week ending July 11

IMF warns Fed on risks of hiking too soon - — Hiking interest rates too soon could stall the U.S. economy, the International Monetary Fund said Tuesday, embellishing a prior call for the Federal Reserve to hold steady until early next year. The Fed should wait to move until it sees “clear signs of wage and price inflation,” the IMF said, which is “benign” at the moment. The IMF comments came from its annual report on the U.S. economy and an ensuing press conference. “We feel there is space for them to wait,” said Nigel Chalk, the IMF’s U.S. mission chief, noting that inflation is far from the Fed’s 2% annual rate target. As measured by the personal consumption expenditure price index, the annual growth in inflation was just 0.2% in May. The IMF doesn’t see inflation as measured by the Fed’s favorite measure hitting 2% through 2017.

IMF: U.S. Economy at Risk of Stalling Next Year if Fed Raises Rates Prematurely -- The Federal Reserve risks stalling the U.S. economy by raising interest rates too early, the International Monetary Fund warned Tuesday as it detailed its call for the central bank to delay a move until 2016.  The IMF’s push for a delayed rate increase is at odds with the current signals Fed policy makers are sending for a move later in 2015. Last week’s job numbers bolstered the Fed’s plans to increase short-term rates in the months ahead. The IMF, which cut its growth forecast for the U.S. last month, said the Fed could be forced to reverse course next year if the central bank proves overly optimistic about the health of the American economy.  IMF staff argue that, barring upside surprises, there is still too much uncertainty around inflation, employment and wage prospects for the Fed to pull the trigger in coming months. “Right now, we see inflation indicators actually declining in the U.S.,” said Nigel Chalk, the IMF’s U.S. mission chief. “They’re still relatively far from the Fed’s medium-term goal of 2%.” Wage growth, accounting for price rises, is still weak, he said. “So we feel that there’s some space for them to wait and see some more wage and price inflation before moving,” he added.The IMF projects at a lower inflation trajectory this year and next than the Fed’s policy makers.Raising rates too early could trigger a much stronger tightening of financial conditions that goes beyond just a 0.25 percentage-point move, Mr. Chalk said. That tightening would manifest itself in a further appreciation of the dollar, which is already viewed by the IMF as overvalued. The value of the dollar has surged roughly 20% against other major currencies in the past year as the U.S. economy strengthened and other central banks revved up their easy-money policies. That rise has damped growth and job creation.

FOMC Minutes: Global Concerns -- From the Fed: Minutes of the Federal Open Market Committee, June 16-17, 2015 . Excerpts:  While participants generally saw the risks to their projections of economic activity and the labor market as balanced, they gave a number of reasons to be cautious in assessing the outlook. Some pointed to the risk that the weaker-than-anticipated rise in economic activity over the first half of the year could reflect factors that might continue to restrain sales and production, and that economic activity might not have sufficient momentum to sustain progress toward the Committee's objectives. In particular, they were concerned that consumers could remain cautious or that the drag on sectors affected by lower energy prices and the higher dollar could persist. Others, however, viewed the strength in the labor market in recent months as potentially signaling a stronger-than-expected bounceback in economic activity. Several mentioned their uncertainty about whether Greece and its official creditors would reach an agreement and about the likely pace of economic growth abroad, particularly in China and other emerging market economies. Other concerns were related to whether the apparent weakness in productivity growth recently would be reversed or continue. On the one hand, a rebound in productivity growth in coming quarters might restrain hiring and slow the improvement in labor market conditions. On the other hand, if productivity growth remained weak, the labor market might tighten more quickly and inflation might rise more rapidly than anticipated.

Fed Officials Worried Last Month That Greece Could Trigger Market Disruptions - Federal Reserve officials were worried last month that a failure of Greek debt negotiations could roil European markets and perhaps spill over to the U.S.  At the Fed’s June 16-17 policy meeting, “many participants expressed concern that a failure of Greece and its official creditors to resolve their differences could result in disruptions in financial markets in the euro area, with possible spillover effects on the United States,” according to minutes of the meeting released Wednesday. The Greek situation has worsened in recent days after the latest impasse in bailout-talk negotiations forced Athens to implement capital controls to prevent a complete collapse of the country’s financial system. European leaders will Sunday consider whether to extend Greece more aid and avert an economic meltdown that could force it out of the eurozone. Still, public remarks by Fed officials in recent days have raised little concern that the situation in Greece could throw the U.S. economy seriously off track. Developments in Europe “would not change the timing of any rate hike” by the Fed, Federal Reserve Bank of St. Louis President James Bullard predicted last week. “I think that the risk of contagion to the rest of Europe from Greece is low,” he said. On Wednesday, Federal Reserve Bank of San Francisco President John Williams said Greece faces a “precarious” financial situation, and “the possibility of a Greek exit from the euro is looming larger.” But those risks are “unlikely to overturn the otherwise strong fundamentals of the U.S. economy,”

Will the Fed Swim Against the Global Tide on Interest Rates? - One question hangs over the global central banking community in the third quarter: Will the Federal Reserve really swim against the economic tide flowing from the rest of the world? Looking across the globe, central banks large and small are leaning toward easing financial conditions to address slow growth, low inflation and financial distress. The global backdrop is the Fed’s central dilemma as it contemplates interest rate increases as early as September. Fed officials are split on the outlook for rates. In June rate forecasts, the center of its 17-member policy making committee was split on whether the Fed would raise rates twice this year or once. If foreign developments continue to intrude, officials leaning toward one increase, possibly as late as December, could win out. And if global developments unravel, they might not move at all. Read our global roundup of how the third quarter could play out for central banks around the world.

Fed’s Williams: U.S. Still on Track For 2015 Rate Rise - - Federal Reserve Bank of San Francisco President John Williams sounded a note of confidence on Wednesday that the U.S. economy won’t be derailed by ominous events in China and Greece. His remarks again indicated the U.S. central bank will raise rates this year. “Policy is data dependent,” Mr. Williams said. But given the positive outlook for the U.S., “I still believe this will be the year for liftoff, and I still believe that waiting too long to raise rates poses its own risks,” he said. The official added that the easiest path is for the Fed to move rates up off near- zero levels before inflation goes over the central bank’s 2% price target, saying “I see a safer course in starting sooner and proceeding more gradually” with rate rises. The Fed’s preferred inflation measure, called the personal consumption expenditures price index, rose by 0.2% in May from the same month a year ago. Mr. Williams’ comments came from a speech given in Los Angeles before the International Conference of Commercial Bank Economists. He is a voting member of the monetary-policy setting Federal Open Market Committee. He spoke as the Fed released minutes from its mid-June policy meeting. That document showed some rising concern about overseas events. But more broadly, most Fed officials sill expect to raise rates this year. Speaking with reporters after the speech, Mr. Williams said China’s stock-market chaos could have an impact on global markets. But he said it was clear that market was due for some sort of correction, “so I don’t think this is a big issue for the U.S. economy.”

Fed’s George Says Central Bank Should Implement Modest Rate Rises ‘Now’ - Federal Reserve Bank of Kansas City President Esther George renewed her call for the U.S. central bank to raise borrowing costs in the American economy, saying Thursday that “we would be wise to act modestly but act now.” Ms. George, who has long warned the Fed risks creating unstable markets and an inflation surge if it keeps rates too low for too long, said the U.S. economy has been growing and is likely to continue to grow. For her, that renders moot the need for the Fed to keep its short-term target rate at an emergency near-zero setting. “Monetary policy must step back and allow market forces to resume their critical role of pricing risk and allocating capital to its best use,” Ms. George said in the text of a speech to be presented at an event in Stillwater, Okla. She acknowledged that low rates may be needed “for some time.” Ms. George said “starting now to move rates up slowly and deliberately will allow the economy to adjust to a more-normal and, in my view, appropriate stance of monetary policy that will lead to long-term growth.” Keeping rates at rock-bottom levels could create trouble and give policy makers “few and possibly poor options” when it comes to setting short-term rates in the future.

Fed’s Evans Favors Mid-2016 for Interest-Rate Increase - Federal Reserve Bank of Chicago President Charles Evans said the U.S. central bank should hold off on an interest-rate increase until mid-2016 as concerns remain over low inflation, risks abroad and the strength of the economy at home. Mr. Evans said risks overseas risks have grown since the Federal Open Market Committee met last month, cautioning that acting too soon may only heighten challenges the Federal Reserve faces. The central banker remains concerned about inflation continuing to trail the Fed’s 2% target rate and wants to see more evidence it’s rising toward that level. “I just don’t see why we should be in a hurry with all of the risks we face. A little more time doesn’t hurt,” Mr. Evans said during a media briefing in Chicago on Thursday. Mr. Evans, who is a voting member of the Fed’s rate-setting committee this year, in remarks last month said he won’t support a rate increase before early 2016. His views on timing continue to put him at odds with most of his colleagues, who at the June meeting signaled the Fed is moving toward a rate increase later this year. The central bank has held its benchmark rate near zero since December 2008. Mr. Evans continued to argue Thursday a move this year would be premature because inflation continues to underperform the bank’s 2% target. He expects inflation at 1.3% by the end of the year and only to reach 1.7% in 2017. Mr. Evans said he has concerns about inflation forecasting and sees low rates as a global issue that central bankers are struggling to address.

Fed’s Rosengren Worries About Overseas Events, But Still Eyes 2015 Rate Rise -Federal Reserve Bank of Boston President Eric Rosengren said Friday the U.S. central bank needs to keep a close eye on overseas events to make sure they don’t upend the American economy and get in the way of raising short-term interest rates later in the year. “To date, geopolitical issues and concerns around the world have not significantly altered the outlook for an improving U.S. economy,” Mr. Rosengren said. “As the economy continues to improve, I expect that inflation will begin to move closer to (the Fed’s 2%) target, making it appropriate to consider starting to normalize monetary policy later this year,” he said. But amid fast-moving events in Greece and elsewhere, Fed officials need to make sure trouble abroad isn’t changing the outlook for the U.S. before acting. Before raising the Fed’s short-term rate target off of near-zero levels, central bank officials will need to “get a better handle on how the crisis in Greece gets resolved, so that we can better gauge its potential to impact financial markets and the domestic economy,” he said. He said in his remarks he currently expects the U.S. to suffer no adverse impact from international issues, and he added he expects that Greece will be able to stay in the European Union as well.

Higher Rates Wouldn’t Tame Bubbles Even if Central Banks Tried, IMF Paper Says - Economists at the International Monetary Fund have found a new reason for central bank officials to avoid using interest rates to dampen asset bubbles and market risk: it probably wouldn’t work. That’s the finding of a new working paper that identifies different patterns in lending between banks and nonbanks. The gap means raising borrowing costs to curb market excesses might simply push risks into less regulated financial firms sometimes referred to as the “shadow” banking system. “The different credit and business cycles magnify the tradeoffs of using interest rates to contain financial stability risks,” write IMF staffers. “From a policy perspective, our analysis is more supportive of placing greater emphasis on macroprudential measures than on using interest rates to address risks in the financial sector.” By “macroprudential measures,” they were referring to regulatory and supervisory tools such as credit restrictions on specific industries or limits on loan-to-value ratios. The research adds to the debate over whether central banks should consider raising interest rates to prick apparent financial asset bubbles while they are forming, to forestall the damage to the financial system that could occur if they burst on their own. Before the financial crisis, the standard view at many central banks including the Fed was that, because asset bubbles are too hard to spot ahead of time, policy makers shouldn’t raise rates to restrain them. Instead, officials should wait until after they burst, and if necessary cut interest rates to help the economy recover afterward. This was sometimes referred to as “mopping up.”

Fed Watch: Mediocre Tranquility - The US economy is an island of mediocre tranquility in the midst of the stormy sea of the global economy. Tranquil enough to keep the Fed eyeing its first rate hike despite the surrounding storm, but sufficiently mediocre that they feel no reason to rush into that hike. As such, the Fed will remain on the sidelines until the forecast points toward sunnier skies. Uncertainty from Greece and China are likely raising the bar on the domestic conditions that would justify a rate hike. Monetary policymakers are increasingly convinced that the first quarter weakness in US data was largely an aberration. From the minutes of the June FOMC meeting: In discussing how to interpret the reported weakness in real GDP during the first quarter, participants considered alternative estimates of real economic activity based on various data-filtering models maintained by Board and Reserve Bank staff. These models yielded a range of estimates, but, overall, they suggested that real activity in the first quarter was likely stronger than the then-current official estimate of real GDP. Some participants indicated that the higher alternative estimates seemed more consistent with the increases in real gross domestic income and private domestic final purchases in the first quarter as well as the strength in employment and hours worked. Effectively, policymakers believe the first quarter disappointment was largely noise; the underlying pace of growth remained fairly consistent with recent trends. Moreover, data since the June meeting suggests the Fed's confidence is warranted. Via the Atlanta Federal Reserve: And while they believe risks to the economy are fairly balanced: While participants generally saw the risks to their projections of economic activity and the labor market as balanced,... they aren't all that comfortable with the outlook: ...they gave a number of reasons to be cautious in assessing the outlook.

Yellen: Recent Developments and the Outlook for the Economy -- Janet Yellen says she expects the Fed to begin raising the federal funds rate later this year: My own outlook for the economy and inflation is broadly consistent with the central tendency of the projections submitted by FOMC participants at the time of our June meeting. Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy. But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step. We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years. Let me also stress that this initial increase in the federal funds rate, whenever it occurs, will by itself have only a very small effect on the overall level of monetary accommodation provided by the Federal Reserve. Because there are some factors, which I mentioned earlier, that continue to restrain the economic expansion, I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time. The projections of most of my FOMC colleagues indicate that they have similar expectations for the likely path of the federal funds rate. But, again, both the course of the economy and inflation are uncertain. If progress toward our employment and inflation goals is more rapid than expected, it may be appropriate to remove monetary policy accommodation more quickly. However, if progress toward our goals is slower than anticipated, then the Committee may move more slowly in normalizing policy. ...

Fed’s Kocherlakota: Fed Mission Could Be Made Easier With More Government Debt - Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said in a largely academic speech Thursday that more government debt borrowing could assist the Federal Reserve to achieve its inflation and job goals. Mr. Kocherlakota, who made his comments in the text of a speech to be delivered before a conference at the Bundesbank in Frankfurt, didn’t comment on the U.S. economic or monetary policy outlook. He isn’t currently a voting member of the monetary policy setting Federal Open Market Committee. Instead, the official, who will leave the Fed at the end of the year, stated changes the nature of the economy and markets have lowered the overall structure of interest rates in a way that provides the Fed less room in the future to provide stimulus to get the economy back on track if inflation or job growth proves too weak. “I want to be clear at the outset that I am not saying that it is appropriate for fiscal policy makers to increase the long-run level of public debt,” Mr. Kocherlakota said. But it could help push up the level of so-called neutral rates in a way that would also allow the Fed’s interest-rate target, when set to neutral levels, to be higher than currently appears to be the case, he said. Because the neutral interest-rate level for the Fed is lower than in the past, the central bank has less room to cut rates when trouble arises, Mr. Kocherlakota explained. He said the Fed can deal with its inability to lower rates into negative territory by way of buying long term assets, but he noted that there doesn’t seem to be much appetite any longer for providing stimulus this way. The government can step into this situation by borrowing more debt and putting pressure on interest rates, moving them higher, the official said.“This additional debt issuance would reduce the likelihood of the FOMC’s hitting the lower bound on the nominal interest rate. The FOMC would be better able to achieve its employment and price objectives,” Mr. Kocherlakota explained.

Documentary of the Week: L. Randall Wray on Modern Monetary Theory, Part 1: L.Randall Wray, Professor of Economics at the University of Missouri-Kansas City, explains the basics of how sovereign currency systems work on Attractv in Spain. Prof. Wray has contributed to GEI. Click through to watch the video.

Should Congress Abolish the Federal Debt Limit? -- Is it time to ditch the debt ceiling? The Government Accountability Office raises that question in a new report that both quantifies the damage caused by past episodes of debt-ceiling brinksmanship and offers Congress with possible ways out.The report is particularly relevant right now because the U.S. Treasury has been using emergency measures to avoid breaching the federal borrowing limit since March. Budget analysts estimate that it can use those measures, such as halting certain pension investments, until it is unable to borrow money sometime in November or December. Raising the debt ceiling doesn’t approve more spending by the government. Instead, it allows the government to borrow to pay debts it has already incurred. In 2011, Standard & Poor’s downgraded the U.S. triple-A credit rating for the first time ever after Treasury came within days of being unable to pay certain benefits such as Social Security. In October 2013, the U.S. government endured a 16-day long shutdown that coincided with nearly exhausting its borrowing authority. The GAO report found that during the most recent impasse, investors reported taking “the unprecedented action of systemically avoiding certain Treasury securities,” namely, those that matured around the time Treasury estimated it would exhaust its borrowing authority. Treasuries are considered to have the full faith and credit of the U.S. government, and yet some of them weren’t being accepted as collateral. As a result, the GAO said those securities saw a decline in liquidity in markets where they are bought and resold and an increase in rates. Disruptions in the Treasury market, the report added, extended into other markets, such as short-term financing.

Army plans to cut 40,000 troops: The Army plans to cut 40,000 soldiers from its ranks over the next two years, a reduction that will affect virtually all of its domestic and foreign posts, the service asserts in a document obtained by USA TODAY. The potential troop cut comes as the Obama administration is pondering its next moves against the Islamic State militant group in Iraq and Syria. President Obama said Monday he and military leaders had not discussed sending additional troops to Iraq to fight the Islamic State. There are about 3,500 troops in Iraq. "This will not be quick — this is a long-term campaign," Obama said at the Pentagon after meeting top military brass in the wake of setbacks that have prompted critics to call for a more robust U.S. response against the Islamic State. An additional 17,000 Army civilian employees would be laid off under the plan officials intend to announce this week. Under the plan, the Army would have 450,000 soldiers by Sept. 30, 2017, the end of the 2017 budget year. The reduction in troops and civilians is due to budget constraints, the document says. The Pentagon's budget, released in February, envisioned the reduction to 450,000 would occur by Sept. 30, 2018.

Trade vote puts Michael Froman on faster track - Following Congress’ hard-fought approval of “fast-track” trade authority last week, U.S. Trade Representative Michael Froman wants not only to complete the 12-nation Trans-Pacific Partnership but an even bigger pact with the European Union and three other major trade deals — all in the 18 months remaining in President Barack Obama’s term. It could add up to the biggest trade blitz in history, transforming the rules under which the world does business. Story Continued Below “We’ve got a lot of pots on the stove,” Froman told POLITICO while watching senators cast their final votes to send the legislation to the president. “We want to get TPP done and through Congress. We want to get TTIP negotiated. We’re going to finish ITA. I’m hoping to finish EGA and TISA.” Those would be, in order: the Transatlantic Trade and Investment Partnership agreement with the European Union, an even bigger pact than the TPP in terms of economic size; the World Trade Organization’s Information Technology Agreement, which covers about 97 percent of world IT trade; the Environmental Goods Agreement, accounting for 86 percent international commerce in green goods; and the 24-party Trade in International Services Agreement, which involves three-quarters of the United States’ gross domestic product and two-thirds of the world’s services, such as banking and communications.

Update on Trade Promotion Authority and Companion Trade Bills: A Lot Can Happen In Washington In 34 Days -- As we reported last month, quick-strike action by the Senate on May 22 to pass Trade Promotion Authority (TPA) included within the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (the Trade Act of 2015) gave way to an old-fashioned brawl in the House of Representatives that cast serious doubt on this central objective of President Obama's second-term trade agenda. President Obama had urged quick passage to "give our workers and businesses even more wind at their backs to do what they do best: imagine, invent, build, and sell goods Made in America to the rest of the world." Thirty-four days later, three trade measures including TPA had been passed by both chambers. The President signed most of the provisions into law on June 29, including TPA, with the remainder expected to be enacted later in the summer. This article provides a high-level summary of the comprehensive package of trade measures that will affect U.S. manufacturers for years to come.

New Leaked TPP Chapter Shows Countries Converging on Anti-User Copyright Takedown Rules --A draft of the Trans-Pacific Partnership's "Intellectual Property" chapter from May 11, 2015 has recently been leaked to journalists. This is the fourth leak of the chapter following earlier drafts of October 2014, August 2013, and February 2011. The latest leak is not available online and we don't have a copy of it—but we have been briefed on its contents. In most respects the chapter follows previous drafts pretty closely; for example, the text on DRM circumvention and copyright term are both largely unchanged. But there is one area in which significant progress has been made since the last draft, and this is in the text on intermediary liability rules. Specifically, the new change involves the immunity that Internet companies enjoy from copyright liability, provided that they satisfy certain safe harbor conditions. Under the United States' Digital Millennium Copyright Act (DMCA), these safe harbor conditions require Internet intermediaries to comply with a “notice-and-takedown” process. This has seen legitimate content taken off the Internet in response to bogus claims of infringement, as in the famous dancing baby case, as well as being misused for political censorship. Until now, one point of contention among the TPP partners has been whether countries that don't already have an equivalent to the DMCA's broken notice-and-takedown rules would be forced to adopt one.

Leaked Text Shows Trade Agreement Threat to Deregulate Financial Services - Note: Today, draft texts of the Trade in Services Agreement were made public by WikiLeaks. Click here to see our analysis. It would be helpful if policymakers acted with some recognition that the 2008-2009 financial crisis actually occurred. It shouldn’t be hard. In the United States alone, nearly $20 trillion in wealth was lost, between lost output and lost home equity; unemployment peaked at 10 percent; millions of families lost their homes. The situation was worse in much of the world, with severe problems continuing in many countries, notably in Europe. Learning from the crisis means not repeating the deregulatory and non-enforcement mistakes that led up to it. Yet a secret international trade agreement, the Trade in Services Agreement (TISA), threatens to adopt and impose a global financial deregulatory standard.  Our analysis of a leaked version of the draft agreement, along with a draft annex on financial services, identifies threats to rules and policies ranging from limits on overall bank size to consumer protections, from prophylactic protections against new speculative financial instruments to limits on transfers of personal financial data. It is unimaginable that such an agreement is under negotiation while the global economy is still recovering from the most severe crisis since the Great Depression, and while Greece and other countries are still reeling from developments related to the crisis. Yet, thanks to the publication of the TISA texts by WikiLeaks, we know that such negotiations are in fact underway. Post-crisis, the United States and countries around the world have tightened their domestic financial regulations, imposing somewhat tougher restraints on Wall Street and financial centers around the world. TISA is an effort by Wall Street and its global counterparts to undo those positive steps in a forum absolutely closed to the public.

Wikileaks Exposes How TISA Will Gut Financial Regulations All Over the World -  It’s almost impossible to keep anything secret these days – not even the core text of a hyper-secret trade deal, the Trade in Services Agreement (TiSA), which has spent the last two years taking shape behind the hermetically sealed doors of highly secure locations around the world. According to the agreement’s provisional text, the document is supposed to remain confidential and concealed from public view for at least five years after being signed! But now, thanks to WikiLeaks, it has seeped to the surface.  TiSA is arguably the most important – yet least well-known – of the new generation of global trade agreements. According to WikiLeaks, it “is the largest component of the United States’ strategic ‘trade’ treaty triumvirate,” which also includes the Trans Pacific Partnership (TPP) and the TransAtlantic Trade and Investment Pact (TTIP). “Together, the three treaties form not only a new legal order shaped for transnational corporations, but a new economic ‘grand enclosure,’ which excludes China and all other BRICS countries” declared WikiLeaks publisher Julian Assange in a press statement. If allowed to take universal effect, this new enclosure system will impose on all our governments a rigid framework of international corporate law designed to exclusively protect the interests of corporations, relieving them of financial risk, and social and environmental responsibility. Thanks to an innocuous-sounding provision called the Investor-State Dispute Settlement, every investment they make will effectively be backstopped by our governments (and by extension, you and me); it will be too-big-to-fail writ on an unimaginable scale.  In the case of TiSA, it involves more countries than TTIP and TPP combined: The United States and all 28 members of the European Union, Australia, Canada, Chile, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Taiwan and Turkey.Together, these 52 nations form the charmingly named “Really Good Friends of Services” group, which represents almost 70% of all trade in services worldwide.

Obama lets Malaysia off the hook on human trafficking to achieve free trade deal - In the Washington Post last month, I pointed out that the Obama Administration and Congressional Republicans were shamefully preparing to let Malaysia off the hook for its dismal record on human trafficking in order to advance a free trade agreement. Now, Reuters reports, that prediction is coming true. Earlier this year, Senator Robert Menendez passed an amendment to the fast track trade bill that denies “fast track” for any treaty with any country that the State Department says is not fighting the scourge of human slavery. One such country is Malaysia, which was recently declared by the State Department to be one of the world’s 23 worst offenders in turning a blind eye to slavery and sex . It’s human trafficking record thus endangered the massive free trade agreement. Solution? Reuters reports: The United States is upgrading Malaysia from the lowest tier on its list of worst human trafficking centers, US sources said on Wednesday, a move that could smooth the way for an ambitious US-led free-trade deal with the Southeast Asian nation and 11 other countries. The upgrade to so-called “Tier 2 Watch List” status removes a potential barrier to President Barack Obama’s signature global trade deal.The upgrade follows international scrutiny and outcry over Malaysian efforts to combat human trafficking after the discovery this year of scores of graves in people-smuggling camps near its northern border with Thailand.  Sen. Menendez and human rights groups rightly blasted the decision:“If true, this manipulation of Malaysia’s ranking in the State Department’s 2015 Trafficking in Persons (TIP) report would be a perversion of the trafficking list and undermine both the integrity of this important report as well as the very difficult task of confronting states about human trafficking,” said Democratic Senator Robert Menendez, who had pushed to bar Tier 3 countries from inclusion in the trade pact.

OPM Announces More Than 21 Million Affected by Second Data Breach -- More than 21 million Social Security numbers were compromised in a breach that affected a database of sensitive information on federal employees held by the Office of Personnel Management, the agency announced Thursday.This hack is separate from the breach of OPM data that compromised 4.2 million Social Security numbers and was made public in June. Officials have privately linked both intrusions to China. Of the 21.5 million records that were stolen, 19.7 million belonged to individuals who had undergone background investigations, OPM said. The remaining 1.8 million records belonged to other individuals, mostly applicants' families. 3..The records that were compromised in the breach announced Thursday include detailed, sensitive background information, such as employment history, relatives, addresses, and past drug abuse or emotional disorders. OPM said 1.1 million of the compromised files included fingerprints.Some of the files in the compromised database also include "residency and educational history; employment history; information about immediate family and other personal and business acquaintances; health, criminal and financial history; and other details," OPM said.Also included in the database is information from background investigations, as well as usernames and passwords that applicants used to fill out investigation forms. And although separate systems that store health, financial, and payroll information do not appear to have been compromised, the agency says some mental health and financial information is included in the security clearance files that were affected by the hack.

I.R.S. Cracks Down on Hedge Fund Tax Strategy -   Hedge funds that used a strategy to claim billions of dollars in tax savings will face new scrutiny from the government, according to guidance issued by the Internal Revenue Service on Wednesday.So-called basket options — complex financial structures that allowed hedge funds like Renaissance Technologies to bypass taxes on short-term trades — will now be labeled listed transactions, the I.R.S. said. This means that anyone using the options must declare them on their tax returns. They will be penalized if they fail to do so.The new I.R.S. guidance will be retroactive, applying to all transactions as far back as Jan. 1, 2011.The action comes after a 2014 report by the Senate Permanent Subcommittee on Investigations found that Renaissance was able to avoid more than $6 billion in taxes over more than a decade by using basket options. A dozen other hedge funds also used the basket options — created by Barclays and Deutsche Bank — to bypass taxes on short-term trades between 1998 and 2013, according to the report.“These banks and hedge funds involved in this case used dubious structured financial products in a giant game of ‘let’s pretend,’ costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation,” said Carl Levin, a Michigan Democrat and chairman of the Senate subcommittee at the time. He did not stand for re-election last year.

Obama SEC pick delayed by backlash from Warren allies --Elizabeth Warren and her liberal allies appear to be on the verge of another victory in their battle to stop the White House from choosing financial regulators with ties to Wall Street.  President Barack Obama was planning to nominate corporate attorney Keir Gumbs… But now that’s on hold at least until August after activist groups aligned with Warren raised an outcry over Gumbs’ work, including his advice to companies on how to dodge scrutiny from shareholder activists.  The White House will begin vetting additional candidates who don’t have corporate relationships to fill the seat being vacated by Democrat Luis Aguilar… The nomination battle comes as Warren and activist groups have been turning up the heat on the SEC. The Massachusetts senator last month wrote a scathing public letter to Chair Mary Jo White, accusing her of being soft on financial enforcement. Two weeks later, activist groups launched a website — nomoremaryjos.com — and sent Obama a letter criticizing the revolving door between Wall Street and the SEC…Activist groups such as Public Citizen have objected to Gumbs’ work representing the American Petroleum Institute before the SEC and his work involving corporate campaign-spending disclosure, a contentious issue for the SEC since the Supreme Court’s Citizens United decision in 2010.Warren, other Democrats, and labor unions have been urging the SEC to require companies to reveal their political spending through nonprofits and political-action committees after Citizens United allowed independent groups to raise and spend unlimited campaign contributions…

Obama in Retreat Thanks to Elizabeth Warren-Led Opposition to Plan to Appoint Another Corporate Stooge as SEC Commissioner - Yves Smith - As readers may know, Obama’s plan to keep the already weak SEC in its role as a rubber stamp to Big Finance is going pear-shaped. Via some unexpected good fortune (Obama owing a favor to Rhode Island senator Jack Reed and Senate conventions that nominations of Senate staffers get approved) the SEC wound up with a new commissioner, Kara Stein, who actually knows a thing or two about banking and has been willing to declare war on a chairman from her own party, Mary Jo White. Stein has been more effective than someone in her spot would normally be by virtue of White being so badly conflicted as to be required to sit out many commission votes, and Stein allying regularly with fellow Democrat commissioner Luis Aguilar to block unduly Wall-Street-friendly measures.  But Obama appeared ready to restore status quo ante by virtue of having Aguilar’s term expire this year. That would allow him to install a more business-toadying replacement. The Administration is changing course after having run into a buzz saw of opposition. Readers may recall we encouraged letter-writing as well as signing a Credo campaign to fire Mary Jo White. Although the SEC chairman can’t be ousted by the Administration, the well-warranted campaign against her was meant to tell the Administration that another Mary Jo White type commissioner was going to be hard to confirm.

Warren, McCain introduce bill to bring back Glass-Steagall | TheHill: Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) are reintroducing legislation to revive the Glass-Steagall Act, which would force big banks to split their investment and commercial banking practices. Glass-Steagall was first passed in 1933 but repealed during the Clinton administration, leading many progressives to argue that it contributed to the 2008 financial collapse. Warren and McCain, along with their cosponsors, Sens. Angus King (I-Maine) and Maria Cantwell (D-Wash.), said in a statement that the legislation would make big banks that are "too big to fail" smaller and safer and minimize the likelihood of a government bailout.  The bill, which they first introduced in the last Congress, would separate traditional banking with checking and savings accounts from financial institutions that offer services such as investment banking, which are riskier. "Despite the progress we've made since 2008, the biggest banks continue to threaten our economy," said Warren, an ardent Wall Street critic, in a statement. "The biggest banks are collectively much larger than they were before the crisis, and they continue to engage in dangerous practices that could once again crash our economy." McCain said the repeal of Glass-Steagall led to "a culture of dangerous greed and excessive risk-taking" in the banking industry.

China Stocks and the New York Stock Exchange Shutdown: The Untold Story -- Yesterday, beginning at 11:32 a.m. and for the next three hours and forty minutes, the iconic New York Stock Exchange shuttered trading in all of its listed securities. The Exchange said it had experienced an internal glitch. Unknown to most Americans, some of those shuttered stocks on the New York Stock Exchange were Chinese stocks and among the largest capitalized companies in the world. More than 100 Chinese companies trade on U.S. stock exchanges as American Depository Receipts (ADRs) and almost 200 Chinese company ADRs trade over-the-counter in the U.S. (Individual shares are referred to as ADS, American Depository Shares.) Last year, Thomson Reuters estimated the market value of Chinese companies listed on just the New York Stock Exchange and Nasdaq Stock Market at more than $1.4 trillion. With the Chinese stock market rupturing over the past week and trading in more than a thousand stocks suspended in China, the spillover has hit the U.S. market hard.  We looked at how China Mobile and China Life Insurance traded before, during and after the New York Stock Exchange halted trading in all of its securities. An interesting pattern emerged. (See charts below.) After volume spikes in the morning prior to the trading halt by the Exchange, volume was subdued during the hours the Exchange remained closed. (Other trading venues are supposed to pick up the slack when an exchange goes dark.)  Then volume picked up again when the Exchange reopened. China Mobile (symbol CHL) closed down 5.38 percent yesterday while China Life Insurance (symbol LTR) dropped 6.65 percent in New York trading. If Wall Street firms were afraid of roiling Chinese stocks further with huge volume and panic selling in the U.S., the subdued volume during the three hour and forty minute halt at the NYSE came in handy. Americans are also largely in the dark about the fact that since 2010, the Securities and Exchange Commission (SEC) has brought dozens of fraud cases against China-based firms and more than four dozen of those firms have been deregistered from U.S. exchanges – unfortunately not before U.S. investors have been fleeced.

Why the Great Glitch of July 8th Should Scare You -- Over at Fusion, Felix Salmon tells folk to chill out over The Great Technical Glitch of July 8, 2015 when a computer glitch grounded all mainland United flights, the NYSE went down for the day, and the website of the Wall Street Journal was down, too. All this came one day after a huge drop in Chinese stocks. Felix says: Don’t be scared. Don’t even be worried.. He is making the case that we should not worry that this is a coordinated attack, especially of the dreaded “cyber-terrorist” kind. He is right, of course. But that is exactly why I’m a lot more worried. The big problem we face isn’t coordinated cyber-terrorism, it’s that software sucks. Software sucks for many reasons, all of which go deep, are entangled, and expensive to fix. (Or, everything is broken, eventually). This is a major headache, and a real worry as software eats more and more of the world. A lot of software is now old enough to be multi-layered. Airline reservation systems are particularly glitchy since they’ve been around a while. I wouldn’t be surprised if there is some mainframe code from the 1960s still running part of that beast. In the nineties, I paid for parts of my college education by making such old software work on newer machines. Sometimes, I was handed a database, and some executable (compiled) code that nobody had the source code for. The mystery code did some things to the database. Now more things needed to be done. So I wrote more code that intervened between the old programs and the old database, and added some options that the management wanted. It was a lousy fix. It wouldn’t work for the next thing that needed to be done, either, but they would probably hire one more person to write another layer of connecting code. But it was cheap (for them). And it worked (for the moment).

U.S. Primary Bond Market Seized Up, Junk Bond Issuance Frozen, Chaos in China, Greece, Puerto Rico, Commodities Cited  It was enough financial upheaval for an entire year, but all crammed into a couple of weeks:“Global market volatility,” the “debt crisis in Greece,” “China’s equity market plunge” and the chaotic “efforts to stabilize” it, “declining commodity prices,” “fresh shocks from Puerto Rico,” topped off with “an extended outage on Wednesday for the NYSE.” This is how LCD HY Weekly by S&P Capital IQ described the atmospherics of the US bond markets during the week. It was when the booming if somewhat dented US bond markets took a broadside: Issuance of investment-grade bonds had seized up for the seven trading days in a row prior to Tuesday! In the junk-bond market, no new issuance made it to market at all this week, the first non-holiday week with zero issuance since July 2013, the peak of the Taper Tantrum. And in the prior week, only two deals for a measly total of $1 billion were priced. For all practical purposes, the primary junk-bond market has seized up.Companies could have sold bonds. But in the chaos surrounding the markets, they would have had to offer a higher yield than anticipated, and deals were put on hold, pending better times.This chart shows how junk bond yields spiked during the Taper Tantrum in the summer of 2013, as the market grappled with the until then inconceivable idea that the Fed would taper QE out of existence. This blew over, and the high-yield market returned to the halcyon days of yore. But in the summer of 2014, oil began to crash. This time it was energy companies that dragged down bonds. Yields spiked to 7.59% by December. It too blew over, sort of, but since June 1, new pressures have been building up:

LIBOR: History’s Largest Financial Crime that the WSJ and NYT Would Like You to Forget - William K. Black - I read a BBC story about the LIBOR criminal trial in the UK and was going to write to criticize its woeful analytics. In preparation I checked the New York Times and the Wall Street Journal to see how they reported the devastating testimony in the trial. I could not, however, find any coverage in my electronic searches and viewing their web pages. To review the bidding, the LIBOR bid rigging cartel was the largest cartel in history, manipulating the prices of an estimated $300+ trillion in assets. That is a figure considerably larger than the world’s combined GDP. Here are typical statements by the Department of Justice (DOJ) about the LIBOR cartel. “For years, employees at Deutsche Bank illegally manipulated interest rates around the globe – including LIBORs for U.S. Dollar, Yen, Swiss Franc and Pound Sterling, as well as EURIBOR – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” .  “Deutsche Bank is the sixth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and today’s criminal resolution represents the largest penalty to date in the LIBOR investigation.”.  “Deutsche Bank’s misconduct not only harmed its unsuspecting counterparties, it undermined the integrity and the competitiveness of financial markets everywhere.” Until recently, I called the LIBOR cartels the largest in history by at least three orders of magnitude. The rigging of foreign exchange (FX) “markets,” however, is so large that that I now have to say that they represent the two largest cartels in history by roughly three orders of magnitude. Both cartels consisted of most of the world’s largest and most elite banks. Indeed, UBS has admitted that after it signed its anti-prosecution agreement with DOJ for its massive LIBOR frauds it violated that deal by continuing to rig the FX “markets” as a member of a group that called itself “the Cartel.” Contrary to theoclassical ideology, both cartels persisted for many years and were ended only by (desultory) government action.

Holder says bank fines better than ‘making examples of people’ -  Former U.S. Attorney General Eric Holder plans to return to private law practice at Covington & Burling, telling the Financial Times on Monday that record fines imposed on banks were a better solution to chronic fraud cases than “trying to make examples of people.” The U.S. Department of Justice levied record fines against banks during his tenure, including multiple multibillion-dollar sanctions against a significant Covington & Burling client, J.P. Morgan Chase. During Holder’s tenure, the U.S. did not indict any chief executive over the financial crisis. Holder separately told the National Law Journal that some of the firms may not want to work with him. The law firm and its Washington D.C. office that Holder returns to—he previously worked there for seven years—specializes in defending financial services firms and their executives as well as general white collar defense, including defending the former CEO of IndyMac against an SEC securities fraud case and FDIC lawsuit that sought to hold him liable for one of the largest and most high-profile bank failures of the recent financial crisis. “I think the cultures have changed, “ Holder told the Financial Times.

Cronyism Pays: Eric Holder Triumphantly Returns To Law Firm That Lobbies For Banks --Trying to determine Barack Obama’s most corrupt, crony appointee presents a virtually impossible task. Every single person he’s appointed to a position of power over the course of his unfathomably shady, violent and unconstitutional presidency, has been little more than a gatekeeper for powerful vested interests. Obama’s job was to talk like a marxist, but act like a robber baron. In this regard, his reign has been an unprecedented success. All that said, if anyone is a top contender for the worst of the worst of the Obama Administration, it’s Eric Holder. As head of the Department of Justice, he was the one man who could’ve played an enormously positive role in American society, by punishing those responsible for creating the financial crisis that destroyed tens of millions of lives globally. Instead, he chose to actively protect the financial oligarchs and ushered in a tragic new era for these United States. One in which the world suddenly realized that the U.S. is little more than a glorified oligarchy. Essentially an aggressive Banana Republic armed with nuclear weapons and the swagger of a third world dictator. Holder’s list of failures and evidence shameless cronyism are virtually endless. I’ve covered many of them on this site. Here are just a few:

• The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally
• Eric Holder Announces Task Force to Focus on “Domestic Terrorists”
• Eric Holder and the DOJ Have Spent Millions of Taxpayer Dollars on Unreported Personal Travel
• Elizabeth Warren Confronts Eric Holder, Ben Bernanke and Mary Jo White on Bankster Immunity
• Even Washington D.C. Insiders Admit Eric Holder is a Bankster Puppet
• Eric Holder Claims Emails Using Words ‘Fast and Furious’ Don’t Refer to Operation Fast and Furious

For all his hard work protecting and coddling criminal financial oligarchs, Eric Holder was always going to be paid handsomely once he left office. That time has come.

My Father Died For Reporting Corruption At AmBank - EXCLUSIVE INTERVIEW -  After days of speculation, the son of the AmBank founder Hussain Ahmad Najadi has openly confirmed that he believes his father was assassinated because of his open concerns about corruption at the bank he had once managed. Najadi was brutally gunned down in a KL car park on 29th July 2013, allegedly the day after he had filed a police report on the matter. Pascal Najadi, who currently resides in Moscow, spoke directly to Sarawak Report this evening to confirm his own conviction that this was the motive for the murder. “I am willing to go on the record. Nothing else makes sense” Najadi said tonight. “This was an execution, not a killing. The story about the temple doesn’t add up. He was nothing to do with the Temple. Why would you kill someone over some row about that?” added Najadi, referring to a supposed planning dispute that was floated at the time as being the reason for his father’s death.  He told Sarawak Report that on the occasion he last saw his father it was four days before he died and that Hussain had talked then about the issue which was troubling him: My Dad then spoke about massive corruption. He also said that they [people in power] had lost the plot in the sense that they recklessly and behind their own population’s backs raked in billions of ringgit from construction, oil & gas to defence & transportation. He made a point that its insane that they do not for one second think about the future generations, simply not.

Big U.S. Banks Refile ‘Living Wills’ After Regulatory Rebuke - WSJ: Twelve of the largest U.S. banks are trying yet again to persuade regulators they can safely navigate bankruptcy without tanking the broader financial system. Summaries of “living wills” from firms including J.P. Morgan Chase JPM -0.79 % & Co. and Goldman Sachs Group, GS 0.08 % Inc. were published Monday on the websites of the Federal Reserve and the Federal Deposit Insurance Corp. The stakes are high: If the plans don’t please regulators, firms could be forced to break up or shrink. Among the new details: Banks have rethought how they would run a bankruptcy process, emerging significantly smaller than their current size or, in the case of Goldman Sachs and Morgan Stanley, ceasing to exist after selling themselves off in pieces. Bankers and lawyers who worked on the plans said this year’s versions—the fourth time most of the firms have filed—should address regulators’ concerns. The wills were mandated by the Dodd-Frank regulatory overhaul to ensure that any failure wouldn’t set off the kind of catastrophe that accompanied the collapse of Lehman Bros. in 2008. Last year, the Fed and FDIC found most plans flawed. They ordered the firms to start fixing the problems or face sanctions such as higher capital requirements or forced divestitures.“The firms have taken meaningful, concrete steps to ensure their plans are credible and that no firm is too big to fail,” said Rob Nichols, president of the Financial Services Forum, a trade group that represents big banks. Firms whose bankruptcy playbooks were published Monday include Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., C -1.05 % Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street Corp., Wells Fargo & Co., and the U.S. units of Barclays PLC, UBS AG, Credit Suisse Group AG, and Deutsche Bank. Last year, regulators said only Wells Fargo’s plan was realistic. The Fed and FDIC said on Monday they would begin reviewing the new plans. The agencies hope to provide feedback by the end of this year, according to people familiar with the matter. Last August they criticized banks for assuming they could sell business units and find sources of capital to remain afloat.

Black Knight May Mortgage Monitor --  Black Knight Financial Services (BKFS) released their Mortgage Monitor report for May today. According to BKFS, 4.96% of mortgages were delinquent in May, up from 4.77% in April. BKFS reported that 1.49% of mortgages were in the foreclosure process, down from 1.91% in May 2014.This gives a total of 6.45% delinquent or in foreclosure. It breaks down as:
• 1,591,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 922,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 754,000 loans in foreclosure process.
For a total of ​​3,268,000 loans delinquent or in foreclosure in May. This is down from 3,805,000 in May 2014. From Black Knight: Looking at current interest rates on existing 30-year mortgages and applying broad-based underwriting criteria, we see approximately 6.1 million potential refinance candidates – borrowers that likely could qualify for and benefit from refinancing  Given that HARP has been extended through 2016, we find there are an additional 450K borrowers that meet HARP eligibility guidelines and could benefit from refinancing through the programThere are 1.6 million more refinanceable borrowers today than one year ago, due in part to home price appreciation, but primarily due to interest rate reductionsThis is down by 1 million borrowers from just last month, due to minor fluctuations in interest rates, illustrating just how rate sensitive a population this isIf rates were to rise by just half a percentage point, 42 percent of borrowers (2.6 million people) fall out of that refinanceable population. There is much more in the mortgage monitor.

FHFA Paper: "The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment" -- Here is a new paper from FHFA Senior Economist Saty Patrabansh: The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment During the housing bubble, there an increase in first time buyers as shown in the first graph below (from paper).  Also first time homebuyers defaulted at a higher rate than repeat buyers. Patrabansh shows that the higher default rate for first-time homebuyers is related to borrower differences, and, after adjusting for these differences, first-time hombuyers defaulted at the same rate as repeat homebuyers. From the conclusion:  First-time homebuyer mortgages acquired by the Enterprises generally performed worse than repeat homebuyer mortgages. But fi rst-time homebuyers are also inherently diff erent from repeat homebuyers. For example, they are younger, and have lower credit scores, lower home equity, and less income and therefore are less likely to withstand fi nancial stress or take advantage of financial innovations available in the market than repeat homebuyers. In other words, in terms of many borrower, loan, and property characteristics that can be determined at the time of loan origination, the distributional make-up of fi rst-time homebuyers is somewhat weaker than that of repeat homebuyers.This graph from the paper shows the surge in first-time homebuying during the housing bubble.  As I've noted before, this is one of the tragedies of the housing bubble - many people were lured into buying before they were really ready, and have soured on the homebuying experience.

Obama Unveils Stricter Rules Against Segregation in Housing - — The Obama administration announced an aggressive effort on Wednesday to reduce the racial segregation of residential neighborhoods. It unveiled a new requirement that cities and localities account for how they will use federal housing funds to reduce racial disparities, or face penalties if they fail.The new rules are an effort to enforce the goals of the civil rights-era fair housing law that bans overt residential discrimination, but whose broader mandate for communities to actively foster integration has not been realized. They are part of President Obama’s attempt to address the racial imbalances and lack of opportunity that he says have contributed to unrest reminiscent of the turbulent 1960s in cities like Ferguson, Mo., and Baltimore, where African-Americans have clashed with police officers. The requirement is likely to pose the greatest challenges for cities in the Northeast and the Rust Belt that have the highest levels of segregation according to the 2010 census, including Detroit, Milwaukee, New York and Newark.  More affluent minorities have diversified many predominantly white neighborhoods in those cities, but the segregation of less-wealthy minority families remains entrenched. The new effort aims to encourage affordable housing development in more desirable neighborhoods, and to improve the housing stock in lower-income areas. Civil rights groups celebrated the announcement as a long-overdue response to the persistence of segregation in an increasingly diverse nation. Hilary O. Shelton, the director of the N.A.A.C.P. Washington bureau, called it “a crucial step forward in advancing fair housing and discrimination protection.” But it has caused a backlash among conservatives, who denounced it as another directive from Washington to communities they say have long suffered from ill-conceived government housing initiatives. Some congressional Republicans are moving to deny funding for its implementation. The changes also could prompt some governments to follow the example of Westchester County, which has foregone some federal funding because of its refusal to comply with fair housing regulations.

How Sensitive Is Housing Demand to Down Payment Requirements and Mortgage Rates? - NY Fed - When a household is looking to buy a home, financial considerations are usually very important. In particular, in deciding “how much house to buy,” a household must ponder how large a down payment it can make at the time of purchase, and also how much it can afford to pay each month. The minimum required down payment and the interest rate on available mortgages (which determines the monthly payment) are key elements in the decision. When these variables change, this likely affects the price a household is willing and able to pay for a home, and thus the housing market overall. However, measuring the strength of these effects is notoriously difficult. In this post, which is based on a recent staff report, we describe a novel approach to measure these effects. We find that a change in down payment requirements tends to have a large effect on housing demand—households’ willingness to pay for a given home—especially for current renters, whereas the effects of a change in the mortgage rate are modest.

MBA: Mortgage Applications Increase in Latest Weekly Survey, Purchase Index up Sharply YoY -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 4.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 3, 2015. This week’s results included an adjustment for the July 4th holiday. ...The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index increased 7 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 32 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 4.23 percent from 4.26 percent, with points increasing to 0.37 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. With higher rates, refinance activity is very low. 2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 32% higher than a year ago (probably distorted by holiday week).

Freddie Mac: 30 Year Mortgage Rates decrease to 4.04% in Latest Weekly Survey  -- From Freddie Mac today: Global Uncertainty Pushes U.S. Mortgage Rates Lower Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing an investor flight to safety for U.S. Treasuries is pushing average fixed mortgage rates lower and helping to keep buyer activity strong toward the close of the spring homebuying season. ...30-year fixed-rate mortgage (FRM) averaged 4.04 percent with an average 0.6 point for the week ending July 9, 2015, down from last week when it averaged 4.08 percent. A year ago at this time, the 30-year FRM averaged 4.15 percent. 15-year FRM this week averaged 3.20 percent with an average 0.5 point, down from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 3.24 percent.

CoreLogic: House Prices up 6.3% Year-over-year in May --Notes: This CoreLogic House Price Index report is for May. The recent Case-Shiller index release was for April. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports National Homes Prices Rose by 6.3 Percent Year Over Year in May 2015 CoreLogic® shows that home prices nationwide, including distressed sales, increased by 6.3 percent in May 2015 compared with May 2014. This change represents 39 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 1.7 percent in May 2015 compared with April 2015. Including distressed sales, 33 states and the District of Columbia were at or within 10 percent of their peak prices in May 2015. Ten 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, Iowa, Nebraska, New York, North Carolina, Oklahoma, Tennessee, Texas and Vermont. Excluding distressed sales, home prices increased by 6.3 percent in May 2015 compared with May 2014 and increased by 1.4 percent month over month compared with April 2015. ...This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.  The index was up 1.7% in May (NSA), and is up 6.3% over the last year. This index is not seasonally adjusted, and this was a solid month-to-month increase.

May 2015 CoreLogic Home Prices Year-over-Year Growth Rate Now 6.3%. Home Price Growth Continues.: CoreLogic's Home Price Index (HPI) shows that home prices in the USA are up 6.3% year-over-year year-over-year (reported up 1.7% month-over-month). There is considerable backward revision in this index which makes monthly reporting problematic. CoreLogic HPI is used in the Federal Reserves's Flow of Funds to calculate the values of residential real estate. This is the 39th consecutive month of year-over-year increase. Dr. Frank Nothaft, chief economist at CoreLogic stated: Mortgage rates on 30-year fixed-rate loans remained below 4 percent through May, helping to fuel home-purchase activity. Our homes-for-sale listing data shows that markets with high demand and limited supply, such as San Francisco, are recording double-digit appreciation rates over the past year.  Anand Nallathambi, president and CEO of CoreLogic stated: The rate of home price appreciation ticked up in May with gains being fairly widely distributed across the country. Importantly, higher home prices over the past couple of years have spurred increases in new single-family construction. Sales of newly built homes during the first five months of 2015 were up 23 percent from a year ago, and as rising values build equity for homeowners, we expect to see more existing homes offered for sale in the coming year.

FNC: Residential Property Values increased 5.4% year-over-year in May - FNC released their May 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.2% from April to May (Composite 100 index, not seasonally adjusted).   The 10 city MSA increased 1.2% in May, the 20-MSA RPI increased 1.3%, and the 30-MSA RPI increased 1.2%. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.  The year-over-year (YoY) change was lower in May than in April, with the 100-MSA composite up 5.4% compared to May 2014. The index is still down 16.2% from the peak in 2006 (not inflation adjusted).

 Are Millennials Responsible for the Decline in First-Time Home Purchases? Part 2 -- Recall that, in our last post, we investigated the claim that millennials were to blame for the decline in first-time home purchases. Our data analysis confirmed that home purchases by first-time buyers have indeed plummeted since the crisis. We did not, however, find evidence that millennials were driving this decline. We found that, if anything, first-time homebuyers have become younger since the crisis, not older. By contrast, location appeared to be a much stronger predictor of declines in first-time buying than age. Notwithstanding, many commentators still believe that millennials are behind sluggish sales. In this post, we take a closer look at the timing of first-time home purchases and the credit trends of first-time homebuyers with an eye towards the changing composition of homebuyers. We use the same credit bureau data set that we used in the previous post (take a look for a description of the data and our definition of first-time homebuyer). Using this data, we dig a bit deeper into two theories that are often cited for why millennial homebuyers are not buying as many homes as in the past. We first analyze whether millennials delayed the purchase of their first home in response to the crisis. Then we investigate what role, if any, credit tightening has played. In short, we can't confirm any delay in the timing of home purchases. What we do find is that the distribution of first-time home purchases changed after the crisis. First-time home purchases by younger buyers peak earlier and persist at an elevated level over a longer period of time than before. We also find, contrary to the popular theory that credit became too tight for millennials to buy homes, that mortgage credit actually became tighter for older first-time buyers than for younger first-time buyers. Taken together, we think these data observations help to explain why the median age of the first-time buyer shifted downwards (instead of upwards) after the housing downturn.

The Share of Americans Behind on Home-Equity Loans Is the Lowest Since 2008 - A healing housing market means fewer Americans are falling behind on their home loans, according to data the American Bankers Association released Thursday. New data on two types of home-equity loans shows delinquency rates have fallen to their lowest levels since 2008. The report defines a delinquency as a late payment that is 30 days or more overdue. “Home-equity loan and line delinquencies are tracking the slow and steady improvements in the housing market,” said American Bankers Association chief economist James Chessen. “As property values improve, fewer people have negative equity in their homes. Greater household wealth and income gives consumers more breathing room to meet their financial obligations.” The delinquency rate for fixed-term home-equity loans fell to 3.12% in the first quarter, the lowest rate since December 2008. Still, the rate remains above the 15-year average of 2.75%. The delinquency rate on home-equity lines of credit declined to 1.42% from 1.48% in the fourth quarter. That’s also the lowest level in nearly seven years, but still above the long-term average of 1.12%. The improvement in paying home loans on time follows with lower delinquency rates on other types of bank loans. Following the deep recession when a record number of homeowners fell into foreclosure and personal bankruptcy filings spiked, Americans have generally been reluctant to take on too much debt and have worked to pay down balances. That caution has helped stabilize household balance sheets, but some economists say it’s been a factor holding back economic growth.

Consumer Credit Rises at a Slower Pace in May - WSJ: Americans took on consumer debt at a slower pace in May, a possible reflection of mixed economic currents heading into the spring. Outstanding consumer credit, a reflection of all debt besides mortgages, rose $16.09 billion or at a 5.7% annual rate in May, the Federal Reserve said Wednesday. That’s a slight tapering from March, when it increased at an annual rate of 7.57%, and April’s 7.63% rise. Economists surveyed by The Wall Street Journal had expected a $19 billion increase in May. Revolving credit, mostly credit cards, rose at an annual 2.11% rate, less than in April, when it jumped at an annual rate of 11.51%. Nonrevolving credit, made up largely of auto or student loans, rose 7%, in line with previous months. Wednesday’s numbers highlight some of the continuing uncertainty about the economy. While consumer spending rose in May and unemployment has been dropping, workers have not been getting much in the way of higher wages. For the economy to pick up steam this year, consumers are going to have to keep their pocketbooks open. Other economic contributors, such as trade, have suffered due to the strong dollar and uncertainty in Europe and China. The U.S. trade gap widened 2.9%, the Commerce Department said last week.

Consumer Borrowing Hits a Record $3.4 Trillion - Consumer borrowing climbed to a high in May, propelled by a surge in auto and student loans. The Federal Reserve said on Wednesday that consumer borrowing increased $16.1 billion after a gain of $21.4 billion in April; the April increase was the strongest monthly increase since July 2014. The gains pushed total borrowing to a fresh record of $3.4 trillion. In May, borrowing in the category that includes autos and student loans rose by $14.5 billion. Borrowing in the category that covers credit cards rose by $1.6 billion after an increase of $8.5 billion in April. Economists believe that solid gains in employment should translate into stronger consumer borrowing and spending that will help lift economic growth in the second half of this year.

Calling Off the Credit-Card Debt Collectors -- For years, consumer advocates have warned of abuse, deception and unfairness in credit-card debt collections by banks and third-party debt collectors. This week, the Consumer Financial Protection Bureau and the attorneys general of 47 states and Washington, D.C. brought an enforcement action against JPMorgan Chase for abuse, deception and unfairness in credit card collection cases. Some highlights from the action:

• • On some 500,000 credit card accounts it sent to collections litigation in recent years, Chase used illegally sworn documents to obtain false or inaccurate judgments for unverified debts.
• • The bank sold “zombie debts” to third-party debt collectors, including accounts that were inaccurate, settled, discharged in bankruptcy, not owed or otherwise not collectible.
• • Chase helped those third-party collectors obtain court judgments against borrowers by providing more than 150,000 sworn statements attesting to the accuracy and validity of the debt. But according to the consumer bureau, “Chase systematically failed to prepare, review, and execute truthful statements as required by law.”
• • Chase failed to notify customers and the courts when it became aware of these problems.

The enforcement action requires Chase to stop collecting on the debts it sent to litigation between January 1, 2009 and June 30, 2014 and to notify customers that it will not try to collect. It must contact the major credit bureaus to request that the judgments not be reported against those consumers. It also must refund at least $50 million to customers who have already paid up. The refunds are for amounts that the customers were told to pay above what they owed when the debt was referred to litigation, plus 25 percent of the excess.  The enforcement action also requires Chase to notify customers when their account is sold, including the identity of the purchaser, the amount owed, and how the customer can obtain further information at no charge. It must provide third-party collectors with detailed documentation on the accounts being sold, and is prohibited from selling accounts that do not have the required documentation. Any sworn documents about the debts must be signed by hand and reflect the signer’s direct knowledge.  Those are all significant reforms.

Cash Is Still King -- They said it was imminent. They said so two decades ago. But I am still waiting for a truly fast, reliable, and safe form of money for people—all 7 billion of us. So many other things that were once unimaginable to us are now true: We can connect with anyone on the planet almost instantaneously—to talk, see each other over video, and send pictures of our cats and dogs, even kids. But if we want to move a penny, or 10 rupees, it is no longer a brave new world, not even close. It’s virtually impossible for someone to easily transfer money to another at a low cost, unless both parties are physically present at the same place and same time. Cash is convenient. Cash is private. Cash is intuitive.Not so, you may protest. We have Apple Pay, PayPal, Google Wallet, MasterCard, Visa, M-Pesa, bitcoin, and hundreds of alt-coins spawned by bitcoin, all of which claim that they will dethrone good old-fashioned cash. But not so fast. Despite all the hype around the supposedly new-fangled digital alternatives to money, these remain either expensive or inconvenient. Credit card companies charge retailers 2 to 3 percent of any transaction, which we’re all paying for in the form of higher prices, passed on by merchants. Direct withdrawals from bank accounts are cheaper but have traditionally taken a long time to clear, sometimes as long as a day. Advertisement The drawbacks of these digital alternatives are evidenced by the resilience of cash. Eighty-five percent of all transactions globally (and 40 percent in the United States) are still carried out using cash, particularly transactions involving small amounts of money. There are good reasons why that is the case. Cash is convenient. Cash is private. Cash is intuitive. Cash does not incur explicit transactions costs.

Reis: Mall Vacancy Rate unchanged in Q2 -- Reis reported that the vacancy rate for regional malls was unchanged at 7.9% in Q2 2015. This is down from a cycle peak of 9.4% in Q3 2011. For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.1% in Q2. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.Comments from Reis Senior Economist and Director of Research Ryan Severino: After three consecutive quarters of slightly declining vacancy, the national vacancy rate for neighborhood and community centers was unchanged this quarter at 10.1%. Although net absorption exceeded new supply growth, it was insufficient to cause a decline in vacancy. Nonetheless, rent growth continued to slightly accelerate this quarter, though it is barely running ahead of core inflation. [Regional] The vacancy rate for malls also was unchanged at 7.9% while asking rents grew by 0.6%, the seventeenth consecutive quarter of growth. Improvement in the two major subsectors continues, and at an accelerating pace, but their recoveries remain far slower than those of past cycles. So what’s holding the market back? While ecommerce is not helping, it is not the death knell for bricksand‐ mortar retail that some perceive it to be. In reality, a bigger challenge comes from the proliferation of different retail subtypes over the last two decades. For example, power space inventory has more than doubled since 1998 as demand for this space has increased dramatically. Meanwhile, to put that into context, neighborhood and community center and mall inventory has only increased by roughly 15% over the same time period. The rise of power centers, lifestyle centers, town centers, and even outlet centers has siphoned demand away from traditional retail subtypes.

PC Makers Just Had Their Worst Quarter In Almost 2 Years - Worldwide personal computer shipments slipped a sharp 9.5% in the second quarter from a year ago, the steepest drop-off in almost two years on broad declines led by a pair of Taiwan-based manufacturers.  Research firm Gartner listed three reasons for the decline: price hikes, no major growth drivers to stimulate purchasing, and the upcoming launch of Windows 10 later this year that led vendors to try to clear inventory to prepare for that product’s debut.  “The price hike of PCs became more apparent in some regions due to a sharp appreciation of the U.S. dollar against local currencies,” Mikako Kitagawa, principal analyst at Gartner.   Among the top manufacturers, Taiwan-based Asus and Acer each posted double-digit declines and thus shed some market share. Lenovo maintained the top position in worldwide shipments, but reported its first year-on-year decline since the second quarter of 2013.  U.S. manufacturers didn’t fare much better. Both Hewlett-Packard and Dell posted declines, dropping 9.5% and 4.9%, respectively, Gartner reported.  As the Wall Street Journal points out, consumers have been ditching PCs for tablets since 2012 and even with the planned launch of Microsoft’s Windows 10 operating system, 2015 is shaping up to be another weak year for the PC industry. Tech lovers are more inclined to use their tablets and smartphones for their online needs, and businesses have slowed their PC upgrade cycle to save money.

Wholesale Trade July 10, 2015: Wholesale inventories rose a sharp 0.8 percent in May, a much larger-than-expected gain but still in line, though just barely, with sales in the wholesale sector which rose 0.3 percent to keep the stock-to-sales ratio unchanged at a respectably lean 1.29. Inventories relative to sales fell for autos and paper products. Builds were posted in furniture, farm-products, and apparel. Indications on second-quarter inventories have been favorable, showing balanced growth despite the overhang of the first quarter. Today's larger-than-expected build may bump up second-quarter GDP estimates slightly.

Wholesale trade -- Wholesale inventories rose a sharp 0.8 percent in May, a much larger-than-expected gain but still in line, though just barely, with sales in the wholesale sector which rose 0.3 percent to keep the stock-to-sales ratio unchanged at a respectably lean 1.29. Inventories relative to sales fell for autos and paper products. Builds were posted in furniture, farm-products, and apparel. Indications on second-quarter inventories have been favorable, showing balanced growth despite the overhang of the first quarter. Today’s larger-than-expected build may bump up second-quarter GDP estimates slightly. In the first chart the yellow line is whole sales, which collapsed when oil prices fell enough eliminate capital expenditures that were chasing higher priced oil. The blue line is inventories, which have continued to rise even after sales fell. The textbook narrative where sales lead inventories, with inventories falling after sales fall and production is reduced, is most likely what’s going on here, as evidence that we may already be in recession continues to increase:

Wholesale Trade and Inventories Not Enough to Change GDP Targets - The U.S. Census Bureau released its wholesale trade data for the month of May. While the numbers were off expectations, it may not be by anywhere close enough to alter second-quarter gross domestic product (GDP) targets. Because it covers the month of May, these figures did not include the woes of Greece and the market tank seen in Shanghai. Wholesale inventories rose by 0.8% in May. Bloomberg had a consensus estimate of 0.3%, and Dow Jones had a consensus of 0.4%. On sales, May’s wholesale trade was up 3% to $449.8 billion from the revised April data. Still, that is down 3.8% from the May 2014 level. April’s preliminary estimate was revised upward $0.2 billion. Sales of furniture and home furnishings were down 2.8%, while motor vehicle and motor vehicle parts and supplies were up 2.2%. Nondurable goods sales were up 0.7% from April, but were down 8.3% from last May. Sales of petroleum and petroleum products were up 4.3% from April.  Inventories were also said to be up 0.8% at $581.9 billion at the end of May, as well as up by 5.0% from the May 2014 level. April’s preliminary estimate was revised upward by $0.1 billion. Inventory notes in the Census release were as follows:

• Inventories of computer and computer peripheral equipment and software were up 2.5%.
• Inventories of motor vehicle and motor vehicle parts and supplies were up 1.2%.
• Inventories of nondurable goods were up 1.2% from April and up 3.1% from last May.
• Inventories of petroleum and petroleum products were up 4.4%.
• And inventories of drugs and druggists’ sundries were up 2.7%.

May 2015 Wholesale Sales Remain In Contraction with Elements Very Soft -- The headlines say wholesale sales expanded year-over-year with inventory levels remaining at levels associated with recessions. The best way to look at this series may be the unadjusted data three month rolling averages which decelerated for the tenth month in a row. Econintersect sees this as another soft report. Note that Econintersect analysis is year-over-year - the analysis is based on the change from one year ago. Econintersect Analysis:

• unadjusted sales rate of growth decelerated 3.3% month-over-month.
• unadjusted sales year-over-year growth is down 6.8% year-over-year
• unadjusted sales (but inflation adjusted) down 7.7% year-over-year
• the 3 month rolling average of unadjusted sales decelerated 1.5% month-over-month, and down 4.0% year-over-year. There has been a general deceleration trend since late 2014.
• unadjusted inventories up 5.1% year-over-year (accelerated 0.8% month-over-month), inventory-to-sales ratio is 1.30 which is historically is well above non-recessionary periods.

US Census Headlines based on seasonally adjusted data:

• sales up 0.3% month-over-month, down 3.8% (last month was reported down 3.3%) year-over-year
• inventories up 0.8% month-over-month, inventory-to-sales ratios were 1.19 one year ago - and are now 1.29.
• the market expected inventory month-over-month change between +0.2 % to +0.5 % (consensus 0.3%) versus the +0.8% reported.

International Trade July 7, 2015: The nation's trade gap came in near expectations in May at $41.9 billion, wider than April's revised gap of $40.7 billion. The goods gap rose by a net $1.2 billion to $61.5 billion, offset in part by a fractionally wider services surplus of $19.6 billion. The petroleum gap narrowed $1.0 billion to $5.8 billion which, reflecting rising domestic oil output together with rising exports of refined products, is the lowest since February 2002. Exports, which have been pressured by strength in the dollar, fell $1.5 billion to $188.6 billion in May reflecting a $2.4 billion downswing for capital goods and, within this reading, a $1.2 billion downswing in aircraft exports. Exports of nonmonetary gold fell $0.5 billion in the month. Imports were also down, $0.3 billion lower to $230.5 billion including a $0.8 billion decline in capital goods. Imports of industrial supplies fell $0.6 billion within which imports of crude oil fell $0.4 billion. The decline in crude imports comes despite a more than $4 rise in prices to $50.76 per barrel. Imports of autos rose $0.9 billion in the month. By country, the gap with China rose $4.0 billion to $30.5 billion with the EU gap down $0.8 billion to $12.5 billion. The gap with Japan narrowed $1.8 billion to $5.2 billion while the gap with Mexico widened slightly to $4.6 billion in the month. And for the first time since 1990, the nation posted a monthly surplus with Canada, at $0.6 billion. The decline in goods exports is a major concern for the manufacturing sector which is struggling right now with weak foreign demand. The May gap is in line with trend and is not likely to affect GDP estimates.

Trade Deficit increased in May to $41.9 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 $41.9 billion in May, up $1.2 billion from $40.7 billion in April, revised. May exports were $188.6 billion, $1.5 billion less than April exports. May imports were $230.5 billion, $0.3 billion less than April imports.  The trade deficit was close to the consensus forecast of $42.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through May 2015. Imports decreased and exports also decreased in May. Exports are 14% above the pre-recession peak and down 4% compared to May 2014; imports are at the pre-recession peak, and down 4% compared to May 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 earlier this year were due to port slowdown. Oil imports averaged $50.76 in May, up from $46.52 in April, and down from $96.12 in May 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 $28.8 billion in May, from $30.4 billion in May 2014. The deficit with China is a large portion of the overall deficit.

Trade Balance Up 1.2B from Revised April Headline -- Here we introduce the monthly report, International Trade in Goods and Services, also known as the FT-900. This report details U.S. exports and imports of goods and services.  Since 1976, the United States has had an annual negative trade deficit. Here is an excerpt from the report: 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 $41.9 billion in May, up $1.2 billion from $40.7 billion in April, revised. May exports were $188.6 billion, $1.5 billion less than April exports. May imports were $230.5 billion, $0.3 billion less than April imports.  May increase in the goods and services deficit reflected a increase in the goods deficit of $1.2 billion to $61.5 billion and an increase in the services surplus of less than $0.1 billion to $19.6 billion. Year-to-date, the goods and services deficit increased $1.1 billion, or 0.5 percent, from the same period in 2014. Exports decreased $26.5 billion or 2.7 percent. Imports decreased $25.4 billion or 2.2 percent.  This series tends to be extremely volatile, so we use a six-month moving average. Today's headline number of -41.87B was better than the Investing.com forecast of -42.60B. Here is a snapshot that gives a better sense of the extreme volatility of this indicator.

US Trade Deficit Widens In May As Exports Tumble Most In 3 Months - The US trade deficit increased from $40.7 bn to $41.8bn, slightly lower than expected. Impoorts fell a mere 0.1% (despite a record amount of imported auto parts) but exports fell 0.8% (driven by a decline in Aircraft sales), nudging GDP expectations lower. The trade deficit with China rose notably and exports to Europe dropped.

• Exports of goods and services decreased $1.5 billion, or 0.8 percent, in May to $188.6 billion.
• Exports of goods decreased $1.6 billion and exports of services increased $0.1 billion.
• The decrease in exports of goods mainly reflected a decrease in capital goods ($2.4 billion). An increase in industrial supplies and materials ($0.8 billion) was partly offsetting.
• The increase in exports of services mainly reflected an increase in other business services ($0.1 billion), which includes research and development services; professional and management services; and technical, trade-related and other services.
• Imports of goods and services decreased $0.3 billion, or 0.1 percent, in May to $230.5 billion.
• Imports of goods decreased $0.4 billion and imports of services increased $0.1 billion.
• The decrease in imports of goods mainly reflected decreases in capital goods ($0.8 billion) and in industrial supplies and materials ($0.6 billion). An increase in automotive vehicles, parts, and engines ($0.8 billion) was partly offsetting.
• The increase in imports of services mainly reflected an increase in transport ($0.1 billion), which includes freight and port services and passenger fares.

U.S. Heavy Truck Sales in June: Highest since February 2007 - This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the June 2015 seasonally adjusted annual sales rate (SAAR).   Heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April 2009 on a seasonally adjusted annual rate basis (SAAR). Since then sales have more than doubled and hit 450 thousand SAAR in June 2015 - even with weakness in the oil sector.  The level in June 2015 was the highest level since February 2007 (over 7 years ago).  Sales have been above 400 thousand SAAR for 12 consecutive months, are now above the average (and median) of the last 20 years.

Service PMI Drops To Lowest Level Since January: Job Creation Slows, Input Cost Inflation Surges - Following last week's disappointing manufacturing PMI, today it was Markit's turn to report the June Service PMI, which just came out at 54.8, just under the 54.9 expected, down from 56.0 in May and the lowest reading since January. Additionally, job creation eased to a  three-month low while input cost inflation reaches its highest since October 2013. In other words, more bad news for future job prospects and margins. From the report: The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) posted 54.6 in June, down from 56.0 in May and the lowest reading since January. A softer overall increase in U.S. private sector business activity reflected weaker growth contributions from both services activity (54.8 in June, down from 56.2 in May) and manufacturing output (53.9, down from 55.2). Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 54.8 in June, down from 56.2 in May but above the neutral 50.0 threshold for the twentieth successive month. The latest reading pointed to the least marked pace of expansion since January, although the index was only slightly below the average seen since the survey began in late-2009 (55.8).

ISM Non-Manufacturing Index increased to 56.0% in June -- The June ISM Non-manufacturing index was at 56.0%, up from 55.7% in May. The employment index decreased in June to 52.7%, down from 55.3% in May. Note: Above 50 indicates expansion, below 50 contraction. From the Institute for Supply Management: June 2015 Non-Manufacturing ISM Report On Business® Economic activity in the non-manufacturing sector grew in June for the 65th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®. "The NMI® registered 56 percent in June, 0.3 percentage point higher than the May reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2 percentage points higher than the May reading of 59.5 percent, reflecting growth for the 71st consecutive month at a faster rate. The New Orders Index registered 58.3 percent, 0.4 percentage point higher than the reading of 57.9 percent registered in May. The Employment Index decreased 2.6 percentage points to 52.7 percent from the May reading of 55.3 percent and indicates growth for the 16th consecutive month. The Prices Index decreased 2.9 percentage points from the May reading of 55.9 percent to 53 percent, indicating prices increased in June for the fourth consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in June. The majority of respondents’ comments are positive about business conditions and the economy.".This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.This was at the consensus forecast of 56.0% and suggests slightly faster expansion in June than in May.

June 2015 ISM Services Index Improved But Came In Under Expectations: The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, and improved marginally from 55.7 to 56.0 (above 50 signals expansion). Important internals improved and remains in expansion. Market PMI Services Index was released this morning and also is in expansion but declined. This was below consensus of 55.5 to 58.2 (consensus 57.2). For comparison, the Market PMI Services Index was released this morning also - and it strengthened instead of weakening. Here is the analysis from Bloomberg: The services PMI index proved prophetic, offering with its mid-month flash reading - down 1.7 points to 54.8 - the first striking indication that June, later confirmed by the employment report and by vehicle sales, would prove to be a soft month. Growth rates for new orders and shipments were among the slowest of the year in the services report. Watch for specific comments on hiring and whether service firms are having an increasingly difficult time finding new employees. There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - and both have good track records in spotting an incipient recession. The Business Activity Index declined and the New Orders Index declined - with both remaining in territories associated with moderate expansion. This index and its associated sub-indices are fairly volatile - and one needs to step back from the data and view this index over longer periods than a single month. The Business Activity sub-index improved 2.0 points and now is at 61.5.

ISM Non-Manufacturing: Continued Growth in June at a Slightly Faster Rate -- Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56 percent, up 0.3 percent from last month's 55.7 percent. Today's number came in fractionally below the Investing.com forecast of 56.2 percent. Here is the report summary:"The NMI^® registered 56 percent in June, 0.3 percentage point higher than the May reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2 percentage points higher than the May reading of 59.5 percent, reflecting growth for the 71st consecutive month at a faster rate. The New Orders Index registered 58.3 percent, 0.4 percentage point higher than the reading of 57.9 percent registered in May. The Employment Index decreased 2.6 percentage points to 52.7 percent from the May reading of 55.3 percent and indicates growth for the 16th consecutive month. The Prices Index decreased 2.9 percentage points from the May reading of 55.9 percent to 53 percent, indicating prices increased in June for the fourth consecutive month. According to the NMI^®, 15 non-manufacturing industries reported growth in June. The majority of respondents’ comments are positive about business conditions and the economy." Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

Service ISM Misses As Bird Flu Scapegoated; Employment Index Tumbles - 15 minutes ago we had a miss from the Markit Service PMI, and now it is the turn of the ISM's non-manufacturing survey to also miss, rising from 55.7 to 56.0, below the 56.4 consensus increase. The reason: trade (both - imports and exports - disappointed with Imports dropping into outright contraction down from 53.5 to 48.0, while employment dipped from 55.3 to 52.7.  "The NMI registered 56 percent in June, 0.3 percentage point higher than the May reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2 percentage points higher than the May reading of 59.5 percent, reflecting growth for the 71st consecutive month at a faster rate. The New Orders Index registered 58.3 percent, 0.4 percentage point higher than the reading of 57.9 percent registered in May. The Employment Index decreased 2.6 percentage points to 52.7 percent from the May reading of 55.3 percent and indicates growth for the 16th consecutive month. The Prices Index decreased 2.9 percentage points from the May reading of 55.9 percent to 53 percent, indicating prices increased in June for the fourth consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in June. The majority of respondents’ comments are positive about business conditions and the economy." Of course, just like last week's all important manufacturing New Orders print, so today the increase in this primary series was all due to seasonal adjustments: unadjusted (and we are talking about a survey response which already has seasonal bias embedded in it) it dropped from 61.0 to 58.5.

Is the American Economy Really Recovering? --The American economy added 223,000 in June, or so the Bureau of Labor Statistics told us last Thursday. To certain cheerleaders, “it was a Goldilocks report,” as one investment strategist told CNBC. “You still see strength from job creation.” Guess it depends on your definition of strength.I see no strength. I see weakness. And it’s that weakness that tells you why the Fed won’t raise interest rates in September, and why you want to begin repositioning some of your assets to Europe from America. I went back through historical records, back before the global financial crisis revealed just how poorly managed America really is, and I pulled Bureau of Labor Statistics (BLS) employment data from two periods: the peak just before the global financial crisis in 2007 to 2008, and as of May 2015. I cross-referenced the data with other numbers the BLS publishes on average weekly earnings.The data explains why you and I and so many Americans still feel something just ain’t copacetic in our economy. Some numbers … between the economic peak just before the global crisis and today:

• We lost more than 200,000 jobs in Computer/Electronics with an average pay exceeding $71,300 a year, but added 265,000 jobs in Temporary Help paying $29,800 a year.
• We lost 1.4 million manufacturing jobs paying more than $53,000 a year, but added 1.4 million jobs in Food Services & Drinking Places that pay $17,000 a year.
• We lost 949,000 jobs in Durable Goods paying more than $56,700, but added more than 950,000 jobs in Social Assistance paying $28,340.
• We lost a combined 343,000 jobs in Telecom and Publishing paying between $63,000 and nearly $77,000 annually, but added 332,000 in Home Health Care Services that pay $27,500.

The New Job Advice: Put Down the Machine Tool, Pick Up the Hammer -  Businesses are hiring at a solid pace, as shown by Friday’s employment report. But the mix of jobs is also important. For those who have less than a college degree, the best career path may lead to a construction site. No doubt about it, the bulk of U.S. jobs are created in the service sector. Of the 223,000 slots added in June, 222,000 were in the private service sector. But the goods side of the economy on average creates better-paying jobs. And typically (although this is changing) these jobs do not require a college degree, which means the positions are accessible to a majority of workers. In the early years of this expansion, manufacturers were the ones hiring, while construction added positions in dribs and drabs. That split changed in 2013 and construction’s dominance is growing. According to the June jobs report, construction added about 260,000 workers over the last year while factories added only 160,000. In percentage terms, the gap is even larger. Building trade jobs are up 4.2%, factory slots 1.3%. Total nonfarm payrolls have increased 2.1%. Construction employment should outpace that of manufacturing for a simple reason: Construction, especially home building, is set to grow faster in coming quarters than manufacturing. The biggest obstacle that could hold back construction jobs is the shortage of certain skilled workers. No surprise, after housing went bust almost a decade ago, many construction workers found employment in other industries and may not feel like returning to the building site.

The Labor Market Conditions Index for June Shows Weak Expansion - The Labor Market Conditions Index (LMCI) is a relatively recent indicator developed by Federal Reserve economists to assess changes in the labor market conditions. It is a dynamic factor model of labor market indicators, essentially a diffusion index subject to extensive revisions based on nineteen underlying indicators in nine broad categories (see the table at the bottom for details). Today's release of the June data indicates weak expansion at 0.8. Extensive historical revisions were made, with the May value revised from 1.3 to 0.9. Today's value is below the Investing.com forecast of 2.0. The indicator, designed to illustrate expansion and contraction of labor market conditions, was initially announced in May 2014, but the data series was constructed back to August 1976. Here is a linear view of the complete LMCI. We've highlighted recessions with callouts for its value the month recessions begin and for the latest index value. As we readily see, with the exception of the second half of the double-dip recession in the early 1980, sustained contractions in this indicator is a rather long leading indicator for recessions. It is more useful as a general gauge of employment health. Note that in the most recent FOMC minutes for the April 28-29, the phrase "labor market conditions" was used seven times. Maximum employment, after all, is one of the Fed's mandates.

Weekly Initial Unemployment Claims increased to 297,000 -- The DOL reported: In the week ending July 4, the advance figure for seasonally adjusted initial claims was 297,000, an increase of 15,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 281,000 to 282,000. The 4-week moving average was 279,500, an increase of 4,500 from the previous week's revised average. The previous week's average was revised up by 250 from 274,750 to 275,000.   There were no special factors impacting this week's initial claims.  The previous week was revised up by 1,000.  The following graph shows the 4-week moving average of weekly claims since 1971.

Initial Jobless Claims Spike To Highest Since Feb, Near Crucial 300k Level -- Initial jobless claims have surged almost 30k in the last 2 weeks and are nearing the Maginot Line of 300k (printing 297k vs 285k exp).  This is the worst claims print since mid-Feb and well above the levels that occurred at the end of QE3. Of course, apologists will note that there are likely holiday distortions in this data. At the same time, continuing claims continue to rise quite notably, now at their highest since mid-March having missed expectations for the last 7 weeks.

Are estimates of the long-term U.S. unemployment rate too high? - Economists generally agree that the long-term unemployment rate is the best way to gauge when the labor market hits its equilibrium—a condition where unemployment is low, but not so low that it sparks inflationary pressures. In the United States, many economists think that equilibrium is reached when the unemployment rate hits 5 percent. But what if that rate is too high? That is a question many economists and policymakers are pondering after the U.S. Bureau of Labor Statistics released its monthly employment figures late last week, which showed that the unemployment rate in the United States declined to 5.3 percent in June.  The U.S. unemployment rate is nearing that 5-percent mark, yet the labor market appears to still have quite a lot of slack demand for labor, which in turn tends to hold down inflationary pressures. The share of prime-age workers between the ages of 25 to 54 who have a job is still below its pre-recession level of 79.7 percent. The share of workers on the fringes of the labor market who would like to work is still above pre-recession levels of 3.8 percent. And wage growth, which would be strong if the labor market was tight, is still stuck at around 2 percent.  So does a long-run unemployment rate of 5 percent still make sense as a marker for the Federal Reserve Board to raise interest rates to get a jump on inflationary pressures? In a post for FEDS Notes, Federal Reserve economists look at the relationship between the unemployment rate and the rate at which companies are posting job openings as a way to determine the long-term unemployment rate. They write that the oft-cited Beveridge Curve, which shows the relationship between the unemployment rate and the jobs-vacancy rate, has been presented as evidence that there has been an increase in the long-run unemployment rate. Yet they argue that these analyses miss other factors that affect the long-run employment rate—namely the increasing rate at which firms post job openings.

BLS: Jobs Openings increased to 5.4 million in May, Highest on Record -- From the BLS: Job Openings and Labor Turnover Summary The number of job openings was little changed at 5.4 million on the last business day of May, the highest since the series began in December 2000, the U.S. Bureau of Labor Statistics reported today. The number of hires was unchanged at 5.0 million in May and the number of separations was little changed at 4.7 million. ....Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.7 million quits in May, unchanged from April.  The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for May, the most recent employment report was for June. Click on graph for larger image. Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in May to 5.363 million from 5.334 million in April. The number of job openings (yellow) are up 16% year-over-year compared to May 2014. Quits are up 8% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is another solid report. It is a good sign that job openings are over 5 million - and at an all time high - and that quits are increasing solidly year-over-year.

U.S. Job Openings Remain at Historic Highs -  The number of job openings in the U.S. was little changed in May, remaining at its highest level on record, the Labor Department said Tuesday. Job openings ticked up slightly to 5.36 million in May, from a revised reading of 5.33 million the previous month. The number of voluntary quits was unchanged from a month earlier, at 2.7 million, according to the Job Openings and Labor Turnover Survey, known as Jolts. Another 1.7 million people were laid off or discharged in May, about the same as April and little changed over the past 12 months. Layoffs of government workers increased from a year earlier, while layoffs in the real estate sector declined. The report highlighted a growing split between job openings and hires, a sign employers are having trouble finding qualified candidates to fill positions. The rate of job openings held steady at 3.6% in May, while the rate of hires fell one-tenth of a percentage point to 3.5%. Companies usually hire at a faster pace than they post jobs, but the narrowing between the two rates show employers have become very picky about whom to hire. “These data add yet more weight to the idea that labor demand is rising very strongly, and that the biggest constraint on employers now is finding suitably qualified staff,” Federal Reserve officials monitor the report closely for signs of an improving labor market. When workers quit their jobs voluntarily, it suggests they have confidence in their ability to find another job.

Job Openings & Labor Turnover: Clues to the Business Cycle - The latest JOLTS report (Job Openings and Labor Turnover Summary), data through May, is now available. The first chart below shows four of the headline components of the overall series, which the BLS began tracking in December 2000. The timeframe is quite limited compared to the main BLS data series in the monthly employment report, many of which go back to 1948, and the enormously popular Nonfarm Employment (PAYEMS) series goes back to 1939. Nevertheless, there are some clear JOLTS correlations with the most recent business cycle trends. The chart below shows the monthly data points four of the JOLTS series. They are quite volatile, hence the inclusion of six-month moving averages to help identify the trends. For the last three months, there have been more job openings than hires as seen in the chart below. The most closely watched series is the one for Total Nonfarm Job Openings, the blue line in the chart above. The moving average peaked in mid-2007 and began rolling over to its trough a couple of months after Great Recession ended. The Hires series is roughly similar in its trend. Quits are also trending higher; they are generally thought to show an economy that supports the flexibility to leave or change jobs. In contrast, Layoffs and Discharges, the red line, were somewhat inversely correlated to the other three. The chart above is based on the actual numbers in the JOLTS report. A better way to view the numbers is as a percent of Nonfarm Employment, which essentially gives us a population-adjusted version of the data. Here is that adjustment for four of the JOLTS series. Note that the vertical axis for each is optimized for the high-low range to facilitate an understanding of the individual trends.

May 2015 JOLTS Predicts Slower Jobs Growth Rate: The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year unadjusted private non-farm job opening growth rate declined significantly. The jobs growth rate predicted is about average for times of expansion. The problem with this data series is the backward revisions which makes real time analysis problematic. There was no market expectations published by Bloomberg this month. Last month's data was revised down. The trend lines now are downward.

• the number of unadjusted PRIVATE jobs openings - which is the most predictive of future employment growth of the JOLTS elements - shows the year-over-year growth rate declined from a upwardly revised 21.5% (March) to 19.5% (April) to 17.0% (May). The year-over-year growth of the unadjusted non-farm private jobs opening rate (percent of job openings compared to size of workforce) declined significantly from 16.2% to 11.4%. Overall, the data is now suggesting much slower growth.
• The graph below looks at rate of growth for job opening levels and rate.

The Game Is Rigged Against Hardworking Americans -- The referee might miss an occasional handball, but a soccer game isn’t rigged in favor of one group of players over another. Unlike a soccer game, the most powerful economic actors have rigged the labor market against everyday hardworking Americans. The weak economy following the Great Recession and its aftermath came on the heels of three decades of the systematic reduction of workers bargaining power in the workplace. It’s no surprise then that this morning’s Job Openings and Labor Turnover Survey (JOLTS) report shows that the quits rate remains depressed as workers continue to be stuck in jobs that they would leave if they could. The figure below shows the hires, quits, and layoff rates through May 2015. The layoff rate shot up during the recession but recovered quickly and has been at pre-recession levels for more than three years. The fact that this trend continued in May is a good sign. That said, not only do layoffs need to come down before we see a full recovery in the labor market, but hiring also needs to pick up–the hires rate dipped slightly in May, and is still below where it was at the end of 2014. It had been generally improving, but has shown concerning signs as of late and still remains significantly below its pre-recession level.

The Hard Work Election - Dean Baker - Former governor Jeb Bush’s announcement this week that he thinks people should work more hours puts him in direct opposition to the two leading contenders on the Democratic side – both of whom are pushing proposals that will allow people to work less. This could mean that 2016 will be an election in which work hours play a central role. The sight of someone who was raised in privilege and relied on family connections to make his careers in business and politics telling the rest of the American public that they have to work more will make good fodder for Bush’s political opponents. But this position is actually held by many people in policy circles in both political parties. Historically, the benefits from higher productivity are higher pay and more leisure – if we go back a century, for instance, work weeks of 60 or even 70 hours a week were common. But while the American work week has been largely fixed at 40 hours a week for the last 70 years, other countries have pursued policies to shorten the work week and/or work year through paid sick days, paid family leave, and paid vacation.  Several European countries have actively pushed policies of work sharing as an alternative to unemployment: the government compensates workers, in part, for a reduction in hours rather than paying unemployment insurance to someone who has lost their job. Germany has led the way in pushing work sharing policies, which is an important factor in its 4.7% unemployment rate. And, as a result of work sharing and other policies, the average worker in Germany puts in almost 25% fewer hours each year than workers in the United States, according to the OECD. Most other wealthy countries are similar to Germany: in the Netherlands, the average work year is 21% shorter than in the US and, in Denmark, it is 20% shorter.

Wolf Richter: Microsoft Tallies the True Costs of the M&A Boom: Layoffs, Write-Offs, Shut-Downs, and Economic Decline -- As the M&A boom in the US explodes from record to record, with one mega-merger succeeding another, Microsoft clarified on Wednesday just how much all this fun costs down the road, in jobs and dollars: relating mostly to its acquisition of Nokia, it announced a second wave of layoffs, write-offs, and shut-downs. Share repurchases, M&A, layoffs, and cost-cutting are easier to make happen for a CEO than inventing things and boosting sales organically, which is really hard. Companies call the dizzying costs of acquisitions, paid for with cash and/or stock, “non-cash charges” to make them appear irrelevant. To justify acquisitions, CEOs and analysts sprinkle their pronouncements with terms like “efficiencies” and “synergies” that are euphemisms for cost-cutting, destruction of productive capacity, and layoffs. In September 2013, Microsoft acquired Nokia’s mobile-phone business and patents. Nokia was junk-rated. . It had lost over $4 billion in the prior year. But its marginalized smartphones were using the Windows Phones operating system that no one else of consequence was using.  Microsoft paid $7.2 billion. To make the deal sound palatable, it promised $600 million in annual cost savings – the efficiencies and synergies – within 18 months. That was CEO Steve Ballmer’s doing. In February 2014, Satya Nadella was anointed CEO. On July 17, the meaning of annual cost savings became clear: the company would axe 18,000 people and take a $1.6 billion “non-cash” charge. And in premarket trading after the announcement of the job cuts, shares rose to a 14-year high. Nadella was putting his stamp on the company. Almost exactly a year later, this Wednesday, he sent an email to employees to “update” them “on decisions impacting our phone business….” Microsoft would axe another 7,800 people globally, nearly 7% of its already trimmed-down workforce, “primarily in our phone business,” as Nadella wrote. He expected it to happen “over the next several months.” And a huge pile of money has gone up in smoke:

Google’s algorithm shows prestigious job ads to men, but not to women. Here’s why that should worry you -- Fresh off the revelation that Google image searches for “CEO” only turn up pictures of white men, there’s new evidence that algorithmic bias is, alas, at it again. In a paper published in April, a team of researchers from Carnegie Mellon University claim Google displays far fewer ads for high-paying executive jobs… if you’re a woman.“I think our findings suggest that there are parts of the ad ecosystem where kinds of discrimination are beginning to emerge and there is a lack of transparency,” Carnegie Mellon professor Annupam Datta told Technology Review. “This is concerning from a societal standpoint.”To come to those conclusions, Datta and his colleagues basically built a tool, called Ad Fisher, that tracks how user behavior on Google influences the personalized Google ads that each user sees. Because that relationship is complicated and based on a lot of factors, the researchers used a series of fake accounts: theoretical job-seekers whose behavior they could track closely. That online behavior — visiting job sites and nothing else — was the same for all the fake accounts. But some listed their sex as men and some as women.  The Ad Fisher team found that when Google presumed users to be male job seekers, they were much more likely to be shown ads for high-paying executive jobs. Google showed the ads 1,852 times to the male group — but just 318 times to the female group.

Women Are More Likely to Work Multiple Jobs than Men -- There has been much recent discussion about the changing nature of work and whether or not workers are increasingly taking on multiple jobs to piece together a decent living. A recent posting on the Dismal Scientist blog noted that the share of workers holding multiple jobs has been declining since 1994 (the earliest date for which the series is available) and is currently at a 20-year low. While it is evident that the overall rate of workers holding multiple jobs has decreased, a disparity emerges when this data is broken out by gender—namely, that working multiple jobs is something more prevalent among women, and young women in particular.As the figure above shows, though the rate of young (ages 20-24) and prime-age (ages 25-54) working men holding multiple jobs fell from 1994 to 2015, the rates for young and prime-age women remained relatively flat after 2001. As a result, greater gender differences in multiple job holdings have emerged both for young and prime-age workers since then. (The numbers for 2015 are only an average of the first six months of the year and don’t include the latter half of the year when more people hold multiple jobs as seasonal employment increases.) Though the perception is that the increase in multiple job holdings is happening most among millennials, working multiple jobs has never been a phenomenon observed among all young workers. Throughout the entire two-decade period, young men have been far less likely to hold multiple jobs than young women, and, as noted above, multiple job holdings are near 20-year lows for all groups.

Just How Stagnant Are Wages, Anyway? - There’s no doubt that the fortunes of many American families were hammered during the recession and its aftermath, from 2007 onward. And looking back a bit further, the Census Bureau’s main measure of inflation-adjusted median household income peaked in 1999 and 2000, fell in the 2001 recession, and never quite made it back to the old peak before falling again. But it’s not unusual to see claims that American incomes have gone nowhere for decades and decades, or that the middle class has seen no improvement in its standard of living since the 1970s. A new piece of research from Stephen Rose, an affiliated scholar with the Urban Institute and a professor at George Washington University, has the modest premise that rumors of the demise of American well-being have been greatly exaggerated. To back this up, Mr. Rose has produced a series of provocative charts.Since 1979, real earnings are up only 17%, after adjusting for inflation using the consumer-price index. For a period of nearly three and a half decades, it’s a disappointing run, although broken down by gender, the picture is more mixed. As women have increasingly entered the workforce, stayed in it for longer, and whittled down the wage gap, their earnings have grown by 48%. Men, by contrast, have seen wages drop by 4%. But this analysis ignores one of the major shifts in the labor market in recent decades: Employers have paid larger and larger health insurance bills for their employees. “From the employer’s standpoint, the costs of each worker is the total package of cash wages and benefits,” Mr. Rose writes. And from the standpoint of many employees, too, receiving good health insurance is a valuable part of a compensation package.  When the cost of employee benefits is included in Mr. Rose’s chart (using a definition of total compensation from the Congressional Budget Office), suddenly workers are doing quite a bit better. Real median compensation, adjusted for the consumer-price index, is up 25% from 1979. For women, it’s up 56% and for men–even after the losses of the recession–compensation is 3% higher than in 1979. That’s still a pretty stagnant set of decades for men.

Why a Meaningful Boost for Those at the Bottom Requires Help From the Top - Just about every high-profile politician in the country today says income inequality is a problem.  Consider the idea of significantly raising the minimum wage, the most ambitious policy proposal currently on the table for boosting the incomes of the working poor. Mr. Cuomo made the case that fast-food workers in New York should receive a substantial raise and announced that a state wage board would look into the issue. Let’s do him several steps better and imagine increasing the minimum wage to $15 an hour for all workers everywhere in the country paid by the hour. Suppose we’d done that between the post-recession years of 2009 and 2014, when inequality spiked. What would it have accomplished?The answer is a fair amount, but not enough to undo the escalation in the income gap. According to the Bureau of Labor Statistics, about 44 million hourly-paid workers made less than $15 an hour in 2014. In an unpublished table, the bureau then helpfully breaks out the number of workers in each wage increment: under $3; $3 to $3.49; $3.50 to $3.99; and so on up until $12 to $14.99.  The amount of income that raising the minimum wage to $15 per hour would have generated for these 44 million people would probably have been between $300 billion and $400 billion. That’s unquestionably a huge increase. For the average family in the bottom 90 percent, actual income growth was only $533 between 2009 and 2014. If we add in $350 billion, average income growth for the bottom 90 percent rises by an additional $2,360. Still, as a group, the income of the top 10 percent of families rose by much more over the same period, adjusting for population growth: $682 billion, according to the latest Piketty-Saez release, which is based on Americans’ tax return data. This works out to $41,300 per family.

Scott Walker’s Sleazy New Low: The Callous Plot to Gut Wisconsin’s Living Wage Law - -- Wisconsin Gov. Scott Walker’s budget troubles are cramping his plan to announce his 2016 presidential campaign. He’s already been forced to delay his official launch while he wrangles with angry legislators, including Republicans, to try to fill the holes his tax cuts have created.But over the holiday weekend, Walker’s Republican allies took advantage of the urgency over missing the July 1 budget deadline to slip awful new language into the budget. They got caught trying to gut the state’s open records law and had to reverse that move. But so far, Walker and his allies have gotten almost no pushback on another terrible maneuver: eliminating language defining the state’s 100-year-old “living wage.” Wisconsin law now says employers must pay a “living wage,” defined as pay that offers “minimum comfort, decency, physical and moral well-being.” Walker has long insisted the state’s $7.25 an hour minimum wage is the same as a “living wage”; workers have sued to challenge that definition. If the state strikes the language that defines living wage more broadly, that will cut the legs out from under such legal challenges. One of the plaintiffs in that suit, fast food worker and activist Cornell White, talked to Think Progress about the sneaky move. “I am a hard working man. It’s disgusting that these Republicans would rather force me to feed my son with food stamps instead of standing up to their corporate lobbyist friends.” White scoffs at Walker’s claim that $7.25 an hour is livable:  “They clearly they don’t believe their own argument since they are trying to repeal the law before they even know the outcome of the case.”

America is Becoming a Third World Country: I’ve spent a lot of my life in “Third World” countries. (Nowadays they’re called “developing countries” … whether they’re developing or not.) That experience has given me a strong sense of what makes such countries tick. In Now, that isn’t easy to detect unless you know where … and how … to look. And unless you learn how to do so, by moving abroad you could easily leave the U.S. for some place just as bad … or worse. Read on, as I lift the veil on how America is becoming a Third world country…The typical definition of a Third World country focuses on “indicators”: poverty rates, infant mortality, literacy and so on. The United Nations even publishes a Human Development Report that ranks countries according to a composite of these indicators. On one hand, that’s a good thing: After all, the main reason to care about development is its impact on human beings. But a focus on symptoms obscures the reasons why countries get stuck in Third World status. For example, when I worked for an international development agency, my team worked to create a ranking system that would help us prioritize which countries to help. But some countries were perennially resistant to change no matter how much aid we threw at them. I wanted to know why, so our work could be more effective. After all, why focus on the symptoms if you can identify — and address — the causes of underdevelopment and poverty? Three interrelated factors cause “Third World-itis”: lopsided distribution of income; a government hijacked by the economic elite; and a political focus on stasis rather than change. Together those features form a self-reinforcing engine that moves in one direction only: toward conflict, tyranny and eventual collapse.

For The First Time Since It Was Mexico, California Now Has More Latinos Than Whites -- Two weeks ago, we highlighted a statistic that reflects the rapid demographic shift taking place in America. Non-Hispanic whites, Bloomberg reported, citing the Census Bureau, are no longer the majority in Americans under 5 years old.  Why does this matter or, perhaps more to the point, why do we mention it here? Because demographic shifts often have far-reaching consequences for the economy. Here’s what we said last month: Shifting demographics are affecting everything from the labor market, to homeownership, to race relations in America. In “The ‘Illegal Immigrant’ Recovery” for instance, we documented the stunning fact that the US has added 2.3 million "foreign-born" workers, offset by just 727K "native-born" since December 2007. Because the "foreign-born" category includes both legal and illegal immigrants, it may well be that the surprise answer why America's labor productivity has plummeted in recent years and certainly months, and why wage growth has gone precisely nowhere, is because the vast majority of all jobs since December 2007, or 75% to be specific, have gone to foreign-born workers.  As for the housing market, we recently cited data from the Urban Institute which shows that because the vast majority of new households in the next decade will be formed by minorities, and because minority groups tend to have lower homeownership rates, the overall homeownership rate in America — which has already retraced twenty years' worth of gains — will likely slide further in the coming years. These are but two examples of how much demographic shifts matter. Against this backdrop we present the following chart and brief commentary from the LA Times with no further comment:

Unmarried Women Now Drive America’s Fertility Trends, And They’re Having Fewer Kids - Americans are finally having babies again, but it’s mostly married women giving birth—and these women are a shrinking share of the nation’s potential mothers. The U.S. fertility rate edged up in 2014 for the first time in seven years, data from the Centers for Disease Control and Prevention showed last month. But this masks a growing divide between married women, who are having more children year after year, and unmarried women, who are having fewer. The birth rate for married women of childbearing age—the number of births for every 1,000 married women ages 15 to 44—rose to 88.7 births last year, from 86.9 in 2013, CDC data show. The rate for unmarried women dropped to 44 births from 44.3, the sixth straight year of declines. Why does this matter? Because America increasingly depends on unmarried women—not married women—to drive its sagging fertility rate. Twenty years ago the majority of U.S. women of childbearing age were married women. Today, the majority (58%) are unmarried, according to the CDC. “It’s really what the unmarried segment is doing that is going to drive the overall rate,” says Sally Curtin, a CDC demographer and health statistician. If you look at the chart above, there’s a kind of tug of war going on between the “married” rate, up top, and the “unmarried” rate, down below. What’s new in recent years is that the unmarried rate now has the greater pull. This growing sway of unmarried women in the nation’s “potential-mommy pool” is a problem for fertility because unmarried women have lower birth rates than married women—and their rates are falling.

To slash the amount of money spent on homelessness, just give homes away - It costs more to keep people on the streets than it does to house them and provide any support services they may need. People who live on the streets don’t get preventative medical care. They wait for a medical crisis and then go to a local emergency department, where care is most expensive. The rest of us pay for that healthcare at a premium. People who are homeless spend more time in the hospital, and more time in jail. All this costs public funds. Studies from New York to California show that permanent supportive housing costs less in the long run.  But the traditional US response to homelessness is to treat it as an emergency situation that needs a band-aid fix, putting people in temporary shelter until permanent housing turns up. This system is significantly flawed and bureaucracy-clogged. Some people can’t get matched for housing because they lack proper identification. Much of the front-line work is done by nonprofits, which by necessity devote at least some staff to the search for public and private funding for their work rather than to housing efforts. People sometimes waited years to get housed – and by the time a home becomes available, oftentimes members of this fluid population have moved on.  Cycling and recycling people who are homeless through the shelter system doesn’t allow them to build a foundation. And even people who have a cornerstone of stability – a job – can’t afford a home. An annual study from the National Low Income Housing Coalition says the nation’s so-called housing wage – the amount of money a worker must earn per hour to afford a decent apartment, is $19.35 for a two-bedroom apartment, and $15.50 for a one-bedroom. A worker earning the federal minimum wage of $7.25 per hour can’t possibly afford a place to live.

Puerto Rico A Mess, But So Far Avoids Default - Despite the non-stop concern about Puerto Rico’s fiscal crisis, there’s at least one bit of good news: Its Electric Power Authority (PREPA) has managed to avoid defaulting on debt worth $415 million that was due earlier this week. The utility said it paid the debt on time on July 1 in the form of $153 million in cash. The rest, it said, was from its debt-service reserve accounts. PREPA’s creditors responded by agreeing to buy $128 million in new bonds to enhance the utility’s liquidity. PREPA must pay them in full by December. The government-owned PREPA owes about $9 billion and has obtained several extensions this year to avoid default because it hadn’t made all its payments.  A group of the company’s bondholders, meanwhile, said it would extend the debt payment deadline to Sept. 15, meaning it wouldn’t go to court to demand payment until that date. But it said any deal would be void unless PREPA reaches a deal to restructure itself by Sept. 1. So far, good news for the utility, according to a statement issued by Lisa Donahue, its chief restructuring officer. “We are pleased we were able to reach an agreement that allowed us to make the payment to our bondholders today and avoid a default,” she said.  The members of the creditors’ group also “are hopeful that we have established a foundation for reaching an equitable deal for all PREPA stakeholders, which will help the island in its revitalization,”

Ranking The States By Fiscal Condition - In new research for the Mercatus Center at George Mason University, Senior Research Fellow Eileen Norcross ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, including unfunded pensions and health care benefits. The study, which builds on previous Mercatus research about state fiscal conditions, provides information from the states’ audited financial reports in an easily accessible format, presenting an accurate snapshot of each state’s fiscal health.  With new spending commitments for Medicaid and growing long-term obligations for pensions and health care benefits, states must be ever vigilant to consider both the short- and long-term consequences of policy decisions. Understanding how each state is performing in regard to a vari­ety of fiscal indicators can help state policymakers as they make these decisions. A closer analysis of the individual metrics behind the ranking shows how each state’s fiscal condi­tion should be assessed. Notably, nearly all states have unfunded pension liabilities that are large relative to state personal income, indicating that all states need to take a closer look at their unfunded pensions, which represent a significant portion of each state’s economy. Another finan­cial crisis could mean serious trouble for many states that are otherwise fiscally stable.

Not just Detroit: residents of nearby Michigan city face $11,000 water bills  -- On a recent evening in June, a dozen activists crammed inside the kitchen of Emma Fogle’s home in Highland Park, a small hamlet surrounded by the city of Detroit. Their city is under siege, they say, faced with the predicament of being cut off from a municipal water supply. The group convened the meeting over deep-dish pizza and soda to hammer out a three-day march to call attention to the issue, set to take place this weekend. In a city whose finances have been controlled by the state of Michigan on and off since the turn of the century, the group had a general consensus on who’s to blame. “The state does not want us to have water,” says Fogle, a 74-year-old retired Ford worker.Since last year, the tribulations of neighboring Detroit’s water shutoff program have drawn significant attention worldwide, as tens of thousands of residents faced the threat of the city turning off their tap for owing as little as $150 in overdue water bills. But Highland Park has endured a water war of its own with daunting, if not more severe, consequences. Thrust into financial insecurity after decades of disinvestment, the city has a problem that residents say they simply cannot afford: Years of dysfunctional service – inconsistent billing, faulty meters, a constantly changing staff – have resulted in some receiving water bills as high as $11,000. (The median income in the city is $19,311.) Between roughly 2,700 residential and commercial accounts, 129 were assessed water bills of over $10,000, according to Cathy Square, Highland Park city administrator.

Chicago's charter schools to share the pain of CPS budget woes - Chicago’s charter schools are about to feel the pinch of severe budget cuts, according to a letter sent to them by the cash-strapped district in the wake of making a giant $634 million pension payment. Charter schools were told in a letter on July 2 from CPS Chief of Innovation and Incubation Jack Elsey that their quarterly payments expected later this month would contain only 15 percent of the amount they usually expected. “As you know, Chicago Public Schools faces unprecedented budget challenges this year. While we look to our elected leaders in Springfield to find a sustainable budget solution for CPS, we must take steps to manage though an immediate and very difficult financial situation,” Elsey wrote, adding, “We will try to complete the expected payment as quickly as possible.” The quarterly payments consist of district money based on projected enrollment, and extra money for facilities, state aid and a two-month advance on federal money for poor students. Charter candidates still awaiting approval also were also formally notified in a letter dated Tuesday from the same office that they’d receive no start-up money should they be chosen to open schools in the fall of 2016.

Does Nevada’s new school choice program hurt low- and middle-income students? - Nevada governor Brian Sandoval last month signed into law the first state-wide universal school choice program in the United States. The program will pay low-income families and children with disabilities $5,700 per child annually to be spent on private school tuition, tutoring, online courses, among other educational expenses—and all other families $5,200 per child annually. Eighteen states plus the District of Columbia have enacted legislation allowing some children to use public funds to pay for private schools. While most of these programs are limited to students with disabilities or low-income families, a few states, such as Indiana, have expanded voucher programs to the middle class. But Nevada’s law is historic because all the state’s 450,000 Kindergarten-through-12^th grade public school children are eligible regardless of income. In theory, school choice seems like an attractive option. Policymakers and the American public are inundated by constant reports of our failing education system, especially in comparison to other wealthy countries. School-choice programs, it would appear, could give some of low-income children an education that is usually only available to wealthier kids. In reality, however, many of these programs do not deliver what they promise. There seems to be no clear advantage in academic achievement among students who take part in these school-choice programs. One study by Matthew Chingos of The Brookings Institution and Paul E. Peterson of Harvard University finds an increase in college enrollment for African American students, but it does not find this to be true for other ethnic groups. And because this study looks at a small program—the analysis is of a privately funded scholarship program, and only included 1,000 families—it is not clear whether these results are applicable to a larger-scale setting.

Oregon Becomes Second State To Offer Free Tuition To All Graduating High School Students – Thousands of recent high school graduates in Oregon now have the chance to attend community college without the worry of accumulating loads of debt they may never be able to pay back, as lawmakers in the state recently approved a bill to establish the second program in the country to offer students help in paying for college.  The Portland Tribune reports that legislators in the state gave the go-ahead to establish a project known as the Oregon Promise aimed at helping students achieve their dreams of higher education while remaining relatively debt-free. Modeled after a similar program in Tennessee, the Oregon Promise, which would begin with the 2016-17 academic year, provides tuition waivers to recent high school graduates that meet a set of strict requirements. Under the program — which is capped at $10 million for the first two years — students are eligible if they earned at least a 2.5 grade point average and are Oregon residents for at least 12 months, and apply to community college no more than six months after graduation. The program works by covering the balance of a student’s tuition after all federal and state financial aid is applied. That means students will still likely graduate with some debt.

Federal Student Aid Drives Up Tuition - Too often, the progressive response to an ever-increasing student loan burden on today’s young graduates is to make federal student aid easier to use, usually in the form of lower interest rates or more debt forgiveness. A new report from the Federal Reserve Bank of New York, by economists David Lucca, Taylor Nadauld, and Karen Shen, disputes this prescription. Rather than lightening the load on students, federal student aid programs actually increase tuition at America’s colleges and universities. The paper concludes that each additional dollar of Pell Grants, awards given to low-income students to help them pay for college, increases tuition by 55 cents. Each dollar of Direct Subsidized Loans, or need-based loans for which the government pays the interest while students are in school, increases tuition by 65 cents. These effects vary by type of school, with the largest tuition increases found in private four-year institutions. Importantly, the paper also finds that the “sticker price” of tuition translates at a high rate to how much students and their families end up paying. This rate ranges from 37 percent in the lowest quartile to 94 percent in the highest quartile—meaning students in the highest quartile will end up paying 94 cents on every dollar of tuition increases that are due to federal student aid. Federal student aid not only increases the price tag of a college education, but students actually have to pay for it, too.

Affirmative Consent Contract -- Fill Out Before Sex -- A “yes means yes” advocacy group, the Affirmative Consent Project, is instructing college students to take a picture with a contract before they have sex with each other just to make absolutely sure both parties are officially consenting. In fact, the group has been distributing contracts to schools nationwide as part of its Consent Conscious Kit, according to an article in the Washington Examiner.  If no camera is available, students are encouraged to fill out the form on the back of the contract which states, “On this date [fill in the blank], we agree to have consensual sex with one another” followed by a space for students’ printed names and signatures.  The kit also also includes breath mints and a condom.

It will take 29 years for college grads to save 20% down on SF home, study shows - Bay Area kids: stay in school, at least if you ever hope to own a home here. According to a new Trulia study, it will take the average Bay Area college grad approximately 29 years to save 20% down for a typically priced home. For those prospective buyers with no degree, forget it. By this study’s calculations, that 20% down savings is impossible for millennials who didn’t earn a college degree. The gallery above gives a picture of what the San Francisco market looks like now. In the future, it’s going to be even worse, from the buyer’s perspective. Trulia says, “Our study calculates how many years it will take a millennial (young adult aged 25-30) to save a 20% down payment in the 100 largest U.S. metros assuming that home prices and incomes will increase over time – with and without a college degree.” Of course, the whole study projects into the future. By the time these grads begin looking for homes, prices will be higher still than they are today. To estimate how much the required down payment will grow over time, Trulia uses the 20-year Federal Housing Finance Agency (FHFA) home price growth rate for each of the 100 largest U.S. metros based on current median prices.

Student debt story needs to not leave out graduation rates --Progressives continue to push to make debt-free college a centerpiece of the Democratic agenda.  Proponents are obviously tapping into a growing angst generally around student debt, one that is well-founded. As I mentioned in an earlier post, 37 percent of the 43 million people currently repaying student loans have experienced delinquency or default at some point.  At the same time, however, this angst is often mistargeted. This is due in no small part to a media that obsessively focuses on extremely high-debt borrowers, cases that make for a good story but are frequently unrepresentative of most borrowers. As a result, we sometimes miss solutions that might make a big difference to student borrowers while costing little – or nothing – to put in place. Consider a recent report from the Center for American Progress looking at student debt levels ac ross states. The report begins by ranking states according to each one’s average debt per borrower. In light of the current concerns about student debt, a natural assumption would be that states with higher student debt levels are somehow coming up short. The report, however, connects this data to the number of college graduates in each state to show the average debt per graduate. Hawaii, for example, ranks 31st in terms of the average debt per borrower, with an average of $25,765. In contrast, the state ranks first in terms of average debt per graduate, with an average of $10,181. Why does this matter? The driving force behind the report is research showing that borrowers who complete a degree have higher debt balances but are also far more successful in paying their loans back. In contrast, students who drop out have lower balances relatively speaking – roughly $14,000 on average for federal loans – but default at a much higher rate.

Bad Math and a Coming Public Pension Crisis - When actuaries calculate the numbers for a pension plan, mortality rates are a powerful hidden factor. If an actuary predicts the workers will live to an old age, it means they will be drawing their pensions for more years. That, in turn, means the employer should set aside more money up front, to keep from running out later.Assuming shorter life spans reduces annual contributions and frees up money for other things, like bigger current paychecks. And if the plan bases pensions on pay, as those in most American cities do, shortening the workers’ life spans on paper could lead to both fatter paychecks now and bigger pensions in the future. In La Grange’s case, those four years meant tens or hundreds of thousands of dollars to each retiree.But if more workers are retiring and not dying on schedule, it can be a recipe for financial disaster.The recommendations made by pension actuaries, like which mortality table to use, are largely hidden from public view, but each decision ripples across decades and can have an outsize effect. More and more actuaries are now worried that their profession will be blamed for its role in steering states and cities into what is looking like a trillion-dollar quagmire.On Thursday, a panel of senior actuaries will consider whether to update, or elaborate on, the existing actuarial standards for public pensions. The dueling mortality tables will be among the evidence, and Mr. Palermo is among the parties who have submitted written testimony.

Do Disability Benefits Reduce Work Effort? -  In two earlier blog posts, I look at evidence compiled in Senate testimony by Stanford economist Mark Duggan arguing that financial incentives are driving a growth in disability rolls. I cite research showing that disability benefits aren’t growing relative to earnings and that age-adjusted disability incidence isn’t rising, though there has been a modest increase for women offset by a modest decline for men. This isn’t surprising, because as we’ll see in today’s blog post, even research cited by Duggan and other critics shows that disability receipt has a negligible impact on work effort. Very few beneficiaries would be able to support themselves by working if they weren’t receiving benefits, based on the dismal employment prospects of rejected applicants who were on the margin of being accepted. Though Duggan and other critics claim disability insurance reduces employment, the Social Security Disability Insurance (SSDI) program creates strong incentives for beneficiaries to stay in, or return to, the workforce. Beneficiaries are allowed to earn up to $1090 a month (the current threshold for “substantial gainful activity”) with no reduction in benefits. Since most disabled beneficiaries rely on modest government benefits for most of their incomes (see the Center on Budget and Policy Priority’s informative chartbook), the fact that fewer than 10 percent avail themselves of this opportunity suggests that for most, even part-time or intermittent work isn’t an option. Another 4 percent are able to resume “substantial gainful activity” as their health and job prospects improve. Though the latter will forgo cash benefits if they remain gainfully employed above the SGA threshold for more than 12 months, they retain health benefits regardless of earnings for a longer period and are eligible for expedited reinstatement of cash benefits if their earnings drop. In short, the SSDI program is designed to encourage beneficiaries to return to or stay in the workforce.

Life insurance industry a risk to U.S. stability, IMF says - The U.S. life insurance industry has "substantial long-term stability risks" according to a stress test conducted by the International Monetary Fund staff. In a report released Tuesday, the IMF said that prolonged low interest rates "pose a slow burning solvency risk" for life insurers. If low rate stay until 2018, 11 out of 18 life insurance groups would report negative shareholder equity, the IMF said. The industry also faces risk of a sharp spike in interest rates. In addition, rising rates could lead to an increase in policy surrenders as policyholders seek higher yields, leaving the sector vulnerable to liquidity drain. The IMF said it was "imperative" for Congress to set up an independent agency to oversee the industry, an idea opposed by insurance firms, who are now regulated at the state level.

Medicare Plans to Pay Doctors for Counseling on End of Life -- Medicare, the federal program that insures 55 million older and disabled Americans, announced plans on Wednesday to reimburse doctors for conversations with patients about whether and how they would want to be kept alive if they became too sick to speak for themselves.The proposal would settle a debate that raged before the passage of the Affordable Care Act, when Sarah Palin labeled a similar plan as tantamount to setting up “death panels” that could cut off care for the sick. The new plan is expected to be approved and to take effect in January, although it will be open to public comment for 60 days.Medicare’s plan comes as many patients, families and health providers are pushing to give people greater say about how they die — whether that means trying every possible medical option to stay alive or discontinuing life support for those who do not want to be sustained by ventilators and feeding tubes.  “We think that today’s proposal supports individuals and families who wish to have the opportunity to discuss advance care planning with their physician and care team,” said Dr. Patrick Conway, the chief medical officer for the Centers for Medicare and Medicaid, which administers Medicare. “We think those discussions are an important part of patient- and family-centered care.”

Big changes proposed for Medicare surgery payments: The federal government on Thursday proposed reforming the way Medicare pays many hospitals for hip and knee surgeries, offering extra payments to some and imposing penalties on others depending on the outcome of the operation. The proposal represents the latest effort by the Obama administration—a major one, in this case—to move the health-care system toward paying providers for so-called quality health outcomes instead of for specific procedures such as x-rays and blood tests. Medicare in 2013 spent $7 billion on hospitalizations alone for hip and knee replacements, which are among the most common surgeries for beneficiaries of that federally run health coverage system for senior citizens. About one-quarter of those procedures would fall under the five-year payment plan proposed Thursday. "We are asking health-care providers that offer hip and knee replacements to treat these surgeries as one complete service instead of a collection of individual services," said Health and Human Services Secretary Sylvia Burwell. "We are committed to changing our health-care system to pay for quality over quantity, so that we spend our dollars more wisely and improve care for patients."

Health Insurance Companies Seek Big Rate Increases for 2016 - Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back. Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives. The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase. The rate requests, from some of the more popular health plans, suggest that insurance markets are still adjusting to shock waves set off by the Affordable Care Act. Blue Cross and Blue Shield of New Mexico has requested rate increases averaging 51 percent for its 33,000 members.  . In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

Aetna Buys Humana For $37 Billion, But Deal Doesn't Add Up - Forbes: The big are getting bigger: Aetna Aetna and Humana Humana, the nation’s number three and number four health insurers by revenue, are merging. Aetna will pay about $230 per share for Humana, in a $37 billion cash and stock deal, the largest-ever deal in the health insurance industry. It’s also the latest major merger in an increasingly frantic health care marketplace. On Thursday, Centene Centene announced that it was buying HealthNet for nearly $7 billion, and CVS last week bought the Target Target pharmacy business for $2 billion. Aetna and Humana still need federal approval. But the combined company could become the nation’s number two health insurer, behind UnitedHealth Group … which had recently approached Aetna with its own offer to merge. (And the other two big health insurers, Anthem Anthem and Cigna Cigna, have also talked about merging.) As health reporter Christopher Weaver cleverly framed it a few weeks ago, health insurers are playing a “Game of Thrones.” But what crown are they after? And why are they merging now? One common argument is that the Affordable Care Act is hurting health insurers, and pushing them to merge — but there’s limited evidence that the biggest players are struggling. While the ACA capped insurers’ ability to take profits, industry analysts have been fairly bullish on the sector. “U.S. health insurers have successfully managed challenges from the rollout of the Affordable Care Act,” Moody’s declared in February, raising its outlook on insurers from “negative” to “stable.”

Time for an all-payer health system? -- Economists tell us that setting the price of a good or service depends on market forces that balance supply and demand in order to optimize output with minimal waste. . Unfortunately, when it comes to pricing healthcare, these fundamental economic principles just don't work. There are lots of rational reasons for this market breakdown: third-party payments mask the true price of a service; consumer decision-making is stifled because of poor information; and there are too few substitutable goods to ensure competition. Worst of all, prices are, for the most part, hidden or unavailable. Instead of having an efficient mechanism that safeguards value and quality, price setting in the U.S. health system too often defers to the actions of dominant stakeholders who charge whatever a lopsided marketplace will bear.One report last month underscores this phenomenon. A study from Health Affairs reported that 50 hospitals in the U.S. charged uninsured patients more than 10 times the Medicare rate, which was used as a baseline for costs. These 50 hospitals assessed charges for medical services at almost triple the national average. For the most part, the hospitals were for-profit entities operated by big chains with sizable market presence. According to lead author Gerard Anderson, hospitals price gouge simply "because they can," and are "marking up prices because no one is telling them they can't."

Many docs come to work sick -- - Many doctors, nurses, midwives and physicians assistants come to work sick even through they know it puts patients at risk, a new survey suggests. Many said they don’t call in sick because they don’t want to let colleagues or patients down by taking a sick day, and they were concerned about finding staff to cover their absence. At the Children’s Hospital of Philadelphia, Julia E. Szymczak and colleagues analyzed survey responses collected last year from 536 doctors and advanced practice clinicians at their institution. More than 95 percent believed that working while sick puts patients at risk, but 83 percent still said they had come to work with symptoms like diarrhea, fever and respiratory complaints during the previous year. About 9 percent had worked while sick at least five times over the previous year. Doctors were more likely than nurses or physicians assistants to work while sick. Analyzing their comments, the researchers found that many report extreme difficulty finding coverage when they’re sick, and there is a strong cultural norm to come in to work unless extraordinarily ill.

Leaked: Obama Goes to Bat for Big Pharma in TPP Deal - A draft of part of the Trans-Pacific Partnership trade deal was reportedly leaked to Politico. The draft allegedly suggests the US is demanding increased protections for pharmaceutical companies and restricting access to the lower-cost generic versions of drugs worldwide. Essentially, this means the TPP would "give U.S. pharmaceutical firms unprecedented protections against competition from cheaper generic drugs, possibly transcending the patent protections in U.S. law," or so Politico reports. So is the United States going to bat for Big Pharma? According to Politico, if this draft of the TPP becomes law: Pharmaceutical companies could dump trillions of dollars of additional health care costs on patients, businesses and governments...The highly technical 90-page document, cluttered with objections from other TPP nations, shows that U.S. negotiators have fought aggressively and, at least until Guam, successfully on behalf of Big Pharma. Of course, no provision is ever final until the entire deal is done —and U.S. officials claim the major compromises tend to happen at the very end of trade negotiations. However, the real horse-trading is expected to begin now that Obama has signed “fast-track” legislation, which requires Congress to pass or reject TPP without amendments. According to Politico, Americans saved an estimated $239 billion on drugs in 2013 by using the generic version. Big Pharma is reportedly pushing for TPP to guarantee them 12 years of exclusivity on all products, which will drive the costs of drugs up.

Who Benefits? – Rising Generic Drug Prices and the Case of Mylan’s Conflicted Property Purchases  - Health care costs in the US continue their seemingly inexorable rise.  Even the parts of health care that used to seem reasonably priced now are affected.  As Ed Silverman discussed on PharmaLot …prices for many generic drugs have been climbing, prompting concerns that a low-cost staple of the U.S. health care system might soon strain budgets. Generic drugs, like practically every other part of US health care, have become big business.  As a Forbes article pointed out, the industry is becoming more consolidated, and more likely to suffer from manufacturing and regulatory issues.  However, there may be other reasons for increasing generic drug costs. A recent Wall Street Journal scoop on the big generic pharmaceutical company Mylan suggested that maybe such companies are now suffering from the same leadership and governance ills we have been finding throughout US – and indeed global – health care.  Furthermore, to understand the impacts of such health care dysfunction, one must consider the incentives that underlie them, that is, who benefits? The story concentrated on some dodgy deals involving the company and firms linked to the Vice Chairman of its board of directors.  The first part of the story was: Generic-drug maker Mylan NV moved into new headquarters in December 2013 after buying vacant land in an office park near Pittsburgh and erecting a five-story building for about 700 employees.The company hasn’t publicly disclosed that the office park’s main developer is Rodney Piatt, Mylan’s vice chairman, lead independent director and compensation-committee chief. The new headquarters was a big boost for the mixed-use real-estate development, called Southpointe II, where all the land has been sold and some of the last buildings are now rising.  The day before Mylan announced plans to build the new headquarters, a company managed and partly owned by Mr. Piatt sold a 7-acre site for $1 to an entity owned by a business partner in Southpointe II, according to property records reviewed by The Wall Street Journal. The partner’s firm sold the same land to Mylan for $2.9 million later the same day.

Eight children dying in Myanmar every hour - Vice President Sai Mauk Kham has said at an event on 3rd July, held in Magway city that approximately 8 children dies per hour, and nearly 65,000 children have died per year.According to the Ministry of Information, the Vice President was at the commencement ceremony of efforts to reduce mother and child mortality rates, and that most children under 5 years of age in rural areas are seeing high mortality rates due to undue births, underweight children, Bronchitis, Meningitis, Suffocation during birth, diarrhea, blood poisoning, lack of Vitamin B1, disabilities at birth and also accidents.Out of all the states in Yangon, the state of Magway holds the record for the shortest life expectancy of 60.6 years as well as high infant mortality rates. According to data from the latest census, 36 out of 100 that are born will die as the total birth for 2014-2015 was at 645,000 while the death rate was 235,000 people, making the average death at 36.43 percent.Myanmar is part of the group of countries within ASEAN nations with the lowest life expectancy.

Hunting the Nightmare Bacteria | FRONTLINE | PBS: (54:11) FRONTLINE investigates the rise of deadly drug-resistant bacteria.

Should I Be Concerned About Arsenic in My Rice?  -- Recently, studies have detected high levels of arsenic in rice. This is a major concern, since rice is a staple food for a large part of the world’s population. Should you be worried? Let’s have a look. Arsenic is a toxic trace element, denoted by the symbol As. It is not usually found on its own. Rather, it is bound with other elements in chemical compounds. These compounds can be divided into two broad categories (1):

1. Organic arsenic: mainly found in plant and animal tissues.
2. Inorganic arsenic: found in rocks and soil or dissolved in water. This is the more toxic form.

Both forms are naturally present in the environment, but their levels have been increasing due to pollution. For a number of reasons, rice may accumulate a significant amount of inorganic arsenic (the more toxic form) from the environment.Arsenic is found in nearly all foods and drinks, but is usually only found in small amounts. In contrast, relatively high levels are found in:

• Contaminated drinking water: Millions of people around the world are exposed to drinking water that contains high amounts of inorganic arsenic. This is most common in South America and Asia (2, 3).
• Seafood: Fish, shrimp, shellfish and other seafood may contain significant amounts of organic arsenic, the less toxic form. However, mussels and certain types of seaweed may contain inorganic arsenic as well (4, 5, 6).
• Rice and rice-based foods: Rice accumulates more arsenic than other food crops. In fact, it is the single biggest food source of inorganic arsenic, which is the more toxic form (7, 8, 9, 10).

High levels of inorganic arsenic have been detected in many rice-based products, such as: Bottom Line: Seafood contains arsenic, but mostly the organic form. Rice and rice-based products may contain high levels of the inorganic (more toxic) form.

84,000 Chemicals on the Market, Only 1% Have Been Tested for Safety  -- There are around 84,000 chemicals on the market, and we come into contact with many of them every single day. And if that isn’t enough to cause concern, the shocking fact is that only about 1 percent of them have been studied for safety. Women are particularly at risk because they generally use more personal care products than men: 25 percent of women apply 15 or more products daily, including makeup and anti-aging creams, amounting to an average of 168 chemicals. Photo credit: Shutterstock  In 2010, at a hearing of the Senate Subcommittee on Superfund, Toxics and Environmental Health, Lisa Jackson, then the administrator of the U.S. Environmental Protection Agency (EPA), put our current, hyper-toxic era into sharp perspective: “A child born in America today will grow up exposed to more chemicals than any other generation in our history.” Just consider your morning routine: If you’re an average male, you use up to nine personal care products every single day: shampoo, toothpaste, soap, deodorant, hair conditioner, lip balm, sunscreen, body lotion and shaving products—amounting to about 85 different chemicals. Many of the ingredients in these products are harmless, but some are carcinogens, neurotoxins and endocrine disruptors. Women are particularly at risk because they generally use more personal care products than men: 25 percent of women apply 15 or more products daily, including makeup and anti-aging creams, amounting to an average of 168 chemicals. For a pregnant woman, the risk is multiplied as she can pass on those toxins to her unborn child: 300 contaminants have been detected in the umbilical cord blood of newborns.

Lab rats and the corruption of how we count -- There's an old joke about lab rats in which the teller says he or she secretly suspects that all lab rats are prone to cancer and so all research about the risk of cancer in humans based on tests in rats is likely useless.  The Committee for Independent Research and Information on Genetic Engineering, a European-based research group, thought it would look into such a possibility.  Last week the group released its findings and that joke became a reality. The diet fed to most lab rats is so laced with pesticides, heavy metals, genetically engineered feed and other man-made contaminants that lab rats worldwide are indeed at much higher risk of developing cancer and other diseases and disabilities just from the food they are reared on.  This doesn't necessarily mean that certain substances thought likely to cause cancer in rats and possibly humans now somehow don't. Rather, the study calls into question practically all safety tests which rely on these rodents. And, in fact, it suggests that the dangers of many substances and genetically engineered plants may have been underplayed.  The researchers point out that some studies purporting to demonstrate the safety of genetically engineered foods fed significant amounts of such GE foods to control groups of rats. These rats should not have gotten any GE food in order that their health profile could be compared accurately to those intentionally fed GE food.  And, even if the rats in the control groups don't ingest the chemical or plant being tested--as is the case in a proper study--they still get sick at abnormally high rates due to their diet. That can make substances being tested appear safer than they truly are because it is more difficult to sort out which effects in the test group are due to the substance or plant being tested.

Bumblebees Are Getting Trapped In A ‘Climate Vise’ As Hotter Temperatures Shrink Habitats -- The effects of global warming are shrinking the geographic home range of North American and European bumblebees, and the insects appear unable to adapt to the changing conditions — a troubling discovery for an important group of pollinators critical to the world’s food supply.  Unlike other animal species, the bees are not migrating northward where it is cooler, and their failure to do so is prompting dramatic losses of bumblebee species from the hottest areas across two continents, according to a study published Thursday in Science, the journal of the American Association for the Advancement of Science. “Global warming has trapped bumblebee species in a kind of climate vise,” said Jeremy Kerr, professor of biology at the University of Ottawa and one of the study authors. “For species that evolved under cool conditions, like bumblebees, global warming might be the kind of threat that causes many of them to disappear for good.” For species that evolved under cool conditions, like bumblebees, global warming might be the kind of threat that causes many of them to disappear for good. This could prove disastrous for the planet’s ecosystems and for the human agriculture enterprise, as bees — including bumblebees and honeybees — are vital pollinators of crops and wild plants. Their decline is especially worrisome, given that bees are responsible for pollinating an estimated one-third of the food that humans eat.

Climate 'vice' constricts bumblebees' natural ranges - researchers - Climate change is threatening the survival of bumblebees, significantly reducing the habitats in which they can survive, researchers say. They say the natural ranges of these key pollinators are being compressed in both Europe and North America. The analysis indicates that warming is having a greater impact than pesticides or land use change. To ensure bees survive, humans may have to help move them to cooler areas, the European and American researchers add.  Many creatures, including butterflies, have responded to a warming climate by moving towards the poles or towards higher ground. Bumblebees have dealt with the increasing heat by disappearing in large numbers from portions of their southern ranges, but the insects seem to have baulked at moving north. The study was carried out by a team of scientists from Europe, the US and Canada. They examined more than 420,000 historical and current records of bumblebee observations between 1901 and 2010 relating to 67 different species. Taking the period between 1901 and 1974 as their baseline, the researchers found that in recent decades when temperatures have increased, the bees started to die off in the southern part of their ranges in both Europe and North America, at the same time. "These species are at serious and immediate risk, for rapid human induced climate change," said lead author Prof Jeremy Kerr from the University of Ottawa. "The impacts are large and they are under way - they are not just something to worry about at some vague future time."

Econintersect Video of the Day - "Spy Drones Expose Smithfield Foods Factory Farms" - SINCE 2012, "Speciesism: The Movie" director Mark Devries has been secretly using spy drones to investigate and expose the environmental devastation caused by factory farms. In this video, the drones capture shocking aerial footage of several massive facilities that supply pigs for Smithfield Foods. 

Massive Trans-Pacific Trade Deal Pits Dairy Against Beef in Canada -- The outcome of a high-stakes lobby war between Canadian beef and dairy farmers could be decisive for whether Canada gets in on a massive controversial trade deal. The Trans-Pacific Partnership (TPP) is a comprehensive trade and investment treaty that's nearing the end game of negotiations. The treaty aims to decrease or eliminate import tariffs between 12 Pacific Rim countries with a combined population of nearly 800 million people, representing about 40 percent of the world's economy, including Canada, the United States, Japan, Vietnam, Malaysia, New Zealand and Australia. After the US Senate granted President Barack Obama authority to submit the deal to an up-or-down vote in Congress, talks look ready to accelerate, with a ministerial-level meeting reportedly set to take place this summer.  The TPP has been criticized for its lack of transparency, strict copyright enforcement measures and lax environmental standards, and for giving foreign multinationals the right to sue governments before international tribunals (with no reciprocal rights for citizens to sue them back). In Canada, the friction appears to have centered around cows. Internationally competitive sectors, like beef ranchers, are desperate to get in on the free-trade action. But the dairy industry, which is protected by tariffs and production quotas, is unwilling to give up sky-high tariffs that other countries have hinted might be a deal breaker. According to the Canadian Federation of Agriculture, a blanket organization representing farmers across the country, the tariff debate is the only issue dividing the two groups.

How is drought in Washington State affecting local farms? ‘This is the hottest, driest spring ever — as in the least amount of rainfall and highest temperatures for May and June’ – Everybody in Seattle knows that summer doesn't typically start until after the Fourth of July. It's when, after months of rain (the infamous "Juneuary"), the clouds finally part and the temperatures rise. But not this year. Nobody knows this better than local farmers. While people have been jumping in lakes and exuberantly eating strawberries and cherries weeks earlier than usual, farmers—whether they're located in the Snoqualmie Valley, in Island County, or on the Olympic Peninsula—have been wrangling hundreds of thousands of feet of drip irrigation tape (thin, perforated hoses that run along the base of the crop rows) under relentlessly sunny skies.  "This is the hottest, driest spring ever—as in the least amount of rainfall and highest temperatures for May and June," says Jason Salvo, who, along with Siri Erickson-Brown, farms 16 acres of vegetables on their farm, Local Roots, in Duvall.  "Plants just don't perform as expected when they're stressed by both heat and lack of water," says Erickson-Brown. "When it gets really, really hot, tomato blossoms drop. So they won't set fruit because they're like, 'It's a stressful world, I can't make fruit!'"  "Everyone is feeling the effects of the drought," says Kia Armstrong, sales and promotion manager at Nash's Organic Produce, a 75-acre farm that raises vegetables, grains, seeds, chickens, and pigs near Sequim on the Olympic Peninsula. "This is uncharted territory and extremely severe. Many farms run on river systems, and the rivers are at August levels—or lower."  According to Armstrong, the Dungeness River that Nash's depends on is at a record low. "Usually the Dungeness flows at around 600 cubic feet per second this time of year, but now it's running at around 125 cubic feet per second. And there is literally no snowpack." [more]

Drought-Stricken California Farmers Forced to Use Oil Firms' Waste Water on Crops - An efficient solution to a historic drought, or an environmentally risky pact with the devil?That’s the question being raised by critics about Californian farmers who irrigate their crops with waste water supplied by oil companies, in an arrangement slammed as dangerous by environmental campaigners.Driving into the parched region around Bakersfield, in the western US state’s fertile Central Valley, it is evident how closely the agriculture and oil industries are related.Lines of orchards stand near fields of oil wells stretched out as far as the eye can see.  Eighty percent of the state’s oil production and 45 percent of the farming industry is concentrated in a single county, Kern County, said Madeline Stano of the Center on Race, Poverty and the Environment.With temperatures frequently exceeding 40 Celsius (104 Fahrenheit) in the summer, water is in scarce supply. After four years of record drought, farmers can no longer pump water from rivers whose levels are dangerously low.Drawing from the water table is also increasingly difficult: more than 1,000 wells have dried up in the region.In a bid to diversify supplies, the Cawelo Water District, a cooperative financed by local farmers, has for 20 years used waste water from oil companies.Abby Auffant, spokeswoman for oil giant Chevron, explained that crude comes out of the ground mixed with water, from which it must be separated.  Separating the water from the crude is a process that actually benefits oil firms, according to Stano.“It’s hard for the oil industry to get rid of, so it’s a win-win for the oil companies” when they are able to sell the water, she said.

California’s rural poor hit hardest as massive drought makes remaining water toxic -  Whenever her sons rush indoors after playing under the broiling desert sun, Guadalupe Rosales worries. They rarely heed her constant warning: Don’t drink the water. It’s not safe. The 8- and 10-year-olds stick their mouths under a kitchen faucet and gulp anyway. There is arsenic in the groundwater feeding their community well at St. Anthony Trailer Park, 40 miles south of Palm Springs. In ordinary times, the concentration of naturally occurring arsenic is low, and the water safe to drink. But during California’s unrelenting drought, as municipalities join farmers in sucking larger quantities of water from the ground, the concentration of arsenic is becoming more potent. A recent laboratory test found that water in St. Anthony’s shallow well has twice the concentration of arsenic considered safe. For many Californians, the state’s long drought has meant small inconveniences such as shorter showers and restrictions on watering lawns. But in two rural valleys, the Coachella southeast of Los Angeles and the San Joaquin to the north, farmworkers and other poor residents are feeling its impact in a far more serious and personal way.Amalia Ceja, who lives nearby, will not drink the water, but she said she uses it to bathe herself and her 4-year-old son. He developed “bumps on his head,” Ceja said. “At first, we thought it was dandruff. After a doctor visit, they said it was arsenic.” Arsenic, natural or not, can be frightening. It has been linked to various cancers of the bladder, lungs and skin when consumed in high doses. It is also known to cause birth defects and attack the nervous system. Near agricultural fields, its levels can be increased by fertilizers and animal waste that run off farms. Mineral mining operations in the area contribute to the problem.

Water rates, surcharges rise as cities, water agencies lose money in drought: Californian homeowners switching from sod to succulents or who are letting their lawns languish may earn a gold star for conserving water in a drought, but many will not be saving money on their water bills. That’s because water companies and city water departments are adding drought surcharges and imposing higher rates or one or the other to make up for millions of dollars in lost water sales. In justifying the counterintuitive approach, water agencies say they still have to pay for fixed costs such as pipes, pumping, treatment and customer service — no matter how much water they send down the pipeline. The financial toll could increase through summer and fall, as state residents and businesses slash water use between 8 percent and 36 percent from a 2013 baseline, as part of the first-ever state mandated water conservation rules effective June 1. Some put the price tag of water conservation at close to $1 billion. “Just because you use less water does not mean you have lower rates or a lower bill,” said Lori Dolqueist, an attorney who represents private utilities. “All of those agencies and private water companies are being told to sell less of what they do. It’s a challenge financially.”

Tom Selleck, Who Hates Avocados, Allegedly Stole California Water To Grow Avocados -- ‘Magnum P.I.’ star Tom Selleck is making waves this week for allegedly stealing truckloads of California water to maintain his sprawling avocado ranch in the midst of a historic drought.  But here’s the thing: it looks like Tom Selleck doesn’t even like avocados. It looks like he hates avocados. “I don’t eat ‘em,” the actor said in 2010, according a report in World Entertainment News Network. “Honestly, they make me gag,” he said in a 2012 People magazine interview. But in another 2009 interview, Selleck apparently said he grows avocados to sell them. “I sell them,” he’s quoted as saying. The accusations that Selleck is stealing water for his avocado ranch were filed in state court on July 1 by a California municipal water district in Ventura County, which hired a private investigator to catch Selleck in the act. California’s historic, four-year drought has resulted in unprecedented water restrictions across the state, and has thrown the country’s entire food system into question.   Unsurprisingly, the drought also threatens avocados. It takes 74 gallons of water to grow a pound of avocados, and water is dwindling in California, where the fruit is primarily grown in the United States. The avocado industry is fine at the moment, but could dwindle as scientists expect dry conditions to continue, in part due to climate change. Selleck is not the only celebrity to be accused of overusing water for leisurely purposes, nor is he the only celebrity who grows avocados in California. His neighbor, Jamie Foxx, also owns a ranch for the green fruit. “I got 800 trees, it’s crazy,” Foxx said in 2012. No word on where he’s getting his water.

California drought leads to mass tree felling across Los Angeles -- City officials in Los Angeles have said they don't have enough water to irrigate all the trees in the city, so they are cutting down roughly 14,000 of those that are dead or dying from drought. ''It's difficult to say the specific cause of death. But the drought is a very much a very real contributing factor," said Laura Bauernfeind, ground maintenance supervisor for the City of Los Angeles Department of Recreation and Parks. According to Kirsten Fisher, an assistant professor of biology at California State University in Los Angeles, there are numerous consequences that tree removal may have on local ecosystems and on park visitors. "So if we take out trees and don't replace them it has a heat island effect. But it also reduces habitat for wild animals, so birds that are migrating through or other animals that rely on trees for shelter and food will not have those trees anymore. So of course, they will be eliminated."And a lot of those animals provide other ecosystem services. Like pollination of our flowers and our trees. They won't be around to do that. So that's a problem. And then on a sort of mental health note, trees in our environment really improve our mood, improve our emotions and our emotional state, and so removing them will also have sort of a emotional or psychological impact on city residents as well," said Fisher. [more]

California's Drought Is Part of a Much Bigger Water Crisis. Here's What You Need to Know --Pretty much every state west of the Rockies has been facing a water shortage of one kind or another in recent years.  California’s is a severe, but relatively short-term, drought. But the Colorado River basin — which provides critical water supplies for seven states including California — is the victim of a slower-burning catastrophe entering its 16th year. Wyoming, Colorado, New Mexico, Utah, Nevada, Arizona and California all share water from the Colorado River, a hugely important water resource that sustains 40 million people in those states, supports 15 percent of the nation’s food supply, and fills two of largest water reserves in the country. California uses almost one-third of the entire Colorado River flow, having a larger share than any other Colorado River basin state. California gets 16 percent of its surface water — water that comes from snowpack, streams and rivers — from the Colorado River via two huge aqueducts. The California Aqueduct runs beneath mountains into Riverside County and eventually toward Los Angeles, providing a substantial supply for both L.A. and San Diego. The All-American Canal moves water along the tail-end of the Colorado River near the Mexican border, nourishing one of the state’s most valuable agriculture areas, Imperial County, where a large proportion of the nation’s winter fruits and vegetables are grown.Of the seven basin states, California holds the most senior legal rights to the Colorado, which entitle it to keep drawing water even as Lake Mead runs dry and the rest of the Colorado River states suffer through shortages. That means in the short term, not much that California does will change the situation on the Colorado, unless it were to voluntarily surrender more of its entitlement to the river. But should Colorado River shortages worsen to the point that the states ever re-negotiate that division of water, a reduction of California’s Colorado River water rights could have a brutal impact on California’s remaining supplies. Officials in California, like every other state in the region, are now facing a “new normal,” as nature places new limits on the state’s previously unchecked growth.

Hoover Dam 'bathtub ring' shows level of Lake Mead dropping amid drought (video)  Visible at the top of the Hoover Dam, this 'bathtub ring' shows the devastating effects of a drought which has seen the level of Lake Mead drop to an historic low.The lake's surface now sits at just over 1,000ft, the lowest point it has been since it started being filled in the early 1930s when the dam was finished.The water level is so low that officials from Las Vegas, which draws its water from Lake Mead, have been forced to spend $800million building a third pipe to ensure their supply does not run out.The pipe is needed because the top of the lake will soon dip below the height of the first two pipelines, leaving them out of the water.Lake Mead is currently using just 40 per cent of its total capacity, while the surface has been dropping for 15 years as demand has far outstripped the amount of water flowing into it. The artificial body of water, created by the Dam, is largely filled by meltwater from the Rocky mountains, which have seen smaller than average snowfall for more than a century.A dramatic ring has become more and more visible on the cliffs around the lake in recent years, as the level has dropped by almost 140ft, the equivalent of a 20-storey building. As well as Vegas, large parts of California and Arizona also rely on water from the lake to supply farms and homes, and the ongoing drought there has put added pressure on supplies.

Las Vegas Completing Last Straw to Draw Lake Mead Water - ABC News: It took $817 million, two starts, more than six years and one worker's life to drill a so-called "Third Straw" to make sure glittery casinos and sprawling suburbs of Las Vegas can keep getting drinking water from near the bottom of drought-stricken Lake Mead. The pipeline, however, won't drain the largest Colorado River reservoir any faster. It's designed to ensure that Las Vegas can still get water if the lake surface drops below two existing supply intakes. "You turn on the tap, you don't think about it," said Noah Hoefs, a pipeline project manager for the Las Vegas-based Southern Nevada Water Authority. "These are the things being done in order to live the lifestyle we want in the places we want to live." It's the latest example of ways the parched West is scrambling to deal with 15 years of unprecedented drought. California is encouraging homeowners to rip out thirsty lawns and asking farmers to turn off spigots. And in New Mexico, a $550 million pipeline project would supply drinking water to several communities that run the risk of having wells go dry within a decade. Las Vegas started in 1999 to conserve, reuse and replenish supplies. When Lake Mead water levels plummeted in 2002, regional water officials began drawing up plans for the pipeline. "Unlike California and our other partners on the river, we are almost entirely reliant on Lake Mead," said John Entsminger, water authority general manager. "We couldn't afford to wait."

The Power of Drought: As Lake Mead's Levels Fall, Hydropower Dips—and Prices Rise - When the Hoover Dam was built in 1936, it was the largest concrete structure—and the largest hydropower plant—in the world, a massive plug in the Colorado River, as high as a 60-story building. For nearly 80 years, the dam has been producing dependable, cheap electricity for millions of people in the Southwest, but as water levels in Lake Mead continue to drop, the future of “the greatest dam in the world” is more precarious than it ever has been, and utilities across the desert—including local power provider Southern California Edison—are taking notice. Lake Mead, the 112-mile reservoir created by the dam, was recently projected to hit 1,074.73 feet above sea level, the lowest it has been since it was filled in 1937. Thanks to a 16-year drought and serious over-allocation, Lake Mead is now just 37 percent full. Although a “miracle May” of rain means the water level will rise again, the longer term prognosis is more worrisome: If water levels continue their downward trend, the amount of energy generated by the Hoover Dam will fall, leading to higher electricity costs for 29 million people in the desert Southwest. That's because a shallower reservoir means less water pressure against the turbines, generating less electricity. A recent report by graduate students at the University of California, Santa Barbara, in conjunction with the Western Water Policy Program, examines the economic and physical impacts as Lake Mead’s elevation falls: With each 25-foot drop, total energy costs increase by roughly 100 percent, compared to a full reservoir. The costs paid by contractors for hydropower double at 1,075 feet, triple at 1,050 feet, and quadruple at 1,025 feet. At 895 feet, the turbines won’t run—a level they call “dead-pool.”

Drought Sends U.S. Water Agency Back to Drawing Board - Drew Lessard stood on top of Folsom Dam and gazed at the Sierra Nevada, which in late spring usually gushes enough melting snow into the reservoir to provide water for a million people. But the mountains were bare, and the snowpack to date remains the lowest on measured record.“If there’s no snowpack, there’s no water,” said Mr. Lessard, a regional manager for the Bureau of Reclamation, the federal agency that built and operates a vast network of 476 dams, 348 reservoirs and 8,116 miles of aqueducts across the Western United States.For nearly a century, that network has captured water as it flows down from the region’s snowcapped mountains and moves to the farms, cities and suburbs that were built in the desert. But as the snow disappears, experts say the Bureau of Reclamation — created in 1902 by President Theodore Roosevelt to wrest control of water in the arid West — must completely rebuild a 20th-century infrastructure so that it can efficiently conserve and distribute water in a 21st-century warming world.“The bureau is headed into a frightening new world, an uncertain new world,” said Jeffrey Mount, an expert on water resource management with the Public Policy Institute of California. For most of the 1900s, the bureau’s system — which grew into the largest wholesale water utility in the country — worked. But the West of the 21st century is not the West of Roosevelt. There are now millions more people who want water, but there is far less of it. Under orders from the White House, the Bureau of Reclamation has begun studies on the impact of global warming on 22 Western water basins and is drawing up multidecade plans to begin rebuilding its Western water management systems. But a new water infrastructure across half of the United States could cost taxpayers billions of dollars — at a moment when Republicans are still focused on cutting taxes and lowering government spending. In Congress, the Republican majority has targeted climate change research as well as federal policies intended to stop climate change.

Jeff Masters: All-time July National Heat Records Fall on Three Continents - Brutally hot conditions fried portions of three continents during the first three days of July, and four nations have already set all-time July national heat records this month: the Netherlands, the U.K., Thailand, and Colombia. Below is a break-down of the July national heat records set so far this month, courtesy of weather records researcher Maximiliano Herrera. The temperature in Maastricht, the Netherlands, hit 100.8 °F (38.2 °C) on July 2, setting an all-time July heat record for the nation. According to data from the Royal Netherlands Meteorological Institute, only two other hotter temperatures have been recorded in the nation: 101.5 °F (38.6 °C), on August 23, 1944, at Warnsveld, and 101.1 °F (38.4 °C), on June 27, 1947, at Maastricht. Mr. Herrera notes that the Netherlands' all-time hottest temperature in 1944 was surely beaten on July 2, 2015, but all stations in the warmest area were closed many years ago. . He also pointed out Belgium's all-time hottest temperature was beaten on Thursday, as well as during the 2003 and 2006 heat waves. And London's Heathrow Airport hit 98.1 °F (36.7 °C) on July 1, setting an all-time July heat record for the UK. Previous record: 97.7 °F (36.5 °C) in Wisley on July 19, 2006. On July 2, the mercury hit 105.8 °F (41.0 °C) at Kamalasai, Thailand, setting a mark for the hottest July temperature ever recorded in that nation. Previous record: 104.4 °F (40.2 °C) at Uttaradit on July 12, 1977. Approximately half of all the reporting stations in Thailand set their all-time July monthly heat records on July 1 or July 2 this year. UPDATE: Today (Friday, July 3), Kamalasai, Thailand, bested yesterday's July record with a reading of 106 °F (41.1 °C).  On July 1, Urumitia, Colombia, beat that nation's all-time July national heat record, with a 108 °F (42.2 °C) reading. Urumitia also set Colombia's all-time June heat record last week on June 27, with a 107.6 °F (42.0 °C) mark. The heat continued in all these places on Friday...

Germany Breaks its All-Time Heat Record  – Germany broke its all-time heat record on Sunday July 5, when the mercury soared to 104.5°F (40.3°C) at the official Kitzingen station in Bavaria. According to the German weather service's Facebook page, the record is now confirmed as official. The previous official national heat record recognized by the German meteorological agency (DWD) was 104.4°F (40.2°C), set in July 1983 and matched in August 2003. Numerous cities in Germany set all-time heat records over the weekend, including Saturday's 100.2°F (37.9°C ) reading at Berlin's Dahlem station, which has a very long period of record going back to 1876. Frankfurt beat its all-time heat record on Sunday--both at the airport (38.8°C) and downtown (39.0°C). Thanks go to weather records researcher Maximiliano Herrera and Klimahaus' Michael Theusner for these stats. According to an analysis of DWD observing station data done by Dr. Theusner, 131 of 492 stations in Germany set an all-time heat record during the July 2 - 5 heat wave, and another 7 tied their previous record. [more]

Records smashed as Europe's heatwave continues - This European summer could end up witnessing the continent's third significant heatwave of the century, following on from 2003 and 2006.On Monday, the heatwave continues in much of Europe, with high temperature warnings issued in Poland, Hungary, Switzerland and the province of Cordoba in Spain. There will be a resurgence of heat into northwest Europe later this week. Last Monday, June 29, Madrid's international Airport reported 40C, a first for June in records dating back to 1945. Cordoba, in southern Spain, reached a sizzling 43.7C on the preceding day.Last Wednesday, the temperature at London's Heathrow Airport nudged 36.7C - a July heat record for anywhere in the UK.Meteo-France says three French locations chalked up all-time highs last Wednesday, records that have already been reset in at least one of the previous 21st century heatwaves.In Boulogne-sur-Mer, 35.4C beat the previous record of August 11, 2003 (34.8C); in Dieppe, 38.3C beat the previous record of July 19, 2006 (37C); and in Melun, 39.4C beat the previous record of August 12, 2003 (38.9C).

The strongest El Niño on record may be brewing in the Pacific – El Niño conditions are intensifying in the tropical Pacific Ocean, potentially leading to a record event that would help control rainfall in East Africa and possibly bring desperately needed drought relief to California, while temporarily cutting off rainfall to parts of the Indonesian rainforest. A record strong event would also virtually guarantee that 2015 will beat 2014 as the warmest year this planet has seen since records began in the late 19th century. In recent weeks, the water temperatures have grown warmer, propelled by a reversal of seasonal trade winds and the sloshing of mild ocean waters from west to east across the Pacific. The atmosphere has shown telltale signs of positive feedback that are reinforcing the El Niño, including the formation of several tropical cyclones spinning in the central and northwestern Pacific Basins.  Taking these observations into account, a new forecast released Thursday by the Climate Prediction Center (CPC) in Maryland calls for a strong El Niño event to occur between now and the coming northern hemisphere winter, which is when El Niño conditions tend to peak, as well as when they have their greatest influence on global weather patterns.  According to a more detailed forecast from the CPC and the International Research Institute for Climate and Society (IRI) at Columbia University, there is a 96% chance of continued El Niño conditions from September through November, with a 94% chance of such conditions lasting through January.

Yo, Earthlings! Hot Enough For You? - It was a cool and wet June here in Pittsburgh, and that trend continues in July. But I didn't realize, though I should have realized, that this persistent unusual weather was yet another product of a meandering but persistent jet stream caused (uncontroversially for me) by Arctic amplification. That point came home to me when I watched the last minute of this BBC video. The jet stream map in the video clearly shows a big dip just where Pittsburgh is, so we are north of the dip, meaning we are on the "right" side of things. On the "wrong' side, there are all sorts of record-setting heat waves exacerbating drought conditions in various places all over the world. Watch it now.  Jeff Masters over at wonderground is tracking things. Here's what he posted on Saturday, July 3rd. Brutally hot conditions fried portions of three continents during the first three days of July, and four nations have already set all-time July national heat records this month: the Netherlands, the U.K., Thailand, and Colombia. The temperature in Maastricht, the Netherlands, hit 100.8°F (38.2°C) on July 2, setting an all-time July heat record for the nation. London's Heathrow Airport hit 98.1°F (36.7°C) on July 1, setting an all-time July heat record for the UK. Previous record: 97.7°F (36.5°C) in Wisley on July 19, 2006. On July 2, the mercury hit 105.8°F (41.0°C) at Kamalasai, Thailand, setting a mark for the hottest July temperature ever recorded in that nation. On July 1, Urumitia, Colombia beat that nation's all-time July national heat record, with a 108°F (42.2°C) reading. Urumitia also set Colombia's all-time June heat record last week on June 27, with a 107.6°F (42.0°C) mark.  This is only a small sample of what's going on all over the world on the "wrong" side of the jet stream. Mashable has a good write-up of what's happening on the western side of North America. The heat wave is noteworthy for its severity, extent and duration. During the past seven days alone, 465 warm temperature records have been set or tied across the country, mainly in the West, with 49 monthly warm temperature records set or tied,

Death Toll Climbs as Weather Experts Link Pakistan Heatwave to Climate Change -- Pakistan’s lack of preparedness in the face of increasingly intense weather events is being blamed for a growing death toll following what has been one of the most sustained heatwaves in the country since records began. And weather experts say that the extreme heat—which lasted for much of the second half of June, and was felt most in the southern province of Sindh—is linked to climate change. Ghulam Rasul, director general of the Pakistan Meteorological Department (PMD), told Climate News Network that the intense heat was caused by an unusually persistent area of low pressure over the Arabian Sea off Pakistan’s coast. “Usually, in summer, cool winds blow from the sea to land, and in winter the situation is the opposite,” he said. “This moderates temperatures in the port city of Karachi, but this summer, this didn’t happen.” Pervaiz Amir, formerly a member of a special task force on climate change set up by Nawaz Sharif, Pakistan’s prime minister, said: “The mortality from heatstroke could have been avoided had the Sindh provincial government responded to a heatwave forecast issued by the Pakistan Meteorological Department.” Karachi, a city of nearly 20 million, was worst hit, with bodies piling up in the city’s morgues, and hospitals crammed with people suffering from severe heatstroke as daytime temperatures climbed to well over 40°C for extended periods. About 65,000 heatstroke patients were treated at the city’s hospitals, and the death toll in southern Pakistan climbed above 1,200. Chronic energy shortages—a common occurrence in Pakistan—added to the problem, and the heatwave came during Ramadan, the Muslim fasting period when people do not eat or drink during daylight hours. Experts say Karachi has also suffered from what’s known as the urban heat island effect, with poor urban planning and a lack of green spaces making conditions even hotter.

Chile’s Growing Desert Is Closing In on the Country’s Capital -- The world’s driest desert is expanding south and sitting in its path is Chile’s capital. Santiago, a city of 7 million people 1,000 kilometers (622 miles) from the Atacama desert, is experiencing its driest year since 1966. Similar to California’s situation with the Sierra Nevadas, little to no snow has fallen in the Andes mountains that supply most of Santiago’s water. “Climatic zones are shifting south,” University of Chile geography professor Francisco Ferrando said. “Santiago is likely to move to a condition of a desert or semi-desert. What is happening is probably associated with global warming and there’s no sign of it slowing.” Santiago need only look 300 kilometers north to see how bad things can get as its drought continues for an eighth year amid record high global temperatures. Farmers in the once-fertile valleys of the Choapa and Limari rivers that lived for generations on agriculture are ripping up orchards, losing livestock and in some cases abandoning homes as wells dry and waterways slow to a trickle. Near the origin of the Limari river, Paloma reservoir -- Latin America’s largest for irrigation -- is all but empty. Sluice gates are shut, the little water that remains doesn’t reach the dam and most of the basin is dry, cracked earth. The image is repeated 30 kilometers away where Cogoti reservoir is empty. Closer to Santiago, the Culimo dam is dry. Around the river valleys, fields are filled with the stumps of once-productive avocado trees and almond groves. Grapevines are a thatch of dried stems. 

This Major World City Is Running Out Of Water --In Thailand, every year has a hot season, a dry season, and a monsoon season. But authorities are saying the most recent dry season — which should have ended in June — has turned into a full-fledged drought, and drinking water reserves in the nation’s capital of Bangkok only hold enough for another 30 days.   More than 14 million people live in the Bangkok metropolitan area. The city gets most of its drinking water from the Chao Phraya river, which runs through the center of the city into the Gulf of Thailand a few miles downstream. During a drought, seawater can flow upstream, turning the river brackish, Reuters reported this week. The local water company is not equipped to purify salty water. Not only was the hot season extra hot this year, the country also started the dry season with below-normal reserves. Last November, when the rainy season ended, the three major dams used for water storage had about 60 percent as much water as usual for that time, Thanasak Watanathana, governor of the Metropolitan Waterworks Authority, told Reuters. The water level in some city canals is more than a meter below the “alarm level,” according to the Prime Minister’s Office. “Right now, there is only enough water in the dams to distribute for about 30 more days — if it doesn’t rain,” Thanasak said. Reuters also reported that the water service has asked Bangkokians to limit their water use.

Hit by drought and seawater, Bangkok tap water may run out in a month - Bangkok's tap water supply may run out in a month, as the country waits for long overdue rains to replenish sources depleted by drought and threatened by seawater creep, the chief of the capital's water authority said. Thailand is suffering its worst drought in more than a decade. In an effort to maintain water levels in the dams that supply water for agriculture in the provinces as well as taps in the capital Bangkok, the government has asked farmers to refrain from planting rice since last October. Despite these measures, water levels are critically low in the three key reservoirs that flow into the Chao Phraya River, one of the two main sources of Bangkok's tap water. The quantity of water collected in the three dams totaled 5 billion cubic meters last November, compared to the normal 8 billion cubic meters, said Thanasak Watanathana, governor of the Metropolitan Waterworks Authority. As of Monday, there was about 660 million cubic meters left, according to the Royal Irrigation Department. "Right now, there is only enough water in the dams to distribute for about 30 more days – if it doesn't rain," Thanasak told the Thomson Reuters Foundation in an interview.Normally, the flow of water from the rains and dams keeps saltwater from the Gulf of Thailand at bay. But during droughts, the saltwater creeps upstream, turning the Chao Phraya brackish. The seawater can kill crops and threatens the pumping station that siphons off water from the river, about 100 km (60 miles) from the gulf. The waterworks authority produces 5.2 million cubic meters of tap water per day for 2.2 million residential, business and industrial customers, but is not equipped to treat saltwater.

São Paulo: Worries grow as serious drought grips Brazil’s largest city – ‘Even if you reduce the water consumption for the city, you don't have the water’ -- – One of the world's most populous cities is running out of water. São Paulo, Brazil, is in the grips of the city's worst drought in the last half-century. The city's main water supply—called the Cantareira system—is running on emergency reserves. Normally this time of year, the city's main supply would hold more than 155 billion gallons of water. But that water is all gone, and the government has been forced to tap into emergency reserves. "São Paulo's current drought emergency is both unprecedented and unpredicted," said Juliana Garrido, senior water and sanitation specialist for the World Bank. Before the 2014 drought, the system was supplying about 8,700 gallons of water a second, according to the World Bank. Today, it's operating at 3,563 gallons per second, according to data from Brazil's National Water Agency. Martha Lu, a 43-year-old resident of São Paulo and water activist, said that she has seen neighbors fight over water access during temporary water shut-offs. She said she had spoken to a woman who was disposing of human waste in plastic bags so she could avoid buying expensive mineral water to fill her toilet. The problem is even more acute in the suburbs of the city, which tend to be poorer than the city itself. "They have two hours of water on tap—the women don't sleep because the water comes in the early hours of the morning, at around 4 a.m.," Lu said of suburban areas. "They don't have water storage, so they have to stay awake because they don't know when the water is coming again. They stay up to collect it in buckets and try to do laundry, it's terrible."

Hundreds of wildfires scorch Canada as extreme heat spreads: A long-lasting, record-smashing heat wave in the Pacific Northwest and western Canada continues to fuel hundreds of wildfires in three Canadian provinces and several states across America. Smoke from the fires has drifted hundreds of miles away, causing a campfire scent to waft into the BC Place in Vancouver for the Women’s World Cup final on Sunday, and turning sunsets a reddish-orange hue all the way to Washington, D.C. The western U.S. and large parts of Canada have been under the control of a huge, persistent heat dome of high pressure that has sent temperatures soaring to historically high levels, further drying out soils and priming the region for fast-spreading wildfires. The heat waves have been noteworthy for their severity, extent and duration, with numerous all-time high temperature records falling in the U.S., for example.  The fires have caused the evacuation of more than 13,000 people in the sparsely populated Canadian province of Saskatchewan, making it the biggest wildfire evacuation there, according to CBC News. There are more than 110 wildfires burning in that province alone as of Monday. One large fire has moved closer to the town of La Ronge, forcing about 8,000 people to evacuate their homes. "This is absolutely the biggest evacuation we've experienced in Saskatchewan," Red Cross spokeswoman Cindy Fuchs told reporters on Sunday, CBC reports.

An Unprecedented Number Of Canadian Wildfires Send Smoke Pollution Across The United States - Fueled by unusually high temperatures, hundreds of wildfires are burning across Western Canada — and they’re sending their smoke south across the United States border. Wildfire danger throughout Western Canada is “very high,” with the majority of fire activity taking place in three provinces: Saskatchewan, British Columbia, and Alberta. “Nationally,” the CWFIS’ most recent report reads, “fire activity has increased dramatically and is now well above average for this time of year.” According to Mashable, more than 13,000 people in the province of Saskatchewan have been evacuated because of the fires, making it the largest wildfire evacuation in history for the relatively underpopulated province.  As of Monday, there were 112 fires burning across the province. In Alberta, some 1,200 fires have burned more than 740,000 acres since April 1. Hundreds of residents have been put on evacuation alert as fires continue to burn throughout the province. British Columbia is also seeing an unusually early and active start to the wildfire season, with roughly 200 wildfires burning across the province as of Monday. Officials in the province issued warnings to residents as smoke from the wildfires caused a drop in air quality; residents were told to avoid strenuous outdoor activity and to remain indoors.  According to the National Oceanic and Atmospheric Administration, the wildfires up north are causing a “tremendous amount of smoke,” and it hasn’t stopped at the border: smoke from Canada’s wildfires has been seen across Midwest and as far south as North Carolina, bringing a haze to the sky and turning sunsets fiery red. But the smoke also brings dangerous fine particles, which can diminish air quality and, in high concentrations, pose a public health threat.

B.C. wildfire smoke streams into the Northwest – Smoke from wildfires in British Columbia was streaming into Western Washington on Sunday, causing an eerie yellow cast to the skies. More than 50 new wildfires were sparked over this weekend alone.  Officials with the Paradise Fire said local 911 dispatchers in the Port Angeles area have been swamped with calls. Paradise fire information staff said the smoke coming from the north into Port Angeles is from fires in Canada, NOT the Paradise Fire. More than 60 wildfires are burning in British Columbia alone, and the National Weather Service Seattle said a smoke plume from a wildfire near Pemberton covered a good portion of Vancouver Island and on into Washington. Some of the smoke on Sunday was also going down the west side of the Olympic Peninsula as well, and could affect Forks, Queets and even Quinault, Paradise Fire officials said. [more]

Some in Dakotas struggle with forest fire smoke from Canada -- Smoke from forest fires in Canada is causing problems for some people in the Dakotas, and health officials are urging people to limit exposure to the smoke. The haze from wildfires in Saskatchewan has blanketed the region since last week. David and Kelly Andrews of Napoleon, North Dakota, who both have asthma, told KXMB-TV that they have had to increase the use of their inhalers due to the smoke. “It feels like there’s an elephant standing on your chest,” said Kelly Andrews, whose doctor put her on medicine to help her lungs deal with the conditions. “It smothers you. You can’t breathe.” The smoke won’t affect most people but can be bad for those with asthma or allergies, said Chuck Hyatt, a program manager with the North Dakota Health Department’s air quality division. Everyone should avoid strenuous outside activity in the smoky conditions, he told KXMB. “If you’re feeling the effects and it’s affecting you negatively, you should limit your exposure,” he said.

Smoke from Canadian fires blows as far south as Tennessee — After almost of a week, smoke from Canadian wildfires continued to blanket parts of North Dakota on Saturday and some residents said they’re growing tired of the hazy skies. Smoke from wildfires in northern Saskatchewan has been blowing as far south as Tennessee, with a thick haze extending through much of North Dakota, South Dakota, Minnesota, eastern Nebraska, Iowa, Illinois and Missouri.. “I think it is really harmful for people with conditions like asthma and lung conditions,” Amos Glem, a Minot resident, told the Minot Daily News. “You don’t want to deal with any of that and even for people with no conditions, it is really annoying.” An air quality map produced by the federal Environmental Protection Agency showed Saturday morning that western North Dakota and the region surrounding Fargo had some of most unhealthy air in the country. By Saturday afternoon, the air quality in western North Dakota and around Fargo had been upgraded to being unhealthy mostly for sensitive groups, such as older people and people with respiratory problems. The smoke is from dozens of fires burning in Saskatchewan, fed by drought and high temperatures. Because of the size of the fires, large amounts of smoke travel high into the atmosphere, where the upper layers have strong winds that can carry the smoke great distances.

World Suffering Surge in Extreme Rainfall Due to Climate Change - The world is suffering a surge in record-breaking rainfall because of climate change, scientists say. Extreme rains, like those that led to flooding and a cholera outbreak that killed hundreds in Pakistan in 2010, are happening 12 percent more often globally and 56 percent more frequently in Southeast Asia than if the world wasn’t warming, according a study by the Potsdam Institute for Climate Impact Research. “One out of 10 record-breaking rainfall events observed globally in the past 30 years can only be explained if the long-term warming is taken into account,” “For the last year studied, 2010, it is even one event out of four.” The results are the latest evidence of the dangers from climate change as negotiators from about 190 nations work on the first worldwide deal to curb greenhouse gases in richer and poorer nations alike. With emissions from fossil fuels at record levels, world temperatures are set to warm 3.6 degrees Celsius by the end of the century, the fastest shift in 10,000 years. The changes in rainfall are being felt differently in different places, with wet regions tending to see greater increase in record downpours and drier regions the opposite. While rains have increased 31 percent in Europe and 24 percent in central U.S., the Mediterranean and western U.S. are seeing decreases of 27 percent and 21 percent, respectively, meaning they’re at risk of severe droughts, the study showed. The scientists analyzed rainfall data from 1901 to 2010 from thousands of weather stations. The jump in record rainfalls fits the expected increase of how much water the atmosphere can store when temperatures rise, the authors wrote.

The beyond-two-degree inferno -- In the history of humankind, there is a dearth of examples of global threats so far-reaching in their impact, so dire in their consequences, and considered so likely to occur that they have engaged all nations in risk mitigation. But now with climate change, we face a slowly escalating but long-enduring global threat to food supplies, health, ecosystem services, and the general viability of the planet to support a population of more than 7 billion people. The projected costs of addressing the problem grow with every year that we delay confronting it. In recognition of the shared risks we face and the collective action that will be necessary, an international meeting of stakeholders will convene in Paris next week (www.commonfutureparis2015.org), ahead of the United Nations Climate Change Conference (COP21) in December, to discuss solutions for both climate mitigation and adaptation. The time for debate has ended. Action is urgently needed. The Paris-based International Energy Agency recently announced that current commitments to cut CO2 emissions [known as Intended Nationally Determined Contributions (INDCs)] from the world's nations are insufficient to avoid warming the entire planet by an average of more than 2°C above the preindustrial level. This is a target viewed as the boundary between climate warming to which we can perhaps adapt and more extreme warming that will be very disruptive to society and the ecosystems on which we depend (see Gattuso et al. on p. 45). To set more aggressive targets, developed nations need to reduce their per-capita fossil fuel emissions even further, and by doing so, create roadmaps for developing nations to leapfrog technologies by installing low-CO2–emitting energy infrastructure rather than coal-fired power plants as they expand their energy capacity.

MUST SEE NEW VIDEO of Prof. Peter Wadhams on the Arctic sea ice and the subsea methane problem -- The Intergovernmental Panel on Climate Change (IPCC) as well as world governments ignores the risks of an ice-free Arctic (Peter Wadhams). Rather, an ice-free Arctic is widely applauded by much of the world as a positive way forward for re-opening of northern shipping routes, new trips for cruise lines, and access to a huge cache of fossil fuels. According to Professor Peter Wadhams of Cambridge University, an ice-free Arctic with its concomitant methane outbreak potential is scarcely mentioned by the IPCC in its assessment. Evidently, the IPCC does not want to discuss the possibility of major catastrophes.In truth, an ice-free Arctic tempestuously opens up eons of methane entrapped ever since the last Ice Age. The ramifications are profound.  When the Vatican recently held meetings with leading scientists about climate change in preparation for the Pope’s encyclical of June 2015, one of the invited guest speakers was Professor Peter Wadhams. Assuming that the Pontifical Academy of Sciences listened carefully to his words, they may still be suffering from bouts of sleeplessness. Peter Wadhams, Professor of Ocean Physics and Head of the Polar Ocean Physics Group, Department of Applied Mathematics and Theoretical Physics, University of Cambridge, recently committed to a very candid interview: “Our Time is Running Out – The Arctic Sea Ice is Going,” (all subsequent quotes are from that interview). “I’ve been measuring the ice thickness go down by 50% over the last 30 years. In the summer for instance, you used to see very heavy pack ice so that a ship would have great difficulty getting through it. Today, it’s more like a blue planet. It’s almost an ice-free Arctic. That’s a big change.”

Pope: Duty to protect planet, calls for 'social justice' on resources - Pope Francis on Tuesday said protecting the planet was no longer a choice but a duty and called for a new "social justice" where access to the earth's resources would be based on equality instead of economic interests. In back-to-back speeches on the third day of his trip to Ecuador, the pope made his first full-court press on environmental issues since the publication last month of his landmark ecology encyclical "Laudato Si.". Speaking before a group that included indigenous people of the Equatorial Amazon, he also renewed his call for special protection for the area because of its vital importance to the planet's ecosystem. The pope has said he wanted the encyclical to influence a United Nations climate change summit in Paris in December and has now effectively taken his campaign to convince governments on the road. In September he takes his message to the United States and the United Nations. "One thing is certain: we can no longer turn our backs on reality, on our brothers and sisters, on Mother Earth," he said in a first speech at the Pontifical Catholic University of Ecuador. While he did not specifically mention climate change or its causes, he quoted often from the encyclical, which said there was a "very solid scientific consensus" on global warming and its human causes.

"And yet, humans can't seem to stop killing them" - This is a follow-up to Why Should We Protect Nature?, which I wrote earlier this week. The title quote occurs in a recent Huffington Post report called This Is How A Species Goes Extinct: More Than A Ton Of Frozen Pangolin Meat Seized In Indonesia. Pangolins are one of the planet's most unique and adorable species. The scaly, anteater-like creatures live in parts of Asia and Africa, and there's an entire task force dedicated to their protection. A popular Pokemon character, Sandslash, was even based on these "artichokes on legs." And yet, humans can't seem to stop killing them.  Authorities in Indonesia recently busted smugglers trying to transport 1.3 tons worth of dead pangolins into Singapore. Heart-wrenching photos taken by a Getty photographer show dozens of the animals frozen in their trademark armored ball before they were burned by customs officials on Wednesday. Warning: The pictures below may be upsetting to some readers.

Federal Appeals Court Rules Against Groups Trying To Block The Clean Up Of The Chesapeake Bay  - The future of the Chesapeake Bay looks a little cleaner Monday, after a federal appeals court struck down a case that sought to undermine an effort to clean up the bay. The Third Circuit Court of Appeals’ newly-released opinion upholds a decision made by a lower court that found that the Environmental Protection Agency-led cleanup effort, which involves all six states in the Chesapeake Bay watershed, is legal. The plan, called the Chesapeake Bay Clean Water Blueprint, establishes a Total Maximum Daily Load (TMDL) for how much nitrogen, phosphorus and sediment can enter the bay each year — limits that aim to cut these forms of pollution by 20-25 percent by 2025.  The EPA’s plan is being put in place by the states in the Chesapeake Bay watershed. But a range of agriculture groups, including the American Farm Bureau Federation, the Fertilizer Institute, and the National Pork Producers Council, have taken issue with the plan, with the Farm Bureau suing the EPA over it in 2011. That lawsuit garnered the support of 21 attorneys general from states almost exclusively outside the Chesapeake Bay region, who claimed that the rule constituted EPA overreach.  Their arguments, however, didn’t stand up in the appeals court. The court’s opinion made clear that the EPA’s regulation of nutrient pollution in the Chesapeake Bay under the Clean Water Act was valid, and that the Farm Bureau’s arguments against the plan were “unpersuasive.”

EPA Slams House Republicans For Trying To Gut Environmental Protections -- The heads of the Environmental Protection Agency (EPA) and the Office of Management and Budget (OMB) fired back Tuesday against a proposed budget from the the Republican-led House, telling reporters the appropriations bill is “short-sighted” with “terrible real-world consequences.”  The House of Representatives is currently debating an appropriations bill that would reduce the EPA’s budget by $718 million, or by 9 percent, and prohibit certain environmental regulations, including a sweeping proposal from the Obama administration to tackle carbon emissions.  “We are deeply disappointed in the bill,” OMB Director Shaun Donovan said on a call Tuesday. “Representatives are attempting to hijack the appropriations process.” Donovan told reporters the overall budget locks in sequestration for agencies like the EPA and reflects the lowest real levels of funding in a decade. Nearly every state has water or conservation projects that would be put on hold, he noted.  EPA chief Gina McCarthy echoed Donovan’s concerns, rattling off a litany of cuts the agency would experience. Under the appropriation bills, the EPA would be prohibited from finalizing the Clean Power Plan. The bill would also delay implementation of the Waters of the United States rule, which offers protection to two million miles of streams and 20 million acres of wetlands. A grant program to revitalize brownfields would be reduced by a third. “The protection of public health and the environment will be compromised,” McCarthy said. She added that the practical results will also be more costly than implementing the programs. Thousands of construction jobs will be lost just through cuts to the revolving fund, a financing mechanism that allows states and municipalities to invest in clean water projects, she said.

When the End of Human Civilization Is Your Day Job -- The incident was small, but Jason Box doesn't want to talk about it. He's been skittish about the media since it happened. This was last summer, as he was reading the cheery blog posts transmitted by the chief scientist on the Swedish icebreaker Oden, which was exploring the Arctic for an international expedition led by Stockholm University. "Our first observations of elevated methane levels, about ten times higher than in background seawater, were documented . . . we discovered over 100 new methane seep sites....." As a leading climatologist who spent many years studying the Arctic at the Byrd Polar and Climate Research Center at Ohio State, Box knew that this breezy scientific detachment described one of the nightmare long-shot climate scenarios: a feedback loop where warming seas release methane that causes warming that releases more methane that causes more warming, on and on until the planet is incompatible with human life. And he knew there were similar methane releases occurring in the area. On impulse, he sent out a tweet. "If even a small fraction of Arctic sea floor carbon is released to the atmosphere, we're f'd." The tweet immediately went viral, inspiring a series of headlines:  Now, with one word, Box had ventured into two particularly dangerous areas. First, the dirty secret of climate science and government climate policies is that they're all based on probabilities, which means that the effects of standard CO2 targets like an 80 percent reduction by 2050 are based on the middle of the probability curve. Box had ventured to the darker possibilities on the curve's tail, where few scientists and zero politicians are willing to go. Worse, he showed emotion, a subject ringed with taboos in all science but especially in climate science.

Exxon knew of climate change in 1981, email says – but it funded deniers for 27 more years - ExxonMobil, the world’s biggest oil company, knew as early as 1981 of climate change – seven years before it became a public issue, according to a newly discovered email from one of the firm’s own scientists. Despite this the firm spent millions over the next 27 years to promote climate denial. The email from Exxon’s in-house climate expert provides evidence the company was aware of the connection between fossil fuels and climate change, and the potential for carbon-cutting regulations that could hurt its bottom line, over a generation ago – factoring that knowledge into its decision about an enormous gas field in south-east Asia. The field, off the coast of Indonesia, would have been the single largest source of global warming pollution at the time. “Exxon first got interested in climate change in 1981 because it was seeking to develop the Natuna gas field off Indonesia,” Lenny Bernstein, a 30-year industry veteran and Exxon’s former in-house climate expert, wrote in the email. “This is an immense reserve of natural gas, but it is 70% CO2,” or carbon dioxide, the main driver of climate change. However, Exxon’s public position was marked by continued refusal to acknowledge the dangers of climate change, even in response to appeals from the Rockefellers, its founding family, and its continued financial support for climate denial. Over the years, Exxon spent more than $30m on thinktanks and researchers that promoted climate denial, according to Greenpeace. Exxon said on Wednesday that it now acknowledges the risk of climate change and does not fund climate change denial groups.

Internal Documents Expose Fossil Fuel Industry’s Decades of Deception on Climate Change  - Back in 2007, a Union of Concerned Scientists (UCS) report revealed that ExxonMobil—then the world’s largest publicly traded oil and gas company—had spent $16 million between 1998 and 2005 on a network of more than 40 front groups to try to discredit mainstream climate science. Billionaire industrialists Charles and David Koch, meanwhile, were outed by a 2010 Greenpeace report revealing they spent significantly more than ExxonMobil between 2005 and 2008 on virtually the same groups. Many of those groups and the scientists affiliated with them had previously shilled for the tobacco industry.  Despite their outsized role, ExxonMobil and the Koch brothers are just a part of a much bigger story, according to a new UCS report, “The Climate Deception Dossiers.” After spending nearly a year reviewing a wide range of internal corporate and trade association documents pried loose by leaks, lawsuits and Freedom of Information Act (FOIA) requests, UCS researchers have compiled a broader tale of deceit. Drawing on evidence culled from 85 documents, the report reveals that ExxonMobil and five other top carbon polluters—BP, Chevron, ConocoPhillips, coal giant Peabody Energy and Royal Dutch Shell—were fully aware of the reality of climate change but continued to spend tens of millions of dollars to promote contrarian arguments they knew to be wrong. Taken together, the documents show that these six companies—in conjunction with the American Petroleum Institute (API), the oil and gas industry’s premier trade association, and a host of front groups—have known for at least two decades that their products are harmful and have intentionally deceived the public about the climate change threat.

A Key Moment is Coming for the IPCC’s Future -  Stavins -- About six month ago, I posted an essay at this blog (The IPCC at a Crossroads, February 26, 2015) highlighting some of the challenges faced by the Intergovernmental Panel on Climate Change (IPCC), which plays an important role in global climate change policy around the world. [In previous essays at this blog, I wrote about problems with the IPCC process (Is the IPCC Government Approval Process Broken?, April 25, 2014) and about its significant merits (Understanding the IPCC: An Important Follow-Up, May 3, 2014; The Final Stage of IPCC AR5 – Last Week’s Outcome in Copenhagen, November 4, 2014)]. Now is an important moment to think carefully about the path ahead for this much-maligned and much-celebrated organization, because in early October of this year, the 195 member countries of the IPCC (who together constitute this “intergovernmental panel”) will meet in plenary in Dubrovnik, Croatia, to elect a new Chair, who will lead the IPCC’s Sixth Assessment Report (AR6). There are some excellent candidates for the chairmanship. I hope they see (and read) today’s essay.As I’ve said before, the IPCC is at a crossroads. Despite its many accomplishments, this institution, like many large institutions, has experienced severe growing pains. Its size has increased to the point that it has become cumbersome, it sometimes fails to address the most important issues, and – most striking of all – it is now at risk of losing the participation of the world’s best scientists, due to the massive burdens that participation entails.

Stiglitz Calls Climate Talks a ‘Charade,’ Pushes Plan C -- Joseph Stiglitz, the Nobel laureate economist, is trying to persuade global-warming negotiators that they're marching up a blind alley.  That's not a message the negotiators want to hear, but Stiglitz doesn't care. "I’m saying we ought to be facing reality. We have to learn from our failures," Plan A for climate change was a cap-and-trade system: Set caps on the amount of greenhouse gases that countries could spew into the air, then let those countries trade their emission rights with each other. Emitters that can cut cheaply make the biggest reductions, so cap-and-trade achieves any given amount of emission reductions at the lowest possible cost. But cap-and-trade won't work without enforceable caps, and countries haven't been able to agree on what those caps should be. Stiglitz says that's inevitable. Giving big allowances to big emitters inadvertently rewards them for having caused a lot of global warming in the past and is "clearly morally and politically unacceptable," Stiglitz says. On the other hand, giving allowances to countries on a per-capita basis would be attractive to poor ones with large populations, but "I don’t see any hope of getting the United States to agree to an equal sharing of carbon space." His bottom line: "Cap-and-trade is doomed to failure." He isn't impressed with Plan B, either, which is the voluntary commitments that countries have been announcing leading up to the Paris summit. "In the absence of more forceful actions, voluntary actions simply don’t solve problems of global public goods," he says. In other words, countries won't do enough if there's no compulsion involved. Stiglitz's plan is to set a single, global price for carbon dioxide, the most important greenhouse gas. The idea is to make it so expensive to use carbon that consumers and businesses voluntarily use less of it. Countries could raise the price of carbon either with a tax or with a domestic cap-and-trade system, Stiglitz says. In his vision, if a country didn't set its carbon price high enough, hoping to gain a pricing advantage, other countries would be allowed to charge tariffs on its exports. He would throw in a green fund to compensate hard-hit poor countries.

Saving China from itself: how the world's biggest polluter is dealing with climate change: The vastness of China and its variable climes present contrasting ecological problems linked with changing climate patterns. In the far-western reaches, environmentalists are documenting the effects of melting icecaps across the Tibetan plateau. Down south, climate scientists study an increase in heavy storms and the risks of rising sea levels on coastal cities. But it is the large industrialised cities, where the factories, construction sites, and coal-fired power plants have fuelled the engine room of modern China's surging economic growth, which are proving the catalyst for an urgent shift in the government's environmental disposition. China's greenhouse-gas emissions were about 10 per cent of the world's total in 1990. Now they are closer to one-third. China burns through nearly as much coal as the rest of the world combined; and since 1990 the country has accounted for more than 80 per cent of the global growth in carbon emissions. In hindsight, the rancid smog that choked Beijing in early 2013 could go down in history as a game changer. The air quality readings consistently hit levels more than 40 times what the World Health Organisation deems safe, sparking popular outrage. A study released by the National Academy of Sciences in the US found that air pollution in northern China reduces life expectancy by 5½ years. The indications are that the ruling Communist Party is doing more than just paying lip service. There are already clear signs that China's coal usage has peaked and is falling faster than previously imaginable. China has banned the import of dirty coal and pushed large investments into renewable energy, including wind, solar and hydro. It is investigating ways to nationalise a string of pilot emissions-trading schemes already operating in various provinces.And in November, it caught many international observers off guard by making a joint announcement on climate change with the United States, a strategic rival in almost every other respect. China intends to see its carbon emissions peak by 2030 and increase the share of non-fossil fuels in energy consumption to about 20 per cent in the same time frame.

Bye-bye renewable energy in Cali, hello power plants in Ohio --  Now that it is officially a player in Ohio’s power plant community, Dynegy Inc. wants to say good-bye to its renewable energy plants in California and completely move into the Midwest. After spending $2.8 billion on 11 Midwest power plants and adding significant growth to its portfolio, Dynegy’s CEO Bob Flexon says the company is going to take a serious look at the region. During an interview with Bloomberg, Flexon explained that due to the glut in solar energy and California market prices taking hits, Dynegy will eventually leave California. According to Flexon, ISO New England and PJM Interconnection LLC, in which Ohio is included, are more successful at compensating generators. California, on the other hand, is not. Generators in California have said that fossil-fuel plants are struggling to make money due to the state’s market design. As reported by Bloomberg, Flexon said, “PJM’s wholesale auction for power capacity in a few weeks should provide generators an ‘uplift’ in revenue.” Flexon explained Dynegy’s investments are going to be in markets that have the best market designs out there, and he will minimize any investment the company has in California dues to its “hostile” business atmosphere. Flexon believes the company’s best interests are in the Midwest and East thanks to the regions abundance of natural gas.

Why Would 46 Senators Support Burning Trees for Electricity When It Contributes More to Climate Change Than Coal? -- Chopping down trees and feeding them to power plants for electricity is a genuinely awful idea. It hurts biodiversity, belches toxic chemicals and contributes more to climate change than coal—all while masquerading as a source of clean “renewable” energy. Unfortunately, none of this stopped 46 senators from publicly endorsing the idea last week. Led by Sen. Susan Collins (R-ME) and Sen. Jeff Merkley (D-OR), the group wrote a letter to the U.S. Environmental Protection Agency, U.S. Department of Agriculture and Department of Energy demanding that the agencies accept something that is clearly, demonstrably false: that biomass power is carbon neutral. While the letter was chock full of anti-science Senators like David Vitter (R-LA), others like Diane Feinstein (D-CA) and Jeanne Shaheen (D-NH) fancy themselves climate leaders and should know better.  The science is clear. Sending whole trees through the smokestacks of power plants is a terrible way to generate electricity. Even using rosy accounting assumptions, it could take at least 50 years to work-off the carbon debt and break even with coal, meaning that burning wood now puts extra emissions into the atmosphere at precisely the time when reductions are most important. At the end of the day it is simply an inefficient source of electricity, emitting 50 percent more carbon than coal generating the same amount of energy. Leaving trees alone and allowing them to function as natural carbon sinks is a much more effective way to mitigate climate change.

Military Spending Could Give Big Boost to Renewable Energy -- Last month, an estimated 1,700 NATO troops undertook a military exercise to test a range of renewable and energy efficiency technologies that will hopefully reduce NATO’s reliance on fossil fuels. With thousands of soldiers killed or injured in attacks on fuel convoys across conflict zones, reducing the military’s vulnerability is critical.  However, it is not just military operations but also humanitarian assistance efforts that stand to gain from greater innovation in renewable deployment and efficiency in complex and dangerous situations. Delivering fuel to combat zones is both risky and expensive. Attacks on fuel convoys in places like Iraq and Afghanistan are all too common. More than 3,000 U.S. soldiers have been killed or injured in Afghanistan since September 11, 2001 due to attacks on fuel convoys. Fuel makes up around half of all goods transported by convoy. And there are few alternatives. Airdrops are one option but they are expensive and arguably wasteful. Up to seven gallons of fuel are required for every gallon delivered to a remote base and drops are not always well targeted. NATO began its Smart Energy program in 2011 to explore ways to improve the use of solar energy and storage options as well as innovations in micro grid technology to better manage energy use at base and on the move. Small scale wind and solar are the main contenders for power generation on remote bases.The U.S. Department of Defense created the Office of the Assistant Secretary of Defense for Operational Energy in 2010 to research new approaches to energy security. Programs are exploring efficient generators, advanced batteries, portable solar arrays, and improved insulation to reduce costs and fuel drops. Air conditioning alone costs billions of defense dollars per year, for example.

Cyber attack on U.S. power grid could cost economy $1 trillion: report --- A cyber attack which shuts down parts of the United States' power grid could cost as much as $1 trillion to the U.S. economy, according to a report published on Wednesday. Company executives are worried about security breaches, but recent surveys suggest they are not convinced about the value or effectiveness of cyber insurance. The report from the University of Cambridge Centre for Risk Studies and the Lloyd's of London insurance market outlines a scenario of an electricity blackout that leaves 93 million people in New York City and Washington DC without power. The scenario, developed by Cambridge, is technologically possible and is assessed to be within the once-in-200-year probability for which insurers should be prepared, the report said. The hypothetical attack causes a rise in mortality rates as health and safety systems fail, a drop in trade as ports shut down and disruption to transport and infrastructure. "The total impact to the U.S. economy is estimated at $243 billion, rising to more than $1 trillion in the most extreme version of the scenario," the report said. The losses come from damage to infrastructure and business supply chains, and are estimated over a five-year time period. The extreme scenario is built on the greatest loss of power, with 100 generators taken offline, and would lead to insurance industry losses of more than $70 billion, the report added. There have been 15 suspected cyber attacks on the U.S. electricity grid since 2000, the report said, citing U.S. energy department data.

Japan’s 17,000 Tons of Nuclear Waste in Search of a Home - Welcome to Japan, land of cherry blossoms, sushi and sake, and 17,000 metric tons of highly radioactive waste. That’s what the country has in temporary storage from its nuclear plants. Supporters of atomic power say it’s cleaner than fossil fuels for generating electricity. Detractors say there’s nothing clean about what’s left behind, some of which remains a deadly environmental toxin for thousands of years. Since atomic power was first harnessed more than 70 years ago, the industry has been trying to solve the problem of safe disposal of the waste. Japan has been thrown into the center of the conundrum by its decision in recent months to retire five reactors after the Fukushima disaster in 2011. “It’s part of the price of nuclear energy,” “Now, especially with the decommissioning of sites, there will be more pressure to do something with this material. Because you have to.” For more than half a century, nuclear plants in more than 30 countries have been humming away -- lighting up Tokyo’s Ginza, putting the twinkle into New York’s Broadway and keeping the elevators running up the Eiffel Tower. Plus powering appliances in countless households, factories and offices around the world. In the process, the world’s 437 operating reactors now produce about 12,000 tons of high-level waste a year, or the equivalent of 100 double-decker buses, according to the World Nuclear Association. The U.S., with the most reactors, spent an estimated $15 billion on a site for nuclear refuse in Yucca Mountain, Nevada. Local opposition derailed the plan, meaning about 49,000 tons of spent fuel sits in cooling pools at nuclear plants around the country. Japan faces another challenge. Four years ago, the country had a nuclear accident unlike anything seen before. An earthquake and tsunami ripped through the engineering defenses at the Fukushima plant north of Tokyo and caused the meltdown of three reactors. It will need billions of dollars and technology not yet invented to clean up Fukushima. How long that will take is disputed. The operator, Tokyo Electric Power Co., estimates 40 years. Greenpeace says it could take twice that time.

This dome in the Pacific houses tons of radioactive waste – and it's leaking - Black seabirds circle high above the giant concrete dome that rises from a tangle of green vines just a few paces from the lapping waves of the Pacific. Half buried in the sand, the vast structure looks like a downed UFO. At the summit, figures carved into the weathered concrete state only the year of construction: 1979. Officially, this vast structure is known as the Runit Dome. Locals call it The Tomb. Below the 18-inch concrete cap rests the United States’ cold war legacy to this remote corner of the Pacific Ocean: 111,000 cubic yards of radioactive debris left behind after 12 years of nuclear tests. Brackish water pools around the edge of the dome, where sections of concrete have started to crack away. Underground, radioactive waste has already started to leach out of the crater: according to a 2013 report by the US Department of Energy, soil around the dome is already more contaminated than its contents. Marshall Islands Now locals, scientists and environmental activists fear that a storm surge, typhoon or other cataclysmic event brought on by climate change could tear the concrete mantel wide open, releasing its contents into the Pacific Ocean. “Runit Dome represents a tragic confluence of nuclear testing and climate change,” said Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia University, who visited the dome in 2010. “It resulted from US nuclear testing and the leaving behind of large quantities of plutonium,” he said. “Now it has been gradually submerged as result of sea level rise from greenhouse gas emissions by industrial countries led by the United States.”

Shenhua coal mine's footprint larger than City of Sydney, Melbourne -- This is the disturbance area of the Shenhua Watermark coal mine plonked on to Sydney and, below, Melbourne. The mine's disturbance area of 4084 hectares is twice that of Whitehaven's controversial Maules Creek mine (2178 hectares), the largest coal mine under construction in Australia.  It is also 1½ times the land area of the City of Sydney (2670 hectares) and about 1.1 times the City of Melbourne (3735 hectares). The $1.2 billion mine will be located 25 kilometres south-east of the northern NSW town of Gunnedah. It has won conditional federal government approval, despite the vehement opposition of the peak NSW farm group. Owned by China's state-controlled Shenhua Group, the mine will be located in some of Australia's most productive farmland. It is approved to extract up to 10 million tonnes a year for up to 30 years.  Environment Minister Greg Hunt has sought to reassure the public, saying the project is subject to "18 of the strictest conditions in Australian history", informed by independent scientific advice.

US 2015 coal production at lowest level since 1987: EIA - US coal production is expected to total an estimated 921.5 million st in 2015, down 7.5% from 2014 and the lowest total since 1987, a coal analyst for the Energy Information Administration said Tuesday. Production totals could get pulled down further as a mild summer and continued low natural gas prices weaken domestic coal demand, said Elias Johnson, who co-authored the Short-Term Energy Outlook for July. "If demand doesn't really rebound because of a warm summer, we could see consumption go even lower and that could lead to production going down," Johnson said. "We'll see what the summer does." Production is expected to drop in each of the three coal producing regions. The Appalachian region will drop to 237.5 million st, down 12.1% from 2014, the Interior region will drop to 182.2 million st, down 2.7%, and the West will drop to 501.8 million st, down 6.9%, according to the EIA.Coal exports also are expected to drop to 87.4 million st, down 10.2% from 2014. In 2016, the EIA projects exports will total 88.2 million st. The EIA also projects coal consumption for electricity generation will decline to 794.8 million st, down 6.6% from 851.4 million st in 2014. In 2016, the agency estimates electric power consumption will total 805 million st, up 1.3% from this year. Factors behind the drop in consumption include low natural gas prices and less demand due to a mild winter. A mild summer could bring down those totals further, Johnson said. Last week's Supreme Court ruling that remanded the Environmental Protection Agency's Mercury and Air Toxic Standards, or MATS, back to lower courts, also is not expected to help as the EIA has not heard of any generator changing course on retiring coal plants, Johnson said.

Community leaders join environmental group asking Kasich to support local anti-fracking efforts – A citizen-based environmental advocacy group today delivered a letter signed by more than 100 elected officials calling on Gov. John Kasich to support the authority of local communities to limit and prohibit fracking operations within their borders. "Our message is clear," Sarah Frost, outreach director for Environment Ohio, said in a conference call with reporters. "Fracking brings local harm, contaminating our drinking water, polluting our air and causing earthquakes. So it should be subject to local control." The letter, signed by 74 elected officials from Northeast Ohio, reads, in part:"As local elected officials, we are deeply concerned about the significant and growing threat hydraulic fracturing poses to our health and environment. We urge you to stand up for the right of all communities to determine whether, where, and how this dirty drilling is conducted within their own borders."  Kasich could not be reached for comment this morning. The Ohio Supreme Court, in a 4-3 decision in February, denied home rule power by cities and villages when it shot down a bid by Munroe Falls to use zoning a to keep a fracking company from drilling an oil and gas well inside the city's limits. The court majority cited a 2004 state law, signed by then-Gov. Bob Taft, that gave the state "sole and exclusive" power to regulate oil and gas production in Ohio. One of the signers of the Environment Ohio letter, James O'Reilly, a law professor at the University of Cincinnati and a councilman in the Hamilton County city of Wyoming, said the Supreme Court decision showed the influence of the Statehouse oil and gas lobby in Columbus.But O'Reilly said local communities are not powerless to make their own choices about whether to welcome or reject oil- and gas-drilling operations into their neighborhoods.

Local officials seek more local control from Ohio on drilling - More than 100 mayors, county commissioners, city councilors, and other local elected officials from communities across Ohio issued a letter to Governor John Kasich today, calling for the local authority to limit and prohibit dangerous fracking operations. The letter’s release follows another setback in courtfor communities seeking to ban or regulate the dirty drilling practice. “As local elected officials, we are deeply concerned about the significant and growing threat hydraulic fracturing poses to our health and environment,” reads the letter, organized by the advocacy group Environment Ohio, a member of the Environment America federation. “We urge you to stand up for the right of all communities to determine whether, where, and how this dirty drilling is conducted within their own borders.” Many of fracking’s impacts-- from air and water pollution to earthquakes and ruined roads-- are borne most heavily at the local level, prompting communities in Ohio and across the country to pass measures to regulate or ban the practice. “When the gas drillers see Ohio in their rear view mirror, we’ll want to know that we did everything we could to protect our communities from their harms,” said James O’Reilly, Wyoming City Council Member and University of Cincinnati Professor of Law and Public Health. In response to more than 100 local efforts to ban or regulate fracking nationwide, the oil and gas industry has paired up with state officials in many cases to strike back. In Ohio, a 2004 state law handed exclusive authority to the Ohio Department of Natural Resources to regulate and permit oil and gas wells. Since then, in court cases all the way up to the Ohio Supreme Court, judges have used the law to strike down local measures that block or restrict oil and gas drilling.

Ohio communities want control over fracking - More than 100 local officials asked Gov. John Kasich for the authority to ban or regulate oil and gas drilling after several courts said they had little power. A recent Ohio Supreme Court decision said state officials, not local ones, have the power to approve the location of wells used in the oil and gas drilling process called fracking. The case started when the Ohio Department of Natural Resources allowed a company to drill in an Akron suburb without city officials' approval. Since then, Cuyahoga County and Athens County courts ruled that charter cities, like Broadview Heights and Athens, don't have the power to ban fracking. That could be a problem for cities like Mansfield, where officials have said their charter status protects them from the state supreme court decision. City and county leaders say they should have more control over potentially dangerous chemicals introduced into their air and water. They asked Kasich in a letter to "stand up for the right of all communities to determine whether, where, and how this dirty drilling is conducted within their own borders." "Fracking brings local harm, so it should be subject to local control," said Sarah Frost, outreach coordinator for Environment Ohio, a non-profit environmental group that collected signatures. She cited a house explosion in Geauga County, earthquakes in Youngstown and a fire in Monroe County as examples of the dangers associated with fracking. But don't expect much change. Kasich spokesman Jim Lynch said Ohio has some of the strongest and most comprehensive fracking regulations in the country. The Ohio Oil and Gas Association would rather be regulated by the state, too.

Anti-fracking ‘bill of rights’ template loses again- The template for community bill of rights protections against oil and gas fracking and related activities lost another Ohio court case last week. The most recent legal defeat leaves that strategy for enacting local drilling bans and regulations 0-2 so far this year in the Buckeye State. That’s in addition to an Ohio Supreme Court decision that overruled local drilling regulations. The city of Athens has a similar bill of rights on the books, and a local group is pushing to place a charter amendment for Athens County on the November general election ballot.  Notably, none of the judges ruling in the three cases so far, including Cuyahoga County Common Pleas Judge Timothy McCormick in the most recent dismissal, have addressed the core legal reasoning behind these local efforts. For the most part, the courts have ignored these legal arguments. This strategy argues that local citizens have an inherent right to self-government, guaranteed by both the U.S. and state constitutions, and as a result hold the right to pass laws to protect their health, safety and welfare. The main motivation for passing these laws has been to regulate and/or ban oil and gas drilling and associated fracking waste injection wells. In a ruling last Wednesday, Judge McCormick dismissed a class-action lawsuit filed by Mothers Against Drilling in Our Neighborhood (MADION), and its individual members, against the state of Ohio, the city of Broadview Heights, and two energy companies. He cited the Ohio Supreme Court’s Feb. 17 decision in Morrison vs. Beck Energy Corp., a case involving Munroe Falls, Ohio’s attempts to regulate oil and gas drilling with zoning laws. A 4-3 high-court majority ruled that the state constitution grants the General Assembly the authority to pass laws for “the regulation of methods of mining, weighing, measuring and marketing coal, oil, gas, and all other materials.”

Athens County Commissioners request freeze on new injection wells - The Athens County Commissioners voted to request that state officials stop issuing new oil-and-gas injection well permits in Ohio. The vote by the commissioners to request this moratorium is the result of a June 30 meeting with members of the Athens County Fracking Action Network (ACFAN). Roxanne Groff, a member of ACFAN and Bern Township trustee, said the resolution drafted by the anti-fracking group expresses the frustrations of citizens and local officials who see more harm than benefit in the approval of new injection wells. Injection wells are used to dispose of waste, including frack waste, from oil and gas wells. Currently, there are seven injection wells in Athens County, according to a previous Post report.  “We’re getting all of this out-of-state and in-state waste, and it’s the shale gas extraction wastewater that is filled with toxic chemicals and radioactivity. No one at the state level will listen to us.”  According to the resolution, Athens County received almost 3 million barrels of toxic, radioactive waste in 2014 with over 80 percent of the waste coming from outside Ohio. She added that 37 countries out of the 88 in Ohio host injection wells, 21 of them being Appalachian counties. Groff and Athens County Commissioner Chris Chmiel hope other counties will join with similar resolutions in order for state officials like Ohio Gov. John Kasich and the Ohio Department of Natural Resources to take notice of citizens’ concerns.“I think that’s the only way that something is going to happen, if there’s a broad, geological coalition here and not just a couple counties in one part of the state,” Athens County is not the first county in Ohio to propose a moratorium, as Trumbull County Commissioners approved a similar resolution last week. Both counties were No. 1 and No. 3 in the state for having fracking waste injected through the first quarter of 2015. Groff said Meigs County is hopefully looking into voting on a moratorium also.

Group seeks to block fracking-ban amendment - WKBN.com  – A group of labor leaders and business owners wants to see an end to ballot issues trying to ban hydraulic fracturing in Youngstown.  The group is calling themselves “Voters for Ballot Integrity.” They believe local elected leaders should be able to keep fracking opponents from going back to the ballot for a fifth time after four previous attempts to amend Youngstown’s charter failed.  Members of the group claim thousands in tax dollars are being wasted every time groups like Frack Free Mahoning Valley mount another effort. “Why do we have to put up this fight? You know, for something that the voters have clearly four times said we don’t want. It is bad legislation. But here we are again, looking at it in November. We have better things to spend our time on, like our schools,” Mahoning-Trumbull AFL-CIO member Bill Padisak said. Padisak and the others say since the state controls oil and natural gas drilling, any attempt to ban fracking at the local level can’t be enforced even if it is approved.  “This is shocking. And this should not have to happen. We as small business people, we need to generate jobs, we need to have a vibrant community, because that is what makes our business grow,” Camelot Lanes owner Bob Smith said. However, Youngstown Mayor John McNally said as long as supporters collect enough valid signatures, the city would be required to put it on the ballot and let voters decide.“In respect to the mayor, I just do believe that there is more that the city, the county, can do,” Butch Taylor of the local Plumbers and Pipefitters Union said.  For starters, members of the group believe elected leaders and others should do more to educate the community that a ban on hydraulic fracturing would hurt the Valley’s economy as a whole.

Dangers Below Can Accompany Abandoned Wells - - More than a million oil and natural gas wells were drilled in this country before anyone really knew how to plug them. Once the oil or gas was gone, the wells were abandoned with little thought of future consequences. Some have been open holes in the ground since the 1800s. Others are plugged with little more than dirt and logs. For decades, old abandoned wells have leaked oil, natural gas and brine into soil and drinking water, and posed an explosion risk. The danger is often hidden. Hundreds of thousands of abandoned wells were never properly mapped. Many of the companies that drilled them no longer exist. Abandoned wells lurk beneath homes and buildings in Ohio; under the busy streets of Los Angeles and the sparse Oklahoma plains; and in parks, backyards, forests, cornfields and cemeteries from Appalachia to the Pacific Ocean. Abandoned wells are the unwanted legacy of 150 years of drilling booms and busts. Now those old wells pose a new danger as the country rides another petroleum boom driven by hydraulic fracturing techniques that unlock vast new reserves. Most drilling is concentrated in Texas, Oklahoma, North Dakota, Colorado, Pennsylvania, Ohio, West Virginia and Louisiana — a list that includes states with large numbers of abandoned wells.  When abandoned wells are near the rock layer being fractured, the increased underground pressure can cause the old wells to leak oil and gas, similar to the way squeezing a juice box squirts liquid from the straw. Potentially toxic fracking fluid also can flow though old wellbores to other underground layers.

Gas Production On Fire in US - -- Even amid a drilling slowdown, nationwide natural gas production averaged 91.54 billion cubic feet per day in April compared to 85.8 Bcf per day in April 2014, according to the U.S. Energy Information Administration. Corky Demarco, executive director of the West Virginia Oil and Natural Gas Association, is impressed by the 3.69 daily Bcf the Mountain State is pumping. However, he said this is likely just the beginning because of the Rogersville shale underlying much of the southwestern portion of the state. "We have barely begun to scratch the surface of this Appalachian Basin," he said of the area that includes the Marcellus and Utica shale region. "It's all about supply and demand. Now that we have the demand - and we have the new technology of horizontal drilling - we can go after the deeper formations because it is economical." Demarco said drillers are now working in the Rogersville shale area, which he said includes the areas of Parkersburg and Charleston, all the way into Kentucky. He said a test well drilled in Putnam County went about 14,000 feet deep, or about 2.6 miles, into the earth to reach the Rogersville. By comparison, a typical Marcellus well only dives about half that far into the earth. "The early tests show it as a gas play on the West Virginia side and an oil play on the Kentucky side," Demarco said of the Rogersville. "And we have even more we can go to now because of the technology."

State DEP to use in-house database to collect fracking, well site data - The state Department of Environmental Protection is creating its own electronic database that will record all of the chemicals gas companies use in the hydraulic fracturing process. Since 2012 the state has mandated that companies list the chemicals used in the fracking process and, until now, had used an independent source called FracFocus to run the database. But DEP officials wanted a more comprehensive, searchable database that includes not just chemicals but well site locations, inspection records and other detailed information. DEP spokeswoman Amanda Witman said Thursday that the new database should be up and running by June 2016. FracFocus, which is used in several states other than Pennsylvania, had long served a purpose for allowing residents to search for fracking information, but the DEP thought it was time to increase the amount of data available. "FracFocus is an important tool but did not have all of the information DEP wants to make available in a searchable online tool,” Witman said.

Waste sand concern for landfill opponents - Some opponents of Keystone Sanitary Landfill’s expansion plan are uneasy that the facility can accept sand that is a byproduct of hydraulic fracturing, even as the landfill has not accepted any of it and some industry experts say the byproduct is not dangerous. Drillers pump water, additives and sand into the Marcellus Shale to extract natural gas. The sand holds underground voids open, but some of it escapes with the water and must be disposed of. Keystone is the only landfill in the state Department of Environmental Protection’s Northeast Region approved to accept flow-back sand from fracking operations but has never actually taken the byproduct to date, agency spokeswoman Colleen Connolly said. As of May 2013, Keystone was approved to take 19 sets of 4,000 tons of the material for a one-time total of 76,000 tons. Currently, 19 other landfills, in the Pittsburgh area, also have approval to take the flow-back sand. Keystone initially obtained the necessary forms to accept the material at the request of a gas company but has no interest in taking the sand now, landfill consultant Albert Magnotta said. Friends of Lackawanna was unaware of the approvals before they came up in DEP’s recent public meeting and is “very concerned” about the idea the operation could someday accept the material, said Michele Dempsey, a leader in the Friends group opposed to Keystone’s proposed nearly half-century expansion. Researchers know too little about the long-term health effects of fracking waste, she said.

Marcellus permit activity in Pennsylvania - The Marcellus Shale formation in Pennsylvania saw quite a bit of action over the last week. However, while drilling is continuing, so is the great battle over royalty payments. Pennsylvania Representative Garth Everett (R-Lycoming) announced last week that he is pushing his royalties bill once more. House Bill 1319 focuses on Pennsylvania landowners and making sure they receive fair royalty payments from natural gas drilling companies. Everett first introduced H.B. 1319 last year, but it did not make it on to the floor for voting, which is where Everett believes it would have been successful: It’s being held up in strategic places by strategic people– the leadership in the Republican caucus … We just need to convince them. There are so many of us in favor of the bill, they’re obligated to allow us to take it to the floor.The measure is an attempt to address complaints that have been made towards gas companies shorting lease holders on their royalty payments. Select gas companies have been charging people exorbitant fees, which are also known as post-production costs. These costs include the cost of processing and transporting natural gas through pipelines and compressor stations. Due to these incidents occurring, several landowners have filed lawsuits, and those lawsuits are now affecting leasing for public land at state and local jurisdictions. To read the full story regarding House Bill 1319 and landowners receiving fair royalty payments, click here. The following information is provided by the Pennsylvania Department of Environmental Protection and covers June 22nd through June 28th. New: 47 - Renewed: 7. Top Counties by Number of Permits Greene: 13 - Bradford: 9 - Washington: 9 - Beaver: 5

River basin watchdogs OK pipeline permits - The Constitution Pipeline company has cleared another significant hurdle in the regulatory review process, getting approval from the Susquehanna River Basin Commission to withdraw millions of gallons of water needed to pressure-test the 124-mile pipeline once it is installed. The planned withdrawals include two from the local region — up to 4 million gallons from the Charlotte Creek in Davenport and up to 9.4 million gallons from the Ouleout Creek in the town of Sidney. SRBC officials said in the permit approvals that “no adverse impacts are anticipated by the operation of this project.” The approvals were noted in a project update the company sent Tuesday to the Federal Energy Regulatory Commission, the agency that is overseeing the federal licensing of the $683 million project that would send shale gas harvested in Pennsylvania to a compressor station in the Schoharie County town of Wright. “This permit provides direction we must follow during the withdrawal and discharge of the water that will be used during our hydrostatic test, which is a key pipeline safety test used to ensure the integrity of the pipeline prior to placing it into service,” said Christopher Stockton, a spokesman for the pipeline project.

Gas storage suspect in Seneca's salt problem - Seneca Lake's deep, sparkling waters hold an ecological mystery central to the gas storage controversy. The lake — source of drinking water to more than 100,000 people along the lake in Schuyler County — is four to five times saltier than its neighboring Finger Lakes. It is so salty, in fact, people on severely sodium-restricted diets are warned about consuming its water. State Administrative Law Judge James McClymonds is reviewing theories on the cause. The question at hand: is the saltiness a natural phenomenon, or was it caused or worsened by previous salt mining and gas storage at the southwest end of the lake?   John Halfman, a professor of hydrogeochemistry at Hobart William and Smith, has spent a large part of his career studying the salt levels of the lake. He says both theories are plausible. Geology underlying the lake has always been rich with salt. But the salt levels in the lake itself have risen significantly since the beginning of the 20th century, along with the development of the salt mining industry, according to Halfman's research. Levels spiked in 1960 when the gas industry began using the salt mines for storage and they peaked at close to 100 milligrams per liter around 1970. They have since dropped to between 75 and 80 milligrams per liter, but remain well above levels from the period prior to salt mining and gas storage.

Gas Free Seneca supports Gillibrand’s attempt at heritage designation — Gas Free Seneca is supporting U.S. Sen. Kirsten Gillibrand’s push to find out if the Finger Lakes region should be declared a National Heritage Area. Gillibrand, D-N.Y., announced last week she would advocate for legislation funding a study exploring a possible NHA designation. The study area would encompass several counties, including Ontario , Wayne , Seneca and Yates. Gas Free Seneca, a coalition opposing Crestwood Midstream’s plan to store liquefied petroleum gas in abandoned salt caverns on the southwest shores of Seneca Lake , applauded the news. “It is great for the Finger Lakes will be recognized as a heritage corridor,” said Scott Osborn, president and co-founder of Fox Run Vineyards in Benton , a Gas Free Seneca Business Coalition member and president of the recently formed Finger Lakes Wine Business Coalition. “This recognition would show that the Finger Lakes , with its pristine lakes, the historic wine industry and many small family farms, should be protected and appreciated as the national treasure it is.”

Dirty Energy vs. Clean Power: The Past Battles the Future at Seneca Lake - Let’s amend the famous line from Joni Mitchell’s “Yellow Taxi” to fit this moment in the Finger Lakes region of New York State. There, Big Energy seems determined to turn paradise, if not into a parking lot, then into a massive storage area for fracked natural gas. But there’s one way in which that song doesn’t quite match reality. Mitchell famously wrote, “Don't it always seem to go that you don't know what you've got till it's gone.” As part of a growing global struggle between Big Energy and a movement focused on creating a fossil-fuel-free future, however, the residents of the Finger Lakes seem to know just what they’ve got and they’re determined not to let it go. As a result, a local struggle against a corporation determined to bring in those fracked fuels catches a changing mood not just in the United States but across the world when it comes to protecting the planet, one place at a time, if necessary.  There’s a battle brewing between the burgeoning clean-energy future embraced by this region and the dirty energy sources on which this planet has been running since the Industrial Revolution.  Over the last six years, Crestwood Midstream Partners, a Texas-based corporation, has been pushing to build a gas storage and transportation hub for the entire northeastern United States at Seneca Lake.  The company’s statements boast about setting up shop “atop the Marcellus Shale play,” a hydraulic fracturing, or fracking, hotspot.  It plans to connect pipelines that will transmit two kinds of fracked gas -- methane and liquefied petroleum gas (LPG) -- probably from areas of the Marcellus Shale in Pennsylvania, Ohio, and West Virginia.  These will be stockpiled in long-abandoned salt caverns, the remnants of a nineteenth-century salt-mining industry that capitalized on the remains of a 300-million-year-old ocean that once was here.  Against the project, a motley coalition of farmers and vintners, doctors and lawyers, clean energy companies and reluctant do-it-yourself activists are focused on protecting this ecological marvel. Their goal: to guide the region toward a fossil-fuel-free future despite the deep pockets and corporate savvy of an out-of-state energy firm.

Watkins Glenn Gas Cavern Implodes!  -- On Wall Street. Before it was ever pressurized. Imagine that. Got your shorts on ? This means that if the Watkins Gas Bomb leaks or goes kaboom, the DEC and NY AG will have to take a trip to the Caymans to try to find the hedge funds that bought Crestwood’s debt out of bankruptcy – as the responsible party to pay the fines and clean up the mess. Sound like a fun trip. Great scuba diving there. Or so I’m told . . .Crestwood Midstream Partners LP has dropped 25.1% during the last 3-month period . Year-to-Date the stock performance stands at -24.9%. Crestwood Midstream Partners LP has lost 0.87% in the last five trading days and dropped 11.49% in the last 4 weeks.

Farmers seek to avoid NY fracking ban with gelled propane - A group of five farm families is seeking a state permit for a natural gas well using gelled propane instead of water for fracking, thus avoiding New York's ban on high-volume hydraulic fracturing. The Snyder Farm Group is seeking to develop a 53-acre natural gas well in the Tioga County town of Barton, near the Pennsylvania border. A permit application is in the preliminary stage before the Department of Environmental Conservation, a lawyer who represents the company seeking the permit said Thursday. DEC spokesman Tom Mailey said the agency will review the application as required by law. "DEC will follow the mandates in the State Environmental Quality Review Act, which could include requiring an Environmental Impact Statement," Mailey said. The DEC's recent prohibition applies to fracking operations using more than 300,000 gallons of water. The proposed well would be drilled horizontally into the Marcellus Shale formation about 4,400 feet underground and would be injected with gelled propane, rather than high-pressure water, to fracture the shale and release trapped natural gas, said Albany lawyer Adam Schultz, who represents Tioga Energy Partners. After the well is fractured and gas is flowing out of it, the propane returns to a gaseous state and returns to the surface where it is recaptured, Schultz said. Liquefied propane gas fracturing was developed by a small energy company, GasFrac, in Calgary, Alberta. It relies on a gel made from propane, the same gas used in barbecue grills. Because the process avoids the need for millions of gallons of fresh water and doesn't result in the enormous volumes of polluted wastewater produced by hydraulic fracturing, proponents call propane fracking a more environmentally benign method.

Unable to Frack With Water, Locals Propose Napalm Pipe Bomb Frack - No, I couldn’t make this one up. Since New York has effectively banned high water volume horizontal fracks, a group of frack addicts is proposing to frack with gelled liquid propane (aka Napalm) as if that’s a safe loophole to get around the state’s prohibition on water fracks.  Such propane fracks are so dangerous, the frack itself is done robotically. Here’s a shot of one such Moon Shots going up in smoke in Canada. The company that does such pyrotechnics in the US recently went bankrupt, so presumably the New York group are going to to attempt this themselves. Oh, and what is their purported target ? The Marcellus – about 5 miles north of the Pennsylvania border, where there might be some dry gas at a break even price of about $30mcf for a pricey propane frack. “A large crowd gathered outside Barton town hall Wednesday morning to hear about Snyder Farm Group’s proposal for a natural gas well beneath a Barton farm. The Snyder group is a collection of five Tioga County farm families who have leased land for natural gas development. The group is seeking to develop a 53-acre natural gas well in Halsey Valley, which is in the Town of Barton, Tioga County — about 25 miles south of Ithaca and 30 miles east of Elmira. The well pad would occupy about 31/2 acres on Ernest “Bucky” Snyder’s 150-acre hay and corn farm. The group has applied for two drilling permits, Frisbie said. The well would get drilled into the Utica Shale formation, about 9,500 feet underground, according to Frisbie. “Then we will do a horizontal turn and go into the Marcellus Shale at approximately 4,400 feet,” he said.

Locals: Propane fracking too dangerous -- After years of heated local debate about hydrofracking, area individuals on both sides of the issue finally found something Thursday about which they could easily agree: Substituting gelled propane for water in the drilling process for natural gas in shale is probably not a good idea. On Wednesday, five farm families, which make up the Snyder Farm Group, announced they are seeking a state permit to develop a 53-acre natural gas well in the Tioga County town of Barton using gelled propane instead of high-pressure water, according to The Associated Press. The idea is that this would evade the state Department of Environmental Conservation’s recent ban on high-volume hydraulic fracturing, which applies to fracking operations using more than 300,000 gallons of water. According to Albany lawyer Adam Schultz, who represents Tioga Energy Partners, the proposed gas well would be drilled horizontally into the Marcellus Shale formation about 4,400 feet underground and would be injected with gelled propane to fracture the shale and release trapped natural gas, the AP reported. Several local residents and officials with varying opinions on fracking said Thursday they are not sure how the propane process would work, whether it could be approved or if it would be safe.Using propane for fracking is “suicide,” according to Otego resident and hydrofracking foe Richard Averett, who noted that the company that pioneered waterless fracking, GasFrac, filed for bankruptcy early this year. “It’s crazy,” Averett said, “and it’s a good thing we’re not in a drought situation, should the consequential fire from explosions spread. How far around the area do you want to evacuate? And who’s actually going to be doing the fracking? It’s suicide if they plan to do it themselves because it’s too dangerous.”

Frackers Use EPA Draft Water Report To Raise Doubts On Science - Last month’s Environmental Protection Agency draft report on fracking’s impact on U.S. drinking water served up a sound-bite gift to the energy industry for its fight against the spread of state and local fracking bans. While the 998-page report cited specific instances where gas drilling contaminated water wells, the nation’s headline writers by a wide margin seized on the take-away line from the executive summary: The EPA “did not find evidence” that modern hydraulic fracturing has “led to widespread, systemic impacts on drinking water resources in the United States.”In the body of the report, EPA states that it may have undercounted those impacts because “there is insufficient pre- and post-fracturing data on the quality of drinking water resources. This inhibits a determination of the frequency of impacts.” But if the agency ever had inhibitions, it squelched them when it delivered the pro-industry determination, and headline writers couldn’t resist. Newsweek went with “Fracking Doesn’t Pollute Drinking Water, EPA Says.” The New York Post and many others offered close variations. The Daily Caller followed a few days later with “NY Officially Bans Fracking After EPA Says It’s Safe.” been intentional.”  Few are competent to accurately analyze the motives of EPA administrators, who are buffeted by heavy political cross-winds. The agency’s funding is in the hands of a Republican-controlled House of Representatives that is unabashedly pro-industry. And the Democratic Obama Administration’s “all of the above” energy policy has high expectations for oil and gas development. Reporting fresh evidence that fracking has steep environmental consequences means raining on both of those parades.

Three earthquakes strike central Oklahoma - Fireworks weren’t the only commotion rattling central Oklahoma this Fourth of July weekend. Three separate earthquakes occurred in the area since Friday, adhering to the area’s propensity for the quakes. 7 News reported two smaller incidents occurred early Friday morning: the larger, a 3.8 magnitude quake occurred shortly after midnight near Perry and the second, a 3.1 magnitude quake shook the area surrounding Medford around 5:45 a.m. A third, smaller quake erupted near Jones in Oklahoma County, reaching a magnitude of 2.8, NewsChannel10 reports. Each of the quakes reached a magnitude the U.S. Geological Survey considers the smallest human can feel, though quakes with a magnitude under 4.0 don’t typically cause significant damage or injuries. No injuries or damage from this weekend’s quakes were reported, but mounting concern over Oklahoma’s frequent quakes has prompted action from environmentalists. Geologists in the state cite oil and gas operations for the increase in quake, slating that it is “very likely that the majority of earthquakes” are triggered by injecting wastewater into the ground. Geologists noticed the spike in earthquake activity about five years ago. Sandra Ladra suffered leg injuries during a 5.0 magnitude quake in 2011, when her chimney collapsed. Oklahoma courts ruled last week that Ladra can sue two oil companies who were injecting water near her home when the quakes occurred.

In oil-friendly Okla., Gov. Fallin moved slowly on 'awkward' issue of quakes - -- As she knocked on the federal government's door for aid in the wake of a damaging earthquake in 2011, Oklahoma Gov. Mary Fallin (R) avoided talking about one aspect of the earthquake -- its cause.Too "awkward," said Fallin's communications director, Alex Weintz."The problem is, some people are trying to blame hydraulic fracturing (a necessary process for extracting natural gas) for causing earthquakes," Weintz wrote in an email, vetoing mention of the earthquake at an energy conference. "So you see the awkward position that puts us in. I would rather not have to have that debate."  That was two days after the magnitude-5.7 rupture toppled chimneys and injured two people east of Oklahoma City. Since then, the earthquake issue has only gotten more awkward for Fallin.  Oil and gas has been her biggest financial backer, and it's the most prominent industry in the state. But scientists say oil and gas activities have caused hundreds of earthquakes, rattling her constituents and their homes.It's not hydraulic fracturing, or fracking, that's causing the quakes they're feeling. Instead, scientists say, it is wastewater disposal. Fracking and other production activities create millions of gallons of wastewater that get injected into deep underground wells. In certain instances, the fluid can seep into faults, lubricate them and unleash quakes.

Methane Emissions in Fracking Region 50% Higher Than EPA Estimates -  Eleven new studies conclude overall that emissions of methane, a potent greenhouse gas, were 50 percent higher in the heavily fracked Texas Barnett Shale than estimated by the U.S. EPA.  The release of 11 research papers Tuesday marked another milestone in the Environmental Defense Fund’s ongoing effort to understand the natural gas industry’s carbon footprint. Overall, the studies found that emissions of methane––a greenhouse gas at least 34 times more potent than carbon dioxide––in the Texas Barnett Shale were 50 percent higher than estimated by the Environmental Protection Agency. The EDF-sponsored research adds to a growing body of work on the amount of methane leaking from natural gas operations, and the results are crucial for understanding whether natural gas will accelerate or delay the effects of climate change as it’s increasingly used in place of coal. Dozens of scientists from 20 universities and private research firms contributed to the 11 studies, collectively called the “Barnett Coordinated Campaign.” Twelve research teams took measurements over an area that included 30,000 oil and gas wells, 275 compressor stations and 40 processing plants. All of the studies were published in the peer-reviewed journal Environmental Science & Engineering. Another study that synthesizes the papers’ results will be published later.The Barnett campaign is a major part of EDF’s $18 million methane study series. Launched in 2011, EDF’s project has won praise for the scope of its research and the scientists’ unprecedented access to well sites, which allowed them to take direct measurements at emission sources. But EDF has also been criticized for working closely with industry and for requiring researchers to sign nondisclosure agreements that prevent them from sharing preliminary results with the scientific community.

New research fuels ongoing fight over methane emissions - Eleven new studies published in the scientific journal Environmental Science & Technology today suggest that methane emissions in North Texas are 50 percent higher than estimates based on the Environmental Protection Agency’s greenhouse gas inventory, according to the Environmental Defense Fund. In 2013, the EPA dramatically lowered its estimate of how much of a potent heat-trapping gas such as methane, the main component of natural gas, leaks from wells, pipelines and other facilities during natural gas production. The agency said that tighter pollution controls played a role in an average annual decrease of 41.6 million metric tons of methane emissions from 1990 through 2010, a 20 percent reduction from previous estimates. But Steve Hamburg, chief scientist for the Environmental Defense Fund, writes in a blog post that the emissions are higher and that the 11 studies they’ve helped coordinate, which are consistent with previous research, “indicates the industry has a significant methane pollution problem…” The EDF, a non-profit environmental advocacy group, coordinated the production of the studies as part of a larger campaign to “better understand where oil and gas methane emissions are coming from and how best to reduce them,” Hamburg writes.

Texas Rep: Don't sleep on Mexico's energy reforms - The United States, Mexico and Canada can be the new Middle East of the world,” U.S. Rep. Henry Cuellar stated recently. However, the representative warned that if America isn’t careful, we could be side swiped by the oil appetite of China and other growing nations. Cuellar’s remarks took place at a Wednesday morning event in Reynosa hosted by Mexico’s national oil company Petróleos Mexicanos (PEMEX), according to The San Antonio Business Journal. The Laredo lawmaker, whose congressional district includes parts of the Rio Grande Valley and San Antonio, warned listeners that if American companies fail to take advantage of Mexico’s energy reforms, China would do it for them. He noted that Mexico and the U.S. should be close partners and that America should take advantage of the opportunity in its own backyard. “We have to make sure that we don’t wake up one day and the Chinese are across the river when we had an opportunity to work with Mexico,” Cuellar told the San Antonio Business Journal. Just last year, Mexico opened the door for new energy markets in its nation to private investors. Many were hoping to see a boom in revenue by empowering Mexico to develop new fields and access innovative technology to reverse a decade-long slide in production. One area in particular is the region’s Eagle Ford Shale that geographically mirrors the shale play across the border to the North. But, low oil prices came at the worst time for Mexico. Earlier this year, the Associated Press reported that Mexico’s government slashed $8.4 billion from its 2015 budget, with most of the cutbacks expected to come in the energy sector. The Mexican government relies on oil revenue for roughly a third of its spending and calculated this year’s budget based on an average price of $79 a barrel.

RRC Chairman David Porter lights up Congress with export ban testimony --  The latest push for American oil exports happened yesterday day as Texas Railroad Commission Chairman David Porter testified before the U.S. Agriculture Committee today on the importance and urgency of lifting the federal ban. Many like Porter see lifting the ban as a policy move to spur new American energy production and foster economic growth. In the his speech, the commissioner noted that the Texas Railroad Commission has recently seen a dramatic drop in the number of issued drilling permits of 2,389 in May of 2014 to only 916 as of May this year. Porter argued that the ban is not only outdated, but harming the U.S. economy. “In Texas, we understand and experience firsthand the link between U.S. oil and natural gas production and the strength of the economy,” Porter said. “The two are inextricably linked. When oil prices recently dropped, we felt the economic impacts at home. We saw thousands of hardworking men and women put out of work and rigs idled. We saw state revenues – used to support schools and infrastructure investments – decline.” Porter enlightened listeners with a finding from the University of Houston and Rice University, which reported that each drilling rig represents a total of 224 jobs, including those on the rig itself and those across the supply chain and in the broader economy.“With the loss of 1,072 rigs through June, you can do the math to see just how devastating the recent downturn in development has been for oil and natural gas producing states,” Porter said. “It comes to roughly 240,000 jobs. While repealing the ban will not bring back these jobs overnight, it will certainly get some of these men and women back to work in the near term.” Other witnesses present at the hearing in support of lifting the ban included North Dakota Petroleum Council Vice President Kari Cutting and Continental Resources CEO Harold Hamm

SD judge allows pipeline's operator to survey properties - — A South Dakota judge is allowing the operator of a proposed oil pipeline to survey the properties of nearly 20 residents who oppose the project. Judge Mark Salter on Tuesday granted Dakota Access LLC the right to get surveyors on properties that are along the project’s proposed route. The company wants to build the 1,100-mile Dakota Access Pipeline from North Dakota to Illinois. About 270 miles of the pipeline would be in eastern South Dakota. Salter’s decision comes after Dakota Access sued the Minnehaha County landowners arguing its surveyors need to check all properties along the proposed route to determine if the land is suitable for the underground pipeline. The state’s Public Utilities Commission hasn’t granted a construction permit. Landowners say they oppose the project mostly out of environmental concerns.

Oil refiners are manipulating California gas prices, consumer advocates say - Filling up at the pump is often painful in California, where drivers tend to pay more for gasoline than in most other states. Many industry watchers attribute the high fuel costs to unique forces — chiefly California’s clean-burning gasoline formula — that have isolated the market and kept it tightly balanced between supply and demand. But some consumer advocates and politicians allege that price manipulation by oil refiners is to blame. This year, price fluctuations were especially surprising. The price of crude oil began falling last summer, with pump prices following. In February, Tesoro Corp. idled its Northern California refinery in Martinez after a nationwide union walkout. Next, Exxon Mobil Corp. scaled back operations at its Torrance facility when an explosion damaged an air pollution monitoring unit. Average pump prices shot up nearly a dollar before floating back down. Last week, a gallon of regular gasoline cost an average of $3.44 in California, more than 20 cents lower than a week earlier and about 70 cents lower than a year earlier, according to AAA. But drivers in the state are still paying nearly 70 cents more than the national average. Whether those higher prices are a natural economic reaction or a sign of collusion between companies is up for debate.

California Farms Are Using Drilling Wastewater to Grow Crops - California’s epic drought is pushing Big Oil to solve a problem it’s struggled with for decades: what to do with the billions of gallons of wastewater that gush out of wells every year. Golden State drillers have pumped much of that liquid back underground into disposal wells. Now, amid a four-year dry spell, more companies are looking to recycle their water or sell it to parched farms as the industry tries to get ahead of environmental lawsuits and new regulations. The trend could have implications for oil patches across the country. With fracking boosting the industry’s thirst for water, companies have run into conflicts from Texas to Colorado to Pennsylvania. California could be an incubator for conservation efforts that have so far failed to gain traction elsewhere in the U.S.Drillers may have little choice. The state’s 50,000 disposal wells have come under increased scrutiny this year, after regulators said they’d mistakenly allowed companies to inject wastewater near underground drinking supplies. Environmental groups sued the state to stop the practice at 2,500 sites considered most sensitive. A win for environmentalists could drive up disposal prices and delay drilling by months for Chevron Corp., Linn Energy LLC and other companies, according to a June 12 report by Bloomberg Intelligence analysts Brandon Barnes and Matthew Kerner.

California Has No Idea What’s In Its Fracking Chemicals, Study Finds -- A scientific assessment on the impacts of hydraulic fracturing in California found that, in large part, the chemicals used are not being identified or tracked, and it’s nearly impossible to tell how damaging the process is to California’s water supply. The study, carried out by the California Council on Science and Technology (CCST), recommended state agencies ban the reuse of wastewater from hydraulic fracturing — or fracking — for any use that could impact human health, the environment, wildlife, and vegetation until further testing can be done. “These are things that require diligence,” CCST’s Jane Long told ThinkProgress. “There are a lot of potential issues.”During fracking, chemical-laced water is pumped at high pressure into shale rock formations that hold oil and gas deposits. Figuring out what to do with the water after it’s been used — and whether it is safe — has been an ongoing issue. According to the CCST assessment, the toxicity of half of the chemicals used in California fracking is not publicly available. More than half the chemicals have not been evaluated for basic tests “that are needed for understanding hazards and risks associated with chemicals.” In terms of water contamination, no California agency has conducted a systematical study of the possible impacts, the assessment said. In fact, across all of California, only one water contamination sampling study — near a fracking site in Los Angeles County — has been done. Results of contamination studies in other regions of the country have been mixed, the report said. But since we don’t know what’s going into the chemical mix, or how it might react with other elements over time, these types of studies might not even be testing for the right things. “Notably, most groundwater sampling studies do not even measure stimulation chemicals, partly because their full chemical composition and reaction products were unknown prior to this study,” the report said.

Most fracking waste dumped in unlined pits in CA, study finds - More than half of the water used for fracking in California is disposed in open, unlined pits and could contaminate groundwater, according to a major, state-mandated study of hydraulic fracturing issued Thursday. The study, from the California Council on Science and Technology, reports that no cases of water contamination due to fracking or acid stimulation have been reported in the state so far. And the authors, many of them drawn from Lawrence Berkeley National Laboratory, stress that fracking in the state uses far less water than other oil-production techniques, such as flooding old oil reservoirs with steam. “We found no documented instances of hydraulic fracturing or acid stimulations directly causing groundwater contamination in California,” the authors write. “However, we did find that fracturing in California tends to be in shallow wells and in mature reservoirs that have many existing boreholes. These practices warrant more attention to ensure that they have not and will not cause contamination.”  The authors also found no recorded cases in California of earthquakes triggered by fracking or by the underground disposal of waste water from oil drilling. But they say that given the state’s active geology, more research and monitoring is needed. The disposal of waste water from fracking and other oil production techniques has recently triggered a rash of earthquakes in states not known for them, including Ohio and Oklahoma.

Water and wildlife may be at risk from fracking's toxic chemicals, panel finds - Hydraulic fracturing uses a host of highly toxic chemicals — the impacts of which are for the most part unknown — that could be contaminating drinking water supplies, wildlife and crops, according to a report released Thursday by a California science panel. The long-awaited final assessment from the California Council on Science and Technology said that because of data gaps and inadequate state testing, overwhelmed regulatory agencies do not have a complete picture of what oil companies are doing. The risks and hazards associated with about two-thirds of the additives used in fracking are not clear, and the toxicity of more than half, the report concluded, remains “uninvestigated, unmeasured and unknown. Basic information about how these chemicals would move through the environment does not exist.” Jane Long, the report’s co-lead, said officials should fully understand the toxicity and environmental profiles of all chemicals before allowing them to be used in California’s oil operations. Recycled oil field wastewater used for crop irrigation may contain chemicals used during fracking and other well stimulation procedures, the report said. While treatment of that water is required, the testing is not adequate, the report said. Long said researchers did not find strong evidence of fracking fluids in irrigation water but added: “What we did find was that there was not any control in place to prevent it from happening.” The probability of toxic exposure to humans and the environment is low, but no studies have been conducted assessing the risk, the report’s authors said.

Billions in gas projects stranded by climate change action, says thinktank - More than $280bn (£180bn) of liquefied natural gas (LNG) projects being planned over the next decade risk becoming “stranded” if global action is taken to limit climate change to 2C, according to a report by the thinktank Carbon Tracker. LNG projects allow gas to be compressed into tankers and sold around the world, making it key to hopes in the US, Canada and Australia of fully exploiting their gas reserves. But the new analysis shows that if emissions are cut to keep global temperature rise below the internationally agreed target many LNG projects being considered will not be needed. The report concludes that over the next 10 years $82bn of LNG plants in Canada would be surplus to requirements, $71bn in the US and $68bn in Australia, with the rest of the world, led by Russia and Indonesia, accounting for the remaining $59bn. The analysis found Shell’s agreed takeover of BG makes it by far the biggest player in the market and $85bn of the combined company’s potential LNG projects would not be needed. Shell said it was only the biggest in LNG compared to oil majors, and no comparison had been with national oil companies. The report is the latest to raise concerns that increasing action to cut carbon emissions, combined with falling renewable energy prices, will put some fossil fuel investments at risk. Carbon Tracker has pioneered this analysis, which has been backed by the Bank of England and the World Bank.

Natural Gas Price Slumps as Inventory Swells - The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 91 billion cubic feet for the week ending July 3. Analysts polled by The Wall Street Journal expected a storage injection (increase) of about 85 billion cubic feet. The five-year average for the week is an increase of around 75 billion cubic feet. Natural gas futures for August delivery traded up about 0.6% in advance of the EIA’s report, at around $2.70 per million BTUs, and slumped to about $2.66 following release of the report. Last Thursday, natural gas closed at $2.83 per million BTUs, and natural gas futures peaked at around $2.87 in the past five days. The 52-week low for natural gas futures is $2.57. One year ago, the price for a million BTUs was around $4.10. Natural gas prices have slipped in the past week largely due to cooler weather lowering the demand for air conditioning. The large addition to storage compounds the weight on price. Temperatures next week are forecast to warm up over the West and then move into the central United States over the weekend and into next week. Hot weather over the central Plains, Texas, and the Southeast U.S. is likely to boost demand for cooling and, by extension, natural gas to generate the electricity to run all those coolers.

Exports of Liquified Natural Gas Increase Fracking and Pollution -A big corporate push to start exporting liquefied natural gas, or LNG, could ramp up fracking even further. When it comes to creating the pollution that leads to climate disruption, scientists say fracked LNG is on par with coal, which has long held the mantle as the dirtiest fuel around. But there’s more than just climate to worry about. Exporting natural gas also threatens our air, water, and health. That’s because it requires massive pipelines and other infrastructure to transport the fracked gas, liquefy it, and then store, load, and transport it by ship to foreign markets. Much of this infrastructure is located in ecologically sensitive areas or near homes, schools, and urban areas. No wonder communities along the East and West coasts alike are trying to block the construction of these large industrial facilities. In late May alone, hundreds turned out at rallies and marches everywhere from the Cove Point facility in Lusby , Maryland to the statehouse in Salem , Oregon . Shipping fracked gas overseas would inflict damage hundreds of miles away from the new LNG-export terminals, since most of the gas sold to foreign markets would be drilled elsewhere. That would increase the air, water, and climate pollution already impacting gas-producing regions of America . People living near fracked gas wells in Pennsylvania , for example, are suffering from increased air pollution and associated public health risks like respiratory and neurological disease, the Pennsylvania Department of Environmental Protection found. Many rural communities in the West, meanwhile, put up with air that’s dirtier than in downtown Los Angeles. And homeowners in frontline fracking towns like Pavilion, Wyoming are finding toxic, cancer-causing chemicals in their drinking water. The damage to air quality and public health will increase as more wells are drilled to meet foreign demand.

CSX to hold public meeting on oil train derailment cleanup -- Five months after the CSX oil train derailment in Mount Carbon, the railroad will hold a “public availability session” later this month to discuss past, current and future cleanup efforts. According to information provided by the railroad, CSX remains in Phase I of a two-phase cleanup plan. This part focuses on short-term remediation efforts with the goal of removing crude oil at the site and preventing potential oil sheens on the Kanawha River. The first phase also includes working with the United States Environmental Protection Agency and state Department of Environmental Protection to finalize plans for excavation and offsite disposal of any remaining oil-contaminated soil at the site. CSX is operating the remediation efforts under a March 6 consent order with the EPA. The second phase, following EPA approval, will focus on long-term environmental remediation and monitoring, including new soil and groundwater samples, the removal of a sheet pile wall installed along the riverbank and sampling of sediment at the bottom of the Kanawha River and Armstrong Creek, a tributary of the Kanawha. The results from that testing will guide any ongoing remediation requirements. The cleanup stems from the derailment of an oil train during a winter storm on Feb. 16. The train, which was traveling from the Bakken oil fields in North Dakota to Yorktown, Va., had two locomotives, two buffer cars and 107 tank cars. Each tank car contained around 29,000 gallons of crude oil. Around 1:30 p.m., 27 of the train’s 107 tank cars derailed and subsequent explosions and fires occurred in 20 of the derailed cars.

Nationwide Protests Call for Immediate Ban on Oil Bomb Trains --Monday was the second anniversary of the tragic Lac-Mégantic, Quebec, oil train disaster that killed 47 people. Since then, oil trains continue to derail and explode with five already this year. Four of the derailments occurred within just four weeks. A coalition of environmental and social justice organizations including Sierra Club, Greenpeace, ForestEthics, Oil Change International, Center for Biological Diversity, Rainforest Action Network, 350.org, Friends of the Earth, Food and Water Watch and Earthworks, have launched a week of action to call for an end to crude by rail shipments. The coalition has organized more than 80 events across the U.S. and Canada to call for an immediate ban on oil trains. Lena Moffitt, director of the Sierra Club’s Dirty Fuels campaign made the following statement: Exploding crude oil trains do not belong on the nation’s rails, and 25 million Americans—most of them people of color—do not deserve to be living in a blast zone. The Department of Transportation needs to take responsibility, and rather than put forward wholly inadequate rules that jeopardize the health and safety of communities along rail lines, the administration should ban bomb trains outright. For the health and safety of all Americans, we need to leave dirty, volatile fuels like tar sands and Bakken crude in the ground. We don’t have to choose between pipelines that spill and bomb trains that explode because we can choose clean energy instead. From Vermont to Oregon, organizers remember those who lost their lives in the disaster. 

It’s Been Two Years Since This Deadly Oil Train Explosion. What’s Changed?  - It was the second anniversary of what’s become the town’s defining tragedy, when a unit train carrying 72 tankers of highly volatile crude oil derailed and exploded. There were fires, fumes, and an approximately 1.5 million gallon oil spill — emergency responders described a “war zone.” A “river of burning oil” ran down city streets and engulfed buildings in flames. Today, there are still scars on the soul of the town.  Though it happened in Canada, the explosion forced a fierce discussion in America about whether we were doing enough to prevent similar incidents at home. The volatile oil that caused the explosion, after all, came from North Dakota. And, safety advocates pointed out, that North Dakota oil was being shipped across America by train at a rate 40 times greater than just five years prior to the accident. Worse, there had been no upgrades in federal safety regulations to account for that increase. Canada had just experienced a major tragedy — it seemed like America was vulnerable to one as well.  The American public is still being kept in the dark  What’s happened in those two years? For one, we’ve had more derailments of oil cars — at least six in 2015 alone, averaging about one per month. The latest one was just last week in Tennessee, causing the evacuation of 5,000 people.  But in May, we also got new and final safety standards for trains that carry oil and other flammable materials. Those standards include a new maximum speed of 50 miles per hour, and 40 miles per hour through urban areas. They also include updated braking systems for trains, and better classification of materials.  But according to some rail safety experts, the most worrisome thing about the new regulations is what they don’t include.  Americans still lack information about when trains are coming through their neighborhoods, what those trains contain, and what the worse case scenario would be if one derailed.

Shell Places Huge Bet on Arctic Oil Riches - WSJ - Royal Dutch Shell PLC is days away from drilling in the Arctic Ocean—betting it can find enough oil to justify the huge risks that keep almost every other competitor out of those icy waters. The company is hauling two massive rigs—the Polar Pioneer and the Noble Discoverer—more than 2,000 miles up and around the Alaska coast to the Chukchi Sea, where it plans to begin work the third week of July. Accompanying the rigs are 30 support vessels and seven aircraft, a large entourage even by big oil-company standards. The voyage represents Shell’s effort to mount a comeback in the Arctic three years after a different rig ran aground following an unsuccessful drilling season. This time, Shell executives say they have both costs and safety under control, but the project has already hit a snag. A federal agency said last week that Shell can’t drill wells simultaneously within a 15-mile radius to minimize impacts on walruses, which means the company may only be able to drill one well this year instead of the two it had planned. And on Tuesday, Shell said that it discovered a small breach in the hull of a vessel carrying equipment for spill response and is examining what repairs are necessary. A Shell spokesman said the company has modified its plans based on the new drilling requirement. It doesn’t expect the damaged vessel to affect those plans, but “the answer will ultimately depend on the extent of the repairs,” the spokesman said.

House panel subpoenas Kerry on Keystone XL documents— A House panel has issued a subpoena to Secretary of State John Kerry for department documents, reports and letters related to the contentious push to build the Keystone XL pipeline. Republicans on the House Oversight and Government Reform Committee announced the subpoena on Wednesday. The $8 billion pipeline would transport oil harvested from Canada’s tar sands to pipelines linked to refineries on the Gulf of Mexico. Earlier this year, Congress approved legislation to build the pipeline and sent the measure to President Barack Obama. The president vetoed the bill and the GOP-run Senate failed to override the veto in March. Obama has said that the bill circumvented the well-established process for approving cross-border pipelines, which must be determined to be in the national interest.

Editorial: The Keystone XL pipeline: No surrender - The Keystone XL oil pipeline is back in the news as the State Department completes its final review of the Canada-to-Texas project and the company behind it urges approval by the Obama administration. When last we visited this no-brainer for economic growth and increased energy independence, President Obama vetoed legislation to approve Keystone, saying he objected to Congress’ “interference,” before the State Department completed its review. Now TransCanada, the company behind the project, has sent a letter to Secretary of State John Kerry seeking the administration’s approval. Mr. Obama has said repeatedly that his primary concern is whether the pipeline would contribute to “climate change.” But the State Department’s own environmental study showed Keystone would not significantly increase greenhouse gas emissions. Now the environmental lobby cites a study by the research firm Wood Mackenzie that says Canada’s oil-sands region depends on new pipelines, The Washington Times reports. The illogic follows that if Keystone is not built, Canada’s readily available oil won’t be burned. This presupposes that China or India or other countries wouldn’t be interested in tapping this abundant supply.

Alec Baldwin Helps Uncover 3,000 Square Miles of Oil Blanketing the Gulf Floor Since BP Disaster -  Last week, BP reached an $18.7 billion settlement for civil lawsuits over the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, which was the worst oil spill in U.S. history. Yesterday on his radio show, Here’s The Thing, Alec Baldwin spoke with journalist and author Antonia Juhasz, who has covered the spill extensively. In 2011, she wrote Black Tide: The Devastating Impact of the Gulf Oil Spill and this June she was featured in Harper’s Magazine for taking a submersible to the floor of the Gulf of Mexico.What she discovered down there may surprise those who think the Gulf has completely recovered in the five years since the spill. In her exploration of the ocean floor, Juhasz got closer to the BP Macondo well-head than anyone had gotten since it was sealed five years ago. WYNC, which broadcasts Baldwin’s show, explains what Juhasz found:Her story in the June issue of Harper’s Magazine details what she didn’t see down there—any vibrant sea life—as well as what she did see: a huge carpet of oil 3,000 square miles in size. And evidence indicates that companies are preparing to resume drilling in the region. Juhasz has been monitoring energy companies for over a decade, and has seen how routine spills have become, but as she explains to host Alec Baldwin, she still feels shock and anger over the ongoing impacts of these spills on the environment. Listen to the interview here:

Report: BP could save $4 billion in tax breaks from oil spill settlement: – According to a report from the New Orleans Times-Picayune, BP could receive billions of dollars in tax breaks following its settlement over claims from the 2010 oil spill in the Gulf of Mexico. Last week, BP announced it had reached a settlement deal with five Gulf Coast states worth $18.7 billion. However, the Public Interest Research Group noted at least $13.2 million of the settlement is not defined as a penalty, meaning the oil company can file for tax breaks on that amount. According to the Times-Picayune report, federal tax law prevents companies from deducting penalties paid for breaking the law on taxes, but damage payments can be treated as a business expense. Assuming BP files at the top corporate tax rate, the settlement only will cost BP approximately $14 billion. The settlement must undergo a public comment period before being approved. A final settlement could be approved by early 2016. Phineas Baxandall, a senior analyst for tax and budget policy from the PIRG, believes the settlement passes undue responsibility to taxpayers and believes the public should speak out to help push legislation to combat tax-deductible settlements.

Crude Carnage Continues After Another Inventory Build & Production Rise -- For the 2nd week in a row, crude oil inventories saw a build (after 8 weeks of draws) albeit a modest 384k barrels. Cushing also saw an inventory build. At the same time,production rose very modestly back to near cycle record highs (thouygh we note an extremely small drop in Lower 48 production). Crude prices have tumbled on the news as apparently yesterday's exuberance over better demand data from EIA has been long forgotten...Another build (and near record production)...  And prices give back yesterday's exuberant gains... Charts: Bloomberg

Crude Oil Price Dives After Inventory Posts Surprise Rise - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 400,000 barrels last week, maintaining a total U.S. commercial crude inventory of 465.8 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years.  Tuesday evening, the American Petroleum Institute (API) reported that crude inventories fell by 958,000 barrels, gasoline inventories decreased by 2 million barrels and distillate inventories rose by 4.2 million barrels in the week ending July 3. For the same period, analysts polled by Reuters estimated a decrease of 700,000 barrels in crude inventories. Total gasoline inventories increased by 1.2 million barrels last week, according to the EIA, and remain in the upper half of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 9.5 million barrels a day for the past four weeks, up by 5.3% compared with the same period a year ago.  The collapse in China’s stock prices, combined with the prior week’s unexpected increase in the crude oil inventory and the uncertainty surrounding Greece and the European Union, has been enough to push the West Texas Intermediate (WTI) price down by nearly $6 a barrel since last week. Expectations for rising prices have all but disappeared from the minds of hedge funds. Fund managers cut their long positions on the futures markets to their lowest level in more than three months. To top it off, OPEC production in June remained at around 31 million barrels a day and the cartel even lowered prices a bit in order to maintain market share. Traders also worry that a deal with Iran over that country’s nuclear program will lead to a raising of sanctions and more oil on the market. There is little to prop up crude prices in the very near term.

US oil production could hit 45-year high = On Tuesday the Energy Information Administration (EIA) released its production forecast through the year’s end and it looks like the United States will have the most productive year for crude in over four decades.  As reported by The Hill, the EIA forecast put the average U.S. crude production figures for the year at an average of 9.5 million barrels per day. During the first half of the year daily crude production averaged 9.6 million barrels. The last time U.S. production reached these levels was during 1970, the most productive year in U.S. history with 9.6 million barrels per day.  However, the EIA’s prediction also indicated that crude oil production will decline during the second half of the year and into the first months of 2016. In a statement, EIA Administrator Adam Sieminski said, “The forecast decline in U.S. monthly production through early 2016 is the result of low oil prices, which pushed oil companies to reduce their investment in drilling that resulted in the lowest number of rigs drilling for oil in nearly five years.” Last year the U.S. produced an average of 8.7 million barrels of oil per day. The EIA also found that this year, record road travel will cause gasoline demand to reach 9 million barrels per day, a level not seen since 2007. Sieminski said, “Low gasoline prices and higher employment will contribute to more driving this year, boosting U.S. gasoline consumption an estimated 170,000 barrels per day higher than in 2014.”

The surprising decline in US petroleum consumption - Jason Furman, et al -  US oil production has transformed itself fundamentally in the past decade. Between 1970 and 2008, US crude oil production fell by nearly half as conventional wells were depleted. Since 2008, however, production has rebounded from 5 million barrels per day to an average of 8.7 million barrels per day in 2014. The almost entirely unexpected increase – largely attributable to technological innovations such as advances in horizontal drilling, hydraulic fracturing, and seismic imaging – has helped the US become the world leader in oil production. Whereas the developments in oil production have been widely reported and appreciated, far less attention has been paid to US petroleum consumption’s remarkable decline relative to both recent levels and past projections — one of the biggest surprises to have occurred in global oil markets in recent years. Petroleum consumption in the US was lower in 2014 than it was in 1997, despite the fact that the economy grew almost 50% over this period. As illustrated in Figure 1, consumption rose steadily from 1984 through the early 2000s, peaking in 2004 before decreasing in conjunction with rising oil prices.

U.S. gasoline cracks hit multi-year highs on strong fuel demand -- Tremendous demand for gasoline in the United States has pushed refining margins for motor fuel to the highest seasonal level in a decade. U.S. refiners currently earn a gross margin before costs and taxes of 65 cents per gallon for turning Brent into gasoline and 77 cents for processing WTI. At the same point last year, margins for refining Brent and WTI were 37 cents and 51 cents respectively, close to their long-term averages. The enormous profitability of turning crude into gasoline explains why U.S. refiners are running flat-out. U.S. refineries are processing a near-record 16.6 million barrels per day (bpd) of crude, almost 350,000 bpd higher than in 2014 and more than 1 million bpd above the 10-year seasonal average. Despite near-record runs, gasoline stocks remain modest, however, almost exactly in line with the long-term seasonal average, as strong demand from motorists absorbs all the fuel refiners can make. Gasoline consumption is running at more than 9.5 million bpd, the highest level since the third quarter of 2007, the U.S. Energy Information Administration says. From massive California to tiny New Hampshire, traffic on U.S. roads is growing at some of the fastest rates for a decade, according to state transportation agencies.

Oil refiners' "mini golden era" will end soon - IEA - A brief period of high profitability for the world’s oil refineries is likely to come to an end as quickly as it began, the International Energy Agency (IEA) said on Friday. Weak crude oil and relatively high prices for gasoline, diesel and petrochemical feedstock have pushed up refining profits sharply over the last six months, helping oil companies cope with much lower profits from upstream production. In the first quarter of this year, combined profits for the likes of BP, Royal Dutch Shell, Exxon Mobil , Total and Eni from refining and trading represented 60 percent of total earnings, compared with 18 percent last year, according to Reuters calculations. Crude oil prices collapsed from $115 a barrel in June 2014 to a low near $45 in January. They have since recovered some ground but are still close to half their peak last year. By 1230 GMT on Friday, benchmark Brent crude oil was trading around $59 a barrel. But the IEA, which advises the world’s biggest economies on energy policy, says this mini golden era will soon end. New refineries coming on stream this year and next, along with upgraded units at existing refineries, are set to reverse those gains. “In 2015-2016, net capacity additions will be more than needed, which will cause the global utilization rate to decline, and casts a doubt on the continuation of current unusually high refining margins,” the IEA said in its monthly report.

Oil under $60 beyond 2016 suggests market rethinking shale - The almost 10 percent nosedive in headline oil prices this week has many hallmarks of a shocking but short-lived slump, triggered by a confluence of external events and exacerbated by safety-seeking investors and momentum-chasing traders. By Tuesday afternoon, the crowded race to the exit was winding down, with prices recovering from three-month lows as traders reassessed the factors they blamed for the worst slide in four months: Greece’s debt woes; China’s stock market meltdown; talks with Iran over its nuclear program; a stronger dollar; a rise in the number of U.S. oil rigs; a breach of key technical triggers. Yet a deeper look at the market suggests an important and more lasting rethink may now be afoot: longer-term oil prices, normally less volatile and reactive than immediate delivery, have suffered an almost equally violent collapse, pushing crude prices for 2017 to below $60 a barrel for the first time ever. If U.S. shale drillers – the world’s new ‘swing’ producers – can still turn a profit at below $60 a barrel, then the fall in long-dated oil prices may be rational. If not, as some bullish market analysts worry, then lower prices could be choking off new supplies the world may need as soon as next year. “If you take the curve at face value, it appears to be saying that U.S. shale can grow … if WTI stays below $60 for three years. That doesn’t seem very likely,”

Data availability bias in the oil market - Why is there such good data about oil in the United States but such poor data about everywhere else? Accurate information is essential for good decision-making, so it is remarkable how little reliable and timely data exists about the production and consumption of crude oil and refined fuels outside the United States. The situation in the other advanced economies, not to mention emerging markets, is mostly guesswork. The result is that oil analysts cannot even agree on production and consumption yesterday and today, let alone predict what will happen tomorrow. And because the best and most readily accessible data is for the United States, the market puts excessive emphasis on what happens there and neglects developments elsewhere. The obsession with weekly rig counts, production estimates and crude inventories in the United States as a sign of wider supply-demand trends in the oil market has been a case in point. But as long as U.S. data is more accurate, detailed and timely than the numbers for other countries, this example of “availability bias” is set to continue.

Tanker arrivals create volatility in U.S. oil stocks -  U.S. crude stocks unexpectedly rose by almost 2.4 million barrels last week, breaking a run of eight consecutive weekly declines and sending oil prices sharply lower. But did the market overreact when the stock numbers were released on Wednesday – misinterpreting normal week-to-week variability in the data as a fundamental shift in the balance between supply and demand? Tanker arrivals create quite a bit of “noise” in the weekly inventory data which can easily be confused with shifts in the supply-demand balance over short periods. Reported crude stockpiles are driven by three factors: domestic crude production, crude imports, and refinery runs. Domestic output is fairly constant week to week, but imports and runs are highly variable. In 2014, U.S. refineries processed an average of 15.8 million barrels per day (bpd). Domestic crude production was around 8.7 million bpd in 2014 and the country imported around 7.3 million bpd of crude, according to the Energy Information Administration. Almost 3 million bpd of imported oil arrived by pipeline or train from Canada, while most of the remaining 4.5 million bpd from other destinations came by tanker.The typical very large crude carrier (VLCC) or supertanker employed in long-distance voyages carries around 2 million barrels of oil. So, the United States receives the equivalent of two to three VLCC cargoes per day or around 15-16 per week. But there is significant variability around these daily and weekly averages. The timing of individual tanker arrivals and completion of customs formalities therefore has a major impact on reported imports for a given week.

Oil Prices Tumble Nearly 8% -- Oil prices on Monday skidded to their biggest single-day declines in more than three months, as gyrations in Chinese stocks and the prospect of more crude from the U.S. and Iran revived worries about the global supply glut. ...The U.S. benchmark oil price slid for the third session in a row, closing down $4.38, or 7.7%, to $52.53 a barrel on the New York Mercantile Exchange. ......Brent crude, the global benchmark, closed down $3.78, or 6.3%, to $56.54 a barrel on ICE Futures Europe.

Oil crashes 8 percent as Greek vote, Iran talks set off exodus -Oil prices suffered their biggest selloff in five months on Monday, falling as much as 8 percent as Greece's rejection of debt bailout terms and China's stock market woes set off a deepening spiral of losses. Adding to the pressure on oil, Iran and global powers were trying to meet a July 7 deadline on a nuclear deal, which could bring more supply to the market if sanctions on Tehran are eased. The self-imposed deadline could be extended again, officials at the negotiations said. A slump that began last week gathered pace through the session, taking four-day losses to more than 10 percent, the largest rout since early January, as weeks of range-bound trading abruptly ended. Global Brent prices collapsed below the $60 a barrel mark for the first time since mid-April. "With the number of bearish elements weighing on the market now, the only support has been the seasonal demand in gasoline, and even that will be going away soon," . U.S. crude settled at $52.53 a barrel, down $4.40 or 7.7 percent, from its settlement on Thursday and below the 100-day moving average. It was the biggest percentage drop in a day for U.S. crude since early February, and more downside momentum could push it to test the six-year low of $42.03 set in mid-March, technical analysts said.

Oil Prices Crash Again – Another Downturn Ahead? - We had warned over the past few weeks that there was an outside chance that the Greek crisis would infect oil markets, and over the weekend Greek voters ensured that it did. With an overwhelming “no” vote, just about every corner of Greece voted against Europe’s debt package. While that handed Tsipras a strong victory, it also led to a plunge in oil prices. WTI fell by 8 percent on July 6, falling to around $53 per barrel. Brent lost nearly 5 percent, dropping to under $58 per barrel. Oil is now trading at its lowest level in months, erasing several weeks of stability as well as optimism that the market had begun the arduous process of adjustment.  But it isn’t just Greece. In another (much more positive) geopolitical development, the Iranian negotiations are at the finish line. The outcome is still in doubt, as the deadline has once again been pushed back, this time until July 10, but all sides are extremely close to a deal. After weeks and months of uncertainty, the progress over the past week seems to have finally convinced the oil markets that a return of Iranian oil is close to becoming a reality. Over the past two weeks we have also closely watched the plunge in China’s stock market. After having failed to stop the hemorrhaging, China’s central government rolled out fresh measures over the weekend to prop up its key stock exchanges. Through a complex arrangement with the stock exchanges, the central bank will back the purchase of 120 billion yuan ($19.3 billion) worth of shares to prevent a full blown meltdown.The Shanghai Composite steadied on July 6, but China is not yet in the clear. A market meltdown in the world’s largest oil importer would send oil prices spiraling downward. The perfect storm of events is battering oil prices. The rout is on, volatility has returned, and all bets are off. Some analysts even raise the possibility that oil prices could flirt with the lows of earlier this year (low $40s for WTI).

As oil teeters at $50, a few shale producers still drilling more – A handful of optimistic U.S. shale drillers are sticking with plans to deploy more rigs in the coming months even as oil prices take a sharp dive well below many producers’ $60-a-barrel breakeven point. On Wednesday, Pioneer Natural Resources Co. became the first big company to publicly confirm it was drilling more wells, saying it had already added two rigs in the Permian Basin of Texas this month and would keep on adding two a month as long as the oil price “remains constructive.” Smaller shale oil producer WPX Energy Inc, whose operations are focused on North Dakota’s Bakken shale, said this week that its decision to add two rigs later this year was unaffected by a nearly $8 drop in crude prices since June to toward $50 a barrel. While half a dozen or so other companies in the U.S. shale industry have indicated they may add rigs, none have publicly confirmed a move, although a few have quietly done so. Last week the U.S. oil drilling rig count rose for the first time since December, inching up by 12 to 640 across the country. The industry is now in a difficult bind. While executives were quick to slash rigs to a five-year low as oil prices halved through the first quarter, many were beginning to grow hopeful that a new equilibrium was settling in the market, as U.S. crude traded steady in May and June at around $60 a barrel.

U.S. oil-rig count up for second straight week - The total number of active U.S. rigs drilling for oil climbed as of July 10, according to data from Baker Hughes BHI, -0.73% released Friday. That marked the second weekly increase in a row. The number of active oil drilling rigs saw a weekly climb of 5 to 645. The total active rig count was at 863, up 1 from last week. Compared to last year, the total rig count has fallen by 1,012, with the oil rig count down 918. August crude was down 11 cents, or 0.2%, at $52.67 a barrel on the New York Mercantile Exchange. That's about where it was trading before the data.

US Adds More Oil Rigs Despite Low Crude Prices - 24/7 Wall St. --In the week ended July 10, the number of rigs drilling for oil in the United States totaled 645, compared with 640 in the prior week and 1,563 a year ago. Including 218 other rigs mostly drilling for natural gas, there are a total of 863 working rigs in the country, up one from last week and down 1,012 year over year. The past week marks the second consecutive week of increases in the U.S. rig count. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count. The state of North Dakota reported on Friday that oil production reached 1.2 million barrels a day in the month of May, a 2.7% increase over May 2014. The state’s director of mineral resources, Lynn Helms, said that the 73 rigs operating in North Dakota on Friday was the lowest total since November 2009, according to a report in the Grand Forks Herald. The rig count in North Dakota is down by two-thirds year over year, and applications for new drilling permits are down 48%. At the end of May, an estimated 925 wells in the state were waiting for fracking crews. Until prices return to around $65, Helms does not think those wells will be fracked and completed. A price of $70 a barrel is probably the level that will attract more drilling rigs to the state.Nationwide, refineries were running at nearly 95% of capacity, with daily input of more than 16.6 million barrels a day, about 65,000 barrels a day more than the previous week. Imports also dropped by about 200,000 barrels a day compared with the prior week.  The number of rigs drilling for oil in North America fell by 918 year over year and rose by five from the previous week. The natural gas rig count decreased by two to a total of 217. The count for natural gas rigs is down by 94, relative to a year ago. Gasoline stockpiles rose by 1.2 million barrels last week, even though refineries lowered run levels. Gasoline inventories remain in the upper half of the five-year average range.

Oil price could fall further, warns International Energy Agency - FT.com: The rebalancing of the oil market that started last year has yet to run its course and a bottom in prices “may still be ahead”, according to the world’s leading energy forecaster. In a bearish assessment of market conditions the International Energy Agency said the adjustment process would “extend well into 2016” as production — led by Opec nations — continued to swell and demand growth softened. The Paris-based agency, which advises the world’s biggest economies on energy policy, said the oil market was “massively oversupplied”. Global oil supply surged by 550,000 barrels a day in June to 96.6m b/d, up 3.1m b/d from the same month a year ago, the IEA said in a widely followed monthly report “The market’s ability to absorb that oversupply is unlikely to last. Onshore storage space is limited. So is the tanker fleet. New refineries do not get built every day,” the IEA said. “Something has to give.” That something could be US shale oil, the agency said. Relentless supply growth from North America has been one of the factors contributing to the glut in crude oil. While some weakness in US shale oil output was beginning to show “it may also take another price drop for the full supply response to unfold”, the IEA warned. Oil prices on both sides of the Atlantic fell sharply this week, with Brent crude — the international benchmark — entering bear market territory. Brent hit $55 a barrel on Monday, rattled by the financial turmoil in Greece and the stock market rout in China. On Friday, Brent had risen back to $59 a barrel — a level that is still almost 50 per cent lower than last year’s $115 a barrel June peak.

Oil may have further to fall due to oversupply – Massive oversupply is likely to push oil prices down even further, the International Energy Agency (IEA) said on Friday, adding that the rebalancing of the market was likely to last well into 2016. The agency, which advises the world’s biggest economies on energy policy, said “something has to give” because the world oil market was unable to absorb the huge volumes of fuel now being produced. “The oil market was massively oversupplied in 2Q 2015, and remains so today,” the IEA said in its monthly report. “It is equally clear that the market’s ability to absorb that oversupply is unlikely to last. Onshore storage space is limited,” it said, adding: “Something has to give.” “The bottom of the market may still be ahead.” Core members of the Organization of the Petroleum Exporting Countries have been pumping strongly for most of the last year in an attempt to regain market share. Oil prices have staged a recovery this year after hitting a near six-year low close to $45 in January. Prices collapsed from $115 in June 2014 in a decline that deepened after OPEC refused to prop up prices and chose instead to defend its market share. The IEA said OPEC crude oil production rose 340,000 barrels per day (bpd) in June to 31.7 million bpd, a three-year high, led by record output from Iraq, Saudi Arabia and the United Arab Emirates. The IEA said Saudi Arabian crude oil supply rose 50,000 bpd to a record high of 10.35 million bpd in June, while Iraq crude oil output surged 270,000 bpd in June to its highest-ever rate of 4.12 million bpd. Meanwhile, world oil demand growth is slowing.

The Next Fracking Boom May Be Closer Than You Think -- Recent reports suggest that fracking is beginning to take hold in Mexico with numerous wells being drilled. Unsurprisingly given the state of oil prices and the resources Mexico has available, thus far the fracking appears concentrated on natural gas, rather than oil. The important point though is that the use of the technology on a broad scale suggests a new opportunity for investors. Fracking requires a very specialized set of skills and consistently significant capex given the substantial decline rates in those wells. This combined with the new infrastructure needs creates some intriguing possibilities for profits at firms in the space. Fracking in Mexico is very controversial, just as the energy sector overhaul in the country itself is. Water scarcity in Mexico for instance may limit the country’s ability to engage in long-term fracking the way the U.S has. In many respects, these challenges create opportunities for companies like Haliburton and Schlumberger which have technical advantages over smaller operators. Similarly opportunities for fracking offshore in the Gulf of Mexico, a technologically challenging feat, offers new business opportunities for the major servicing companies as well. The oil and gas industry in Mexico is dominated by state giant Pemex, and while the state may be giving up some control over the industry, investors should not expect that Pemex’s dominance in the market is going to evaporate overnight. Pemex appears to be very interested in fracking opportunities, but with the potential for local uproar given environmental and water concerns, the company is playing things close to the vest.

Iranian Oil Exports To Double Following Nuclear Deal - While not predicting that Tehran and six world powers will strike a deal by the new July 10 deadline, a senior Iranian oil official says his country hopes to nearly double its crude exports immediately if and when sanctions are lifted and hopes that OPEC will accommodate this growth by capping production by the cartel’s other members. “We are like a pilot on the runway ready to take off,” Mansour Moazami, Iran’s deputy oil minister for planning and supervision, told The Wall Street Journal in Tehran on July 5. “This is how the whole country is right now.” Today Iran is exporting about 1.2 million barrels of oil per day, but that figure would reach 2.3 million barrels after sanctions are lifted, Moazami said. That would pose problems for OPEC, which is exceeding its formal ceiling of 30 million barrels per day, a high level of output intended to hold onto market share and force higher cost producers from around the world to cut back. Moazami is urging OPEC to return to setting production limits on individual members.“Their mechanism right now is not proper. It has to return to its past ability and capacity,” he said. OPEC ended that practice in 2011 because it generated bad feelings among the members, who flouted them anyway for their own profit. But individual quotas can’t be reintroduced except by unanimous vote. Even if Iran is able to double its oil output, the notion that OPEC might change its output quota is unlikely given Saudi Arabia’s already strained relations with Tehran.Not only have the two countries long been at odds over Islam – Iran is Shi’a and Saudi Arabia is Sunni – Iran, through Houthi rebels, is today fighting what many call a “proxy war” with Saudi Arabia in Yemen. Further, Saudi Arabia, whose Oil Minister Ali al-Naimi is the architect of OPEC’s price war against American shale producers, has been producing oil at near-record highs over the past several months and probably would be reluctant to cut back to make room for increased Iranian production.

India eyes Canadian crude oil contracts as it looks to diversify supply sources - Indian state-owned oil companies are pursuing opportunities to lift additional cargoes of Canadian crude and also enter into long-term offtake contracts, in line with efforts to reduce their dependence on the Middle East, senior government officials from New Delhi said. "OPEC is an important club for our crude oil procurement, but simultaneously we would like to diversify our strategy and go by our economic interests and long-term relations," Indian oil minister Dharmendra Pradhan said over the weekend in Calgary, on the sidelines of an energy partnership forum hosted by ONGC Videsh Ltd. India is expanding its import base by procuring increasing volumes of crude from Latin America and West Africa and would like to include Canada too, he said. "[State-owned refiner] Indian Oil Corp.'s 300,000 b/d new refinery at Paradip in the East Coast, which is now in the final stages of full commissioning, could process Canadian heavy crude," Pradhan said, noting that previously Indian refineries were limited in the grades of crude they could process."Our capability and capacity has now changed and we can process heavy, sour and lighter grades. Compared with our 2013 import of 3 million b/d, we see that figure doubling to 6 million b/d by 2030, based on current forecasts. Our appetite as an energy consumer will grow substantially and we are keen on engaging the Canadians in a bigger way,"

Energy Hungry India To Import More Canadian Crude -- India is becoming increasingly interested in Canadian oil in its effort to reduce energy dependence on the Middle East, and Canada is interested in India as a customer with a growing demand for its oil. “OPEC is an important club for our crude oil procurement, but simultaneously we would like to diversify our strategy and go by our economic interests and long-term relations,” India’s oil minister, Dharmendra Pradhan, said July 5 at the second India-Canada Ministerial Energy Dialogue in Calgary. Already, Pradhan said, India has been increasing oil imports from both West Africa and Latin America, and would like to buy more oil from Canada, too. He said the state-owned Indian Oil Corp. (IOC) has a new refinery in Paradip, on the country’s northeast coast, capable of processing 300,000 barrels per day of the heavy tar sands from Western Canada, something other Indian refiners can’t handle.  As a result, he said, “[c]ompared with our 2013 import of 3 million barrels per day, we see that figure doubling to 6 million barrels per day by 2030, based on current forecasts. Our appetite as an energy consumer will grow substantially, and we are keen on engaging the Canadians in a bigger way.” IOC’s CEO, B. Ashok, agreed, saying only two issues need to be resolved before India can increase its import of Canadian oil: “economics,” he said without elaborating, and “finding a way to deliver [the crude] to Indian shores.”

Saudi Arabia to invest record $10bn in Russia — The Public Investment Fund (PIF) of Saudi Arabia in partnership with the Russian Direct Investment Fund (RDIF) has agreed to invest $10 billion into Russian projects. It is the largest foreign investment in Russia. "We have reached final agreements and are announcing the creation of a partnership with the sovereign fund of Saudi Arabia, under which PIF will invest $10 billion into projects on Russian territory. These funds are expected to be implemented within 4-5 years,” said the head of RDIF Kirill Dmitriev, RIA Novosti reported on Tuesday. He said the first four or five investment deals are expected to be signed in the next 2-3 months and could also attract partners from China, South Korea and the United Arab Emirates.   The Russian Investment Fund plans to implement 10 deals with PIF before the end of 2015, seven of them are in the final stages. The new partnership may use the mechanism of automatic co-investment, already tested in the framework of the Russian-Chinese Investment Fund.  PIF expressed interest in investing in agriculture, medicine, retail, logistics and real estate, according to Dmitriev.  The Russian and Saudi Arabian funds’ partnership does not exclude the possibility of investment in other

While Saudi Arabia Goes to War Abroad, It's Simmering at Home - To hear Saudi leaders tell it, the primary threat to the kingdom’s stability is the Islamic Republic of Iran. Worried over Washington and Tehran’s slowly improving relationship, Riyadh has projected an increasingly militarized and sectarian foreign policy aimed at countering Iran’s alleged hegemonic aims in the Middle East. Yet tension with Iran is only one element of an increasingly complicated mosaic of threats to Saudi Arabia. In fact, the gravest dangers to the kingdom come from within. Saudi Arabia is a classic rentier state. In exchange for the absolute acquiescence of its 29 million subjects, the ruling al-Saud family provides services such as housing, health care, education, and a variety of subsidies — all funded by the country’s substantial oil wealth. Combined with intolerance for dissent, control over these resources has historically served as the ruling family’s hedge against instability of all varieties. In 2011, for example, the Saudi leadership responded to the Arab Spring revolts across the region by injecting $130 billion in the form of salary increases, public-sector job creation, and housing subsidies to minimize the potential for an uprising. Meanwhile, the kingdom’s appalling human rights record has deteriorated. Over the past four years, beheadings have skyrocketed and torture has flourished. However, this authoritarian rentier state model is unsustainable. Oil revenues are down, local unrest is simmering, and extremists are taking aim at the kingdom from without and within. The roots of all these problems come not from Iran but from inside Saudi Arabia itself.

Saudi crude consumption to reach 3 million b/d in Q3: analyst -  Saudi Arabia's refinery intake increased by 235,000 b/d or 12% year on year in the second quarter, and total consumption is expected to reach 3 million b/d in Q3, analysts at Jadwa Investment said late Tuesday. The report did not give an estimated total for Q2. The bank said in a research note that refinery intake increased as the new 400,000 b/d Yasref refinery ramped up to full capacity. The refinery, a joint venture between Saudi Aramco and Sinopec, will contribute to total Saudi crude consumption reaching 3 million b/d in Q3, as demand peaks due to the summer months, it said.Quarterly growth in Q3 over the last three years has averaged 250,000 b/d, a trend Jadwa expects to continue. It forecasts 2015 Saudi crude consumption will average 2.7 million b/d. "Although we expect increases in gas output from the Hasbah and Arabiyah fields to replace some domestic crude consumption, there is a risk that delays in bringing these projects online will lead to upside risk in our full year crude consumption forecast," the research note said.

Oil Rout Seen Ending as Demand Trumps China’s Market Crash - Oil’s biggest slump in four years will lose momentum because the plunge in Chinese equities and Greece’s economic crisis won’t dent global demand, according to Morgan Stanley, UBS Group AG and Societe Generale SA. Crude is set for a “modest recovery” after declining 13 percent in the five sessions through Wednesday, Morgan Stanley estimates, while demand will push prices up by year-end, according to hedge fund manager Andrew J. Hall. Any nuclear deal with Iran won’t quickly revive the OPEC member’s crude exports, so wouldn’t immediately weigh on prices, Societe Generale said. U.S. crude erased this year’s gains to trade at about $52 a barrel amid a stock-market rout in China, the world’s second-largest oil consumer. European leaders talked openly about a Greek exit from the euro before a weekend summit, a break from years dismissing the possibility. Nuclear talks between world powers and Iran, the fourth-largest producer in the Organization of Petroleum Exporting Countries, missed another deadline. “The market has no need to re-test the lows” of $42 reached in March, Paul Horsnell, head of commodities research at Standard Chartered Plc in London, said by e-mail Thursday. “Iran will be slow to return even if there is a deal. And the longer the market stays low, the greater the squeeze on supplies” from outside OPEC.

Copper Crashes, In Danger Of Breaching 15-Year Support Level - While the PBOC was literally everything in its power to keep the SHCOMP green (it was too late to save the Shenzhen, the Chinext or most Chinese stocks as the PBOC's firepower was limited to just the largest companies), it forgot about that other proxy of overall Chinese health: copper which, as the chart below shows, plunged by 4% to the lowest price since February when the oil commodity crash left everyone speechless and was threatening to destroy the entire junk bond space. . From SocGen  Copper is probing again the 15-year trend line support (5550 levels). After hitting the multi-year channel upper limit a month ago (now at 6330), Copper has embarked on a steady yet steep downtrend and is now probing again the 15-year trend line (5550 levels, monthly log chart). Copper tested that trend line support during last January sell-off but eventually did not close below on a monthly basis. In the event of a definite close below, the down trend would regain bearish momentum and therefore extend towards 5250/5170 (2007 lows) and possibly even towards the channel support (5000) which has encompassed the down move over the last 2/3 years.

China stocks fall in defiance of Beijing’s support efforts - FT.com: Hundreds of Chinese companies have halted trading in their shares as Beijing struggles to insulate the economy from the country’s steepest equity decline in more than two decades. Another 173 firms listed in Shanghai and Shenzhen announced trading suspensions after the market closed on Tuesday, bringing the total to around 940, or more than a third of all listed firms on the two exchanges.   In a further sign of unease about the China market, commodities were hit hard on Tuesday, led by copper. The price of copper futures on the London Metal Exchange, dropped to its lowest level since 2009, falling 8.4 per cent in the last two days. Since hitting a seven-year high less than a month ago, Chinese stocks have suffered a precipitous decline sparked by a clampdown on margin finance — the use of borrowed money to buy shares — in response to worries about an equity bubble. About $3tn has been wiped off the value of all listed companies as retail investors have rushed to unwind leveraged bets on the market. The largest number of companies to suspend trading in their shares come from the tech-heavy ChiNext board in Shenzhen, which posted the biggest gains earlier this year and has since suffered the largest correction. Beijing has taken steps to keep stocks on China’s two main indices afloat, including direct purchases of large-cap companies, a halt to initial public offerings and a cut to trading fees. But so far its efforts have failed to staunch concerns.

Shadow lending limits Chinese government's moves to boost stock market  -- Although China's central government has rolled out a series of market-boosting measures amid the sharp fall in share prices, they will have only a minimal impact because of rampant margin financing on the grey market, analysts say. The measures will not help much because of a massive sell-off as borrowers are forced to sell their stocks to meet margin calls, the experts say. Chinese authorities took unprecedented moves to stabilise the stock market after the benchmark Shanghai Composite Index dived nearly 30 per cent over the course of just three weeks. Some critics and state media blamed the plunge on selling pressures. The China Securities Regulatory Commission on Sunday said the central bank, the People's Bank of China, would give liquidity support to the China Securities Finance Corporation, the official platform that lends money to brokerages to develop margin financing businesses. The government also pushed out other measures to correct the market volatility, including launching a 120 billion yuan (HK$152 billion) stabilising fund by major brokerages and loosening regulations on official margin trading businesses. But analysts say the government support is not enough to offset the selling pressure now that most of the investors using grey-market financing to buy stocks appear to be stuck with heavy paper losses.

A Quarter of Chinese Stocks Aren’t Trading: Shades of 1929 and 1987 Markets -  Bloomberg is reporting this morning that 26 percent of stocks trading on mainland China stock exchanges have been suspended from trading. A trading “halt” suggests a temporary measure; a trading “suspension” suggests a much longer-term time frame. Bloomberg goes on to report that the “suspensions have locked up $1.4 trillion of shares.” The immediate question that comes to mind is that to qualify as a stock market, there has to be a two-sided market. If an investor can’t exit 26 percent of the stocks that are listed on the exchanges, if an investor and the marketplace have no idea where a quarter of the market is priced, is this really still a stock market? The Brady Commission’s use of the word “dysfunctional” to describe one day of trading in 1987 hardly captures the degree of market ruptures in China. Adding to the mood of desperation on the part of Chinese authorities, the Financial Times is reporting that journalists in China have been told that they are no longer allowed to report on suicides by “equity citizens,” the catchphrase used in China to describe retail stock investors. Retail investors now make up 80 to 90 percent of the Chinese stock market, according to the Financial Times. They are heavily margined, just as the unsophisticated retail investors were in the U.S. market crash of 1929. And in a further similarity to 1929, where the guys shining shoes were giving out hot stock tips to their customers, the Wall Street Journal reported yesterday that a Chinese woman had invested on a tip from her hairdresser. Yesterday evening, CNBC described an Uber taxi driver in China who was trading from his car.

Peak Desperation: China Bans Selling Of Stocks By Pension Funds -- What do you do when two policy rate cuts, $19 billion in committed support from a hastily contrived broker consortium, and a promise of central bank funding for the expansion of margin lending all fail to quell extreme volatility in a collapsing equity market?  Well, you can simply ban selling, which is apparently the next step for China. According to Caijing, the country's national social security fund is now forbidden from selling (but is welcome to buy). Here's more, via Caijing (Google translated):  Social Security informed the public fund social security portfolio not only buy sell stock "Financial" reporter learned that the Social Security Council on Monday (July 6) Call each raised funds, social security portfolio is not allowed to sell their holdings of stock. Sources said that Social Security Council has just informed all social security portfolio can only buy stocks can not sell the stock; and it is not defined as the net selling, but completely unable to sell the stock.

China Stock Markets Continue Nosedive as Regulator Warns of Panic -- Chinese stock markets tumbled again on Wednesday as investors shrugged off a series of support measures by Chinese regulators, including the central bank’s first public statement in support of the market since it cut interest rates in late June. Minutes after opening, the Shanghai Composite Index fell by just over 8%. while the Shenzhen Component was down almost 5%. Within ten minutes of trading, more than 1,000 shares across China’s two stock markets had dropped by the daily limited of 10% and had their shares automatically suspended. About 1,400 companies, or more than half of those listed – filed for a trading halt in an attempt to prevent further losses. Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to “lock in the value for the collateral”. Balding said: “I don’t see it getting better. There is not going to be a turn around within the next week or two.” “It probably has a long way to go. Margin loans basically rose much faster and they are not falling nearly as fast, margin debt is not falling nearly as fast as the market is falling. What that is telling us is that there is a lot of stock that needs to be sold that hasn’t been sold yet.”

Chinese Stock Market Rout Continues; Trading Halted in Over Half of Listed Stocks  -- Yves Smith -  The Chinese stock market meltdown is accelerating despite government intervention and is blowing back to commodities markets, including copper and oil, which are trading down based on concern that the stock market plunge is a harbinger of even more economic weakness. The Financial Times gives a snapshot of today’s downdraft: China’s central bank stepped up state support for sinking stocks on Wednesday, as investors rushed to sell what they still could after a fresh wave of share suspensions that have now halted trading in half the market. The Shanghai Composite opened down as much as 8 per cent before paring losses to a 4.7 per cent decline by 11:15am local time. The Shenzhen index lost 3.3 per cent, while the start-up ChiNext board was down 0.2 per cent. The renewed selling followed another round of share suspensions overnight, which have now halted trading in 1,476 stocks — or more than 50 per cent all listed companies on China’s two main exchanges. The suspensions have frozen $2.6tn worth of equity, according to Bloomberg calculations. But even with the dramatic declines of recent days, and orders still so lopsided that trading in more than half the stocks on China’s two biggest exchanges has been suspended, China’s stock were on such a tear this year that they still have yet to give up this year’s gains As the Wall Street Journal points out, “Despite the recent tumble, China’s main stock index is up 72% over the past year and 10% since January.” But it is Not a Good Sign that the market hasn’t stabilized even in the face of central bank intervention. The financial press is using words like “panic” to describe investors’ mood, and the selling has spread to risky bonds.

China's Plunging Markets: Retail Investors Stunned by Rout - NBC News: It has been a tough three weeks for millions of regular Chinese who invested vital savings in the country's stock markets. "I have been trading in the past few years, but this market plunge is unprecedented," said one retiree, referring to the nearly 30-percent drop since the markets peaked on June 12. By early July, $2.8 trillion in value had been wiped out. "Almost all of the folks here have lost money in the last few weeks," added Wang, who asked to be referred to by his surname, like other investors NBC News spoke to on Monday. "Many of us here are retirees, we invest our pension money in the stock market."The recent falls have sent ripples of panic through the legions of retail Chinese investors, many of whom borrowed heavily to invest in largely unregulated markets that doubled in value during the last year alone. Financial insiders agree that the government hastened the bull run in order to help fund heavily-indebted companies and manufacture a "feel good" consumer spending boost. Now the bubble in the Wild West of the investment world is bursting, prompting jitters about the stability of the world's second-largest economy and providing a painful lesson that prices go down as well as up. "I haven't seen this market crash before," said Chen, a retired factory worker. "The most frightening part is that the government is not giving reasonable explanation for this weird phenomenon, why the market has been dropping for several weeks now."

Delusions of Control - Paul Krugman  -- David Keohane has an informative post on the China stock crash, which is among other things revealing that the Chinese government has much less ability to control events than legend has it. And that brings back memories. You see, when the Japanese bubble of the 1980s began deflating, there were many people insisting that the Ministry of Finance had it all under control. In fact, years into the Lost Decade you would still read articles and books claiming that Japan knew exactly what it was doing, even that it was all a cunning plot to lull the West into complacency while Japan took over the world economy. The general point is that if you believe that officials have the economy — any economy — under control, you’re setting yourself up for a big disappointment. And in particular, it’s invariably a very bad idea to assume that officials know things that outside economists don’t. When it comes to economic policy, everyone has pretty much the same information, and holding public office, whatever its other benefits, does not improve one’s analytical skills. Those of us who have been warning about big trouble in big China might be wrong. But we won’t be wrong because Chinese officials possess secret information or secret levers of control.

Greece debt crisis: China is the real elephant in the room: Greece might be the word but China is what Australian investors should be watching and listening to this week.China is a much more confronting situation for Australian and world equity markets. Europe is someone else's problem, China is our problem. The plunge in Chinese equities in the past three weeks has reached almost $3 trillion in market value, about 10 times Greece's gross domestic product last year. The European game of chicken being played out between the Germans and the Greeks will ultimately resolve itself. Either the Germans, the International Monetary Fund and the European Central Bank will back down and continue to provide financial aid along with a less onerous austerity package that the Greek people can live with, or the latter will ultimately need to leave the union and begin the painful process of going it alone. If Europe needs to prime the stimulus pump further to contain cross-infection with other European countries, then it will.There will be uncertainty in world markets until the outcome is known. But in Europe there is an end game – albeit one that is still uncertain. Greece is a tiny economy with virtually no financial ties to Australia and of limited economic importance to the rest of the world – even Europe. Thus the contagion to other European countries is a possibility but not a probability. But the contagion effects of a crash in the Chinese stock market to the Chinese economy, Australia and the rest of the world is much more real.

How to Make Sense of China’s Plummeting Stock Market -  While the eyes of the world have been on the crisis in Greece, China, a country with 123 times its population, has faced financial troubles of its own. A free fall in the Chinese stock market could threaten the prosperity of the world’s second-largest economy and have long-term effects of its own. But the numbers suggest that the stock market collapse — it’s down 32 percent in four weeks — may be less a shocking turn of events and more an inevitable correction in a market that featured many of the classic signs of a financial bubble. Stock investing has become a middle-class pastime in China in recent years, and it’s clear the Chinese government is nervous that a continued market rout will wipe out its citizens’ wealth and stoke discord. The Chinese government has pulled out a series of policy measures to try to avert the collapse: interest rate cuts; using government pension funds to prop up the market; announcing plans to investigate those betting on a market drop.  The data, though, suggest that the market declines thus far aren’t as outlandish as the Chinese government seems to think. The Shanghai composite index began an upward tear in late 2014, soaring 151 percent from the start of July last year to the June 12 high. The chart shows how easy it is to frame market data in a way that sounds either scary or benign, depending on your inclination. “The Chinese stock market has dropped 32 percent in a month” is scary. “The Chinese stock market is up 70 percent over the last year” sounds great. Both are true.In that sense, the people who have lost money in the last month are those who plowed money into Chinese stocks just in the last few months, aiming to take part in what seemed a rocket trajectory rise in prices. Anyone who has been invested for more than a few months is doing just fine, so far at least.

Fasten your seat belts; the ride is about to get choppy - Chinese policy makers are concerned with the dramatic recent falls in the value of the Chinese Stock Market. They are right to be concerned. Although we can, and should, allow financial markets to allocate capital across sectors, the market as a whole is a creature of sentiment. And U.S. experience suggests that market crashes often precede deep recessions.  Today, the Peoples Bank of China was given the authority to purchase shares in the Chinese Stock Market. This is a bold experiment; but it is not unprecedented. In 1998, in the midst of the Asian Financial Crisis, the Hong Kong Monetary Authority engaged in a similar exercise. That intervention was large and successful and was the beginning of the end of the Asian crisis. Chinese stocks are not dramatically overvalued and prospects for growth have recently picked up. I have advocated in the past for  the policy that the Peoples Bank is now engaged in. But the devil is in the details. Stock market intervention could unfold in two ways. A purchase of shares by the central bank might be financed by money creation (Quantitative Easing). Or it might be accomplished by swapping short-term debt for risky securities (Qualitative Easing). Chinese interest rates, at 4.8%, are still in positive territory although inflation is currently at 1.2% and falling if official statistics are to believed. That leaves room for purchase of shares financed by money creation and it is an option that I would not rule out.  Buying stocks through money creation is not the only avenue. The Peoples Bank also has the option to purchases shares without increasing the monetary base through swaps of shares, either for foreign exchange or through domestic government borrowing.  China is holding more than $1.2 trillion dollars of U.S. government debt. If the Bank were to tap those funds to stabilize the Chinese stock market it could not simultaneously maintain an exchange rate peg. If China goes that route, look out for upheaval in the foreign exchange markets.

China stock meltdown: Why its actual economy will be just fine. -- As global equity markets swoon in response to the recent meltdown in Chinese stocks, these deep-rooted biases are in play once again. The Western version of China has darkened out of fear of asset bubbles, excess investment, and debt overhangs—precisely the same imbalances that have afflicted the major economies of the developed world over the past two decades. The truth is far less bleak.  China’s plunging stock market is the most obvious case in point. Yes, a big bubble has burst—as of July 8, the domestic Chinese equity market has fallen by 31 percent from its June 12 peak after surging by nearly 150 percent over the preceding year. Notwithstanding massive government support actions now being unleashed, there’s no telling how much further the sell-off has to go. The question for China is precisely the same as that which was raised by the bursting of earlier stock bubbles—especially those in Japan and the United States: Will the carnage in asset markets do lasting damage to China’s real economy?   The answer is no. The linkage between asset markets and economic activity is captured through what economists call “wealth effects”—basically the capital gains (both realized and psychological) that consumers accrue from the ups and downs of asset prices. An unbalanced Chinese economy has a built-in insulation from the downside of these wealth effects. Consumption is only 36 percent of its GDP—literally half that in the U.S., where consumer demand growth has been more than halved over the post-bubble period of the past seven years. While speculators who were borrowing on margin to buy stocks will undoubtedly feel pain as the Chinese bubble bursts, these impacts are likely to be limited. China, with its still-embryonic consumption sector, and without an American-style overhang of household debt, is unlikely to suffer from the wrenching balance-sheet recessions that afflicted the United States and Japan.

Decline in China New-Car Sales Is Latest Worry for Top Auto Makers - WSJ: The auto industry’s biggest market has slipped into the slow lane, with China new-car sales last month registering a rare decline that presents another emerging markets’ headache for global auto makers. Most auto executives had been forecasting 2015 sales in China to slow to a high, single-digit percentage gain over 2014, but that now looks optimistic. On Friday, the China Association of Automobile Manufacturers said June passenger-car sales fell 3.4% over a year earlier, just the third monthly decline since September 2012. Unlike the past two monthly declines, which were fueled by a weeklong holiday in 2013 or political events, the latest skid comes amid broader warning signs: the country’s economy is slowing, its stock markets are falling and more analysts say the Chinese auto industry has too much production capacity. China’s first-quarter economic growth came in at 7%, its slowest pace in decades. The Shanghai Composite Index is currently off nearly a quarter from its mid-June high, though stocks have staged a recovery over the past two days thanks to government intervention. Through June, China passenger-car sales rose a disappointing 4.8% to 10 million vehicles, a rate far below the gains seen over several years. Demand for cars remains tepid despite auto makers offering price cuts and other incentives. The latest survey by CAAM shows that total inventories of passenger cars have rose to more than 50 days of sales in May, above the group’s warning level of 45 days.

China on $10 billion drone binge says US: THE United States claims its arch superpower rival China is poised to become the world leader in unmanned military aircraft with up to 42,000 pilotless aircraft aloft by 2023. According to the United States Defense Department’s latest report on China’s military build-up the “Middle Kingdom” will spend more than $10 billion on land and sea based unmanned aircraft. These will include fixed wing and rotary aircraft to conduct surveillance, attack and even air combat missions.“The acquisition and development of longer-range UAVs will increase China’s ability to conduct long-range reconnaissance and strike operations,” the Pentagon report says. Three of the systems being developed by China — the Yilong, Sky Saber and Lijian — are capable of launching precision strike missiles. According to a US Naval Intelligence report the People’s Liberation Army (Navy) — the PLA(N) — would most likely emerge as the most prolific user of Unmanned Aerial Vehicles (UAVs).

The Real Importance of Japan’s New Strategy for the Mekong -- On July 4, the leaders of Japan and the five countries in the Mekong subregion – Cambodia, Laos, Myanmar, Thailand and Vietnam – convened for the Seventh Mekong-Japan Summit in Tokyo. True to form, much of the media focus was on the dollar amount that Japan pledged to the so-called ‘Mekong Five’. In fact, the real significance of the meeting was the adoption of a new, comprehensive strategy for Mekong-Japan cooperation for the next three years and the growing importance of regional and global issues in the relationship. The headline plastered across most newspapers was that Japan had pledged 750 billion yen ($6.1 billion) in aid to the Mekong over the next three years as part of a bid for influence amid the rise of China’s Asia Infrastructure Investment Bank (AIIB). As I have stressed in the past, framing foreign policy initiatives in such crude terms does them a great disservice.  Japan has been pledging official development assistance (ODA) to Mekong states long before China even thought of setting up a new infrastructure bank. It has also been further boosting its relationships with Southeast Asian states over the past few years   Furthermore, even if Tokyo’s current Mekong pledge is a 25 percent increase from what it offered over the last three years, Japanese officials – including Prime Minister Shinzo Abe himself – have gone out of their way recently to stress that their infrastructure efforts in Asia are based on quality rather than just quantity. Indeed, this is arguably the real value proposition of Japan’s new strategy for the Mekong.

Trade agreements and trans-Pacific competition -- With the passage of Trade Promotion Authority (‘fast track’) by the US Congress, the pathway for completion of the decade-long negotiations of the Trans-Pacific Partnership (TPP) has finally opened. TPP is a proposed agreement that would liberalise international trade and investment among 12 countries bordering the Pacific, including Japan and the US. Significantly, TPP would exclude China.¹ TPP has been accurately described as the most important US trade negotiation since the North American Free Trade Agreement of 1994. Completion of TPP would shift attention to the Trans-Atlantic Trade and Investment Partnership, currently under negotiation by the US and the EU and also included under ‘fast track’. This would unify trade and investment agreements in North America and Europe, creating a free trade and investment area covering both continents.In a recent paper (Jorgenson et al. 2015) we analyse trans-Pacific competition between US and Japanese industries over the period 1955-2012. This has provided powerful incentives for mutually beneficial economic cooperation. During the first half of this period, ending with the Plaza Accord of 1985, the yen was undervalued relative to the dollar and many Japanese industries became competitive with their US counterparts. This provided an opportunity for Japan to grow rapidly by mobilising its high-quality labour force, maintaining high rates of capital formation, and dramatically improving productivity.² The two lost decades in Japan and the Global Crisis of 2007–2009 have created new opportunities for economic growth. This column describes the evolution of productivity across sectors in Japan and the US and suggests that the greatest payoffs for Japan would come from combining the Trans-Pacific Partnership with domestic reforms and encouraging foreign direct investment. 

6 chapters of TPP pact still unresolved - The Japan News -  Of the 31 chapters of a proposed Trans-Pacific Partnership free trade pact, six are expected to require “political settlement” at a ministerial meeting, according to Japanese government sources. The six include chapters on protection of intellectual property rights, treatment of state-owned enterprises and investment rules. With some issues also left pending in Japan-U.S. negotiations on tariff removal, outlook for whether the 12 negotiating countries can strike a broad deal by the end of this month as targeted remains shaky. “On 17 chapters, negotiations have been concluded or will be concluded after double-checking,” Kazuhisa Shibuya, councilor at the Cabinet Secretariat and a member of the government’s TPP task force, told a meeting of the ruling Liberal Democratic Party in late June. According to sources familiar with TPP talks, relevant officials have been trying to work out remaining problems after chief negotiators met in Guam in May. The 12 economies have almost ironed out their differences over sanitary and phytosanitary, or SPS, rules for food imports. According to Japanese government officials, no country has demanded changes in Japan’s food safety rules. If it is true, Japan will not have to substantially ease regulations on residual pesticides and genetically modified foods. Meanwhile, in eight other fields, including government procurement, some differences persist, but working-level officials have paved the way for agreements.

Asia-Pacific cities are driving the global economy -- From the West Coast of the Americas, spanning cities including Vancouver, San Francisco and Lima, to Auckland, Jakarta and the metropolises of Hong Kong, Shanghai and Tokyo, the 100 biggest metropolitan centers across the region make up one fifth of the global economy, or $22 trillion worth in 2014. That is according to a new analysis by the Brookings Institution, which identified the 100 largest metro economies — 49 in China, 19 in Japan, South Korea and Taiwan, 12 in North America, seven each in Southeast Asia and Latin America, and six in Australia and New Zealand. “The Asia-Pacific MetroMonitor reaffirms the shift in global economic growth to the East and South, as Asia continues its path through urbanization and industrialization,” “As a result, major metro economies remain the engines of the Asia-Pacific economy and its centers for trade and investment.” The numbers tell their own story: The 100 biggest metropolitan economies in the Asia Pacific region together accounted for 20 percent of global GDP and 29 percent of global GDP growth in 2014. If they were a single country, they would be the largest national economy on earth with $21.9 trillion in output last year. Chinese metro economies enjoyed the fastest GDP per capita growth. But it is not all about Asia. Cities such as Portland, San Jose, Seattle and others all outpaced national growth averages in 2014. “Cities are where the region’s most significant developments—China’s continued liberalization and economic expansion, the rise of Southeast Asia, and the technology-led growth occurring in North America—all come to ground,” the report’s authors wrote. “These dynamics—along with the recent push among national governments to cement trans-Pacific ties—offer the potential for a new era of shared growth and prosperity among cities in the Asia-Pacific region.”

India, Pakistan to join SCO trade bloc: Russian President Vladimir Putin has officially announced the accession of India and Pakistan to the Shanghai Cooperation Organization (SCO). In a key briefing after the summit of SCO leaders in the Russian city of Ufa, Putin announced Friday that India and Pakistan will join the SCO, a first time expansion of the heavy-weight Eurasian group since its inception in 2001. The SCO, which also includes former Soviet republics in Central Asia, has been viewed as a de facto counterweight to major Western alliances such as the North Atlantic Treaty Organization (NATO). Those seeking membership in the body also want to enjoy the economic benefits, with India now having a better access to the energy resources of Central Asia. Putin also announced that Belarus would obtain observer status in the SCO, joining Afghanistan, Iran and Mongolia. He said the body welcomes applications by Azerbaijan, Armenia, Cambodia and Nepal, which are considered “dialogue partners.” The Russian leader further touched upon the major results of the SCO summit, including an agreement between the heads of state on more cooperation on the problem of drug trafficking in Afghanistan, a country which Putin said is seeing a rising influence of the ISIL terrorist group. He said plans for deepening economic and trade ties between the members are also high on agenda.

The shift of Australia's economy in one painful chart - Someday, resources will not be Australia's biggest export. That day may come sooner than you think. In fact, amid extreme volatility in the price of iron ore,  it might already be upon us.  Exports of services were almost equal to exports of metals, ores and minerals in May, according to the latest monthly data from the Australian Bureau of Statistics. The ABS does not seem to break out exports into specific product categories, but according to a speech by a Reserve Bank of Australia official earlier this year, iron ore was eclipsed by high-value services such as education and tourism in export dollars last year.  Services exports were actually higher than resource exports as recently as 2009, just before the latest mining boom started. They were consistently higher than minerals exports in the 1980s and 1990s, based on this data, which is seasonally adjusted and in current prices.  The iron ore price spiked by about 10 per cent overnight but it has been in a sharp downward trajectory all year, roughly halving in value. A lower iron ore price could dent a significant hole in the federal budget, economists believe.   Happy Friday.

China Rout Sends Emerging Stocks Toward Worst Day Since 2013 -- Emerging-market stocks sank the most in two years and currencies slumped to the weakest level since March as a deepening selloff in China spread across the world. As the Shanghai Composite Index sank 5.9 percent on Wednesday, markets from Taiwan to Egypt lost 2 percent or more. At least 1,323 companies have halted trading on mainland Chinese exchanges, representing about 40 percent of the market’s capitalization, as traders unwind margin bets at a record pace and concern mounts the government won’t be able to stem declines. “Panic selling in the largest emerging market is not good for sentiment,” “Up to now, a number of people have had strong faith in the ability of the Chinese government to manage a soft landing in the economy. The authorities’ inability to stabilize the market has shaken this faith.” The rout that’s erased more than $3.5 trillion from the value of Chinese equities in less than a month is choking appetite for riskier assets on concern contagion from the turmoil may threaten global trade and economic growth. U.S. exchange-traded funds that invest in the emerging markets led net outflows with a net $131 million of losses on Tuesday, according to data compiled by Bloomberg. The MSCI Emerging Markets Index retreated 2.7 percent to the lowest level since June 2013. A gauge tracking 20 developing-nation currencies against the dollar weakened 0.3 percent, led by a 1.4 percent slump in Brazil’s real.

China Rout Spills Into Debt, Currency Markets - WSJ: Contagion from the plunge in Chinese stocks spread Wednesday in a sign investors within China and overseas are losing confidence in Beijing’s ability to stem the slide in the country’s equity markets and manage its economic reforms. Shares listed on the country’s main Shanghai market dropped 5.9%, deepening a slump that has seen the market fall by nearly a third since mid-June. The gloom is no longer confined to stocks. The yield on China’s benchmark government bonds rose sharply, while investors unloaded billions worth of dollar-denominated debt issued by Chinese companies. China’s currency, the yuan, fell to a four-month low in offshore markets, while a global selloff in commodities continued, with oil down in early Asian trading and metals such as copper trading close to six-year lows. The malaise in China stocks is spreading outward largely because Chinese policy makers have put their credibility at stake in a series of attempts to shore up the market that so far have borne little fruit. Unlike the global financial crisis of 2008, when panic spread through world markets as the complex links between major financial institutions unraveled, investors are taking fright from the fall in Chinese stocks because it has exposed Beijing’s limitations in the face of market forces. “Beijing’s latest bid to calm the market has had the opposite effect,” . “The panic is spreading and authorities appear to be grasping at straws to hold back the tide.” Concern is growing that Beijing’s failure to prop up its equity markets means it will be unable to push through its broader agenda of liberalizing the economy to mitigate the country’s slowing growth. Policy makers have been hoping that the emergence of a less volatile stock market would give companies more confidence to raise equity capital, reducing their reliance on funding from state-owned banks.

BRICS Central Banks Sign Forex Reserves Pool Pact -- The five major emerging national economies, known by the acronym BRICS, were a step closer to setting up a $100 billion pool of mutual reserves by signing an “operational agreement” on a visit to Moscow, the Bank of Russia said Tuesday. he pool would be drawn on by the central banks of Brazil, Russia, India, China and South Africa whenever they suffered a shortage of dollar liquidity, helping them maintain financial stability, Russia’s central bank said.Financial stability has been Moscow’s sore point over the past year as the Russian economy has slipped into recession, while the country has lost access to global capital markets, due to Western sanctions, and has had to drain billions of dollars from its reserves. The five central banks signed the agreement, which “outlines the terms of mutual support for member states in the framework of the agreement on BRICS Pool of Conventional Currency Reserves,” the Bank of Russia said.Since 2013, BRICS states have been considering creating a fund, which would be an alternative to the International Monetary Fund, after seeing investors pull money away from emerging economies, devaluing their currencies. hina will contribute $41 billion to the currency pool. Brazil, India and Russia will each provide $18 billion, while the remaining $5 billion will come from South Africa.

BRICS Bank Officially Launches As Sun Sets On US Hegemony --  As a refresher, here’s how the Washington Post described the bank’s structure and purpose on the heels of last summer’s BRICS summit in Fortaleza: The NDB has been given $50 billion in initial capital. As with similar initiatives in other regions, the BRICS bank appears to work on an equal-share voting basis, with each of the five signatories contributing $10 billion. The capital base is to be used to finance infrastructure and “sustainable development” projects in the BRICS countries initially, but other low- and middle-income countries will be able buy in and apply for funding. BRICS countries have also created a $100 billion Contingency Reserve Arrangement (CRA), meant to provide additional liquidity protection to member countries during balance of payments problems. The CRA—unlike the pool of contributed capital to the BRICS bank, which is equally shared—is being funded 41 percent by China, 18 percent from Brazil, India, and Russia, and 5 percent from South Africa. On Tuesday, ahead of this year’s summit in Ulfa, the BRICS countries officially launched the new bank along with the reserve currency pool. Here’s WSJ: The group of five major emerging economies known as Brics launched a development bank on Tuesday ahead of a summit in the Russian industrial city of Ufa, where Russia seeks to demonstrate it hasn’t been isolated by Western sanctions.The long-planned development bank, aimed at financing projects mainly in member countries Brazil, Russia, India, China and South Africa, will select its first projects to finance by the end of the year, Russian Finance Minister Anton Siluanov said on Tuesday. The countries’ national banks also signed a deal Tuesday to create a $100 billion reserve fund by the end of July that can be tapped in financial emergencies. The Bank of Russia said it signed an “operational agreement” with Brics counterparts to create a $100 billion pool of mutual reserves. The group agreed to create the fund in 2013 as an alternative to the International Monetary Fund, after seeing investors pull money away from emerging economies, causing their currencies to weaken.

End of the global dip - The latest results from Fulcrum’s “nowcast” models of the global economy, based on data published up to last week, indicate that the dip in global economic activity that was apparent in the early part of this year has now been fully reversed. In fact, in early July the models are reporting that underlying global activity growth has risen to 3.5 per cent, which is the highest since last November, when the Chinese and US economies both embarked on a slowdown. That now appears to have been temporary, and the world economy has resumed growing at near its trend rate. There has been a simultaneous improvement in activity growth in many regions of the world in the past two months – including in the US, the UK, Japan and China – which increases our confidence that the pick-up in activity is genuine. However, it is noteworthy that while US activity has now re-accelerated, the euro area has slowed moderately from the firm growth (by its own standards) reported earlier in the year. Therefore a gap of almost 1 percentage point has opened up between US (2.6 per cent) and euro area (1.7 per cent) growth, after a period in which the two regions were running neck-and-neck. Within the euro area, there has been a marked recent slowdown in Spain, which had previously been the strongest of the major European economies. It is possible that the Greek crisis has had some effects on economic confidence in Spain, as shown in recent weakness in business survey data. In the emerging economies, recent data have been mixed, with the improvement in China offset by pronounced weakness in Brazil, Russia and some smaller Asian economies. It is too early to conclude that the slowing in activity in the emerging economies is definitively over, but the signs are improving somewhat.

Rise in Positive Economic News Masks Underlying Global Problems -   News coverage of the global economy improved sharply in June, but not for the right reasons, according to a report released Tuesday. The Absolute Strategy Research/Wall Street Journal global composite newsflow index increased to a 10-month high of 56.5 in June from 55.1 in May. An index above 50 denotes net positive news coverage on economic topics. Analysts at ASR warned the composition of the index’s improvement is “less than ideal.” That’s because the increases were concentrated in the inflation and monetary policy components, while the labor and revenue newsflow indexes weakened last month. “The combination of lackluster real economy newsflow and a pickup in inflation newsflow (on the back of a rebound in oil prices) hints at a stagflationary, rather than reflationary, world,” the report said. The June results suggest stocks will continue to outperform bonds in global financial markets. Regionally, the U.S. composite index increased for the fifth consecutive month, rising to 60.5 in June. The eurozone composite index also strengthened sharply, to 59.6 from 55.8 in May, but the reading might have been even stronger if not for news stories on the Greek debt crisis ahead of the July 5 vote. Analysts at ASR looked at news stories covering just economic growth in the eurozone. They then separated out references to Greece. The results showed Greece had a very negative impact on economics news, especially over the last two months.

OECD: Global economy is growing too slowly - The global economy still isn't growing fast enough to quickly replace the jobs lost in the wake of the financial crisis, while millions are at risk of a lifetime of insecure and low paid employment, the Organization for Economic Cooperation and Development said Thursday. In its annual report on employment, the Paris-based research body said that as of May 2015, around 42 million persons were without work, 10 million more than just before the crisis. It forecast that the unemployment rate will continue its "slow decline" through this year and next, and reach 6.5% by the end of 2016, from 7.1% at the end of last year. "Employment is still growing too slowly in the OECD area to close the jobs gap induced by the crisis any time soon," wrote Stefano Scarpetta, the OECD's director for employment, labor and social affairs. "Consequently, unemployment will remain high even by end 2016." According to the report, the proportion of people aged 15 and over in work will be just 54.8% at the end of next year, still below the 55.8% recorded at the end of 2007. That difference of one percentage point is the equivalent of 11 million jobs.

OECD Indicators Point to Growth Slowdown in Major Economies - Growth is set to slow across more of the world’s largest economies, including the U.S. and China, according to leading indicators released Wednesday by the Organization for Economic Cooperation and Development. The Paris-based research body said its gauges of future economic activity—which are based on information available for May—also point to slowdowns in the U.K., Canada and Brazil. The indicators had previously pointed to steady growth for the U.K. If it materializes, the broadening slowdown suggested by the leading indicators would spell another disappointing year for the global economy, which has struggled to recover from the effects of the 2008 financial crisis. It would also pose a challenge for central bankers, who have already provided large amounts of stimulus in an effort to keep the recovery on track, and would prefer to return interest rates to more normal rates sooner rather than later. Most policy makers acknowledge that the longer interest rates remain very low, the higher the risk of another crisis in the financial system. The U.S. economy contracted during the first three months of the year, but most economists attribute that weakness to temporary factors, including harsh weather and a labor dispute at West Coast ports, while the stronger dollar appears to have damped exports.

OECD: Broken “Diffusion Machine” Is Slowing Productivity -  We haven’t stopped having good ideas, but those we do have aren’t spreading as quickly as they once did. So argues the Organization for Economic Cooperation and Development in its latest attempt to explain the slow growth of productivity in the years leading up to and following the financial crisis. Its suggested remedy is an intensification of global competition among businesses that will cull the old and the weak, and allow newer, more dynamic rivals to thrive and grow. In the study, the Paris-based research body found that productivity growth had slowed across developed economies during the from 2000 to 2013, and across China and India during the years from 2007 to 2013. That matters because over the longer term, people can only earn more if they get better at producing goods and services. The slowing of productivity growth has puzzled economists, who have offered a variety of explanations. Some of those involve a slowing in the pace of productivity enhancing innovations: smartphones and music streaming services may help stave off boredom, but they’re not exactly in same league as the internal combustion engine when it comes to changing the way we work. That reflects a wider disenchantment with the progress of science and technology. Where are the flying cars we were promised? The hover boards? The vacations in space? But digging into the data, the OECD’s economists conclude that businesses are still innovating in ways that increase their productivity. In manufacturing, the 100 most productive firms in each sector saw output per worker increase at an annual rate of 3.5% between 2001 and 2009, compared to just 0.5% for other firms. In services, the gaps are even wider. “Frontier” producers boosted worker productivity by 5% each year, compared with 0.3% among other firms. In both manufacturing and services, the gap between the most productive firms and the rest widened towards the end of the period, in the year immediately after the financial crisis hit.

How crony capitalism is slowing global economic growth -- US productivity growth, at least as measured, has been in low gear for a decade. And especially so since the Great Recession, averaging just 0.6% annually from 2010 through 2014. We’re aren’t going to consistently hit 3% GDP growth, much less 4%, like that.Then again, productivity growth has slowed in most OECD countries over the past decade. A new OECD research note doesn’t think the problem is a lack of innovation, so much as an inability to spread innovation broadly throughout advanced economies. “A breakdown of the diffusion machine” is what the OECD calls it. The gap between high productivity firms and low productivity firms is increasing. (Maybe also helping to explain rising inequality.) So why aren’t innovations spreading as fast as they used to? The WSJ’s analysis of the paper sums it up nicely One key reason appears to be that the process of “creative destruction” identified by Austrian economist Joseph Schumpeter as essential to capitalism’s dynamism appears to have lost some of its ferocity. In the OECD’s words, “market selection is weak.” One reason for that is government policy, which the OECD said favors incumbents across a whole range of areas, from regulations designed to protect the environment, to taxation. As a result, older firms that suffer from low productivity growth endure, often “trapping” workers in jobs for which they are over qualified. “High rates of skill mismatch often coincide with the presence of many small and old firms,” the OECD said. “These firms are often unproductive and tend to be harmful for aggregate productivity to the extent that they absorb valuable resources, thereby constraining the growth of more innovative firms.” In countries where this pattern is particularly prevalent–Italy and Spain–the OECD said better used of workers skills could boost productivity by as much as 10%.

71% of the world's population lives on less than $10 a day - Here's the good news: Global poverty has fallen by half over the past decade. But here's the bad news: 71% of the world's population remain low-income or poor, living off $10 or less a day, according to a new Pew Research Center report that looked at changes in income for 111 countries between 2001 and 2011. Unlike in America, where the middle class has been on the rocks in recent years, some researchers say that strong economic growth in developing countries has helped shrink poverty and expand the middle class globally. But Pew disagrees, calling a global middle class more promise than reality. True, the global middle class nearly doubled over the decade to 13% in 2011, but it still represents a small fraction of the world's population. "The world has made tremendous strides in pulling people out of poverty, but most of the growth has been only one step up the economic ladder," said Rakesh Kochhar, associate director at Pew. People "are potentially one financial shock away from slipping back into poverty."

IMF trims U.S. forecast as it says world to weather Greece, China -- The bank holiday in Greece and the meltdown in the Chinese stock market "have not changed the broad outlook" of moderate growth for the global economy in 2015, the International Monetary Fund said Thursday. The IMF trimmed its outlook for global growth by two-tenths, to 3.3%, slightly slower than the 3.4% growth rate seen in 2014. Most of the decline was due to slower growth in the first quarter in North America, which led the IMF to downgrade its outlook for U.S. economic growth by six-tenths to 2.5%, just above last year's 2.4% growth rate. But the first-quarter weakness was expected to be only a "temporary setback," the international financial agency said. The recovery in the eurozone seems broadly on track, the IMF said. Risks to the outlook remained slightly tilted to the downside, notably from asset price shifts and financial market volatility.

IMF Sees 2015 Global Economic Growth at Weakest Rate Since Financial Crisis - Global growth is set to slow this year to its weakest rate since the financial crisis, the International Monetary Fund said Thursday, as China and other emerging markets decelerate and advanced economies still struggle to shrug off the legacies of the crisis. In an update to its World Economic Outlook, the IMF downgraded its forecast for 2015 by 0.2 percentage points to 3.3%. That marks a slowdown from last year’s pace of 3.4% and the most feeble clip since the global economy contracted in 2009. Still, the IMF expects global growth to pick up in 2016 to 3.8% as the U.S. and European recoveries gather steam. The revision follows the fund slashing the prospects for U.S. growth after a series of negative shocks, including a strong dollar, bad weather and a collapse in oil-sector investment, sapped momentum for job creation and expansion. The IMF earlier this week urged the U.S. Federal Reserve to hold off raising rates for the first time in nearly a decade to avoid potentially stalling the U.S. economy and wreaking havoc in global markets. “Disruptive asset price shifts and a further increase in financial market volatility remain an important downside risk,” the IMF said.The revision also follows weaker forecasts for commodity exporters such as Canada, Mexico, Brazil and Nigeria as prices continue to slump. But the IMF downgraded its forecasts for a host of developing countries with strong market ties to the world’s second-largest economy amid growing investor anxieties that China’s stock market rout signals deeper economic problems.

Syrian refugees: four million people forced to flee as crisis deepens-- The conflict in Syria has now driven more than four million people – a sixth of the population – to seek sanctuary in neighbouring countries, making it the largest refugee crisis for a quarter of a century, according to the UN. On Thursday, the UN refugee agency, UNHCR, said the total number of Syrian refugees in Turkey, Lebanon, Iraq, Jordan, Egypt and other parts of north Africa stood at 4,013,000 people. With at least 7.6 million people forced from their homes within Syria, almost half the country’s people are either refugees or internally displaced. The conflict, now in its fifth year, has killed more than 220,000 people. António Guterres, the UN high commissioner for refugees, said the exodus was the biggest refugee population from a single conflict in a generation and called on the international community to step up. He said: “It is a population that needs the support of the world but is instead living in dire conditions and sinking deeper into poverty. “Worsening conditions are driving growing numbers towards Europe and further afield, but the overwhelming majority remain in the region. We cannot afford to let them and the communities hosting them slide further into desperation.” Turkey is now the largest refugee-hosting country in the world, sheltering 1,805,255 Syrians. Lebanon has taken in 1,172,735 Syrian refugees, Jordan 629,128, Iraq 249,726 and Egypt 132,375. About 24,055 Syrians are refugees elsewhere in north Africa. The latest UN figures do not include the more than 270,000 Syrians applying for asylum in Europe, nor the thousands resettled from the region elsewhere.

Someone stole $1 billion from Moldova. That's an eighth of its GDP — When thousands filled the streets of Moldova's capital on Sunday, their complaint was pretty significant. Late last year, about $1 billion disappeared in an apparent banking scandal that’s mystified Europe’s poorest country. To put that sum into perspective, it’s an eighth of the country’s GDP. In United States terms, that portion of the economy would add up to more than $2 trillion. The money reportedly vanished in a series of murky loans dealt out last November by three major banks — one of them state-owned — to as yet unknown recipients. Officials wised up to the scheme only earlier this year. Investigators, including the US auditing firm Kroll, are looking into the matter but have released few details. The speaker of Moldova's parliament finally released a report by Kroll late Monday night that implicated a Moldovan businessman in the scheme, but recommended further investigation. Many Moldovans are mad about all this. They say it’s symptomatic of the widespread corruption that’s plagued their country since the collapse of the Soviet Union. That’s also why Sunday’s protest was about more than just missing money. It drew at least 10,000 demonstrators, police said. If that sounds unimpressive, consider that there are just 3.5 million people in Moldova.

ECB Lifts Veil on Emergency Liquidity Assistance - The European Central Bank has lifted the veil a bit on a program that typically operates in the shadows but has gained prominence in recent months during Greece’s debt drama: Emergency Liquidity Assistance, or ELA. On Monday, the ECB said in a statement that it had maintained its cap on ELA for Greek banks and also raised the haircuts on collateral that must be posted for new loans. That was a departure from the ECB’s usual practice of not making formal announcements about ELA, though the bank has been more open about its decisions as Greece’s debt crisis has escalated. In a section of a report published Tuesday (pages 33-35), the ECB summed up ELA this way: “As distinct from the Eurosystem’s credit operations, national central banks can temporarily provide emergency liquidity assistance (ELA) to euro area credit institutions which are solvent but face liquidity problems,” the ECB wrote. “ELA is not a monetary policy instrument.” Here are five main issues addressed by the ECB’s report.

Spain's anti-austerity Podemos tied with mainstream parties - poll | Reuters: Spain's anti-austerity Podemos is virtually tied with the country's two mainstream parties less than six months to a parliamentary election with no sign of a front-runner emerging, a poll showed on Sunday. For the second month in a row, the ruling People's Party narrowly led the survey carried out by Metroscopia for El Pais newspaper, garnering 23 percent support. The opposition socialists and Podemos came close second and third in the poll with 22.5 percent and 21.5 percent respectively. Other newcomer, Ciudadanos, is fourth with 15 percent. This means that at least three parties would be needed to form a parliamentary majority and back a stable government in a country without any tradition of coalition politics. An alliance between the socialists, Podemos and other leftists Izquierda Unida would total around 48 percent of the vote but Spaniards would prefer a government led by the socialists or the People's Party and backed by centrist Ciudadanos, the poll also showed. In a test of the national mood ahead of elections expected in November or December, Prime Minister Mariano Rajoy's People's Party suffered heavy losses in local elections in May which saw the socialists regaining some momentum while Podemos and Ciudadanos made considerable headway.

Bad loans at Italian banks rise to 194 bln euros in May | Reuters: Bad loans at Italian banks rose further in May to 193.7 billion euros ($214 billion) as a prolonged recession continues to hurt the balance sheets of lenders even as the economy begins to improve. Bank of Italy data showed on Wednesday that loans unlikely to ever be repaid in May were up 14.7 percent from a year earlier. In April these loans totalled 191.6 billion euros. With bank capital tied up by soured loans, corporate lending continued to shrink. Loans to non-financial companies fell 1.9 percent in May after a 2.2 percent fall in April, the Bank of Italy said.

Greece and the political capture of the IMF - When governments borrow too much, and cannot repay, it generally falls to the IMF to sort things out. In playing this role, the IMF should be pretty tough on creditors. As Interfluidity so lucidly points out, this is where real moral hazard lies.   So what went wrong with Greece? Remember the Troika made a huge mistake in using their citizens’ money to lend to Greece so Greece could partially repay these private sector creditors - that is where most of the Troika’s rescue package went. The IMF’s own internal analysis was deeply flawed (being predictably wrong in how austerity would impact on the Greek economy), and even then the deal failed its own tests, so special dispensation had to be made.  The IMF should have been very worried about motivations here. After all, many of these creditors were banks from European countries, so the motivations of those bailing out these creditors were conflicted to say the least. They were nevertheless persuaded to go along because of fears of contagion. If the worry was contagion to other countries governments that was an obvious mistake, because it happened anyway but could have been solved ‘at a stroke’ by the ECB (as it eventually was). If the worry was a collapse in the European banking system, then that was the responsibility of the governments concerned, and not the Greek people. . A deal could have been done if the Troika had allowed debt restructuring to be part of the package. The IMF agrees that debt needs to be restructured, as do most economists. It has made no secret of this, yet it has consistently soft pedalled when it came to dealing with the rest of the Troika. So it was allowed to be kept off the table in the current negotiations by the Troika: vague promises to look at this after a deal had been agreed would never be enough for Syriza to sell the deal.

Greek economy close to collapse as food and medicine run short - Greece’s economy is on the brink of collapse after the capital controls imposed ahead of Sunday’s referendum left the country with shortages of food and drugs, the tourist industry facing a wave of cancellations and banks with barely enough money to survive the weekend. Banks said they had a €1bn cash buffer to see them through the weekend – equal to just €90 (£64) a head for the 11 million-strong population – and would require immediate help from the European Central Bank on Monday whatever the result of the referendum, in which the two sides are running neck and neck. Alexis Tsipras, Greece’s prime minister, was fighting for his political life on Friday night, using a rally to say that a no vote would enable him to negotiate a reform-for-debt-relief deal with the country’s creditors. The survival of the Syriza coalition, formed just over five months ago to repudiate five years of austerity programmes, was in doubt as Greece started to suffer shortages of basic provisions, including the sale of vital drugs in pharmacies nationwide. Food staples, such as sugar and flour, were also fast running out on Friday as consumers started to feel the effect of the restrictions. “We have shortages,” said Mary Papadopoulou, who runs a pharmacy in Acropolis. “We’ve run out of thyroxine [thyroid treatment] and unless things change dramatically we’ll be having a lot more shortages next week.”

Overwhelming "No" Vote; The Way Forward; Congratulations! -- Four polls said the Greek referendum was supposed to be "Knife Edge" close.
Instead, Greece Heads for Decisive No Vote. With 85 per cent of votes counted, the No camp had won 61.5 per cent and was leading in every region of the country, a remarkable political exploit by Greek prime minister Alexis Tsipras. But it is also likely to plunge Greece deeper into turmoil as it tries to prevent the collapse of a financial system that is rapidly running out of cash. “As of tomorrow, with this brave ‘No’ vote, we will call on our partners to find common ground,” said Yannis Varoufakis, Greek finance minister.But the response from Berlin was scathing. Sigmar Gabriel, deputy German chancellor, said Mr Tsipras had “torn down the last bridges on which Greece and Europe could have moved towards a compromise”. “With the rejection of the rules of the euro zone ... negotiations about a programme worth billions are barely conceivable,” he told Tagesspiegel newspaper. In Athens’ Syntagma square, No supporters were jubilant at the scale of their victory. “Now we will be free from the Troika, from Mrs Merkel, from them all. This is the right result,” said Irma, a 45 year old civil servant. “I love my freedom. I do not want to keep having that taken away.”

In Rebuke to Europe, Greeks Vote Resounding ‘No’ to Bailout Terms - WSJ: Greeks overwhelmingly voted against their international creditors’ conditions for further bailout aid, in a result that could deepen the rift between Greece and the rest of Europe and push the country closer to bankruptcy and an exit from the euro. More than 61% of Greeks voted “no” in Sunday’s referendum on austerity measures and other overhauls that European and International Monetary Fund officials had demanded in recent talks—an outcome that spurred popular celebrations into the night across downtown Athens and other Greek cities.  “I trust this man,” said Zoe Vergaki, a young musician among Greek Prime Minister Alexis Tsipras’s cheering supporters on the capital’s Syntagma Square. Nearby, some danced to the music of “Zorba the Greek.” “Whatever deal he brings,” Ms. Vergaki said of the leftist premier, “I will support him.” Greeks’ resounding rejection of creditors’ demands for pension cuts, value-added tax increases and other austerity measures is likely to bolster the conviction of the Athens government that it can now successfully press its creditors for a better bailout deal that includes fewer painful fiscal measures and more debt relief. “I’m fully aware that the mandate that I was given (by voters) is not for a rupture with Europe, but a mandate boosting our negotiating strength for reaching a sustainable deal,” Mr. Tsipras said in a televised message late on Sunday.

Greeks Reject Bailout Terms in Rebuff to European Leaders - Greeks delivered a shocking rebuff to Europe’s leaders on Sunday, decisively rejecting a deal offered by the country’s creditors in a historic vote that could redefine Greece’s place in Europe and shake the Continent’s financial stability.As people gathered to celebrate in Syntagma Square in central Athens, the Interior Ministry reported that with more than 90 percent of the vote tallied, 61 percent of the voters had said no to a deal that would have imposed greater austerity measures.The no votes carried virtually every district in the country, handing a sweeping victory to Prime Minister Alexis Tsipras, a leftist who came to power in January vowing to reject new austerity measures, which he called an injustice and economically self-defeating. Last month he walked away from negotiations in frustration at the creditors’ demands, called the referendum and urged Greeks to vote no as a way to give him more bargaining power.  While Mr. Tsipras now appears to have gotten his wish, his victory in the referendum settled little, since the creditors’ offer is no longer on the table. There remains the possibility that they could walk away, leaving Greece facing default, financial collapse, and expulsion from the eurozone and, in the worst case, from the European Union.

Greece to EU - Drop Dead!  -- “The referendum of 5 July will stay in history as a unique moment when a small European nation rose up against debt-bondage.”  Yanis Varoufakis, Finance Minister, GreeceSixty percent of Greek voters rejected the financial bailout proposal offered by the European Union (EU) in Sunday’s referendum.  The EU-IMF proposal relied heavily on austerity, which would have taken current financial hardships to nightmarish proportions for the vast majority of Greeks. As it’s used in international finance, austerity is best understood as Robin Hood in reverse.  The big banks and their stooges in government make bad deals all over the world to finance national (sovereign) debt, the deals fall apart, and then the banks insist that citizens of the debtor nation pay back the loans by sacrificing social services, public works, retirement programs, etc. It doesn’t matter that the banks knew beforehand that the loans would be impossible to pay off. It doesn’t matter that the government leaders making the deals knew the loans were dead on arrival. It doesn’t matter that the people expected to pay off the loan knew nothing, not one single thing, about the details of the loans and never, not once, provided their consent.The only thing that matters is the payoff for the big banks and their political front men and women.The Greek vote came after six austerity plans in five years during which major national resources were diverted from the people to cover bad paper issued by the international banking cartels.   The purpose of each plan was “debt sustainability” for Greece, defined as ongoing payments to the international banking cartel.

A New Deal for Greece  --It appears that the Greeks have given a bloody nose to the EU, turning in a resounding NO vote in Sunday's referendum. Though exactly what they have rejected is unclear. The ballot paper is, to say the least, complicated.  Neither of the documents referred to are current. The EU negotiators withdrew the June 25th offer as soon as the referendum was announced, replacing it with a subtly altered version from the "institutions" and dangling the carrot of debt restructuring if Greeks vote to accept the terms. No doubt they thought that this would force the Greek government to cancel the referendum. They were wrong. But the entire bailout programme expired on June 30th anyway, rendering the June 25th offer obsolete. So the Greeks have rejected an offer that no longer exists. Perhaps the No vote is best seen as a protest against seemingly unending depression, unemployment and misery. I have considerable sympathy for this, though it will undoubtedly annoy Greece's creditors. . But there has been a much more interesting development in recent days. The second document referred to on the ballot paper is the fudged debt sustainability analysis that accompanied the June 25th offer. But this too has now been superseded. The day after the announcement, the IMF produced another, more comprehensive debt sustainability analysis. It wasn't published until July 2nd. Allegedly this was because European members of the IMF board objected to its publication prior to the referendum. And having read the IMF's new report, I'm not surprised. The report undermines the EU creditors' entire case.

Europe Wins - Krugman  Tsipras and Syriza have won big in the referendum, strengthening their hand for whatever comes next. But they’re not the only winners: I would argue that Europe, and the European idea, just won big — at least in the sense of dodging a bullet.I know that’s not how most people see it. But think of it this way: we have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded.But it didn’t. You don’t have to love Syriza, or believe that they know what they’re doing — it’s not clear that they do, although the troika has been even worse — to believe that European institutions have just been saved from their own worst instincts. If Greece had been forced into line by financial fear mongering, Europe would have sinned in a way that would sully its reputation for generations. Instead, it’s something we can, perhaps, eventually regard as an aberration.And if Greece ends up exiting the euro? There’s actually a pretty good case for Grexit now — and in any case, democracy matters more than any currency arrangement.

Greeks Flood Syntagma Square To Celebrate "No" Vote - The Greek people have spoken and they said "OXI"!  So congratulations Greece: for the first time you had the chance to tell the Troika, the unelected eurocrats, and the entire status quo establishment, not to mention all the banks, how you really felt and based on the most recent results, some 61% of you told it to go fuck itself.  Now, on the eve of a new era for Europe and what will likely be a turbulent stretch for financial markets across the globe, Greeks are celebrating in the streets of Athens. Here are the visuals:

Le Pen, Anti Euro French Presidential Frontrunner, Applauds Greek Victory Over "EU Oligarchy" -- Ten days ago, before Varoufakis even announced his stunning break of negotiations with the Troika and proceeded to engage in a referendum which perhaps more symbolically than anything else just said a resounding "No" to the status quo, we said to Forget Grexit, "Madame Frexit" Says France Is Next: French Presidential Frontrunner Wants Out Of "Failed" Euro. Because while the ECB could at least in theory contain the Grexit fallout with a few hundred billion in bond (and stock, since Europe is pretty much fresh out of bonds it can monetize) purchases, it will not be able to halt the contagion once it spreads to Italy, Spain and Portugal. But once it reaches France, and Marine Le Pen engages in the same type of negotiations with the Troika as Greece just did, it's all over. Unfortunately for the ECB, that's precisely where it is headed because as Reuters just reported, "French far-right leader Marine Le Pen welcomed the early results of the Greek referendum on terms for a bailout from Europe as initial tallies showed the 'No' camp leading with results still being counted." Le Pen, the leader of the anti-immigration, anti-euro National Front party, said in a statement that the anticipated result was a victory against "the oligarchy of the European Union". "This 'No' from the Greek people must pave the way for a healthy new approach," said Le Pen."European countries should take advantage of this event to gather around the negotiating table, take stock of the failure of the euro and austerity, and organize the dissolution of the single currency system, which is needed to get back to real growth, employment and debt reduction."

After Oxi, what next? - The Troika will get far less of its money back (if any!) if Greece is forced out of the Eurozone. (I say forced out because Greece does not want to leave, so Greek exit is first and foremost an ECB decision: if you think otherwise read Karl Whelan and Matthew Klein and Paul De Grauwe) That is why creditors are generally weak in negotiations of this kind. Things are different in this case only because the creditors include the ECB, and Greece wants to stay in the Eurozone. The Troika has played this for all it is worth. They were relying (you could say gambling) on the Greek people, one way or another, deciding that they would agree to the Troika’s demands because they feared Greek exit more. So far this strategy has failed. First they pushed Tsipras further than he could possibly go, hoping perhaps that Syriza would collapse in recriminations. Tsipras’s response was a unifying referendum. They then gambled that Greece would say no, and they lost that too. Tsipras continues to offer the Troika the chance to be more reasonable. He followed the referendum not with triumphalism but by removing his finance minister. This was both a signal - I really want a deal, even though it will in all probability inflict further (unnecessary) pain on Greece - and a lifeline, because the Troika can now say that an important obstacle to a deal has been removed. (An obstacle, because Varoufakis was too open - something politicians and much of the press hate - and too honest about the other side’s lack of economics.) Now the Troika seem to face a simple choice. Agree a deal and get a little more heat from your political opponents at home for ‘giving in’, or force Greek exit with the risk that you will get a lot more heat when Greece defaults and people realise you have lost all their money. If they are really just interested in getting as much of their money back as possible, it would seem crazy to throw away their best card by forcing Greece out of the Eurozone.

Greek Vote Forces Europe to Make a Difficult Decision - Europe’s leaders are faced with a tough choice after Greek voters rejected austerity conditions attached to a new bailout in a referendum on Sunday: fundamentally alter their policies for dragging Europe back to prosperity, or lose a member of a currency union that was meant to represent the political and economic strength of the whole continent.On Tuesday, leaders of the 19 countries that use the euro will meet in Brussels to grapple with the implications of the referendum result, which saw more than 60% of the Greek electorate vote No to a package of spending cuts and new taxes in return for more loans.Beyond the economic contagion of a potential Greek exit from the Eurozone, there are lasting political ramifications for all 28 European Union members, regardless of which path they choose.For an alliance constantly fighting accusations that it is stacked with unelected officials foisting ruinous policies on struggling members, ignoring the will of the Greek people and soldiering on with its tough austerity policies would deal another blow to its democratic credentials. A Greek exit from the single currency would also shatter the dreams of many European leaders who see the euro as the ultimate symbol of the bloc’s political union.But returning to the negotiating table with Greek Prime Minister Alexis Tspiras and forging a new bailout deal with less stringent conditions could embolden other far-left parities across the E.U. It would also spark a backlash both in richer creditor nations like Germany, and other bailout countries such as Ireland and Portugal that had to endure the pain of reform programs.Much depends on whose pre-vote bluster wins out. Ahead of the referendum, Tspiras said a No vote would give him a stronger hand in negotiations and he could return to Brussels with a mandate to prioritize social justice and get a better deal for a nation that has endured the highest unemployment rates in the E.U. and a plummeting quality of life.

Greek Crisis Shows How Germany’s Power Polarizes Europe - WSJ: Under the glass Reichstag dome in Germany’s parliament last week, left-wing opposition leader Gregor Gysi lit into Chancellor Angela Merkel for saddling Greece with a staggering unemployment rate, devastating wage cuts, and “soup kitchens upon soup kitchens.” The chancellor, sitting a few steps away with a blank expression on her face, scrolled through her smartphone. Ms. Merkel’s power after a decade in office has become seemingly untouchable, both within Germany and across Europe. But with the “no” vote in Sunday’s Greek referendum on bailout terms posing the biggest challenge yet to decades of European integration, risks to the European project resulting from Germany’s rise as the Continent’s most powerful country are becoming clear. On Friday, Spanish antiausterity leader Pablo Iglesias urged his countrymen: “We don’t want to be a German colony.” On Sunday, after Greece’s result became clear, Italian populist Beppe Grillo said, “Now Merkel and bankers will have food for thought.” On Monday, Ms. Merkel flew to Paris for crisis talks  amid signs the French government was resisting Berlin’s hard line on Greece. “What is happening now is a defeat for Germany, especially, far more than for any other country,” said Marcel Fratzscher, head of the German Institute for Economic Research, a leading Berlin think tank. “Germany has, at the end of the day, helped determine most of the European decisions of the last five years.”

Greece Proves Again Why Democracy is the Criminal Classes’ Great Fear - William K. Black --The people of Greece have just shown great courage, and even greater common sense, in voting “No” in overwhelming numbers against the troika’s war on the Greek people and labor throughout the EU. In recent days we have seen the spectacle of the major media shamelessly lying globally about the referendum and the Greek government – cheered on by the troika. The troika openly sought to depose a second Greek head of state for the high crime of favoring a democratic vote on the troika’s economic malpractice and effort to extort the Greek people by threatening to destroy their economy. The tone and content of the propaganda were extraordinary – and reversed reality. If you read the media very closely, you can see how hard it would have been to craft this propaganda if it was supposed to have any basis in reality. First, the IMF now admits that its long suppressed studies show that it has known for years that the Greek debt is unsustainable. That confirmed the position of the Greek government (and what every financial specialist has known since 2009). The logical answer in the commercial sphere is (routinely) to write-down part of the debt in what is known as a troubled debt restructuring (TDR). TDRs are treated as having no moral content – they’re just smart business. In Greece’s case, however, the media is suffused with fake morality and is enraged that Greece is seeking a TDR. TDRs are less common for nation states, but they have been done hundreds of times in the modern era – including for Germany after World War II. Germany’s TDR was essential to its economic recovery. Note that there was a vastly stronger moral argument against Germany’s TDR than Greece’s request, but the major media overwhelmingly avoided these facts.

Greece loses the gambit- It now looks to me like Greece has lost the wrestling match. The other EU members are very sensitive to market reactions. The question was whether the EU economy needed Greece, and the answer is now looking more and more like ‘no’. Not a good position for Greece to find itself after posturing as if it is needed. That is, Greece forced a test of that question and appears to have the leverage the possibility that they were needed gave them. The euro did fall, which was extremely worrisome even though it did help exports. There is always the fear, particularly in Germany, of a currency collapse that brings inflation with it. At least so far, that hasn’t happened, with the euro holding about 5% above the lows and recovering from the initial knee jerk reaction from today’s referendum.Real GDP forecasts remain positive, helped quite bit by the lower euro, and while high, unemployment has stabilized. The camp claiming that Greece has been dragging down the entire EU economy is getting more support from the same data. And so now while Greece isn’t being formally ousted, it will see it’s economy continue to deteriorate if it doesn’t agree to troika terms and return to ‘normal funding’ via securities sales at low rates under the ECB’s ‘do what it takes’ umbrella, and rejoin the rest of the members.  If the govt starts paying in IOU’s payments get made for a while, however they will be discounted ever more heavily with time, raising the cost of re entry to ‘normal’ funding, and the EU counts those as additions to deficit spending which could cause the terms of re entry to be that much steeper.  And any movement by Greece to use alternative funding will be taken as reason not to return Greece to ‘normal’ funding under the ECB umbrella.

Welcome To Blackswansville – Kunstler - While the folks clogging the US tattoo parlors may not have noticed, things are beginning to look a little World War one-ish out there. Except the current blossoming world conflict is being fought not with massed troops and tanks but with interest rates and repayment schedules. Germany now dawdles in reply to the gauntlet slammed down Sunday in the Greek referendum (hell) “no” vote. Germany’s immediate strategy, it appears, is to apply some good old fashioned Teutonic todesfurcht — let the Greeks simmer in their own juices for a few days while depositors suck the dwindling cash reserves from the banks and the grocery store shelves empty out. Then what?  Nobody knows. And anything can happen. One thing we ought to know: both sides in the current skirmish are fighting reality.The Germans foolishly insist that the Greek’s meet their debt obligations. The German’s are just pissing into the wind on that one, a hazardous business for a nation of beer drinkers. The Greeks insist on living the 20th century deluxe industrial age lifestyle, complete with 24/7 electricity, cheap groceries, cushy office jobs, early retirement, and plenty of walking-around money. They’ll be lucky if they land back in the 1800s, comfort-wise. The Greeks may not recognize this, but they are in the vanguard of a movement that is wrenching the techno-industrial nations back to much older, more local, and simpler living arrangements. The Euro, by contrast, represents the trend that is over: centralization and bigness. The big questions are whether the latter still has enough mojo left to drag out the transition process, and for how long, and how painfully. World affairs suffer from the disease of terminal excessive complexity. To make matters worse, much of the late-phase complexity operates in the service of accounting fraud of one kind or another. The world’s banking system is mired in the unreality of so many unmeetable obligations, cooked books, three-card-monte swap gimmicks, interest rate euchres, secret arbitrages, market manipulation monkeyshines, and countless other cons, swindles, and hornswoggles that all the auditors ever born could not produce a coherent record of what has been wreaked in the life of this universe (or several parallel universes). What happens in the case of untenable complexity is that it tends to unravel fast and furiously. That’s exactly why avalanches and earthquakes happen all at once, not stretched out over a six week period. The global financial scene not so different. It’s just another matrix of linked mutually-supporting relationships that can implode if a few members weaken.

Will the ECB Continue Its “Sherman’s March to the Sea” with the Greek Economy? -  Yves Smith - After the momentous “No” vote in support of the Greek ruling coalition Greece’s lenders and most important, the Eurozone leaders of the countries that have made 60% of Greece’s outstanding loans, are officially still figuring out what to do. Merkel is going to Paris to confer with Hollande today. The Eurogroup has set a meeting for tomorrow at 1:00 PM However, despite the responses of media outlets and many pundits that the Eurocrats will have to beeat a retreat and offer Greece concessions, it’s not clear that this event strengthens the Greek government’s hand with its counterparties. Remember, Tsipras enjoyed popularity ratings of as high as 80% and has always retained majority support in polls. And it’s all too easy to forget that “the creditors” are not Merkel, Hollande, Lagarde and Draghi. The biggest group of “creditors” are taxpayers of the 18 other countries of the Eurozone. The ugly design of the Eurozone means that the sort of relief that Greece wants most, a reduction in the face amount of its debt (as opposed to the sort of reduction they’ve gotten, which is in economic value, via reductions in interest rates and extensions of maturities) puts the interest of those voters directly at odds with those in Greece. Our understanding is that a reduction in principal amount, under the perverse budgetary and accounting rules of the Eurozone, would result in those losses showing up as losses for budget purposes, now. They would need to be funded by increased taxes. Thus a reduction in austerity for Greece, via a debt writeoff, simply transfers austerity from Greece to other countries. It’s not hard to see why they won’t go for that. And Eurozone rules require unanimous decisions.

Minister No More! - Yanis Varoufakis: The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage.Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms. Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. And I shall wear the creditors’ loathing with pride. We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government. The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

Why Greece Matters for Everyone - Greece is a tiny country. It’s 0.3 % of the GDP of the world. Most private creditors took their money out of the debt-ridden nation years ago. So why is the possible exit of Greece from the Eurozone rocking markets? Because it represents what could be the end of the biggest, most benevolent experiment in globalization, ever.On Sunday, Greek voters said “no” to Europe’s latest bailout offer. That means that a Greek exit from the Eurozone is now very likely–most analysts are putting the odds at somewhere around 60%-70% at this point. For Greeks, the next few weeks will be chaotic. Banks are closed; last week, people could take only 60 euros at a time out of ATM machines, this week it may go to as little as 20 euros. Merchants have begun eschewing credit cards in favor of hard currency as a cash hoarding mindset kicks in.Global markets are not surprisingly down on the news and will likely be quite jittery for the next few weeks. It’s not that the economy of Greece itself matters so much–China creates a new Greece every six weeks–it’s that a Greek exit from the Eurozone calls into question the entire European experiment. Europe was always an exercise in faith: 19 countries coming together to form a made-up currency without any common fiscal policy or true political integration seemed like a great idea in good times, but was destined to be fragile in bad times.The risk now is that a chaotic Greek exit from the Eurozone starts to undermine faith in other peripheral countries, like Italy or Spain. Watch what their bond spreads do over the next few days. If they rise a lot, it means investors are worried. While ECB head Mario Draghi has promised money dumps to help stabilize these nations and any other Eurozone countries that need help (perhaps we should start calling him “Helicoper” Mario), he can’t stop the euro from falling against the dollar, or keep investors from fleeing to “safe havens” like US T-bills. That might be good for US bond markets, but Europe’s crisis could also impact the Fed’s ability to raise interest rates in September, which until quite recently seemed like a sure thing.

If Greece Goes, Political Contagion Is the Bigger Risk in Europe - Whatever the odds of Greek exit from the euro were last week, they have topped 50% since Greeks voted “no” to their creditors’ demands in Sunday’s referendum. The question then becomes, if Greece goes, how likely is it that larger, more consequential countries will follow? A sober appraisal must conclude that the odds of a wider contagion are uncomfortably high.The more near-term risk of financial contagion from Greece still looks limited, as the restrained reaction of stock and bond markets today suggests. Yet the deeply divisive competing narratives that led up to Sunday’s resounding “no” suggest there’s a very real risk of political contagion to the rest of Europe over the next year or two.  First, unless the negotiating positions of the Greek government or its creditors change materially in the next few days, Greece is headed for an unplanned and unwanted exit from the euro.The longer Greek banks stay closed, the less likely they can reopen without a significant and costly recapitalization, and the deeper the damage to the Greek economy. Without more money from its creditors, the only way for the Greek government to reopen its banks and pay all its bills is by issuing a new currency. Second, with a new currency, Greece could experience a strong, short-term economic boom. To be sure, the first few months of transition could be painful and chaotic. But it has already endured most of the pain other countries go through during currency crises. Once the transition is complete, euro exit could produce a powerful monetary and fiscal boost. In eight previous currency crises, Citigroup calculates the exchange rate fell by 40%. As Daniel Gros has noted, the upside benefits of devaluation are limited by Greece’s stunted and uncompetitive export sector. But they’re not zero. A 30% cheaper Greece will siphon significant tourist traffic from other Mediterranean destinations.In addition, once the Greek government can borrow in its own currency, it can swing from budget surpluses to deficits, providing an immediate fiscal boost. As Joe Gagnon of the Peterson Institute for International Economics writes, “Few forces are more clearly demonstrated in economic history than the boost to spending and growth from a large and sustained real depreciation.”

Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks - As we said earlier today, following today's dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks' reliance on the ECB's goodwill via the ELA. While we have explained countless times that even a modest ELA collateral haircut would lead to prompt depositor bail-ins, here is DB's George Saravelos with a simplified version of the potential worst case for Greece in the coming days: The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card. However, this cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press. It may not get to there: according to Telegraph's Ambrose Evans Pritchard who quotes what appears to be a direct quote to him from Yanis Varoufakis, Greece will, "If necessary... issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago."

BBC Propaganda War v. Greece Reaches New Low After “No” Vote -- If you want to know why economic policy has gone insane in the UK you simply have to read the work of the BBC’s “Economics editor,” Robert Peston. I showed one example of his failed effort to terrify the Greeks into voting “Yes” in favor of continuing the self-destructive policies that have forced Greece into worse-than-Great Depression levels of unemployment in my most recent column. Peston argued that the Greeks had to submit to the troika’s demands that it make these policies even more economically illiterate and self-destructive because the troika would otherwise ensure that Greece’s economy was “utterly crippled.” As you know, the EU stands for “ever closer union.”  But Peston has been moved to new depths of propaganda and rage by the Greek “No” vote. In his July 6, 2015 column entitled “Huge costs of Greece staying in or quitting the euro” he lies by commission and omission. I’ll begin with his deceptive description of the ECB, which provides a “target rich environment.” As for the ECB, it does not wish to be seen as Greece’s Judge Dredd. It will take its lead from any statement by eurozone government heads on whether there is a realistic chance of a new deal to rescue the finances of the ailing Greek state.  This would be an excellent opportunity for the “Economics editor” of one of the world’s top publications to bring economic facts to bear. A key role of a central bank is to provide liquidity to its banks – which include the Greek banks. The ECB, in response to the Greeks daring to vote democratically on whether to succumb to the ECB’s blackmail, pulled the provision of liquidity to Greek banks. So, the principal starting point of any analysis of the ECB’s role is to know that they deliberately refused to meet their responsibility to provide liquidity to the banks in order to extort the Greeks to exacerbate policies that ensure that the troika will increase the harm to the Greek people and economy rather than “rescue the finances of the ailing Greek state.”

Rift Emerges as Europe Gears Up for New Talks on Greece Bailout - Germany continued to maintain a hard line with Athens on Monday, just a day after Greek voters decisively rejected a bailout deal from its creditors. But some European countries showed a willingness to soften the push for austerity that has proved so contentious.The growing rift among European leaders threatens to complicate any new negotiations, as the Greek government moves to restart talks for an international bailout. It also adds to the pressure on Greece, which is close to financial collapse with both the banking system and the government quickly running out of money.If a deal is not struck soon, Greece will probably default on a batch of international debts this month and face even more trouble paying civil servants and pensioners. Should Greece ultimately run out of euros, it could be forced to issue a parallel currency or i.o.u.s to pay its domestic bills, prompting it to leave the euro currency.The country’s financial state is growing increasingly dire.As Greek banks faced a shortage of cash, the European Central Bank decided on Monday to extend just enough of an emergency lifeline to keep them from failing. But the amount, about 89 billion euros, will not necessarily be sufficient to keep the money flowing to depositors.

ECB tightens noose on banking system as creditor powers punish Greece - The European Central Bank has tightened liquidity conditions for the Greek banking system following the landslide victory for the Leftist government in Sunday’s referendum.   The central bank continued its freeze on emergency liquidity assistance (ELA) after Germany issued a humiliating ultimatum to Greece, warning that the country would be cast adrift and left to go bankrupt unless it agreed to much deeper concessions than anything offered so far.  Sigmar Gabriel, the German vice-chancellor, said the landslide rejection of EU austerity demands in the Greek referendum changed nothing, demanding that the Left-wing Syriza government must accept further belt-tightening without any prospect of debt relief if it wishes to remain in the eurozone.  “The final bankruptcy now appears imminent,” he said. The Greek leaders have been told that they have a deadline of Tuesday afternoon to come up with far-reaching proposals.  The draconian terms followed Greek prime minister Alexis Tsipras' move to rally five political parties behind a national unity declaration. It called for “substantive talks” on debt relief, an investment blitz to fight mass unemployment and an immediate shot of liquidity for the country’s banking system. The show of unity marked the start of what increasingly looks like a national emergency government, though it may have come too late to prevent an implosion of the banking system and a rapid slide towards "Grexit" over coming days.

Eurozone Officials Warn of Possible ‘Grexit’ Without Credible Proposal from Greece - WSJ: Eurozone leaders expressed mounting frustration with Greek Prime Minister Alexis Tsipras on Tuesday, warning that without a credible new proposal on reforms his country might have to abandon the euro. Not much time is left until Greece’s banks—closed for most business for over a week now—run out of cash, which would push the already suffering country deeper into recession and a possible exit from the currency. Mr. Tsipras suggested one-month interim financing until the end of the month, a senior Greek government official said ahead of an emergency summit of eurozone leaders. “In return, Greece will pass some of the overhauls demanded by the country’s international creditors from the Greek parliament, the official said. “This doesn’t mean that we are not open to other short term proposals so that within that time period we can prepare a big viable solution.” European decision-makers had expected to discuss a new financing proposal at their evening summit, but the Greeks came empty-handed to a meeting of finance ministers earlier in the afternoon. German Chancellor Angela Merkel noted that given the lack of concrete proposals, the summit wouldn’t produce a final result. But she also pointed out that the deadline was coming fast. “I say that this isn’t a matter of weeks, but of days,” Ms. Merkel said.

48 hours to keep Greece in euro - So what is the Greek government's plan to save its banks and stay in the euro? These are the elements, according to Giorgos Stathakis, the Economy Minister, in an exclusive BBC interview. First and foremost, the European Central Bank must keep Greek banks alive for a week to 10 days, so that rescue talks can progress between Athens and its creditors, eurozone governments and the International Monetary Fund. In a best case, he said, the ECB would provide an additional €3bn of Emergency Liquidity Assistance (ELA) later today. But even if the ECB simply continues to freeze ELA, Mr Stathakis said the current cash withdrawal and transfer restrictions on banks could stay in place till Friday, without any of them collapsing. Naturally if the ECB decides to reduce ELA, which its mandate would allow it to do, then banks would be in dire straits. The second element of a rescue would be Mr Tsipras's letter to creditors last week, when he accepted most of their proposals for spending cuts, tax rises and structural economic reforms - with relativity modest changes to the nature of proposed pension cuts. Finally the government wants a 30% reduction in its debt burden, as per the IMF's debt sustainability analysis of last week, either through direct write-offs or through lengthening the repayment term. Goodness only knows whether the eurozone - led by Berlin - and the IMF will deal on this basis.  But, as Mr Stathakis conceded, with Greek banks on the verge of collapse, there is no longer any scope to put off a decision on whether Greece is in or out of the euro for much more than 48 hours.

Can Greece Leave? -- Is Grexit even possible? It strikes me that the best Greece can do with a Drachma is to create a two-currency system, sort of like Cuba or Venezuela, or at best Argentina; countries whose politics the Greek government seems to admire, and whose economies its may soon resemble. If the government brings back the Drachma  as a way to pay pensions, government salaries, and bank accounts, Euros will still circulate in Greece. 18% of Greek GDP is tourism. That number may be understated -- I don't know if it includes tourist spending at restaurants, stores, transport, and other places that mix tourists and locals. Tourists will spend Euros, not Drachmas. So hotels, gas stations, restaurants, grocery stores, clothes stores, airlines, car rentals, etc. will likely still gladly take euros and euro credit cards, and from locals as well as tourists.  I looked up Greek GDP at the OECD.  Of 157 billion euros value added, agriculture is a tiny 6, industry 18, of which manufacturing 13.  However, services are 130, 80% of the total.  Here, the big items are  "distribution, trade, repairs, transportation accommodation and food" 41, real estate activities 34, and public administration 39.   Exports and imports are each about 60 out of 180 billion euros. Now, anyone exporting -- 60 out of 157 -- has access to euros and likely invoice in euros thank you very much. Anyone importing will need to get their hands on those euros.

Beware Greeks Bearing Nothing: Eurogroup Ends, Dijsselbloem Statement To Follow --In one of the shorter Eurogroup meetings in recent history, the Greeks came bearing nothing and today's "final, final, final" "last chance for a deal" conference ended just after 2 hours in. The Greeks may come back tomorrow bearing a new proposal but at this point it is rather clear what the endgame is. In a few moments expect Diesel-BOOM to explain why nothing got done again, and why it's on the Greeks if the Eurozone dominoes...

ECB maintains emergency assistance to Greece - Greek banks will not be getting any more help from the European Central Bank. In an announcement on Monday afternoon, the ECB announced that it would keep its emergency Liqudity assistance, or ELA, to Greece unchanged at levels announced last Monday. That level is believed to be around €89 billion. The problem for Greek banks, as it stands, is that it looks like they are quickly running out of cash, and unless the ECB releases more money to them, the prospect of Greek banks re-opening on Thursday (at the earliest) for full use appears uncertain at best. Headlines from Bloomberg on Monday indicated that Greece requested an additional 3 billion euros under the ELA but was denied by the ECB. Reuters reported that Greek prime minister Alexis Tsipras spoke with ECB head Mario Draghi on Monday and said there was an "immediate need" to lift capital controls in Greece. Capital controls have now been in place for over a week in Greece, with ATM withdrawals limited to 60 euros. Also of note is that the ECB said that it will adjust the haircuts on collateral accepted by the Bank of Greece as part of the ELA. This means, basically, that if the ECB increases the haircuts on collateral accepted by the Bank of Greece, the size of the ELA effectively decreases. If the adjustment is the other way, the ELA is effectively increased in size.

Is Tsipras a reckless revolutionary, bold leader, or calculating gambler? Yes - –The results of the referendum are in, but on the day after the vote, it isn’t clear that the results are as big a victory for Alexis Tsipras, the prime minister of Greece, as he might’ve hoped. Tsipras stunned the world last month when he announced that he was taking a deal offered by the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) to the public for a referendum. In a series of rapid events, the ECB froze liquidity assistance, Greeks imposed controls limiting capital, and defaulted on a $1.7 billion payment to the IMF. The country’s banks remain closed. It is unclear at this point if they will reopen any time soon. For now, the ATMs are still dispensing cash, but no one knows how long that will last. The big unanswered question: Will the ECB maintain a lifeline to the country’s banks or not? For now, the central bank has frozen assistance levels. That may change when European finance ministers convene in Brussels July 7.  But what happens if they keep levels frozen indefinitely? In the midst of all this, Tsipras’s political fortunes are cloudy. You’d think this would be a moment of triumph; he pushed for the “no” vote and his countrymen responded in kind, in a landslide. Roughly 60% of the population voted against the plan. But it isn’t that simple—he now has to come up with an acceptable agreement that people won’t interpret as too austere. And he has to do this before the economy goes into a meltdown.

Yanis Varoufakis: why bold, brash Greek finance minister had to go -- When historians look back at the great Greek debt crisis, the figure of Yanis Varoufakis will feature large. Bold and brash, the self-appointed king of anti-austerians did more to internationalise the folly of austerity politics than any other member of the radical left government of Athens. Related: Greek debt crisis: markets fall and bond yields rise after no vote – live Alexis Tsipras, the young prime minister, was much indebted to him, and Varoufakis’s resignation was quickly followed by effusive praise. “The prime minister feels the need to thank him for his ceaseless effort to promote the positions of the government and the interests of the Greek people under very difficult circumstances,” government spokesman Gavriel Sakellaridis announced. Varoufakis may have been forced to leave frontline politics, but he does so hugely vindicated by the historic no vote delivered by Greeks on Sunday. There are few in Athens today who don’t believe he is also a victim of his own success. The resounding rejection of further belt-tightening in a referendum that pitted Greece against all its eurozone partners was a high-stakes gamble associated squarely with the 54-year-old’s penchant for game theory and buccaneering style. The morning after, he had to go. In announcing his resignation, the controversial finance minister recognised that of all the impediments to a prospective deal (and there are still many) he would be the biggest. Even by the standards of a crisis that long ago dispensed with diplomatic niceties, the combative politician had pushed the boundaries of acceptable fighting talk too far. On the eve of the vote, he accused Europe of indulging in terrorism, saying it was instilling fear in people in its bid to get Greece to acquiesce to “neoliberal dogmas”.

German conservatives are destroying Europe with austerity, says economist Thomas Piketty - German conservatives are on course to destroy Europe with their commitment to continent-wide austerity, one of the world’s most influential economists has said. Thomas Piketty, a French academic who published a bestselling book on capitalism, said the likes of Angela Merkel had failed to learn the lessons of the past. “This is neither a reason for France, nor Germany, and especially not for Europe, to be happy,” he told German newspaper Zeit Online, when asked about the dominance of austerity in policymaking. “I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their appalling failure to remember history.”Mr Piketty said Germany’s past history of having its debt forgiven by other nations should inform its approach to the current Greek crisis.  The eminent economist is director of studies at the École des hautes études en sciences sociales, a professor at the Paris School of Economics and Centennial professor at the London School of Economics. In contrast to the widespread support for austerity amongst politicians, most macroeconomists say the policy is damaging. A survey by the Centre for Macroeconomics released in April this year found that two thirds of macroeconomists believed austerity had not had a positive effect in the UK.

Greek banks prepare plan to raid deposits to avert collapse - FT.com: Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday. The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.  A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000. It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank. “It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.” Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans. Andrea Enria, chair of the European Banking Authority, said on Saturday he was not aware of any plans to introduce haircuts to retail depositors of Greek banks. Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared.

ECB cannot restructure Greek debt, says top official Noyer: DJ - The European Central Bank cannot restructure the Greek debt it holds, as it is banned from doing so, top ECB official Christian Noyer said Monday. "The debt of Greece to the ECB is, by nature, impossible to restructure because that would be monetary financing," Noyer told a news conference, according to a Dow Jones Newswire report. Noyer, who is governor of the Bank of France as well as a member of the ECB's governing council, was speaking after Greek voters overwhelmingly rejected creditors' conditions for a bailout. Greece is due to pay 3.5 billion euros ($3.9 billion) to the ECB on July 20. If it misses that payment, the ECB is widely expected to cut off emergency funding to Greek banks, a move that would likely lead to their collapse.

Why Germany wants rid of Greece: When I recently visited Berlin, it quickly became clear the extent to which Germany had created a fantasy story about Greece. It was an image of Greeks as a privileged and lazy people, who kept on taking ‘bailouts’ while refusing to do anything to correct their situation. I heard this fantasy from talking to people who were otherwise well informed and knowledgeable about economics. So powerful has this fantasy become, it is now driving German policy (and policy in a few other countries as well) in totally irrational ways. ... What is driving Germany’s desperate need to rid itself of the Greek problem? ...  Germany is a country where the ideas of Keynes, and therefore mainstream macroeconomics in the rest of the world, are considered profoundly wrong and are described as ‘Anglo-Saxon economics’. Greece then becomes a kind of experiment to see which is right: the German view, or ‘Anglo-Saxon economics’. The results of the experiment are not to Germany’s liking. ... Confronting this reality has been too much for Germany. So instead it has created its fantasy, a fantasy that allows it to cast its failed experiment to one side, blaming the character of the patient.The only thing particularly German about this process is the minority status of Keynesian economics within German economic policy advice. In the past I have drawn parallels between what is going on here and the much more universal tendency for poverty to be explained in terms of the personal failings of the poor. These attempts to deflect criticism of economic systems are encouraged by political interests and a media that supports them, as we are currently seeing in the UK. So much easier to pretend that the problems of Greece lie with its people, or culture, or politicians, or its resistance to particular ‘structural reforms’, than to admit that Greece’s real problem is of your making.

Ambrose Evans-Pritchard: Tsipras Never Wanted to Win Referendum, is “Trapped” and “Depressed,” Syriza in “Turmoil” (Updated) - Yves Smith - Ambrose Evans-Pritchard of the Telegraph has a bombshell new report on Greece. It’s even more devastating when you keep in mind that Evans-Pritchard has been a staunch Syriza supporter and has spoken regularly to government officials, including Yanis Varoufakis, who is a source for this story. The subhead says it all: Prime Minister Alexis Tsipras never expected to win Sunday’s referendum. He is now trapped and hurtling towards Grexit.  The story explains, as we reported at the time, that Syriza had finally agreed to cross its red lines. It had offered a plan that would meet it draconian austerity targets of 1% primary surplus this year, rising to 3.5% in 2018. Greece offered what amounted to a pension cut of 0.4% of GDP by tightening up on early retirement and by increasing health care payments on retirees, which is a de facto pension cut, and committed to a total pension cut of 1.0% of GDP the following. Rather than accept the Syriza offer and only ask for changes at the margin, they maintained that the numbers still did not work and pressed for the 1% pension cut immediately as well as an increase in VAT at hotels from its current effective level of 7% to 23%. They also refused to budge on wanting to impose labor market “reforms”.  Key sections of the Telegraph story:Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control. He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium…. Mr Tsipras is now trapped by his success. “The referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise,” “Tsipras doesn’t want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him,” he said.Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

Euro zone gives Greece until Sunday for debt deal - Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. "The stark reality is that we have only five days left ... Until now I have avoided talking about deadlines, but tonight I have to say loud and clear that the final deadline ends this week," European Council President Donald Tusk told a news conference. Prime Minister Alexis Tsipras has until Friday to present the proposal, but German Chancellor Angela Merkel said she hoped to have convincing reform commitments from Tsipras on Thursday so she could ask the German parliament to authorize negotiations on a new aid program. Merkel said she was "not exaggeratedly optimistic" for a solution. At an emergency summit in Brussels on Tuesday, representatives of the 19-country euro zone said all 28 European Union leaders would meet on Sunday to decide Greece's fate. The talks were organized after Greeks voted in a referendum on Sunday against a bailout that carried stringent austerity measures. French President Francois Hollande said the European Central Bank would ensure that Greek banks had the minimum necessary liquidity to stay afloat until Sunday. The situation in Greece worsened with banks closed for a second week, limited cash withdrawals and businesses feeling the crunch of demands from vendors for cash payments.

Eurozone sets Sunday deadline for Greece financing deal - Eurozone leaders set Greece a Sunday deadline to come up with new and even-tougher economic measures if the country wants to avoid defaulting on the European Central Bank and crashing out of the currency union. As a sweetener for such a deal, leaders raised the possibility of some short-term financing to help Athens make a July 20 payment and — most important for Greek Prime Minister Alexis Tsipras — action down the road to relieve Greece’s crushing debt burden. Obstacles to an agreement that keeps Greece in the eurozone remain high, however. Most notably, the policy overhauls and budget cuts demanded go beyond those that were resoundingly rejected by Greek voters in a referendum last weekend. German Chancellor Angela Merkel said after Tuesday’s emergency summit of eurozone leaders that it is up to Greece to act. “Of course, at the very end, one will have to discuss how debt sustainability can be recreated but not by saying first ‘How do we close the gap?’ but “What can Greece do?’ ” she said. She added that Mario Draghi, the ECB president, made clear to leaders at the summit that Sunday would be “the right moment to take decisions” for Greece to avoid a meltdown of its banking system.

Greece Given Until Sunday to Settle Debt Crisis or Face Disaster - Frustrated European leaders gave Greece until Sunday to reach an agreement to save its collapsing economy from catastrophe after an emergency summit meeting here on Tuesday ended without the Athens government offering a substantive new proposal to resolve its debt crisis.“The situation is really critical and unfortunately we can’t exclude the black scenarios of no agreement,” said Donald Tusk, the president of the European Council, warning that those possibilities included “the bankruptcy of Greece and the insolvency of its banking system” and great pain for the Greek people. Also looming ever larger was the prospect of Greece leaving the European currency union.Mr. Tusk said that the government of Prime Minister Alexis Tsipras had until Thursday to deliver a new plan to Greece’s creditors.  “Until now I have avoided talking about deadlines,” Mr. Tusk, a former prime minister of Poland, told reporters after a day of fruitless meetings. “But tonight I have to say it loud and clear — the final deadline ends this week.”Deadlines have come and gone without serious consequences, but yet another emergency gathering, this one involving all 28 European Union leaders in Brussels on Sunday, might really be a crunch point. “This could be the last meeting about Greece,” Prime Minister Matteo Renzi of Italy told reporters on Tuesday night. And for the first time, “Grexit” — Greece’s exit from the euro — has surfaced as a serious option. Jean-Claude Juncker, the president of the European Commission, the European Union’s executive arm, said at a brief news conference late Tuesday night that his staff had drawn up plans for several possible outcomes. “We have a Grexit scenario prepared in detail,” he said. Mr. Juncker expressed fury at a barrage of verbal attacks on Greece’s European creditors by officials of Syriza, the left-wing party, led by Mr. Tsipras, that won Greek parliamentary elections in January on a platform of rejecting the austerity policies that were a condition of European bailouts. He singled out a remark by the recently departed finance minister, Yanis Varoufakis, accusing creditors of “terrorism.”

Greece Told to Submit Proposal By Thursday, Complete Deal By Sunday, or ECB Shoots Its Banks and Forces Grexit (Updated: Greece Requests Three Year Bailout) Yves Smith - Greece has been given a maximum of five days to come up with a proposal acceptable to its lenders. And “acceptable” would be more stringent than if it had agreed to the memorandum when Syriza assumed office in January. As Helena Smith of the Guardian writes: Over in Athens the political opposition is demanding that party leaders reconvene for an emergency meeting to discuss the ultimatum the Greek government now faces… Anxiety in Athens this morning is almost palpable. Among a political elite who would have played the game very differently, there is mounting concern that one wrong move and Greece will not only be headed for euro exit but years of purgatory on the periphery of Europe…  Truth is, back in Athens very few have any idea what the proposed agreement now involves. After five months of bungled handling of negotiations under Tsipras, all they know is that any deal is going to be much, much tougher than originally thought given the Greek economy’s freefall following the closure of Greek banks.  Greece was expected to submit a new set of proposals on Tuesday, but its new finance minister Euclid Tsakalotos merely read out Greece’s last proposal, so he was summarily sent packing.  The creditors view the Greek “no” vote as a rejection of a possible deal and say they already have detailed plans for a Grexit, which are likely to become even more detailed over the coming days.

Huge costs of Greece staying in or quitting euro - BBC News: Greek banks had expected to see Yanis Varoufakis at their emergency meeting last night on how to save them from collapse. This morning they learned why he didn't turn up: he was being bundled out of the Greek aeroplane by the pilot and Prime Minister Alexis Tsipras. According to Mr Varoufakis, some European finance ministers had requested his absence from fraught bailout negotiations. The Greek prime minister has obliged them, in what looks like a desperate last gambit to reach some kind of rescue deal, after yesterday's momentous vote by the people of Greece to reject terms offered by creditors 10 days ago. As for the emergency meeting last night between the Bank of Greece, Greek banks and other representatives of the Athens government, that decided banks today will be subject to the same restrictions as last week (no transfers of funds abroad, a €60 limit on withdrawals from cash machines, a third of branches to open so older people can get their pensions). But those restrictions expire at the end of today. Which means there will be another meeting of the banks and the authorities tonight to decide how and whether the banks can operate tomorrow. The damoclean sword hanging over Greece is that the banks will run out of cash in just a few days. Which means that a decision on what kind of limited service the banks can provide, to be made by the Greek government, will hinge entirely on whether the European Central Bank's (ECB) governing council decides to freeze, cut or increase the provision of Emergency Liquidity Assistance, or emergency loans to Greece. As for the ECB, it does not wish to be seen as Greece's Judge Dredd. It will take its lead from any statement by eurozone government heads on whether there is a realistic chance of a new deal to rescue the finances of the ailing Greek state.

What Would Grexit Look Like? – The Short Answer - WSJ: Once a theoretical fear of euro-pessimists, Grexit—a Greek exit from the eurozone—may be soon upon us. The euro was designed to be an irrevocable currency; there is no procedure in its rules or treaties for a country to stop using it. So precisely what would happen is highly speculative. But let’s speculate. How would Grexit arrive? Through the banks. There is no political or legal procedure for “ejecting” Greece from the euro, and Greece’s government has repeatedly said it doesn’t want to voluntarily withdraw. That suggests an exit would come if the state of the banks is so bad that there is no other alternative. How much worse do things have to get? Not much worse, frankly. The banks are illiquid: they aren’t able to convert their assets (mostly loans) into the cash that their creditors (mostly depositors) are demanding. The only entity that had been providing this liquidity, by lending the banks emergency cash, had been the Greek central bank. But the European Central Bank has frozen that emergency lending. The result is that the banks have shut down: They are dribbling their last remaining cash out to depositors, who are limited to €60 ($66) per day. They have stopped making electronic transfers of euros overseas. In effect, Greece already has one foot outside the eurozone: Businesses and consumers in the country now prefer cash. A euro in a Greek bank account is not the same as a euro in cash or a euro in a German bank account.  What would push it all the way out? The ECB. The central bank could end the emergency lifeline; already it has signaled that it is uncomfortable with the risk of lending to Greek banks. A large chunk of the assets that Greek banks are pledging as collateral for these emergency loans comprises government or government-guaranteed securities. If the lifeline ends, the Greek banks would have to repay their emergency lending. They can’t do that, and they would collapse.

Greece Requests 3-Year ESM Bailout, Promises Reform, Warns on "Austerity Labratory"; Another "Final" Chance; Majority Believe Grexit -- After rallying on every bit of warrantless hope lately, today the stock markets continued there merry way: down.  This is likely due to the fact that China is far more important globally than Greece, and for the first time in a while, there are a couple of simultaneous crises: One in the eurozone, and one in China.  The real panic party starts when the US gets into the act with another recession or even a slowdown from the second quarter GDP bounce. Meanwhile, we have another "final chance" for Greece to do the wrong thing: accept another bailout and deepen its recession.The latest "final" deadline is Sunday. It follows numerous "final" deadlines over the past month.Christian Noyer, head of the Banque de France and a member of the ECB’s decision-making governing council, said "It is the final deadline, afterwards it is too late. I fear that if there is no agreement on Sunday the Greek economy will collapse and there will be chaos." There does seem to be an "air of finality" this time because Greek banks are insolvent, flat out of cash. Then again, I don't think the real dealing begins until after Greece is forced out of the eurozone.

European Central Bank’s Nowotny: If Greece Misses Payment, Funds Will Be Cut Off - WSJ: The European Central Bank will be forced to cut off liquidity to Greece should the Mediterranean country miss its July 20 deadline to pay back the central bank, a member of the ECB’s governing council said Monday night.  “That would be a state bankruptcy, a default in English,” Ewald Nowotny said in an interview with Austrian state television news program ZiB 2. “In this situation, it would no longer be possible for the ECB to provide further liquidity.” A decision on how to solve Greece’s financial problems needs to come quickly as the country’s economy can’t just be frozen, he added. “Money flows are needed to function,” Mr. Nowotny said, adding that Tuesday’s talks are very important and that a sense of being able to reach an agreement is necessary. Even if Greece and its creditors are able to come to an agreement before July 20 on a third bailout package under the European Stability Mechanism, it is unlikely that the bailout fund could be tapped by then as any agreement would need to approved by parliaments in several eurozone member countries. In this case, one current discussion is whether the ECB could provide Greece with money through a bridge program in anticipation of the payments to be made by the ESM, Mr. Nowotny said. “Whether that’s possible is a point that needs to be discussed,” he added. Should Greece decide to issue IOUs to pay its bills, it would be a measure that would only work for a week or two at the most, Mr. Nowotny said. The IOUs “aren’t a replacements for a currency,” he said. Asked whether Greece could use its 10-euro printing press to print the money it needs, Mr. Nowotny said the printing of euros without permission from the ECB would be a criminal act with the result that Greece would leave the eurozone and the European Union as well, which “isn’t in Greece’s interest.”

Germany Crushes All Hope Of Greece Getting Debt Relief -- As the Grexit debate is falling into the background a new, far more powerful conflict emerges: one between Germany on one side, and the IMF, France, Italy, and perhaps even the US, when it comes to the all important issue of debt relief.  As a reminder, it was the unexpected release of the IMF's debt (un)sustainability draft late last week (with US support over the vocal objections of Europe) that not only gave Tsipras a Greferendum win (he did not desire), but showed clearly that without a debt haircut of at least 30%, any Greek deal will merely lead to another, even more violent Greek default down the line. Then, overnight, the Telegraph showed that the "debt-haircut" axis has even more supporters in Europe:French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put "Greece on a path toward debt sustainability" and sort out the festering problem once and for all.The Franco-American push is backed by Italy's Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief for Greece.Fast forward to this morning when shortly after the latest Greek capitulation, when in Tsipras' official request for ESM bailout he said timidly that "as part of a broader discussion to be held, Greece welcomes the opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term" Germany made it very clear whether there will be any debt haircuts, or reprofiling in the coming years.Nein.Reuters just reported that "the German government does not see any reason to grant Greece either a classic debt haircut or any other measures that would slash the value of money on loan to the crisis-ridden country, a spokesman for the finance ministry said on Wednesday.

IMF Slams Germany, Says Greece "Needs Debt Restructuring" -- Earlier today, confirming that Germany sternly refuses to change its tune about a Greek debt haircut or even a debt "reprofiling" of Greece and would not budge an inch on Tsipras tacit request for at least some debt leeway, we reported that "the German government does not see any reason to grant Greece either a classic debt haircut or any other measures that would slash the value of money on loan to the crisis-ridden country, a spokesman for the finance ministry said on Wednesday." "At the moment and in principle we see, as the chancellor said expressly in her press conference in Brussels, no occasion at all to discuss this issue - there is no leverage or basis for that," Martin Jaeger said at a news conference."That refers to a haircut in the classic sense but I explicitly add we also take that to mean measures that aim to bring about a reduction in the cash value of debt - those are things that you hear in discussions under profiling, restructuring and similar things. This put Gremany in clear confrontation with the  IMF (and various other European countries who are far more inclined to consider debt haircuts for others and for themselves) so we, and many others, were wondering how Christine Lagarde would react. We got the answer moments ago and here it is: IMF's Lagarde: Greece will need debt restructuring: International Monetary Fund Managing Director Christine Lagarde said Wednesday that Greece will need debt restructuring. She said the fund remains "fully engaged" with Greece.

Greece extends capital controls, bank holiday through Friday: reports - Greece's banks will remain closed for the rest of the week and not open on Thursday as previously planned, media reports said on Wednesday. Capital controls that cap ATM withdrawals for Greeks at 60 euros a day ($66) will also stay in place through Friday. The extended bank holidays come after eurozone leaders gave the Greek government a deadline of Sunday to agree on a reform deal with lenders to stay in the eurozone. Leaders from all 28 European Union countries will meet for an emergency summit on Sunday to discuss the future for Greece. The Greek finance ministry is expected to issue an official decree on the extended bank holiday later on Wednesday.

Greece Update -- From the Financial Times: Lew and Lagarde raise pressure on EU to avoid Grexit.  Both the US and the IMF are pushing for debt relief, but it doesn't seem like anyone is listening.From the WSJ: Greece Requests Three-Year Bailout in First Step Toward Meeting Creditors’ Demand  The government in Athens formally asked for a three-year bailout from the eurozone’s rescue fund on Wednesday and pledged to start implementing some economic-policy overhauls by early next week, according to a copy of the request seen by The Wall Street Journal.  But whether European leaders accept the application for more emergency loans at a crisis summit on Sunday still depends on Prime Minister Alexis Tsipras making a drastic turnaround on pension cuts, tax increases and other austerity measures after five months of often-acrimonious negotiations. From the NY Times: Greek Debt Dispute Highlights Prospect of a Euro Exit “We have a Grexit scenario prepared in detail,” Jean-Claude Juncker, the president of the European Commission, said on Tuesday, using the term for a Greek exit from the euro. On the other side, Greece’s leaders have decried similar comments as “blackmail.”  A grim situation - and Greece is already in a Great Depression size slump.

ECB Weidmann: Freeze on Emergency Loans to Greece Should Continue Until Deal Reached —European Central Bank Governing Council member Jens Weidmann said Thursday that the ECB should continue to freeze emergency loans to Greece and capital controls should stay in place until the embattled country can reach a deal with its international creditors.“The Eurosystem should not increase the liquidity provision, and capital controls need to stay in force until an appropriate support package has been agreed by all parties and the solvency of both the Greek government and the Greek banking system has been ensured,” Mr. Weidmann, who also heads Germany’s Bundesbank, said in prepared remarks for a conference in Frankfurt. The comments come a day after the ECB decided again on Wednesday to leave the volume of emergency liquidity assistance available to Greek banks unchanged at around €89 billion ($99 billion), as the clock ticks on Greece to reach a deal with its international creditors on a third bailout. Late last month, Mr. Weidmann also criticized Greek banks’ reliance on the ELA that the Greek central bank, with the approval of the ECB, offers Greek banks that have been effectively locked out of regular ECB loan operations. The ECB can continue to provide such assistance to Greek banks as long as the ECB judges these banks to be solvent. Mr. Weidmann said that though it is difficult to distinguish between illiquidity and insolvency “in real time,” central banks need to make it clear where the limits are. “Besides, in Greece doubts about the solvency of banks are legitimate and rising by the day,” he said.Experts say that the point of no return for the ECB is July 20. On that date, Greece must repay the ECB €3.5 billion in bonds that the ECB purchased as part of its first bond-buying program, which ran from 2010 to 2012. If Greece defaults on this, it would likely be very difficult for the ECB to maintain liquidity support to Greek banks, which could force Greece to print its own currency.

Tsipras in the crucible - The atmosphere in the Greek standoff is turning ugly. On Tuesday, after new Greek finance minister Euclid Tsakolotas turned up to Eurogroup talks with nothing but hastily-drafted notes written on hotel paper, Eurozone leaders told the Greek government in no uncertain terms that if it did not produce credible proposals by Sunday 12th June Greece would be thrown out of the Eurozone. "We have a Grexit scenario prepared in detail", said European Commission president Jean-Claude Juncker. The President of the European Council, Donald Tusk - one of the very few consistently sane and reasonable voices in this drama - said that inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And he warned that there would be serious - possibly irreparable - geopolitical repercussions for the European Union. "If someone has any illusion that it will not be so," he said, "they are naive". Others have also warned about the geopolitical risks and the threat to the Euro project that a Grexit would create. In an interview on BBC Radio 4, the former head of the ECB, Jean-Claude Trichet, warned that Grexit would cause a "loss of credibility for Europe" and increase instability in a geopolitically sensitive region. The US has also expressed concern: on Tuesday evening President Obama telephoned both Angela Merkel and Alexis Tsipras, and today the Treasury Secretary Jack Lew warned that a deal was essential for the economic and geopolitical stability of Europe. In his Budget speech, the UK's Chancellor George Osborne described Grexit as the biggest risk facing the UK economy. And France's Prime Minister Manuel Valls, warning of geopolitical risks from Grexit, insisted that Grexit would be an indication of "impotence". "France refuses this", he said adamantly.

Here’s how much Greece owes Germany, others - German Chancellor Angela Merkel wants Greek Prime Minister Alexis Tsipras to pay up.   Greece’s fate within the eurozone could very well be decided this weekend as European leaders meet to discuss a third bailout program for the debt-strapped and economically devastated country a week after Greek voters rejected creditor demands in a referendum. Greece insists that its debt load is unsustainable and that any package must include some forgiveness of its existing loans in return for further austerity measures (a stance that is been echoed by the International Monetary Fund). That is met stiff resistance from Germany, Europe’s largest economy, which has insisted there is little scope for trimming the debt load and that Greece must continue pressing ahead with fiscal reforms.   Without an agreement, Greece, which is already in arrears to the International Monetary Fund, will soon fall into formal default. A 3.5 billion euro ($3.9 billion) payment to the European Central Bank on July 20 looms large. Without a deal, Greece is likely to be firmly on a path to eurozone exit. See: Here’s how Greece could slide out of the euro. Whether Greece gets a debt write-down or it leaves the eurozone, the country’s creditors won’t get everything they’re currently owed. Deutsche Bank, in the table below, breaks down the exposure of each eurozone country (and its taxpayers) to Greece:

Deadline day for Greece: Proposals must come in before midnight - Greece is facing a crucial deadline on Thursday: Present a credible reform proposal by the end of the day or risk missing out on the three-year bailout package the Alexis Tsipras-led government requested through the European Stability Mechanism, or ESM, on Wednesday. The debt-laden country's international lenders, the European Central Bank, the International Monetary Fund and the European Commission, are to receive Greece's blueprint for economic overhauls by midnight, giving them 48 hours to examine the reform plan before an emergency EU summit on Sunday. Greece has been given a final deadline of Sunday to reach a deal with creditors or it risks sliding into bankruptcy and facing an exit from the eurozone. Banks in Greece will stay closed until Monday, July 13, as will the country's stock market.

Setting a Deadline for Greece Proves Much Easier Than Sealing a Fate - After five years of crises, conflicts and deadlines that have come and gone without resolution, Greece and the European countries that have been propping it up financially have come to what they all insist is a final reckoning, with just days to decide whether Greece stays in the euro system or is cast out.Trouble is, no one seems inclined to be the decider.With so much at stake for Europe’s long push for deeper integration and the welfare of the Greek people — not to mention the political standing of the leaders involved — both sides have been sidestepping responsibility for the endgame, insisting that what comes next is up to the other. “The ball is in Greece’s court,” Pierre Moscovici, the European Commission’s senior official for economic and financial affairs, said Wednesday, echoing a theme heard regularly in European capitals and the bureaucracies of Brussels as creditors demand evidence that Greece is willing to take concrete steps to get its finances in order. But Prime Minister Alexis Tsipras of Greece said the situation was a European problem, in need of a European solution. “We all understand that this debate is not exclusively about one country. It’s about the future of our common construction, the eurozone and Europe,” he said Wednesday, making his case that the only way out is for the other euro-linked countries to drop their insistence on painful austerity policies.

Austerity is an integral part of the Greek tragedy -  Too many people, including many in the Troika, see the Greek struggle as just about transfers from one debtor nation to lots of creditor nations. That is why they perhaps saw the Greek referendum as an unhelpful move, as just inflaming nationalist sentiment. As Dani Rodrik puts it “What the Greeks call democracy comes across in many other – equally democratic – countries as irresponsible unilateralism.”   It is, however, not just about transfers, or what economists call a zero sum game. It is also fundamentally about austerity, as Dani Rodrik, Thomas Picketty, Heiner Flassbeck, Jeffrey Sachs and I say in this letter jointly published in the Guardian, Le Monde, The Nation and Der Tagesspiegel (and thanks to Avaaz for making this happen).  I think many people believe that a debtor country must somehow inevitably suffer large scale unemployment as a result of having to pay back at least some of its debts. But this comes more from a moralistic view than thinking about the macroeconomics. In an open economy, the real exchange rate (competitiveness) will adjust to ensure ‘full employment’ is preserved, whatever primary surplus (taxes less non-interest spending) a government needs to service and pay back its debt.

Why Europe Needs to Offer Greece Debt Relief - When Greek voters resoundingly rejected, in Sunday’s referendum, the latest proposal from the country’s creditors, it seemed for a moment as if the victory might strengthen the leftist Syriza government’s hand in its negotiations with the rest of Europe. But apparently no one told the Europeans that this was the case. Yesterday, European leaders announced that Greece had until Thursday to present a new bailout proposal and said that unless an agreement was reached by Sunday, the country might well face expulsion from the eurozone. Most of the players in these negotiations, on both sides of the table, say that they want to keep a so-called Grexit from happening: the European Council President, Donald Tusk, said on Tuesday that it would be “the worst-case scenario, where all of us will lose.” So how did we reach a point where an outcome that neither side wants may well be the one that both sides get? For Greece, the fundamental problem is simple: the country has a limited amount of bargaining power, and the referendum had little effect on that fact. Often, owing a huge amount of money can paradoxically give you leverage, since you can threaten to walk away from your debts and leave your creditors with nothing. That’s difficult for Greece because, at the moment, it needs to borrow money just to pay its bills and to keep its banking system intact. This isn’t just, or even primarily, a result of its huge pile of debt. In fact, because of past restructurings that extended the maturity and lowered the interest rate on most of the country’s debt, Greece’s debt-servicing costs are actually relatively low—lower than those of many other European countries. If the Greek economy could manage to grow at even a modest clip, it would have little trouble servicing its debt. The debt itself is fundamental to Greece’s future prospects, as we’ll see, but for all the attention it’s gotten, it’s actually a secondary problem right now.

A Case for Grexit -- I think that the Greeks would be wise to abandon the Euro and introduce their own currency. Very few Greeks agree with me. Also many very smart economists around the world strongly strongly disagree with me. I will try to explain the case for a new Greek currency. 1) ECB blackmail is a crucial consideration. The ceiling on liquidity assistance (ELA) is binding. This is the reason Greek banks are closed. If Greece had its own currency, the Bank of Greece could lend as much of it as it pleased to Greek banks. The banks would be able to continue to handle electronic transfers (they are doing so at the moment but won’t be able to keep this up for long without more ELA or drachmas). As soon as Drachmas are printed, Greeks would be able to take them out of ATMs without limits (I guess some Greeks will take some out just to burn them in protest). As soon as their banking system is independent of the ECB, Greece can threaten to default. The negotiations about debt repayment will be very different. I think this is a huge advantage for Greece.In any case, without ECB blackmail, Greece will regain control over its own policy. Even if the Greek government can’t borrow, it can balance the budget by taxing last years profits and not by cutting already tiny pensions. The Eurogroup talks broke down on the question of tax increases vs spending cuts. The tax increases proposed by the Tsipras government are much less contractionary than the spending cuts demanded by the Troika. The debate between Greece vs the Troika is the debate between Keynes and Laffer. I think the evidence is clear that Syriza policy is based on sound economic considerations while the people who control the commission, the ECB and the IMF are clueless (notably not willing to listen to the IMF research department). The evidence for the second claim based on the effects of the policies they dictated (and their totally wrong predictions about these effects) is overwhelming.

Greeks Spend in Droves, Afraid of Losing Savings to a Bailout -  Business has been so brisk in the giant Kotsovolos appliance and electronics store in this upper-middle-class suburb of Athens that you might think a sale was on.But, no. It is panic buying, those who work here say. Increasingly concerned that greater economic trouble lies ahead of them, and limited in how much cash they can take out of banks, Greeks have been using their debit cards to buy ovens, refrigerators, dishwashers — anything tangible that can hold its value in troubled times.“We have sold so much,” said Despina Drisi, who has worked in the store for 12 years. “We even sold display models. People have been pulling at my sleeves. We’re spacing things out now to cover the holes on the shelves.” To the casual observer, the bustle of everyday life looks unchanged here. But beneath the surface, Greeks are struggling with growing fear, the strange ramifications of closed banks and the mounting potential for much worse. They could face the unknown consequences of being pushed out of the eurozone within the next week if Greece and its creditors cannot come to an agreement. Some are watching television and checking their smartphones constantly. Others refuse to follow what is going on in Brussels at all. But either way, many are doing what they can to protect themselves financially, buying appliances and jewelry or even prepaying their taxes so they will have taken care of one financial obligation if they end up losing some of their savings to a bank failure, as happened to depositors in Cyprus under a bank rescue plan there in 2013.

It Has Begun: Greek Businesses Now Listing Prices In Drachma -- Earlier today, Kathimerini reported that the Greek government, facing an acute cash crunch and staring down the possibility that the country will soon face a shortage of critical imported goods, is making preparations for the introduction of an alternative currency. “According to reports, the … parallel currency design process has begun. By today's standards, government funds [will] fail to service the obligation to pay wages and pensions at the end of the month,” the Greek daily said.  The report, which was promptly dismissed by the finance ministry as “completely unsubstantiated”, comes on the heels of comments from former FinMin Yanis Varoufakis that the Greeks were considering the so-called “California” IOU option.  Amusingly, Greek businesses do not appear to be waiting for the official word from Athens to fall back on euro alternatives. The image below was sent in by a tourist who went to a cafe in Greece where the menu prices are now back in Drachma:

Russia Is Taking Full Advantage Of Greek Crisis -- With Greece’s debt situation spiraling downwards, the European project is showing some cracks. The July 5 referendum could amount to a vote on whether or not Greece stays in the euro.  In the meantime, the turmoil offers an opportunity for Russia to advance its interests.Of course, the EU is an absolutely critical trading partner for Russia, so if the bloc starts to fray at the seams, that presents financial risks to an already struggling Russian economy. Russia’s central bank governor Elvira Nabiulllina warned in June of the brewing threat that a Greek default would have on Russia. “We do consider that scenario as one of possible risks which would increase turbulence in the financial markets in the European market, bearing in mind the fact the European Union is one of major trading partners, and we are definitely worried by it,” she said in an interview with CNBC.  With the economic fallout in mind, Russia does see strategic opportunities in growing discord within Europe. First, Russia is pushing its Turkish Stream Pipeline, a natural gas pipeline that it has proposed that would run from Russia through Turkey and link up in Greece. From there, Russian gas would travel on to the rest of Europe. Russia is vying against a separate pipeline project that would send natural gas from the Caspian Sea through Turkey and on to Europe.

"Greece Is No One's Hostage": Leftist Energy Minister Lays Out €2 Billion Russian Gas Project -- The prospect of a so-called “Russian pivot” by Greece still hangs over Angela Merkel’s head. The conflict in Ukraine and the attendant economic sanctions imposed on the Kremlin combined with the EU’s anti-trust proceedings against Gazprom have raised the geopolitical stakes of a Grexit. Merkel has repeatedly warned that the consequences of Greece exiting the eurozone go far beyond short-term financial turmoil and political contagion (e.g. the spread of the Syriza “germ”). And Vladimir Putin is acutely aware of the opportunity. "Just because Greece is debt-ridden, this does not mean it is bound hand and foot, and has no independent foreign policy,” Putin said earlier this year, as tensions between Athens and Brussels intensified. The prospect of a BRICS loan aside, any Russian aid to Greece will likely be connected to Gazprom’s Turkish Stream pipeline project which we’ve discussed in great detail in the past. Here’s a brief recap: Greece has received what The New York Times recently described as “dueling sales pitches” on two proposed natural gas pipelines. One proposal comes from Russia, where the Kremlin is keen to use the tumultuous negotiations between Athens and creditors to advance Moscow’s energy and geopolitical interests. Moscow hopes to essentially buy Athens’ participation in the Turkish Stream pipeline which, as a reminder, will allow Russia to bypass Bulgaria by piping gas through Turkey, then through Greece, Serbia, and Hungary straight to the Austrian central hub. The US proposal involves The Southern Gas Corridor, a project aimed at “improving the diversity of the EU’s energy supply” — in other words, it’s an attempt to help break Gazprom’s stranglehold. Essentially, the corridor will allow the EU to tap into Caspian gas via a series of connecting pipelines running from Azerbaijan to Italy.

Nobel Prize-Winning Economist Demands US Taxpayers "Show Humanity & Save Greece" -- When the going gets tough, the taxed get going and that is what Nobel Prize winning economist Joseph Stiglitz thinks should happen. In a Time op-ed, Stiglitz warns (likely correctly) that if Greece continues with austerity, it would be depression without end; and so his solution is simple... "The U.S. was generous with Germany as we defeated it. Now, it is time for the U.S. to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika." Strawman much?   Via Time.com, If Greece continues with austerity, it would be depression without end As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reduction in history and unconditional aid from the U.S. in the Marshall Plan. And yet it refuses even to discuss debt relief. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid. The U.S. was generous with Germany as we defeated it. Now, it is time for the U.S. to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika. At a technical level, the Federal Reserve needs to create a swap line with Greece’s central bank, which—as a result of the default of the ECB in fulfilling its responsibilities—will have to take on once again the role of lender of last resort. Greece needs unconditional humanitarian aid; it needs Americans to buy its products, take vacations there, and show a solidarity with Greece and a humanity that its European partners were not able to display.

Greece Submits 11th-Hour Bailout Proposal to Creditors - Only a day after grim predictions of financial and social collapse in Greece, a scramble appeared underway to work out the details of a new bailout package to bring the country back from the brink. Germany’s truculent finance minister, Wolfgang Schäuble, finally gave a little on debt relief for Greece, admitting Thursday that “debt sustainability is not feasible without a haircut,” or writedown of debt. Donald Tusk, the prime minister of Poland and the president of the European Council, said on Twitter that any “realistic proposal from Athens needs to be matched by realistic proposal from creditors on debt sustainability to create win-win situation.” What was breathtaking, however, was how in a matter of hours the entire dynamic in the Greek crisis seemed to shift, from apocalyptic warnings of a Zimbabwe in the Balkans, to a fresh optimism that the basics of a deal could be worked out. The question now is whether that apparent change of heart reflected a new political determination to cut a deal that keeps Greece in the eurozone.

New Greek Proposal Backtracks To Pre-Referendum Draft, Does Not Request Debt Haircut - Full Text -- There is nothing incrementally new or different to what we revealed earlier in the leaked Greek proposal (i.e., no actionable pension cuts), ... or the one which 61% of the Greek people said no to. What's worse, the proposal will be promptly deemed to be insufficient because as Merkel made quite clear, the old proposal is no longer valid due to the collapse in the Greek economy in the past 10 days and will have be far harsher to offset the slowdown in the economy. The broad strokes: a 3 year, €53.5 billion bailout program seeking funds from the ESM, to finally put the IMF off to the side.The program is heavy on revenue promises and lite on actual spending cuts. The changes to the VAT system are as noted previously, keeping the VAT on hotels at 13% but raising it to 23% for restaurants; Greece also promises to eliminate discounts on islands, starting with the islands with higher incomes and which are the most popular tourist destinations. However it is the pension side where the issues remain, and it is here that once again there is little actual direct reductions. Among the promises, most are the generic fluff previously agreed on: create strong disincentives to early retirement, incur penatlies for early withdrawals, make all supplementary pension funds financed by own contributions; and so on.  The good news for the Troika is that Greece will seek to "gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019" - who will be impacted and when: "the top 20% of beneficiaries in March 2016." In other words another 9 months of non real aciton. The bad news for the Troika is that Greece will also "freeze monthly guaranteed contributory pension limits in nominal terms until 2021."

New Greek Reform Proposal Appears Closer to Creditor Demands - WSJ: A new Greek proposal for economic-policy overhauls and budget cuts appears to have moved closer to creditors’ demands on some of the most divisive issues, but it wasn’t initially clear whether it would be sufficient to unlock a new bailout package. The 13-page plan, submitted to Greece’s eurozone creditors and Parliament in Athens Thursday night, is likely to determine the country’s future in Europe’s currency union. Eurozone finance ministers and European leaders are set to assess the proposals during crisis meetings on Saturday and Sunday. The proposals were sent after a top European Union official called on eurozone governments to take action to make Greece’s debt burden more manageable, so long as the government of Prime Minister Alexis Tsipras commits to key overhauls and cuts that creditors think are necessary to get the country’s economy growing. Some form of debt relief—likely by giving the government more time to repay old rescue loans and cutting interest rates—would be a concession to the left-wing government in Athens. But Mr. Tsipras would have to implement tax increases and pension cuts, among other measures, that voters overwhelmingly rejected in a referendum last weekend. Some officials, including German Chancellor Angela Merkel, have said new measures must go beyond what creditors had demanded until now, given that the bailout Greece wants would run for three years. The shutdown of the country’s financial system and uncertainty over its future in the eurozone have also delivered blows to the economy that would have to be compensated for by new cuts or extra revenues. On Wednesday, Greece requested a new three-year rescue package from the eurozone’s bailout fund. It would be its third in a little over five years.

“Tsipras Has Just Destroyed Greece”  - This post’s headline comes from an assessment by the Australian website MacroBusiness of the proposal that Greece submitted to its creditors in the wee hours of the morning in Europe. Greece has capitulated, offering to implement more stringent austerity terms than those rejected by voters last weekend by a resounding margin in the Greek referendum. We are posting the full text of the Greek proposal at the end of this post.  The proposal is indeed worse than the one rejected in the referendum last Sunday. From Kevin Drum, who links to the Washington Post:  Like Drum, I have not done a line for line comparison, but for instance, Section 8, Labour Market, looks identical to creditor language I’ve read previously. The proposal does not include debt relief. Ironically, the proposal still shields the military. It calls for €100 million in cuts this year and €200 million for 2016. These are cuts versus budget, so the total cut on an ongoing basis is €200 million. The creditors had called for €400 million. Note also that the story that claimed that the IMF rejected cuts appears to be false.   Close confidant of Yanis Varoufakis and Greek government advisor, Jamie Galbraith, confirmed that Tsipras never intended to win the referendum. He essentially confirms the report by Ambrose Evans-Pritchard that many readers rejected, that the referendum was a ploy to save Tsipras’ and Syriza’s face in admitting defeat and allowing a new coalition or a new government to cut a deal with the creditors. From the INET interview with Lynn Parramore:  The recent Ambrose Evans Pritchard piece is very much on the mark (“Europe is blowing itself apart over Greece – and nobody seems able to stop it”). The Greek government, and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election.

Creditors Assess Greece’s Bailout Plan as Optimism Rises —Greece’s creditor institutions will make an assessment on the country’s eligibility for a new bailout on Friday, as some leaders from the currency bloc voiced optimism about the latest Greek economic proposals. However, a fight still looms about the level of debt relief that will have to accompany any new rescue deal for Greece. The institutions that have been overseeing Greece’s bailouts—the European Commission, the European Central Bank and the International Monetary Fund—will send their assessment to eurozone finance ministries ahead of a Eurogroup meeting on Saturday, said the European Commission, the European Union’s executive arm. That assessment will take into account Greece’s latest overhaul proposals, said a spokesman for the Eurogroup, which comprises the finance ministers of the currency area’s member states. If they deem the plan to be insufficient, the ministers may push for tougher criteria to avoid having to take aggressive action to reduce Greece’s debt.

Greece debt crisis: Eurogroup says new plan 'thorough' -  A top eurozone official says Greece has submitted "thorough" proposals aimed at getting a vital third bailout and averting a possible exit from the euro. Eurogroup President Jeroen Dijsselbloem said the eurozone would discuss a response to the plans on Saturday. Germany has cautioned there is little room for easing Greece's debt burden. Greek PM Alexis Tsipras will put the plans, which contain many elements rejected in a referendum last Sunday, to a vote in parliament on Friday. The prime minister submitted the proposals to Greece's creditors - the European Commission, the European Central Bank and the International Monetary Fund - by the Thursday deadline they had set.  European Commission President Jean-Claude Juncker, European Central Bank President Mario Draghi, International Monetary Fund head Christine Lagarde and Mr Dijsselbloem were scheduled to hold a conference call on the new proposals at 11:00 GMT. Mr Dijsselbloem said the new Greek paper was "a thorough piece of text" and that support from the Greek parliament would give it "more credibility". "But even then we need to consider carefully whether the proposal is good and if the numbers add up. We have to make a major decision. Whichever way."  Only a few days ago Mr Tsipras won an overwhelming mandate from the Greek people, in a referendum, to reject more-or-less these bailout terms. And today, on the back of that popular vote, he is signing up to the supposedly hated bailout. This is big politics that would make Lewis Carroll proud. But here's the point. If a way isn't found to allow the banks to reopen within days - and the ECB simply maintaining Emergency Liquidity Assistance won't come anywhere near to achieving that - the Greek economy will implode so that any bailout deal agreed this weekend will become irrelevant in weeks.

Greek deal in sight as Germany bows to huge global pressure for debt relief -  Germany is at last bowing to pressure as a chorus of countries and key institutions demand debt relief for Greece, a shift that could break the five-month stalemate and avert a potentially disastrous rupture of monetary union at this Sunday’s last-ditch summit. In a highly significant move, the European Council has called on both sides to make major concessions, insisting that the creditor powers must do their part as the radical Syriza government puts forward a new raft of proposals on economic reforms before a deadline expires tonight.  The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” said Donald Tusk, the European Council president.  This is the first time Europe's institutions have acknowledged clearly that Greece’s public debt – 180pc of GDP – can never be repaid and that no lasting solution can be found until the boil is lanced. Any such deal would give Greek premier Alexis Tspiras a prize to take back to the Greek people after they voted by 61pc to 39pc to reject austerity demands in a landslide referendum last weekend. While he would still have to deliver on tough reforms and breach key red lines, a debt restructuring of sufficient scale would probably be enough to clinch a deal, and allow him to return to Athens as a conquering hero.

Passport applications spike in Athens suburbs that voted ‘yes’ - Some of the wealthiest Greeks may be planning their personal exit strategy from the long-running Greek debt crisis.  The number of applications for passports with the National Hellenic Passport Center increased over 50% in the week after the referendum over the same time last year, according to Kathimerini, one of the biggest Greek newspapers. The biggest increases were recorded in the northern and southern suburbs of Athens, Kathimerini noted, the same areas that voted overwhelmingly “yes” in the referendum on whether to accept creditors’ demands for further austerity measures in exchange for another Greek bailout, according to a breakdown of the vote by To Vima, another major Greek newspaper. It’s unclear how many of those don’t want to stick around for the end of the country’s financial drama. Some passports could just be up for renewal — Greek passports are valid for five years — but others could want to ensure they have a document that allows them to live anywhere in the other 27 members of the European Union. In the northern Athens suburb of Kifisia, passport applications soared 70%, Kathimerini reported. It’s the same place where 64% of voters said “yes” in Sunday’s referendum, one of the highest rates in the country, according to To Vima. The “yes” vote reached 70% in nearby town Filothei-Psichiko, another town in the area where passport applications are spiking.  Nationally, just 38.7% of voters sided with the “yes” camp. The “no” camp, which got 61.3% of all votes, was heavily supported by the 44% of the population that now finds itself living under the national poverty level of about 7,900 euros per person a year.

Greek PM Tsipras seeks party backing after abrupt concessions - Reuters: Greek Prime Minister Alexis Tsipras appealed to his party's lawmakers on Friday to back a tough reform package after abruptly offering last-minute concessions to try to save the country from financial meltdown. With creditor institutions due to deliver an initial verdict on Athens' loan request and reform proposals within hours, euro zone partners appeared to be preparing for a deal at the weekend to keep Greece in the euro zone. After walking into a party meeting to applause, Tsipras tried to rally his Syriza lawmakers behind the new proposals ahead of a snap vote in parliament expected late on Friday. He urged them to help Greece stay with the euro, but he faced some resistance from leftists stunned by his acceptance of previously spurned austerity measures. "We are confronted with crucial decisions," Tspiras told his party caucus, according to a Greek official. "We got a mandate to bring a better deal than the ultimatum that the Eurogroup gave us, but certainly not a mandate to take Greece out of the euro zone," he said. "We are all in this together." The latest reform package was strikingly similar to the terms Greeks rejected in a referendum just last Sunday, angering members of the Syriza's hardline Left Platform wing. Five of them signed a letter saying it would be better to return to the drachma, Greece's pre-euro currency, than to swallow more austerity with no debt write-off. "The proposals are not compatible with the Syriza program," Energy Minister Panagiotis Lafazanis, who belongs to the far-left faction, told Reuters.

The Greek Last-Chance Proposal: Stepping Backwards to Move Forward? - naked capitalism - Yves here. This article provides an overview of the proposal approved by the Greek parliament yesterday by 251 votes out of 300. There’s one spot where I am not sure of the author’s reading of the text. The proposal language describes the cuts in military spending as against budget, so I don’t read them as additive, as she does since the targets are for total reductions on a year-by-year basis to meet fiscal surplus targets.

Greek debt writedown would be red line for me - Latvian PM | Reuters: Latvian Prime Minister Laimdota Straujuma told German radio that she would not agree to a proposal for Greece that included a debt writedown. Asked where the "red line" would be for her, Straujuma told Deutschlandfunk radio: "First of all it would be a debt writedown, that would definitely not work," Straujuma said in remarks that were recorded on Thursday evening and translated into German.

With cash fast running out, Greek bank failures loom - FT.com: Greek lenders face bankruptcy on Monday if the country fails to strike a deal with creditors over the weekend, according to senior bank executives, as they described frantic efforts to keep the country’s financial system afloat and their preparations for an uncertain future. The banks have been leaking cash at a rate of more than €100m a day even with capital controls that were imposed to restrict withdrawals, one banker said. There will be no money left for customers by Monday unless the European Central Bank agrees to lend them more money, this person added. Echoing that assessment, the head of the Greek banks association told Greece’s Skai TV on Thursday morning that cash points would have money until Monday, but did not say what would happen after that. As Greece’s crisis has deepened, its banks have emerged as the chief vulnerability that could soon force the country to leave the single currency. Without a deal with its creditors that provides some support for its financial system, the government would instead be forced to begin printing a new currency to recapitalise them or possibly raid customers’ deposits. As the pressure has mounted in recent days, bankers told the Financial Times that Greece’s banks were effectively passing cash among themselves. The system is co-ordinated by the Bank of Greece, which has been asking healthier banks to return some of their liquidity so it can be doled out to weaker ones. “We don’t have a choice,” one banker said. The Bank of Greece failed to respond to requests for comment. Greece’s four biggest banks — National Bank of Greece, Eurobank, Piraeus and Alpha Bank — all declined to comment. The banks are pinning their hopes on an eleventh hour deal between Greece and the eurozone that would allow the ECB to increase the €89bn in emergency funding that they have already drawn and also ease their borrowing terms.

Crippled Greece yields to overwhelming power as deal looms - Telegraph: Greece's Left-wing Syriza government has agreed to draconian austerity terms rejected by the Greek people in a landslide referendum just five days ago, capping one of the most bizarre political episodes of modern times. The surrender was confirmed by the Greek parliament by 251 votes to 32, with eight abstentions including several senior members of the ruling Syriza party.  Prime minister Alexis Tspiras sought to put the best face on a painful climbdown, recoiling from a traumatic fight that would have led to Greece's ejection from the euro as soon as Monday. He implicitly recognised that the strain of capital controls and economic collapse has been too much to bear. “We are confronted with crucial decisions. We got a mandate to bring a better deal than the ultimatum that the Eurogroup gave us, but we weren't given a mandate to take Greece out of the eurozone,” he said. Hopes for a breakthrough set off euphoria across Europe's stock and bond markets, though Greece still has to face an emergency meeting of Eurogroup ministers on Saturday, and probably a full-dress summit of the EU's 28 leaders on Sunday.   A top Greek banker close to the talks said there is now a "90pc chance" of clinching a deal, thanks both to intervention behind the scenes by a team from the French treasury and to aggressive diplomacy by Washington.

Angela Merkel faces a ‘lose-lose’ choice on Greece - FT.com: In five years of managing the Greek crisis, German chancellor Angela Merkel has maintained and even enhanced her reputation as Europe’s most successful political leader — both at home and around the world. Not any more. As EU leaders this weekend make a last-ditch effort to keep Greece in the eurozone, the cautious 60-year-old chancellor faces what one of her MPs calls “a lose-lose situation”. She must decide whether to back a new loan programme and keep a troubled country in the common currency — or save the money and face the unpredictable consequences of Grexit and the ignominy of a first-ever reversal in the long history of EU integration. For the chancellor, a rescue risks widespread complaints from German taxpayers, who have already borne the brunt of two Greek bailouts. It could also provoke a large revolt in her conservative CDU/CSU bloc where MPs are fuming not only at the demands by Greek prime minister Alexis Tsipras but also his seeming contempt for the country’s creditors. But, given her stature, a Grexit would leave her carrying much of the international criticism for a manifest failure of EU solidarity. “Merkel cannot risk political fragmentation at home by being seen as giving too much to Athens, but the demands of shepherding Europe through a Grexit would also be steep,” says Daniela Schwarzer, Berlin office director for the German Marshall Fund think-tank. Whatever choice she makes, the road ahead will be unpredictable. With Greece on the edge of bankruptcy, stabilising the country inside the eurozone could be difficult and costly. But even a Grexit will demand support from European partners if the country is to avoid social chaos. With or without Greece, Europe’s single currency zone will face calls for institutional reform.

'We underestimated their power': Greek government insider lifts the lid on five months of 'humiliation' and 'blackmail' - In this interview with Mediapart, a senior advisor to the Greek government, who has been at the heart of the past five months of negotiations between Athens and its international creditors, reveals the details of what resembles a game of liar’s dice over the fate of a nation that has been brought to its economic and social knees. His account gives a rare and disturbing insight into the process which has led up to this week’s make-or-break deadline for reaching a bailout deal between Greece and international lenders, without which the country faces crashing out of the euro and complete bankruptcy. He describes the extraordinary bullying of Greece’s radical-left government by the creditors, including Eurogroup president Jeroen Dijsselbloem’s direct threat to cause the collapse of the Hellenic banks if it failed to sign-up to a drastic austerity programme. “We went into a war thinking we had the same weapons as them”, he says. “We underestimated their power”.

Policy Lessons From The Eurodebacle - Krugman -- It’s now clear, or should be clear, that the Greek program was doomed to failure without major debt relief; no matter how hard the Greeks tried, austerity would shrink GDP faster than it reduced debt relative to the baseline, so that the debt situation was bound to worsen even as the attempt to balance the budget imposed vast suffering. But there’s a broader lesson from Greece that is relevant to all of us — and it’s not the usual one about mending our free-spending ways lest we become Greece, Greece I tell you. What we learn, instead, is that fiscal austerity plus hard money is a deeply toxic mix. The fiscal austerity depresses the economy, and pushes it toward deflation; if it’s accompanied by hard money (in Greece’s case the euro, but a fixed exchange rate, a gold standard, or any kind of obsessive fear of inflation would do the trick), the result is not just a depression and deflation, but quite likely a failure even to reduce the debt ratio. ... So, how does this play into U.S. policy debates? Well, Republicans love to warn that America might turn into Greece any day now. But look at the policy mix that is now de facto GOP orthodoxy: sharp cuts in government spending (maybe offset by tax cuts for the rich, but these won’t provide much stimulus), combined with a monetary policy obsessed with fears of dollar “debasement”. That is, the conservative side of the US political spectrum, while holding up Greece as a cautionary tale, is actually demanding that we emulate the policy mix that turned Greek debt into a complete disaster.

Greece and China expose limits of 'whatever it takes' | Reuters: For a world so confident that central banks can solve almost all economic ills, the dramas unfolding in Greece and China are sobering. "Whatever it takes," Mario Draghi's 2012 assertion about what the ECB would do to save the euro, best captures the all-powerful, self-aware central bank activism that's cosseted world markets since the banking and credit collapse hit eight years ago. From the United States to Europe and Asia, financial markets have been cowed, then calmed and are now coddled by the limitless power of central banks to print new money to ward off systemic shocks and deflation. But even if you believe central banks will do whatever it takes - to save the euro, stop the recession, create jobs, boost inflation, prop up the stock market and so on - it doesn't necessarily mean it will always work. Draghi himself merely pleaded for faith on that score three years ago when he added, "Believe me, it will be enough." Critically, given the direction of events in Athens, his celebrated epigraph was preceded by "Within our mandate..." And so the prospect of the European Central Bank potentially presiding over, some say precipitating, the first national exit from a supposedly unbreakable currency union will inspire a rethink of the limits of Draghi's phrase for all central banks.

OJ Blanchard defends the IMFs interactions with Greece  -- I do not think that the actions of the Troika or of the 18 non Greek members of the Eurogroup are defensible. I am quite confident that, if they can be defended, IMF head economist O.J. Blanchard is the man for the job. He is very very smart and doesn’t just assume that Keynes was wrong about everythign (in fact he and Daniel Leigh provided the strongest (PDF) evidence that Keynes was right).  I do not find his argument convincing. I will semi fisk it quoting the bits with which I disagree and commenting.

Olivier Blanchard on Greek austerity  It was inevitable, not the result of some bad policy choice by outsiders, foisted on Greece:  Even before the 2010 program, debt in Greece was 300 billion euros, or 130% of GDP. The deficit was 36 billion euros, or 15½ % of GDP. Debt was increasing at 12% a year, and this was clearly unsustainable. Had Greece been left on its own, it would have been simply unable to borrow. Given gross financing needs of 20–25 % of GDP, it would have had to cut its budget deficit by that amount. Even if it had fully defaulted on its debt, given a primary deficit of over 10% of GDP, it would have had to cut its budget deficit by 10% of GDP from one day to the next. These would have led to much larger adjustments and a much higher social cost than under the programs, which allowed Greece to take over 5 years to achieve a primary balance.  Even if existing debt had been entirely eliminated, the primary deficit, which was very large at the start of the program, would have had to be reduced. Fiscal austerity was not a choice, but a necessity. There simply wasn’t an alternative to cutting spending and raising taxes. The deficit reduction was large because the initial deficit was large. “Less fiscal austerity,” i.e., slower fiscal adjustment, would have required even more financing cum debt restructuring, and there was a political limit to what official creditors could ask their own citizens to contribute. The full link is here.   Here is Hugo Dixon on the new deal on the table, the one where Syriza finally and wisely realizes it has no alternative to austerity.  I’ll stick with my Twitter prediction that yes there will be another “deal” of sorts, but it will break down rather rapidly, leading to true Grexit.

Austerity and the Greek Depression - Paul Krugman - Olivier Blanchard offers a defense of the IMF’s role in the Greek crisis. Basically, he argues that given the political realities, there was no alternative to requiring that Greece move into primary budget surplus, whatever the cost. This is surely true. But how big was the cost? I’m with Brad DeLong in being highly puzzled by this assertion: The decrease in output was indeed much larger than had been forecast. Multipliers were larger than initially assumed. But fiscal consolidation explains only a fraction of the output decline. Output above potential to start, political crises, inconsistent policies, insufficient reforms, Grexit fears, low business confidence, weak banks, all contributed to the outcome. Where is this coming from? I look at the data prior to this year — when we have indeed seen a crisis of confidence — and Greece’s output decline looks like just about what you should have expected given the austerity imposed. The chart shows changes in the structural budget balance versus changes in output, for all eurozone countries for which the IMF provides estimates of both numbers. The line is the relationship between austerity and growth fitted to all eurozone countries except Greece, implying a multiplier of 1.5; I extrapolate that line down to Greece, and it’s pretty close. Obviously you could do more complicated analyses, but on the face of it Greece appears to have suffered a slump overwhelmingly because of the austerity; surely there’s no grounds for dismissing this impact as a mere fraction of the problem.So if the austerity was necessary, so was the depression-level slump — a slump that has left Greece’s debt ratio far higher after 5 years of hell than it was when the program began. What this tells us is that the Greek program was infeasible from the start. A very big debt haircut early in the game might not have offered much relief from the slump, but it would have at least offered a chance to avoid debt deflation. Other than that, given the political constraints, there was no way this could have worked.

Germany won’t spare Greek pain – it has an interest in breaking us | Yanis Varoufakis | Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.  Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren. In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the eurozone finance ministers), who put a stark choice to me: accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up. Five months of negotiations ensued under conditions of monetary asphyxiation and an induced bank-run supervised and administered by the European Central Bank. The writing was on the wall: unless we capitulated, we would soon be facing capital controls, quasi-functioning cash machines, a prolonged bank holiday and, ultimately, Grexit.