival are at stake. The Greeks are not withholding a €300m payment to the IMF because they have run out of money, though they soon will do. Five key players in the radical-Left Syriza movement – meeting in the Maximus Mansion in Athens yesterday – took an ice-cold, calculated, and carefully-considered decision not to pay. They knew exactly what they were doing. The IMF’s Christine Lagarde was caught badly off guard. Staff officials in Washington were stunned. On one level, the “bundling” of €1.6bn of payments due to the IMF in June is just a technical shuffle, albeit invoking a procedure last used by Zambia for different reasons in the 1980s. In reality it is a warning shot, and a dangerous escalation for all parties. Syriza’s leaders are letting it be known that they are so angry, and so driven by a sense of injustice, that they may indeed default to the IMF on June 30 and in so doing place the institution in the invidious position of explaining to its 188 member countries why it has lost their money so carelessly, and why it has made such a colossal hash of its affairs. The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund’s own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard.  Greece’s public debt is 180pc of GDP. The loans are in a currency that the country does not control. It is therefore foreign currency debt. The IMF knows that Greece cannot possibly pay this down by draconian austerity – the policy already implemented for five years with such self-defeating effects – and the longer it pretends otherwise, the more its authority drains away.

Tsipras Plays Putin Pivot Card; Tests Parliament's Patience On Troika Proposal - Greece was scheduled to pay the IMF around €300 million today. Athens will not make the payment. On Thursday, the IMF acknowledged that Greece had indeed requested that its June payments to the Fund be bundled, buying PM Alexis Tsipras valuable time as he makes one final push to strike a deal with creditors that bears some vague resemblance to his party’s campaign promises. Whether or not he will be successful remains to be seen. It’s entirely possible that the PM’s defiant position on pension and VAT “red lines” is only possible due to the extra negotiating time afforded by the combined IMF payment option. The troika likely knows that if it can hold out for another few weeks, Tsipras will have no choice but to make painful concessions — the onus will then be on the PM to push the deal through parliament.  Speaking of parliament, Tsipras will address Greek lawmakers on Friday and as The New York Times notes, it is not likely to be a cordial affair:[Creditors’] demands prompted angry reactions from several government officials in Athens on Thursday, underscoring the difficulty Mr. Tsipras will have in gaining parliamentary support for any deal that is reached. Syriza party hard-liners have suggested in recent days that they may dissent if Mr. Tsipras strikes a deal that they consider a violation of the anti-austerity pledges that brought the party to power in January. The junior coalition partner, the right-wing Independent Greeks, has also said it would not back further austerity.

Why Greece might still choose to leave the euro - Officially, Syriza wants Greece to remain in the euro area — but the strength of this desire obviously depends on the circumstances. There is no point in avoiding the costs of exit if staying in the single currency only guarantees years of stagnation, perhaps with the added pain of unhelpful “structural reforms” imposed for ideological reasons.. The question, then, is whether circumstances favour Greece staying in the monetary union, or striking out on its own. A fascinating set of notes from Oxford Economics suggests that you would be unwise to underestimate the chance that the Greek leadership voluntarily chooses to leave the euro area. Contrary to relatively vague polls of Greeks as a whole, there is little apparent willingness to make additional sacrifices for the sake of monetary union: Some chinks are emerging in the popularity of the euro. In a poll on 10th May, 58% of Syriza supporters stated a preference for the drachma over implementing the Memorandum of Understanding. More generally, it is hard to ask “a euro versus drachma” question in isolation of context. Polls frequently reveal Greeks’ willingness to compromise to preserve euro membership; but for Greeks compromise does not imply full capitulation. On May 10th, 66% responded that the government should compromise; the same poll revealed 57% thought compromises should not include much-needed pension reform, even though the pension system is bankrupt.

Europe cannot wait any longer: France and Germany must drive ahead -  From one border of the European Union, Greece, to the other, the United Kingdom, the European ideal is being challenged. It is no surprise, since the terrible crisis of the recent years has highlighted two key weaknesses of Europe’s architecture. The first is the end of economic convergence between EU – and, in particular, eurozone – countries. This is not a theoretical matter: unemployment is the daily reality of millions, especially for young people. The second is about political tensions: within the member states, where anti-European forces are on the rise; and within the union itself. The Greek and British cases, for all their differences, show that European general interest and national interests are increasingly seen as drifting apart from each other. In this context and 10 years after the French “no” to the constitutional referendum, now is the time to reopen the economic and political debate, and to fix the eurozone as part of a greater deal for a union in which all member states find their place. In the coming days we hope a solution will be found to address the urgent difficulties regarding Greece. But we also need to think further and to make proposals for the future of Europe as a whole.

Athens: Five Minutes to Midnight - I’ve been in the Greek capital for barely more than 24 hours and already the narrative has tossed and turned more than any regular story does in a week. When I touched down yesterday afternoon, I was told by well-placed sources that the Greek authorities were “definitely” going to make this Friday’s €300m IMF repayment; it was “nailed on”, they added. This evening government officials are saying they will withhold the payment if there is no deal by Friday or Monday. Yesterday it sounded like Syriza was close to a deal with its creditors on what kind of primary surplus they need to aim for in their budgets in the coming years. Today they seem further away. A few hours ago one eurogroup character said he expected a deal “within hours”; then up cropped another to say he was not optimistic. Now, some of this is certainly negotiation tactics and brinksmanship. But only so much. The real sense you get when you come here to Athens is one of chaos. Even inside the government, at the highest reaches, many ministers simply do not know what their colleagues are doing. No-one really knows what the plan is, when it comes to negotiations with the European institutions — and the more time you spend here, the more it seems that this is because there is no coherent plan. Such a mercurial attitude towards economic policymaking can seem charming. However, in practice it has started to grind down on life here.

Tsipras defiant as he braces for key meeting with creditors - Faced with one of the most consequential meetings of his young tenure as prime minister, Greece’s Alexis Tsipras on Wednesday resorted to the same trait that brought his hard-left government to power: defiance. As he prepared to leave Athens for a meeting with Jean-Claude Juncker, the European Commission president, Mr Tsipras brushed aside a new — and possibly final — bailout offer hammered out by his country’s creditors after an emergency meeting of the EU’s most powerful leaders on Monday night. Instead, he promised to force his adversaries to “accede to reality”, saying: “I am going to discuss the proposal of the Greek government. I am confident that the political leadership of Europe will do what needs to be done.” But for all the last-minute posturing, several EU officials involved in the negotiations were expressing a growing confidence that a deal was within reach, and that Mr Tsipras was prepared to make concessions to secure a desperately needed €7.2bn in bailout aid that is a year overdue. At the end of the meeting, which ran for more than four hours, the European Commission put out a statement saying “progress was made in understanding each other’s positions”, but making clear no final agreement was reached. “It was agreed that they will meet again,” the statement said. “Intense work will continue.” The creditors’ plan, which would require Athens to run a primary budget surplus — revenues minus expenses, when debt interest is not counted — of 1 per cent of economic output this year, may be tougher than Mr Tsipras had wished. Still, many predicted that by the end of the week, the two sides would converge enough — even on the most contentious issue, pension reform — that they could instruct their negotiators to begin work on a more detailed, staff-level agreement.

Europe has no choice - it has to save Greece - Telegraph: Greece has been through the trauma of default and currency collapse before. It went horribly wrong. The sequence of events in the inter-war years have a haunting relevance today. In 1932, Greece turned to the League of Nations and British bankers in a last-ditch effort to defend the drachma under the Gold Standard as reserves drained away. The creditors dithered for three months but ultimately said “no”. Greece devalued and imposed a 70pc haircut on loans. Debt service costs fell by two-thirds at a stroke.Nobody should underestimate the political hurricane that will follow if Europe proves incapable of holding monetary union together, and Greece spins out of control. The post-war order is already under existential threat from a revanchiste Russia. State authority has collapsed along an arc of slaughter through the Middle East and North Africa, while an authoritarian neo-Ottoman Turkey is slipping from of the Western camp. To lose Greece in these circumstances - and to lose it badly - would be an earthquake. Yet that is exactly what Greek prime minister Alexis Tsipras evoked in a blistering outburst in Le Monde, more or less threatening an economic and strategic rejection of the West if the creditor powers continue to make “absurd demands”. Yet as a matter of strict economics, nobody knows if Greece would thrive or fail outside the euro. None of the previous break-up scenarios - ruble, Yugoslav dinar or Austro-Hungarian crown - tells us much.

Greek crisis fuels Juncker power grab – For European Commission President Jean-Claude Juncker, the roller-coaster negotiations with Athens haven’t just been about keeping Greece in the euro. Behind the scenes, he has used the crisis to try to establish the European Commission as the union’s indispensable powerbroker, putting him at loggerheads with national governments. At stake is the balance of power in the European Union. There has always been a natural tension between the Commission, as the EU’s executive arm, and the European Council, the forum of member states. Now, Juncker is trying to tip the scales in the Commission’s favor, arguing that as the Commission’s first popularly elected president, he has a mandate to do so. Juncker’s strategy was on full display this week. On Monday, he traveled to Berlin, where he pushed Angela Merkel and Christine Lagarde to take a softer line on Greece. “Grexit is not an option,” he told a German newspaper ahead of the meeting, contradicting recent statements by some of the creditors. Juncker hosted Greek Prime Minister Alexis Tsipras Wednesday evening in Brussels for consultations on Athens’ latest reform proposals. “Our role now is to mediate,” Commission spokesman Margaritis Schinas said. “We have to set the conditions … to come to a final discussion.” However, Wolfgang Schäuble, Germany’s finance minister, quickly undercut the idea of a Tspiras-Juncker breakthrough. “Optimism on the Greek negotiations is not justified,” he remarked, adding that after seeing the Greek proposals, “my first impression is that the talks would not be over soon.” Amid the wall-to-wall media coverage of the Greek talks across Europe, Juncker has often appeared to be at the center of the negotiations.

Tsipras Sticks To "Red Line" Rhetoric Cornered By Party Radicals -- Wednesday evening’s “high level” meeting between between Greek PM Alexis Tsipras, Jean-Claude Juncker and Jeroem Dijsselbloem came and went with little more than a promise to keep talking, in what has become a familiar scene for those glued to the Greek drama.  For now at least, Tsipras appears to be sticking to his party’s so-called “red lines” around pension cuts and a higher VAT, a stance that is apparently incompatible with the prepackaged deal prepared for him by Merkel, Hollande, Junker, and Draghi on Tuesday. Greece presented its own proposal on Monday evening prior to an emergency meeting in Berlin and it now appears creditors may actually have to read that draft if they hope to stick to the idea that Tuesday’s troika offer truly did not represent an ultimatum to Athens. Here’s more via Bloomberg: Tsipras said demands by the euro area and the IMF for cuts in the income of poor pensioners and increases in value-added tax on power are unacceptable, highlighting what have been red lines in Greece’s stance since his anti-austerity Syriza party swept to power in snap elections in January. “Ideas like cutting benefits for low-income pensioners, or raising the VAT rate for electricity by 10 percentage points, can’t be a basis for discussion,” he said...

Greece Unable To Make €300 Million IMF Payment, Requests "Bundling" -- With Greece and creditors unable to come to a compromise on a deal over the past several days, we've said repeatedly that despite claims to the contrary by Greek economy minister George Stathakis, Greece will not make Friday’s €300 million payment to the IMF and will instead request to have the payments bundled so as to buy PM Alexis Tsipras a few extra weeks to negotiate a deal and pass an agreement through parliament.  Sure enough, moments ago, multiple newswires confirmed that The Bank of Greece will request that all June payments be made at the end of the month.

Tsipras Fighting Two Front War as Revolt Within Syriza Intensifies, Forcing IMF Payment Delay, Cancellation of Negotiating Session - Yves Smith - The odds of a deal between Greece and its creditors getting done fell as Greek prime minister Alex Tsipras cancelled a Friday session to continue negotiations with the creditors and backed out of Greece’s promise to make its scheduled €300 million loan payment to the IMF. What made this reversal surprising was that Tsipras had reassured Lagarde on Thursday morning. The government reversed itself hours later, invoking a rarely-used rule that allows borrowers to bundle payments and make them in a lump sum at the end of a month. While some may try contending that this was a clever move meant to show the Greek unhappiness with the creditors’ proposal, as Lambert said, “Most Machiavellis are a lot smoother than that.” Greece was not canceling the payment out of inability to pay per se, although it would have had to raid yet another cache intended for the Greek people, that of an EU infrastructure fund (although Ambrose Evans-Pritchard, who is close to Greek sources, reports that the use of the IMF provision was baked in, since Greece would not have been able to make its next IMF payment on June 12). But the sudden move, combined with Tsipras canceling his next session with Juncker and other creditor representatives, and heading to Athens to speak at an emergency session of Parliament (6 PM local time today, 11 AM EDT) has the look of needing to quell a party revolt. The Left Forum of Syriza was opposed to making further IMF payments and is pumping for a default and Grexit (see a translation of the proposal it made at a Central Committee meeting last month here).

What happens if Greece defaults on its International Monetary Fund loans? --The Greek government faces another set of crucial deadlines in its interminable bail-out drama this month, as fears mount that the country could become the first developed nation to ever default on its international obligations.  After a harrowing four months, the cash-strapped government now faces a €1.5bn payment to the International Monetary Fund in June.  But with public sector wages and pensions to pay out, a cacophony of voices on Syriza's Left have vowed to prioritise domestic obligations unless creditors finally unlock the remainder of its €240bn bail-out programme. In its latest bid to avoid going bust, the government has asked for a Zambia-style debt bundling which will now be due on June 30. "We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer," a senior Greek official told The Telegraph back in April. The rhetoric is a far cry from February, when Greece's finance minister pledged his government would "squeeze blood out of a stone" to meet its obligations to the Fund.  Greece owes €9.7bn to the IMF this year. Missing any instalment to the IMF would see the country fall into an arrears process, unprecedented for a developed world debtor.  Although no nation has ever officially defaulted on its obligations in the post-Bretton Woods era, Greece would join an ignominious list of war-torn nations and international pariahs who have failed to pay back the Fund on time.   Although the exact process is uncertain, falling into a protracted arrears procedure could have major consequences for continued financial assistance from Greece's other creditors - the European Central Bank and European Commission.

Greece misses IMF payment in warning shot as showdown with Europe escalates - Greece is to take the drastic step of skipping a €300m payment to the International Monetary Fund on Friday, invoking an obscure mechanism in abeyance since the 1970s to bundle all debts due in June and pay them at the end of the month. It is the first time that a developed country has ever missed a payment to the IMF since the creation of the Bretton Woods institutions at the end of the Second World War. The news broke after the Athens stock exchange had closed but a bloodbath is feared when the bourse opens on Friday. Yields on two-year Greek bonds spiked 63 basis points to 21.8pc amid mounting fears of a deposit run on Greek banks and the imposition of capital controls as soon as this weekend. The IMF said it had been notified by the Greek authorities that they would pay the entire €1.6bn due this month on June 30, dusting down a procedure last used by Zambia in the 1980s.  The shock move came as leaders of the ruling Syriza movement were locked in a series of emergency meetings to vent their fury over the latest austerity demands by the European creditor powers. Senior figures in the party lined up to denounce the “ultimatum” from Brussels as another wasted moment after four months of acrimonious talks. “It cannot form the basis of an agreement,” said Tassos Koronakis, the party secretary.

Greece determined to stay in eurozone, says economy minister -- Greece will do everything it can to remain part of the eurozone, a government minister has said, after the debt-laden country missed a €300m (£220m) debt repayment to the International Monetary Fund and raised fears about the future of Europe’s single currency. The economy minister, George Stathakis, gave the first official confirmation that Greece could have made the repayment to the Washington-based fund but chose not to do so in the face of demands to overhaul its economy by its lenders, which also include the EU and European Central Bank. With the crisis surrounding Greece’s continued membership of the euro in its fifth year, Stathakis said the government was unable to accept the terms set out by its creditors, who are demanding bigger budget surpluses and tougher cuts to pensions as well an overhaul of its labour market. Stathakis, a minister in the Syriza party that was elected with a promise to ease the austerity imposed by creditors during a series of bailouts, said: “We have a mandate from the Greek people to go on, to try to change the terms of the agreement. Greece has to remain in the euro, otherwise we do not have any mandate to take action.” Speaking on BBC Radio 4’s Today programme, he also said the government – which could be forced to call snap elections – was keen to get a deal from the three main creditors. “We are looking forward to getting a deal as soon as possible. The Greek government cannot accept these new proposals put on the table,” he said.

French Unemployment Surges By Most In 7 Months To New Record High -- Is it any wonder Marin Le Pen's Front National Party is a) leading in the polls, and b) pushing for an EU in/out referendum? Whatever it is that France (and/or Europe) is doing, is not working. Despite all the promises, French unemployment has risen practically non-stop for 4 years and just hit a new all-time record...

Germany dominance over as demographic crunch worsens - Germany’s birth rate has collapsed to the lowest level in the world and its workforce will start plunging at a faster rate than Japan's by the early 2020s, seriously threatening the long-term viability of Europe’s leading economy. A study by the World Economy Institute in Hamburg (HWWI) found that the average number of births per 1,000 population dropped to 8.2 over the five years from 2008 to 2013, further compounding a demographic crisis already in the pipeline. Even Japan did slightly better at 8.4. “No other industrial country is deteriorating at this speed despite the strong influx of young migrant workers. Germany cannot continue to be a dynamic business hub in the long-run without a strong jobs market,” warned the institute. The crunch is aggravated by the double effect of a powerful post-war baby boom followed by a countervailing baby bust – the so-called “Pillenknick”. The picture in Portugal (nine) and Italy (9.2) is almost as bad. The German government expects the population to shrink from 81m to 67m by 2060 as depressed pockets of the former East Germany go into “decline spirals” where shops, doctors’ practices, and public transport start to shut down, causing yet more people to leave in a vicious circle.

This country is trying to go cash-free: Denmark is inching closer to becoming the world's first cashless country after the country's government proposed that retailers should be allowed to only accept mobile and plastic payments. This month, the Danish government unveiled a series of initiatives that included plans to eradicate laws that require stores to accept physical cash. If parliament gives the go-ahead, clothing retailers, restaurants and gas stations could go cash-free by January 2016. .Cards already dominate payment in Denmark, according to a report by payment processing company WorldPay. By 2012, 84.2 percent of Danish transactions were made using cards, with e-wallet payments facing significant growth, the report said. That same year, Ireland was the only other European country that topped Denmark in terms of card payments. Supporters of the program say less cash at the register will help boost in-store security and cut out resources required for counting and storing coins and bills. "Cashless environments will make it possible to test new innovative store concepts and payment without having to incorporate the very cost-intensive measures are required when handling cash," Danish Chamber of Commerce CEO Jens Karskov said in a press release.

Smaller Firms Start to Feel the Impact of ECB Stimulus - Real Time Economics - WSJ: European Central Bank stimulus policies, including cheap bank loans and large scale purchases of public and private sector bonds, are making their way to small and medium-sized firms, a survey released Tuesday by the ECB suggested. The ECB’s survey looked at the change in financing conditions for smaller firms from October 2014 to March 2015. It found that such firms reported “for the first time since 2009… on balance, an improvement in the availability of bank loans.” Moreover, “In the same vein, they reported, on balance, a fall in interest rates and an increase in the available size and maturity of loans and overdrafts,” the report said. Still, it said that a net percentage of small and medium-sized firms “continue to indicate a tightening in banks’ collateral and other requirements.” The survey also found that “Of the 30% of SMEs that had applied for a loan in this survey round, 64% received the full amount requested and 8% said their applications were rejected.” The data signal that recent ECB policies, such as targeted loans to banks and the bond purchases—known as quantitative easing, or QE—are improving financing conditions for smaller eurozone firms, which are more dependent on banks for financing than their larger counterparts which have greater access to capital markets.

Trade is such a drag for Britain's economy - Trade is a big issue for Britain’s economy, as figures a few days ago showed. Against expectations of an upward revision in first quarter gross domestic product growth, the quarterly increase was left unchanged at 0.3%. Manufacturing and construction were stronger than first estimated but services a little weaker. Business services and finance appear to have had an unusually weak quarter. In the detail of the figures, however, the standout drag on growth was what economists call net trade; exports less imports. Net trade, in fact, was not so much a drag as a giant millstone round the economy’s neck. So, while there was a decent 0.5% quarterly rise in consumer spending, an encouraging 1.7% increase in business investment and even a small 0.1% upward tick in government consumption, exports fell by 0.3% on the quarter, while imports jumped by 2.3%. Putting all that together gives you the extent to which our poor export performance and appetite for imports impacts on growth. In the first quarter net trade reduced the change in GDP by 0.9 percentage points. Had the contribution of net trade to the economy been merely neutral, in other words, the rise in GDP in the first quarter would have been more than 1%, rather than just 0.3%. Or, taking last year as a whole, 2014’s growth of 2.8%, which was perfectly respectable, would have been a heady 3.3% without the 0.5 point drag on growth from net trade. These things move around from quarter to quarter, and the net trade picture in the first quarter was particularly disturbing. But, while there is some evidence of rebalancing in the pick-up in business investment, the opposite is happening when it comes to net exports. Is there are any reason to think this might change? After all, this is not just a question of growth being stronger if exporters were doing better (and importers rather worse). Britain’s large current account deficit, 5.5% of GDP, reflects weak investment income but also puts the onus on exporters of both goods and services to raise their game.

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