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

Saturday, July 18, 2015

week ending July 18

 Fed Watch: More Mediocrity: Federal Reserve Chair Janet Yellen will be playing a game of mixed messages with Congress tomorrow as she explains why she believes a rate hike approaches in spite of lackluster data. Today's data didn't help. The June retail sales report was a disappointment, slipping from May levels with generally soft internals in addition to downward revisions to previous months. Consequently, core spending growth is decelerating on a year-over-year basis to 2013 rates: Maintaining the 2014 growth bump has been something of a challenge, to be sure.The report triggered downgrades to the second quarter growth forecast as it offset upward revisions attributable to last week's new estimates of federal spending and inventories: More mediocre growth - stuck in that 2.5 percent range which is a touch higher than the Fed's longer-run central tendency of 2.0-2.3 percent. And therein lies the key to understanding the Fed's repeated calls that 2015 is the year for the first rate hike. I think they are concluding 2014 was sufficient to largely close the output gap, as evidenced by falling unemployment and other measures of labor underutilization. San Francisco Federal Reserve President John Williams even believes that optimally,  US growth needs to DECELERATE in 2016: Looking towards next year, what we really want to see is an economy that’s growing at a steady pace of around 2 percent. If jobs and growth kept the same pace as last year, we would seriously overshoot our mark. I want to see continued improvement, but it’s not surprising, and it’s actually desirable, that the pace is slowing.

Fed’s Mester Says Economy Can Easily Deal With Rate Rise Now - The leader of the Federal Reserve Bank of Cleveland said Wednesday the U.S. economy could easily deal with a rate rise right now, but she didn’t call for short-term rates to be boosted at any specific time period. “The economy can handle an increase in the fed funds rate,” Cleveland Fed President Loretta Mester said. “A small increase in interest rates from zero is not tight monetary policy, and with the economic progress we’ve made and that I expect to continue, monetary policy can take a step back from the emergency measure of zero interest rates,” she explained in the text of speech to be presented before an audience in Columbus, Ohio. Ms. Mester’s appearance coincided with Fed Chairwoman Janet Yellen’s trip to Capitol Hill to provide the central bank’s semiannual update on the economy and monetary policy. Ms. Yellen reaffirmed that if the economy plays out as she expects it’s very likely the Fed will raise rates this year. But she declined to say when, explaining it’s more appropriate in any case to think about the path of future rate rises, rather than when the first move up off currently near-zero rates will happen. Still, some Fed officials have pointed to September as a potential starting point for the Fed’s rate rise campaign. Ms. Mester said in her remarks that it’s reasonable Fed officials might have differing views about when to start raising short-term rates. Ms. Mester isn’t currently a voting member of the monetary policy setting Federal Open Market Committee. In her remarks, Ms. Mester was upbeat about the economy’s outlook, both in terms of expected job and inflation performance.But she also cast a cautious eye toward overseas events. She also said that while there are risks to financial stability for keeping rates very low for a long time, she doesn’t see right now evidence of brewing trouble.

WSJ Survey: Most Economists Expect Fed Will Raise Rates in September -  Most private forecasters polled continue to expect the Federal Reserve to start raising short-term interest rates in September, though a growing number think the central bank will wait until December. About 82% of economists surveyed over the past week by The Wall Street Journal picked September for the first rate rise, while 15% said the Fed would wait until December. In last month’s survey, 72% chose September and 9% went for December. “The Federal Reserve continues to message that it intends to normalize rates this year, and with rebounding activity in the coming months, September continues to be the leading candidate,” National Association of Manufacturers chief economist Chad Moutray said. None of the respondents said the Fed would raise rates at its July 28-29 policy meeting, though 3% thought the Fed would begin to move in October. Fed Chairwoman Janet Yellen is scheduled to hold press conferences after the September and December meetings, but not after the July and October meetings, so many analysts think the latter two are less likely occasions for such an important move. The Fed has kept its benchmark federal-funds rate pinned near zero since December 2008 and hasn’t raised rates since June 2006. Ms. Yellen has said repeatedly the Fed is on track to raise rates this year as the U.S. economy heals from the 2007-09 recession. “If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal-funds rate target, thereby beginning to normalize the stance of monetary policy,” Ms. Yellen told lawmakers Wednesday. In April, a stretch of weak economic data prompted economists who had been split between June and September to shift their predictions for the Fed’s first rate increase toward the Sept. 16-17 policy meeting. September has remained economists’ top choice in recent months despite turmoil overseas. A smaller but growing number of economists think liftoff will come later in 2015. The 15% who this month predicted a first rate increase in December is up from none in March’s survey.

The Fed’s ‘Risk-Management’ Case for Raising Rates Soon -  Janet Yellen, the Federal Reserve chairwoman, offers a novel argument in favor of starting to raise interest rates relatively soon: It’s the lesser of two evils. “If we wait longer, it certainly could mean that…we might have to [tighten] more rapidly,” Ms. Yellen told lawmakers Wednesday. “An advantage to beginning a little bit earlier is we might have a more gradual path of rate increases,” which she described as the “prudent approach.” This formulation is useful because it demonstrates that the decision about when to tighten will not depend solely on the Fed’s forecast for inflation and employment, but on the risks around that forecast, an approach former chairman Alan Greenspan dubbed “risk management.” A major reason the Fed has taken this long to consider tightening is that for years, risk management biased it toward moving later, not sooner. If the Fed tightened too late, the consequence would be inflation, which, while hardly desirable, was a problem for which the Fed has tried-and-true tools.  But if it tightened prematurely and tipped the economy back into recession and deflation, it had little confidence it had the tools to pull it back out. What’s changed? With the U.S. economy closing in on full employment, the odds that a quarter-percentage-point rise tips it into a deflationary spiral look minimal. At the same time, the effects of six years of zero rates on leverage and risk-taking are increasingly evident. As Ms. Yellen’s Monetary Policy Report noted, “Credit markets have been reflecting some signs of reach-for-yield behavior, as issuance of speculative grade bonds continues to be strong, yields are low, and credit spreads are somewhat narrow by historical standards.”

Fed Watch: The Case For September -The Wall Street Journal reports that most economists still expect the Fed to raise rates in September: Financial market participants tend to be less confident, with odds of a September hike running around 35%. Still, the consideration of any rate hike may seem odd given the lackluster nature of the US economy. Notably, inflation wallows below trend and anemic wage growth suggests significant remaining labor market slack. The Fed, however, looks at the progress towards its goals, which on the unemployment side has been substantial, as well as the perceived need to act ahead of actual inflation. In short, the Fed believes the risks to the economy are shifting toward overheating, even if the economy is not yet overheating. And, as Greg Ip at the Wall Street Journal identifies, this has important consequences for monetary policy: Risk management suggests they ought to start in September, because then they retain the option of tightening once or twice before the end of the year. But if they wait until December, they forgo that option. (This assumes they do not move at their meeting in October, which is not followed by a press conference.) This is probably the best argument for a September rate hike. Federal Reserve Chair Janet Yellen made it fairly clear in her Congressional appearances this week that she would prefer to move earlier but more gradually than later and more rapidly. And even if you think she only anticipates a single rate hike this year, that outcome is not precluded by a hike in September. Yellen has also said we should not expect a clearly identified path similar to the last tightening cycle. They can hike in September and pass on December. Paul Krugman thinks the Fed's logic is completely backwards. From his Bloomberg interview this week: If the Fed waits too long to raise rates, then we get a little bit of inflation. If the Fed raises rates too soon, we risk getting caught in another lost decade. So the risks are hugely asymmetric. I really find it quite mysterious that the Fed is eager to raise rates given that the costs of being wrong in one direction are so much higher than the costs of being the other. The Fed, I think, believes the risks are asymmetric in the other direction - that inflation expectations are very fragile to the upside, and hence waiting too long risks a costly rise in actual inflation. If I had to bet who would be proven right, I would put my money with Krugman.

Yellen: "Prospects are favorable for further improvement in the U.S. labor market and the economy more broadly" - From Fed Chair Janet Yellen: Semiannual Monetary Policy Report to the Congress Looking forward, prospects are favorable for further improvement in the U.S. labor market and the economy more broadly. Low oil prices and ongoing employment gains should continue to bolster consumer spending, financial conditions generally remain supportive of growth, and the highly accommodative monetary policies abroad should work to strengthen global growth. In addition, some of the headwinds restraining economic growth, including the effects of dollar appreciation on net exports and the effect of lower oil prices on capital spending, should diminish over time. As a result, the FOMC expects U.S. GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually.  As always, however, there are some uncertainties in the economic outlook. Foreign developments, in particular, pose some risks to U.S. growth. Most notably, although the recovery in the euro area appears to have gained a firmer footing, the situation in Greece remains difficult. And China continues to grapple with the challenges posed by high debt, weak property markets, and volatile financial conditions. But economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity. The U.S. economy also might snap back more quickly as the transitory influences holding down first-half growth fade and the boost to consumer spending from low oil prices shows through more definitively.

FRB: Testimony--Yellen, Semiannual Monetary Policy Report to the Congress--July 15, 2015: Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

Fed won't raise rates without ensuring economy, Yellen says — Federal Reserve Chairwoman Janet Yellen sought to reassure worried lawmakers on Thursday that when the Fed begins to raise interest rates, it will be careful not to derail the economy. Delivering her second day of congressional testimony, Yellen responded to concerns from some Democratic senators that once the Fed starts raising rates, it could set back job market and income gains. Sens. Robert Menendez, D-N.J., and Charles Schumer, D-N.Y., told Yellen that with inflation at such low levels now, it would be a mistake for the Fed to begin raising interest rates too quickly. The more prudent course, they said, would be to keep rates low and give the labor market more time to heal from the Great Recession. Yellen said the Fed was facing a delicate balancing act in achieving its dual goals of achieving maximum employment and stable prices. “We don't want to cut off job growth and income growth, and we do want to see inflation move up to 2 percent,” Yellen said. “We would not be pleased to see it linger indefinitely below 2 percent.” In an appearance before the Senate Banking Committee, Yellen reiterated her view that if the economy keeps improving, the Fed will likely begin raising rates this year. The Fed has kept its benchmark rate at a record low near zero since December 2008, and it has been nine years since it has actually raised the federal funds rate.

U.S. Consumers are a Wildcard in Yellen’s Midyear Outlook - In a speech in Cleveland last week, Federal Reserve Chairwoman Janet Yellen pointed hopefully to an upturn on retail and motor vehicle sales early in the second quarter as a sign that consumer spending might be picking up. Well that was nice while it lasted. On Tuesday the Commerce Department reported that sales by U.S. retailers dropped in June after a rebound the prior month. The underlying trend of retailers has looked anemic since January. Sales excluding gasoline – which are way down because of falling prices – were up 3.2% in June from a year earlier. That represents a sharp slowdown from year-on-year gains of 5.5% in the second half of 2014. The anemic consumer is a big conundrum for the Fed. Officials have pinned a forecast for economic rebound in 2015 on expectations that consumer spending will pick up. Households appear to have some wind at their backs after years of exceptionally slow and disappointing economic expansion. Hiring is expanding, unemployment is falling, gasoline prices are down, and stock and real estate prices are up. “Many of the fundamental factors underlying U.S. economic activity are solid and should lead to some pickup in the pace of economic growth in the coming years,” Ms. Yellen said Friday. Government retail sales data are volatile and hard to read, but the latest data don’t help this case. Perhaps Ms. Yellen will address the problem Wednesday in her first of two days of congressional testimony.

Fed buys $4.5 billion of mortgage bonds, sells $100 million | Reuters: The Federal Reserve bought $4.545 billion of agency mortgage-backed securities in the week from July 9 to July 15, compared with $5.249 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday. In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS. The New York Fed said on its website the Fed sold $100 million in mortgage securities guaranteed by Fannie Mae, Freddie Mac or the Government National Mortgage Association, or Ginnie Mae, in the latest week. It sold none the prior week.

Stanley Fischer defends Fed’s role as lender of last resort - Stanley Fischer has launched a robust defence of the Federal Reserve’s lender of last resort functions amid attempts by some lawmakers to further curb its powers to provide support in a crisis. The vice-chairman of the Fed’s Board of Governors said that the central bank could “deal with” existing restrictions on its emergency lending powers that were introduced after the financial meltdown of 2007-09, but that it would be a “big mistake” to stop its lender of last resort functions altogether. The Fed is already more heavily constrained in its ability to intervene in a crisis than some other central banks, including the Bank of England, which has recently broadened its liquidity regime to certain non-banks as more activity migrates outside the traditional banking arena. Sir Paul Tucker, a former BoE deputy governor who is now a senior fellow at Harvard’s Kennedy School of Government, said the UK regime gives the BoE more flexibility. He said: “The Fed is only allowed to do what it is empowered to do by statute, and this has become more circumscribed since the crisis.” Elizabeth Warren, a Democratic Senator from Massachusetts, and David Vitter, a Republican from Louisiana, have proposed further limits on the Fed’s ability to give emergency loans to distressed institutions in a crisis in bid to stop “backdoor bailouts” and tackle the problem of firms that are too big to fail. Their reforms would toughen safeguards ensuring a bailout recipient is solvent and impose a penalty interest rate on the liquidity. It is unclear how much traction the measures will gain in Congress, but it is the current legislative challenge to the Fed that officials are most worried about. Ben Bernanke, the former chairman of the Fed, has warned that the bill would have the effect of stopping “broad-based emergency lending in all circumstances”.

Preserving the independence of the Federal Reserve - Alice M. Rivlin, congressional testimony : Mr. Chairman and members of the Subcommittee: The premise of this hearing appears to be that there is something mysteriously opaque about the Federal Reserve’s conduct of monetary policy; that some threat to our economy might unfold out of view of the public and Congress; that if another group of experts, say, a team from the Government Accountability Office (GAO) “audited” the Fed’s deliberations on monetary policy, we would learn something important and we would all be better off. My views are quite different and I will make three basic points. First, current monetary policy alternatives are controversial, but they are not mysterious or opaque, and Federal Reserve officials are making extraordinary efforts to explain to Congress and the public the dilemmas they face. Second, nothing terrible or irreversible is likely to happen if the Fed acts too slowly or too fast. Threats to our future prosperity are more likely to come from fiscal gridlock. Monetary policy decisions can be politically unpopular, and the creators of the Federal Reserve were wise to insulate those decisions from political pressures. Injecting another group into the mix to second guess monetary policy decisions would undermine an independent agency which is working hard to do the job Congress created it to do.

Key Measures Show Low Inflation in June --The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.6% annualized rate) in June. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.6% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.9% annualized rate) in June. The CPI less food and energy rose 0.2% (2.2% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for June here. Motor fuel was up sharply again in June.

Cleveland Fed’s Median CPI Shows Steady Rate of Inflation - The Federal Reserve Bank of Cleveland said Friday that underlying inflation is most likely stronger than more traditional price indexes indicate. The Labor Department said Friday its consumer price index rose 0.1% in June from a year earlier, the first annual increase since December. Later in the day, the Cleveland Fed said its Median CPI index rose 2.3% over the same period. The Median CPI is one of a small class of alternative inflation gauges that aim to provide an alternative read on price movements in the U.S. economy. The index tosses out the biggest price gainers and losers in a given month. Its creators say that gives a truer picture than the Labor Department’s CPI measure or its so-called core CPI, which excludes volatile energy and food prices, and was up 1.8% in the year ended in June. The June CPI was in part boosted by a highly unusual jump in egg prices. That’s exactly the sort of thing Fed officials would want to shrug off, and explain away. The Cleveland Fed’s Median CPI has been showing pretty steady annual gains for a while in the low 2% range. The Cleveland measure usually runs hotter than the Fed’s preferred measure, the Commerce Department’s personal consumption expenditures price index. This suggests inflation currently is running just a bit under, but close to the Fed’s 2% target. So it’s quite possible inflation is both higher and steadier than the Labor Department’s CPI indicates. Fed officials have said they won’t start raising short-term interest rates from near zero until they are reasonably confident inflation will rise toward 2% and most have indicated they are looking to move this year. The Cleveland Fed’s inflation measure could help boost their confidence.

Fed’s Fischer Says U.S. Inflation Still Too Low - Federal Reserve Vice Chairman Stanley Fischer said Friday U.S. inflation is still too weak and the central bank must ensure it moves up gradually to its 2% target. During a question-and-answer session at the U.S. Chamber of Commerce, Mr. Fischer said he never thought he would encounter this problem as a policy maker, since for much of the last few decades any worries about inflation tended to be about prices picking up too quickly. “Inflation is too low, we need to get it back up to 2%,” Mr. Fischer said in response to questions from Chamber of Commerce head Tom Donohue. “That’s why we’re keeping interest rates low, to encourage investment” and growth, he said. Mr. Fischer pushed back against Wall Street criticisms of financial regulation, saying the financial crisis proved the rules of the road were too lax and banks were far too reliant on debt, making them fragile and vulnerable to shocks. He said bank stress tests are a key innovation in bank supervision that has helped policy makers get a grip on a complex and highly interconnected financial system. Asked about the Fed’s emergency lending powers, which are currently under attack by some lawmakers on Capitol Hill, Mr. Fischer said the lender of last resort function is a basic tenet of central banking. “I don’t want to throw away things that could be very useful,” he said.

Fed's Beige Book: Economic Activity Expanded, Respondents "optimistic about future growth" -- Fed's Beige Book "Prepared at the Federal Reserve Bank of Atlanta and based on information collected before July 3, 2015."  All twelve Federal Reserve Districts indicated that economic activity expanded from mid-May through June. Activity in New York, Philadelphia, and Kansas City grew at a modest pace, while Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco saw moderate growth. Compared with the previous report, growth remained steady in Cleveland, and Boston reported conditions were stable or improving. Boston, Philadelphia, Atlanta, Kansas City, and Dallas reported that contacts were optimistic about future growth, while Chicago and San Francisco cited optimism coming from specific sectors. ... Manufacturing activity was uneven across Districts from mid-May through June. Philadelphia, Richmond, Atlanta, and Chicago reported that business activity increased. Boston reported mostly positive conditions, and St. Louis indicated that plans for manufacturing activity were positive since the previous report. In contrast, Cleveland, Kansas City, and Dallas reported a decline in activity. And on real estate:  Reports on residential and commercial real estate markets were positive. Home sales increased for most Districts, although Philadelphia and Dallas reported sales were mixed, and New York reported a decline in sales volume. Most Districts noted home price appreciation. Residential construction activity varied across most of the country. Commercial real estate activity increased at a modest pace for several Districts, while non-residential construction, especially multifamily, was strong in many Districts.

U.S. economy expanding, cheap oil both a boost and drag: Fed - – U.S. economic activity continued to expand from mid-May through June, with lower energy prices helping to boost consumer spending but remaining a drag on manufacturing, the Federal Reserve said on Wednesday. In its Beige Book report of anecdotal information on business activity collected from contacts nationwide, the U.S. central bank said most of its regional Fed banks described growth as either progressing at a “moderate” or “modest” pace. It said manufacturing activity was uneven across the country, with lower oil prices hurting the oil and gas industry, and a strong dollar dampening exports. “Reports continued to reflect decreases in oil and natural gas drilling activity in Cleveland, Minneapolis, Kansas City, and Dallas,” the Fed said. “Reports of capital spending declines continued in Cleveland, Atlanta, and Dallas, resulting in some labor cutbacks in Atlanta and Dallas.” It said heavy machinery manufacturers in Chicago noted weak demand from the oil and gas industry for mining equipment, while accounting firms in Dallas reported growing activity in mergers and acquisitions among oil- and gas-related firms. The report, compiled by the Atlanta Federal Reserve Bank with information collected before July 3, also noted that employment had increased or held steady in most sectors, though there were some reports of layoffs in manufacturing and energy industries. “Most districts cited only modest wage pressures aside from positions that required specialized skills or were in high-demand. Prices for inputs and finished goods remained steady since the previous report,” the Fed said.

The Effect of the Strong Dollar on U.S. Growth - NY Fed - The recent strengthening of the U.S. dollar has raised concerns about its impact on U.S. GDP growth. The U.S. dollar has appreciated around 12 percent since mid-2014, rising against almost all of our trading partners, with the largest gains against Japan, Mexico, Canada, and the euro area. There was far less movement against newly industrial Asian economies and hardly any change against China. In this blog, we ask how the strength of the dollar affects U.S. GDP growth. Although the dollar can impact the U.S. growth through a number of different channels, we focus on the direct impact through the U.S. trade balance. Our analysis shows that a 10 percent appreciation in one quarter shaves 0.5 percentage point off GDP growth over one year and an additional 0.2 percentage point in the following year if the strength of the dollar persists.

What Seasonally-Adjusted Economic Data Needs Most... non-adjustment. This is not a minor issue: there's not even an unadjusted U.S. GDP!  Seasonal adjustment is sometimes desirable, but sometimes not. Sometimes it's done poorly, sometimes it's better done with extra care and transparency by the researcher, etc. And the restrictions implied by economic theory generally hold across all frequencies, not just non-seasonal frequencies. There are many, many issues. (See, for example, the discussion in Hansen and Sargent (1993) and the references there.)  Sometimes seasonality is the center of attention, and hence of intrinsic interest, so access to unadjusted data is crucial. But even when seasonality is largely just a "nuisance," it's valuable to have access to unadjusted series, which are more fundamental. If I have an unadjusted series, I can adjust it myself, and then you and I can have a potentially valuable discussion as to how and why I adjusted it. In contrast, if I have only an adjusted series, in general I have no way to recover the underlying unadjusted series, so you and I have no choice but to rely completely on agencies' seasonal-adjustment procedures. Let me be clear: the agencies have made important seasonal-adjustment advances over many decades. I am grateful and I hope they continue. I'm simply saying that we should also have access to unadjusted data. So let me add to the seasonality research "to-do list" that I recently offered:    Any series provided in seasonally-adjusted form should also be provided in unadjusted form.

Is the U.S. Economy Set for a Second-Quarter Rebound? - A hat trick of growth forecasting measures suggests the economy picked up in the spring after its winter slump. Estimates of growth in U.S. gross domestic product from the Federal Reserve Bank of Atlanta, private research firm Macroeconomic Advisers and Barclays Capital all show the economy expanded in the second quarter at an annual rate above 2% after shrinking in the first three months of the year at a 0.2% pace. Together they bolster the broadly held view among economists and policy makers that the economy’s winter weakness reflected temporary factors such as bad weather and West Coast port closings. And if the economy is back on track, this increases the likelihood the Federal Reserve will raise short-term interest rates this year. These so-called GDP trackers aim to forecast growth in real time, being updated as new data comes in. Economic forecasting is never easy, but these tools seek to provide markets and other observers with the most up-to-date views possible. The Atlanta Fed GDPNow tracker has become very closely watched since it did a great job of pegging first-quarter growth. The measure currently estimates output rose at a 2.3% annual rate in the second quarter. That’s roughly in line with what most economists believe is the economy’s long-term trend. Macroeconomic Advisers’ view is a bit rosier. The firm said Friday GDP rose at a 2.8% pace in the April-through-June period amid signs of an inventory buildup during the quarter. The company’s economists expect the same gain in the third quarter as well. Meanwhile, Barclays Capital’s tracker shows a genuinely hot second quarter. The bank on Friday boosted its growth estimate to 3.7% from 3.5%. As with Macroeconomic Advisers, inventories drove the upgrade.

White House Cuts Growth Forecast - The White House said it sees U.S. growth rising by just 2% this year before rebounding to 2.9% in 2016—down from its earlier forecast of 3% growth for both 2015 and 2016 released in February—after the economy stalled during the first quarter. The new estimate came Tuesday in the White House budget office's "Mid-Session Review," which updates the economic and budget projections it made at the beginning of the year. The new growth forecast largely reflects the current thinking among private economists. The economy contracted at a 0.2% seasonally adjusted annual rate in the first quarter. The White House forecasts for gross domestic product, the broadest measure of goods and services produced across the economy, estimate the change in the fourth quarter from the prior-year period. At the same time, higher federal revenues and lower-than-expected government spending has helped to trim the deficit. The White House estimates that the annual budget deficit will fall to $455 billion this year, down 22% from its estimate of $583 billion in February. The White House also trimmed its short-term estimates for inflation and unemployment. It now expects the consumer- price index to post an annual average increase of just 0.2% this year, down from its earlier forecast of a 1.4% gain. It sees the unemployment rate falling to 5.3% this year and 4.9% next year, down from forecasts of 5.4% and 5.1%, respectively, published in February.

White House Cuts 2015 GDP Outlook By 33% -- Despite President Obama's hubris over the 'recovery', his crowing about the jobs record, and his insistence that while "there's more to be done," everything is awesome, The White House just took the meat-cleaver to its US economic growth forecasts...cutting 2015 growth from 3% to 2%. That was not all though as their forecasts see no recession until at least 2025, unemployment under 5.0% for at least the next decade, stable inflation for 10 years, and last but not least - a 3-month T-Bill rate of over 3% within the next few years. So growth is going to drop... but there'll be no rise in unemployment, rates will surge but there will be no inflation outbreak, and trend growth now appears to be just 2.3%...As The Wall Street Journal reports,The White House said it sees U.S. growth rising by just 2% this year before rebounding to 2.9% in 2016 - down from its earlier forecast of 3% growth for both 2015 and 2016 released in February - after the economy stalled during the first quarter.The new estimate came Tuesday in the W hite House budget office’s “Mid-Session Review,” which updates the economic and budget projections it made at the beginning of the year. The new growth forecast largely reflects the current thinking among private economists.

Add Treasury Market Volatility To List of Known Unknowns - Financial regulators are putting out a report Monday about unusual behavior in the $13 trillion U.S. Treasury bond market. As my colleague Katy Burne explains in a WSJ story today, trading in the market has grown thin and prone to unpredictable lurches in bond yields. It has regulators worried, because it could lead to volatility that hurts the economy and markets when the Fed starts raising interest rates.  Treasury market gyrations on October 15 have gotten a great deal of attention and will be the focus of the report. But as Fed Governor Lael Brainard noted in a recent speech, it wasn’t an isolated event. Late on March 18, the day of a Fed policy meeting, the U.S. dollar depreciated against the euro by 1.75% in less than three minutes, a large drop in a short interval. A few weeks later, German bunds yields swung wildly at a time of little market news. And before all that there was the “taper tantrum” of 2013 when U.S. Treasury yields shot up as the Fed considered ending its bond-buying program. The regulators themselves might be a cause of the problem. New rules on capital and liquidity for banks have made them reluctant to hold much bond inventory and play aggressively as middlemen in the market, making it less liquid and harder to clear very big trades by investors. So will the report shoulder the blame for this new market risk? Don’t count on it. “Reductions in broker-dealer inventories occurred prior to the passage of the Dodd-Frank Act, suggesting that factors other than regulation may also be contributing,” Ms. Brainard said.Instead, they seem likely to file this under the category of what former Defense Secretary Donald Rumsfeld once called “known unknowns,” problems they know are lurking, but don’t know how to explain, fix or predict.

The Shrinking Deficit -- From the WSJ: U.S. Annual Budget Deficit Remains Near 7-Year Low in June The U.S. reported a $52 billion surplus in June, a month in which the government in recent decades has typically generated a surplus on account of corporate and individual taxes collected at month’s end.  The monthly surplus brought the budget deficit over the past 12 months to $431 billion, down nearly 20% from a year earlier.... Meanwhile, Congress has yet to raise the federal debt limit. The Treasury has been using emergency measures since mid-March to avoid breaching the ceiling. The Treasury hasn’t said how long it might be able to do that, but budget analysts have said the emergency measures could last until November or December.  The most recent CBO projection was for the fiscal 2015 budget deficit to be 2.7% of GDP. Right now it looks like fiscal 2015 will be closer to 2.4% (a significant change).

Needed: More Government, More Government Debt, Less Worry - DeLong - As I see it, there are three major medium-run questions that then remain, even further confining my scope to the North Atlantic alone, and to the major sovereigns of the North Atlantic. (Extending focus to emerging markets, to the links between the North Atlantic and the res of the world, and to Japan would raise additional important questions, which I will also drop on the floor.) These three remaining medium-run questions are:

  • * What is the proper size of the 21st-century public sector?
  • * What is the proper level of the 21st-century public debt for growth and prosperity?
  • * What are the systemic risks caused by government debt, and what adjustment to the proper level of 21st-century public debt is advisable because of systemic risk considerations?

To me at least, the answer to the first question–what is the proper size of the 21st-century public sector?–appears very clear. The optimal size of the 21st-century public sector will be significantly larger than the optimal size of the 20th-century public sector. Changes in technology and social organization are moving us away from a “Smithian” economy, one in which the presumption is that the free market or the Pigovian-adjusted market does well, to one that requires more economic activity to be regulated by differently-tuned social and economic arrangements (see DeLong and Froomkin (2000)). One such is the government. Thus there should be more public sector and less private sector in the 21st-century than there was in the 20th.

Year-End Budget Fight Is Taking Shape - --The budget fight shaping up in Congress looks increasingly likely to simmer until a face-off at the end of the year forces a fiscal reckoning--or a fiscal wreck. The GOP-controlled Congress must take action by October to avoid a shutdown when funding expires. But with Democrats and Republicans at an impasse over spending levels, lawmakers have suggested they may end up passing a three- month patch to keep the government running through year-end. That would set up another December scramble on top of the usual renewals of expiring tax breaks and confirming of nominees. "We never do anything early," said Rep. Tom Rooney (R., Fla.) of the House Appropriations Committee. "It's always wait until the last second." Two thorny issues, the debt ceiling and highway funding, could require congressional action before year-end. And party leaders will have an added incentive to wrap up any contentious issues before 2016 campaigns go into full swing. GOP leaders' biggest land mine is the federal government borrowing limit, known as the debt ceiling. Technically, the limit had been suspended until this past March, but the Treasury Department can deploy "extraordinary measures," such as halting certain pension investments, that enable continued borrowing. Analysts had expected Treasury to exhaust those emergency moves in October or November, compelling congressional action, but they are projecting a slightly longer time frame, potentially November or December, thanks to higher-than-expected tax revenue. While Congress could consider spending bills and the debt ceiling separately

House Republicans Introduce Temporary Highway Funding Bill -- Yesterday we wrote about a proposal from Representative Tom Rice (R-SC) that would raise the gas tax by 10 cents and adjust it for inflation going forward in order to close Highway Trust Fund’s ongoing deficits. The plan would also not raise taxes on net by offering a $133 per-person income tax credit. Although it is a reasonable way to fix the Trust Fund’s shortfall, it faces political difficulties. The House Republicans have introduced another plan, but a more temporary one. This proposal would raise $8 billion in additional revenue by extending the TSA fee for airline passengers and by changing a few rules related to the Estate tax. This proposal would keep the Highway Trust Fund from depleting its reserves on July 31st, but would only provide temporary relief. If this passes, the Highway Trust Fund would still deplete its reserves next year absent any intervention from Congress.Ways and Means Chairman Paul Ryan (R-WI) stated that this proposal is meant to be temporary to provide lawmakers time to devise a long-term solution for the Highway Trust Fund. When lawmakers start looking at a long-term solution for the Highway Trust Fund, they should avoid considering unsound tax policy such as taxing multinational corporations’ offshore earnings to fund the Highway Trust Fund. Instead, they should pursue permanent policy that conforms to the benefit principle of taxation on which the Trust Fund is based. This principle states that the taxes one pays to the government should be connected to the benefits one receives. This principle is seen as an equitable way to finance government projects—in this case, roads and infrastructure. One option is to increase the gas tax, adjust it to inflation, and offset that increase by reducing another tax by the same amount of revenue. There are good policy reasons to raise more revenue from the gas tax in exchange for lowering the revenue received from other taxes.

Congress, America Doesn't Need More Highway Spending - Congested highways are a fact of life in most cities. Politicians in Washington agree that if we want to improve our ground transportation system, we need to spend more on infrastructure. They seem to think we can build our way to free flowing urban highways. Much of the debate has centered on how to finance the additional spending. The U.S. Chamber of Commerce and the American Trucking Association support raising the federal gasoline tax. Senators Rob Portman (R-Ohio) and Chuck Schumer (D-N.Y.) have suggested using a portion of corporate tax revenues to fund highway construction. Raising the federal gasoline tax or using corporate tax revenues will not solve our highway congestion problems. Given that most highways in the United States are toll free, overuse is to be expected. The only way we can determine whether or not we need to build more highways is to charge drivers who travel during peak hours. These charges or prices reflect the value drivers place on using the highway. These pricing signals can then be used to determine whether it makes economic sense to build more highway capacity. When the value drivers place on using a highway exceeds the cost of additional lanes, more lanes should be built. Although current federal law prohibits charging tolls on existing interstates, states may apply for permission to charge tolls on new lanes. This has occurred on a limited basis in Southern California. Variable tolls have been used outside the United States to successfully reduce congested highways. Before we spend more on highways, we need to change how we price highways.

What happens when policy is made by corporations? Your privacy is seen as a barrier to economic growth -- With all eyes on Greece, the European parliament has quietly passed a non-binding resolution on the Transatlantic Trade and Investment Partnership (TTIP), the controversial trade liberalisation agreement between the United States and Europe. Ironically, it did so a few hours after lecturing Alexis Tsipras, the Greek leader, about the virtues of European solidarity and justice. If enacted, TTIP, along with two other treaties currently under negotiation– the Trade in Services Agreement (TISA) and the Trans-Pacific Partnership agreement (TPP) – will considerably limit the ability of governments to rein in the activities of corporations; all three treaties have predictably triggered much resistance. The European parliament’s resolution seeks to eliminate the main point of contention between the US and Europe. While many Europeans object to the very idea of creating an international tribunal, where corporations can sue governments for passing business-unfriendly laws, the European parliament has proposed to turn this tribunal into a public European institution. Some such institutions do have teeth – consider the recent “right to be forgotten” judgment from the European court of justice – but this can’t be taken for granted. This surely won’t be the end of opposition to the treaties, though. One overlooked aspect of the emerging legal architecture that they enact is that, barring a Greece-like rebellion from the citizens, Europe will eventually sacrifice its strong and much-cherished commitment to data protection. This protectionist stance – aimed, above all, at protecting citizens from excessive corporate and state intrusion – is increasingly at odds with the “grab everything” mentality of contemporary capitalism.

Regulatory Rollback Is Wrong for Financial Markets - WSJ - Antonio Weiss - For months everyone in financial markets has been talking about liquidity. Some say regulation has killed it, and the answer is to roll back financial reform. The reality is not so simple, and that prescription is dangerous. The marketplace is rapidly evolving. We must address future challenges without rekindling crises of the past. Are our financial markets liquid? Primary markets—where companies issue securities to start, operate and grow—are functioning exceptionally well. Through six years of economic expansion, companies have raised record amounts of capital. By some measures, many secondary markets are also operating well. However, market participants report difficulty in executing large orders across various asset classes. And there are concerns over whether the growing ownership of corporate bonds by mutual funds could overwhelm market capacity if there were a sudden wave of redemptions. Moreover, the “flash rally” last Oct. 15 in U.S. Treasurys, our deepest and most liquid market, saw yields drop dramatically and snap back within minutes, with no clear catalyst. At the Treasury Department, we have been undertaking a comprehensive review of market structure and liquidity, consulting with a wide array of policy makers, market participants and academics. While we may come to the issue with different perspectives, we share a goal of well-functioning markets that promote stable economic growth. And everyone agrees that the marketplace is undergoing fundamental changes that need to be closely monitored and better understood.

Yellen Puts Bond Market on Notice 2015 Rate Increase Is Looming -- Janet Yellen is reminding the bond market that 2015 will include at least one interest-rate increase.  After Treasuries posted a four-day rally through July 8 on refuge demand linked to unsolved Greek bailout talks and plunging Chinese stocks, U.S. debt reversed direction. The Fed chair’s remarks then helped extend the biggest two-day rout since 2013, along with improved chances of a Greek solution and a rebound in China’s equities, which cooled concern of a meltdown for the world’s second largest economy.  Yellen said she sees receding headwinds for the U.S. economy, citing reduced influence from the strong dollar and lower oil prices. In selecting the time for the first rate increase since 2006, Yellen said policy makers will watch economic indicators, such as June retail sales, which are forecast to have increased for the fifth time in six months. The 30-year bond yield rose as much as 23 basis points during the last two days of the week, the most in two years.  The Bloomberg U.S. Treasury Bond Index 10+ Year, which measures government securities with maturities of 10 years or longer, has lost 4.3 percent this year. Hedge-fund managers and other large speculators increased net positions that profit from declines in 10-year note futures as of July 7, according to U.S. Commodity Futures Trading Commission data released Friday  “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,” Yellen saidFriday in her first public remarks since the June meeting of the Federal Open Market Committee.

Big Win for CFPB on Debt Collection --Yesterday, Judge Amy Totenberg of the Northern District of Georgia issued a very cogent 70-page opinion in the case of the CFPB v. Frederick Hanna & Associates, a large collection law firm with offices in Georgia, Florida, and South Carolina. The opinion denies Hanna's motion to dismiss in its entirety, and almost completely agrees with the CFPB's legal theory. In doing so, the opinion deals a serious blow to the collection law firm business model. A brief recap of the case if you haven't been following. A year ago, the CFPB filed suit against the Hanna law firm essentially attacking the big collection law firm business model. Among other things, the CFPB alleged that the firm operated "less like a law firm than a factory" and that attorneys were not "meaningfully involved" in the collection lawsuits they filed. As an example, the CFPB alleged that one attorney in the Hanna firm signed about 138,000 lawsuits between 2009-10. That's 189 lawsuits per day, 7 days a week, 52 weeks a year. The second CFPB claim was that in filing most of its lawsuits on behalf of debt buyers, the law firm "knew or should have known that many of the[] affidavits [they filed] were executed by persons who lacked personal knowledge of the facts." The Bureau sued under both the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA) for what it alleges were false or misleading and unfair acts and practices.

JPMorgan reaches $388 million settlement in mortgage securities case -  (Reuters) - JPMorgan Chase & Co (JPM.N) agreed to pay $388 million to settle a suit by investors claiming that the largest U.S. bank had misled them about the safety of $10 billion worth of residential mortgage-backed securities it sold before the financial crisis. The lawsuit, brought by Fort Worth Employees' Retirement Fund and other investors in offerings made before the 2008 financial crisis, accused JPMorgan of misleading them about the underwriting, appraisals and credit quality of the home loans underlying the certificates. The lawsuit said that after Lehman Brothers Holdings Inc failed, the certificates were worth at most 62 cents on the dollar. JPMorgan agreed to a $13 billion settlement with the Justice Department in 2013 over allegations that the bank had misled investors in mortgage-backed securities about the soundness and risks of the investments that helped bring on the subprime-mortgage crisis of 2008. Throughout the litigation process, JPMorgan has said that the poor performance of the certificates was not due to the quality of the loans, but was caused by the collapse of the overall economy. The $388 million settlement was disclosed in a court filing on Friday. It is subject to approval by a judge.

Bank Of America, Wells Fargo Top List Of Most Complained About Mortgage Issuers – Consumerist: For the past four years, the Consumer Financial Protection Bureau’s Consumer Complaint Database has seen its fair share of consumer issues related to mortgages. In fact, complaints regarding loan modification, collection, foreclosure, loan servicing, payments and escrow accounts continue to be one of the biggest financial thorns in consumers’ sides. And the worst offender? Bank of America. That’s according to a new report [PDF] from the U.S. PIRG Education Fund, which examined more than 138,000 mortgage-related complaints in the CFPB’s public complaint database. The report – the sixth in a series reviewing complaints made to the CFPB – looked at mortgage issues that occur when consumers are unable to pay, encounter difficulty making payments, applying for the loan, signing the agreement, receiving a credit offer and others. According to the report, the vast majority of mortgage complaints – about 85% – fall into two categories: problems when consumers are unable to pay (55%) and problems making payments (30%). “In particular, consumers still complain about delays and ambiguity in the review of their modification applications,” the report states. “Some consumers expressed concerns about the decimation requests they receive and argue that they were not provided a reasonable date by which the required documents had to be returned but instead were instructed to return the documents “immediately.”

The Department of Housing is Wall Street’s Latest Clean-Up Crew – Alexis Goldstein - What’s a government agency to do when a major source of profits for two big banks is at risk? Why, just try and make the problem go away for them, of course!  Mortgages are still big business to the nation’s biggest banks. And most banks rely on the government to help in case things go wrong, through insurance that reimburses banks if the home is foreclosed on.  The government form banks must fill out in order to get this insurance used to have a checkbox on it, where banks certify they haven’t been convicted of a crime for the last three years. So, right before six major Wall Street banks pled guilty to FX rigging in May, the government agency in charge of this form, the Department of Housing and Urban Development (HUD)…just changed the form!Alan Pyke reports for Think Progress: Five days after HUD proposed dropping the provision, news broke that six different gigantic Wall Street companies that had conspired to rig foreign currency exchange markets were pleading guilty to criminal fraud charges. If HUD’s proposed changes go through, all six firms would suddenly regain unfettered access to taxpayer-backed mortgage insurance. Two of them — JP Morgan and Citigroup — currently hold a combined $2 billion in mortgage loans insured by the Federal Housing Administration. Luckily, three lawmakers noticed the change: Rep Maxine Waters and Senators Sherrod Brown and Elizabeth Warren, and wrote a letter calling out HUD for trying to sneak this change through, and erase any consequences for the banks’ criminal guilty plea.

 Fed Officials Finally See U.S. Housing Sector on the Upswing - For the first time in a while, Federal Reserve policy makers are feeling better about the U.S. housing market.“Signs of stronger housing activity were encouraging,” said minutes of the Fed’s June 16-17 policy meeting.  The central bank signaled a shift in its view of the housing market three weeks ago in its postmeeting policy statement, replacing a long-standing reference to a “slow” recovery with a mention that “the housing sector has shown some improvement.”The change followed a string of solid readings in recent months on U.S. home sales and residential construction. The minutes, released Wednesday, still offered a somewhat cautious assessment of recent data. “A number of participants noted that housing starts and permits rose considerably in recent months, and indicators of sales activity turned more positive,” they said. “Nonetheless, home construction was still below the trend that would appear consistent with population growth, sales remained at low levels, and credit availability was still relatively tight.” The Fed’s view of the housing market has remained more or less downbeat since mid-2013, when a jump in mortgage rates threw the sector off-balance. In the June 2013 policy statement, the Fed confidently said the housing market “has strengthened further.” But that July, it added a reference to rising mortgage rates, and by October it saw a slowdown in progress. From March 2014 to April 2015, it said in 10 consecutive policy statements that the recovery either “remained slow” or “remains slow.”

CoreLogic: "Foreclosure Rate of 1.3 Percent is Back to December 2007 Levels" == From CoreLogic: National Overview through May 2015 A CoreLogic analysis shows 41,000 foreclosures were completed in May 2015, a 19.2 percent year-over-year decline from 51,000 in May 2014. By comparison, before the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006. ...Approximately 491,000 homes in the United States were in some stage of foreclosure as of May 2015, compared to 676,000 in May 2014, a decrease of 27.4 percent. This was the 43rd consecutive month with a year-over-year decline. As of May 2015, the foreclosure inventory represented 1.3 percent of all homes with a mortgage, compared to 1.7 percent in May 2014.

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in June --Economist Tom Lawler sent me a preliminary table below of short sales, foreclosures and cash buyers for a few selected cities in June. On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Baltimore is up because of an increase in foreclosures). Short sales are down in all of these areas. The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline. As Lawler noted before: The Baltimore Metro area is included in the overall Mid-Atlantic region (covered by MRIS). Baltimore is also shown separately because a large portion of the YOY increase in the foreclosure share of home sales in the Mid-Atlantic region was attributable to the significant increase in foreclosure sales in the Baltimore Metro area.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Index up 17% YoY - Note: Results for holiday weeks - and the following week - can be very volatile.  From the MBA: Refi Applications Up, Purchase Applications Down in Latest MBA Weekly Survey Mortgage applications decreased 1.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 10, 2015. The prior week’s results included an adjustment for the July 4th holiday. ...The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 8 percent from one week earlier. The unadjusted Purchase Index increased 3 percent compared with the previous week and was 17 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) remained unchanged from 4.23 percent, with points increasing to 0.39 from 0.37 (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 17% higher than a year ago.

Mortgage News Daily: Mortgage Rates Near July Lows --From Matthew Graham at Mortgage News Daily: Mortgage Rates Slowly Approach July Lows Mortgage rates continued the recent trend of very small improvements today. Most lenders are essentially unchanged, and while a few rate sheets were higher than yesterday's, they were the exception. The average improvement was so small that it would have no effect on the contract rate in most cases. That means closing costs would be just slightly lower for the same rates quoted yesterday. While some of the most aggressive lenders are back to quoting conventional 30yr fixed rates of 4.0%, most remain at 4.125%. ... Here is a table from Mortgage News Daily: Home Loan Rates View More Refinance Rates

Zillow Forecast: Expect Case-Shiller National House Price Index up 4.0% year-over-year change in May --The Case-Shiller house price indexes for April were released two weeks ago. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close. From Zillow: Case-Shiller Expected to Continue Recent Leveling-Off Trend in May The April S&P/Case-Shiller (SPCS) data published [2 weeks ago] showed home prices continuing to rise slightly less than 5 percent annually for both the 10- and 20-city indices, and slightly more than 4 percent annually for the national index. April marks the eighth consecutive month in which the national home price index has appreciated at a less than 5 percent annual appreciation rate (seasonally adjusted). In April, the 10-city index appreciated at an annual rate of 4.6 percent, compared to 4.9 percent for the 20-City Index (SA). The non-seasonally adjusted (NSA) 10-City Index was up 1 percent month-over-month, while the 20-City index rose 1.1 percent (NSA) from March to April. We expect the change from April to May to show increases of more than 1 percent (NSA) for both the 10- and 20-city indices. All Case-Shiller forecasts are shown in the table below. ... Officially, the SPCS Composite Home Price Indices for May will not be released until Tuesday, July 28. So the year-over-year change in for May Case-Shiller National index will be about the same as in the April report.

Housing Starts increased to 1.174 Million Annual Rate in June --From the Census Bureau: Permits, Starts and Completions  Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,174,000. This is 9.8 percent above the revised May estimate of 1,069,000 and is 26.6 percent above the June 2014 rate of 927,000.Single-family housing starts in June were at a rate of 685,000; this is 0.9 percent below the revised May figure of 691,000. The June rate for units in buildings with five units or more was 476,000.Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,343,000. This is 7.4 percent above the revised May rate of 1,250,000 and is 30.0 percent above the June 2014 estimate of 1,033,000. Single-family authorizations in June were at a rate of 687,000; this is 0.9 percent above the revised May figure of 681,000. Authorizations of units in buildings with five units or more were at a rate of 621,000 in June.  The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) increased in June. Multi-family starts are up sharply year-over-year. Single-family starts (blue) decreased in June (because May was revised up) and are up about 14.7% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), This was above expectations of 1.125 million starts in June. And, with the upward revisions to prior months, and another surge in permits, this was another solid report.

June 2015 Residential Building Sector Shows Significant Strength: Residential building data continues to show relative strength in permits and completions. The rolling averages are the best metric to view this series - and the rolling averages continue to accelerate. This data was above expectations. Be careful in looking at this data set with a microscope as the potential error ranges and backward revisions are significant. Using rolling averages likely is the best way to view this series - and one gets the sense this month that the data has returned to the range we have seen over the last 3 years (after several months of nasty data). The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is 40.9% this month. Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) show that construction completions are lower than permits this month for the sixth month in a row. Econintersect Analysis:

  • Building permits growth accelerated 22.4% month-over-month, and is up 40.8% year-over-year.
  • Single family building permits accelerated 11.4% year-over-year - so permit growth jump is from multi-family.
  • Construction completions accelerated 6.6% month-over-month, up 23.1% year-over-year.

US Census Headlines:

  • building permits up 7.4% month-over-month, up 30.0% year-over-year
  • construction completions down 6.7% month-over-month, up 22.0% year-over-year.

Housing Starts Jump 26.6%, Building Permits 30% Year-Over-Year In June - Groundbreakings on new homes surged 26.6% and permits to build new homes rose 30% in June compared to one year ago, the U.S. Commerce Department said Friday. Housing starts (groundbreakings) and permits each reached eight-year highs, with both metrics rising on the strength of multi-family housing.  Housing starts stood at a seasonally adjusted, annual rate of 1.174 million in June. That’s 9.8% higher than the revised May estimate of 1.069 million, and significantly up from June 2014′s rate of 927,000. Single-family housing starts in June were at a (seasonally adjusted, annual) rate of 685,000, down 0.9% from May’s revised figure of 691,000. Starts on buildings with five or more units shot up by 28.6% in June, to a (seasonally adjusted, annual) rate of 476,000. Permitting for June reached a (seasonally adjusted, annual) rate of 1.343 million, the highest level for the nation since July 2007, when the (seasonally adjusted, annual) pace stood at 1.361 million. June permitting was 30% higher than a year earlier, when the estimate was 1.033 million. The June level was 7.4% higher than May’s 1.25 million. As with housing starts, much of the increase in permitting came via multi-family projects: permits for buildings with five or more units hit 621,000 in June, up 16% compared to May, while permits for single-family homes rose just 0.9% at 687,000 in June compared to May’s 681,000. Friday’s groundbreaking numbers fell within the range of expectations of economists surveyed by Bloomberg ahead of the release; permitting numbers surpassed expectations. Though Friday’s numbers point to a major increase in multi-family housing, builders are still feeling good about the market for newly constructed, single-family homes. Builder confidence in this sector hit a level of 60 in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index. A reading of 50 or higher means that more builders rate conditions are good than poor; the measure has now hit that mark for just over a year. June’s reading was also revised up one point to a level of 60. The market has not seen a level that high since November 2005.

Housing Starts & Permits In June Point To A Summer Rebound - Today’s report on residential construction for June suggests that the housing market is bouncing back after a rough winter. Housing starts totaled 1.174 million units last month (seasonally adjusted annual rate)—close to a post-recession high. Meanwhile, newly issued building permits jumped to an eight-year high—a sign that construction activity will remain strong in the months ahead. Not surprisingly, home builders are upbeat these days. Industry sentiment in July rose to just shy of a ten-year high, according to yesterday’s update from the National Association of Home Builders (NAHB). In short, the housing sector is on track to provide additional support to the economy for the foreseeable future.The bullish change in tone is quite clear when we look at year-over-year percentage changes for starts and permits. Indeed, permits–a leading indicator for construction activity–jumped 30% last month vs. the year-earlier level, which marks the strongest advance in over two years. Building activity proper isn’t far behind. New starts in July climbed nearly 27% in annual terms–the most in more than a year. An increase in housing activity comes at an opportune time. Although the labor market has been posting solid gains in payrolls lately, manufacturing and retail sales have been weak. But if housing activity is strengthening, which seems to be the case, the upbeat trend will provide a timely boost to the US macro trend.

Comments on June Housing Starts -- Total housing starts in June were above expectations, and, including the upward revisions to April and May, starts were strong. There was also a significant increase for permits again in June (mostly for the volatile multi-family sector). This first graph shows the month to month comparison between 2014 (blue) and 2015 (red). Even with weak housing starts in February and March, total starts are still running 10.9% ahead of 2014 through June. Single family starts are running 9.1% ahead of 2014 through June. Starts for 5+ units are up 14.9% for the first six months compared to last year. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up

Strong US groundbreaking, building permits boost housing outlook: U.S. housing starts rebounded strongly in June and building permits surged to a near eight-year high, pointing to a rapidly strengthening housing market. Groundbreaking increased 9.8 percent to a seasonally adjusted annual pace of 1.17 million units, the Commerce Department said on Friday.  May's starts were revised up to a 1.07 million-unit rate from the previously reported 1.04 million-unit pace. Economists polled by Reuters had forecast housing starts increasing to a 1.11 million-unit pace last month. Rising household formation as a tightening labor market encourages young adults to leave parental homes is boosting demand for housing, especially apartments.

Rental Builders Go Berserk: Multi-Family Permits Soar Most Since 1990 -- Once upon a time the US housing market was mostly about single-family, residential units. Those days are long gone now that the average American can neither afford to save enough money for the down payment nor find a bank willing to lend a mortgage to an Ivy-league educated Millennial whose only job prospect is McDonalds. Instead, in the New Paranormal, it is all about renting.  Moments ago the Census Bureau released the housing starts and permits data for June. And, sure enough, when it comes to single-family starts and permits, there was barely much of a change: in June single-family starts (blue line) declined from 691K to 685K, the lowest level since March. However it was the Multi-family, aka rental housing (red line), where the action has never rarely been more frantic as can be seen on the chart below. But this was nothing compared to what is just over the horizon, aka in permits, where single-family against as barely notable, rising to 687K, or about half the pre-crisis peak. But, once again, it was multi-family units where all the action was as can be seen by the red line in the chart below.

NAHB: Builder Confidence at 60 in July, Highest Level Since November 2005 --The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 60 in July, unchanged from June (but June was revised up). Any number above 50 indicates that more builders view sales conditions as good than poor.From the NAHB: Builder Confidence Hits Highest Level Since November 2005 Builder confidence in the market for newly built, single-family homes in July hit a level of 60 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today while the June reading was revised upward one point to 60 as well. The last time the HMI reached this level was in November 2005.Two of the three HMI components posted gains in July. The component gauging current sales conditions rose one point to 66 and the index charting sales expectations in the next six months increased two points to 71. Meanwhile, the component measuring buyer traffic dropped a single point to 43. Looking at the three-month moving averages for regional HMI scores, the West and Northeast each rose three points to 60 and 47, respectively. The South and Midwest posted respective one-point gains to 61 and 55. This graph show the NAHB index since Jan 1985. This was above the consensus forecast of 59

CoStar: Commercial Real Estate prices increased in May -From CoStar: Commercial Property Price Indices Spring Forward In May The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—gained 1.4% and 1.7%, respectively, in the month of May 2015. The value-weighted U.S. Composite Index advanced 12.2% in the trailing 12 months ended May 2015, and now stands 12% above its prior peak, reflecting the strong recovery of larger, higher-value properties. The equal-weighted U.S. Composite Index began its recovery later in the cycle but has increased at a faster rate of 14.1% in the trailing 12 months ended May 2015 as smaller commercial properties continued to gain favor with investors. ..For the 12 months ended as of the second quarter of 2015, net absorption across the three major commercial property types — office, retail, and industrial — totaled 575.5 million square feet, a 39.3% increase over the 12-month period ended as of the second quarter of 2014, and the highest annual total on record since 2008. This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes. The value-weighted index declined 1.4% in May and is up 12.2% year-over-year. The equal-weighted index declined 1.7% in May and up 14.1% year-over-year.

Retail Sales decreased 0.3% in June -- On a monthly basis, retail sales were down 0.3% from May to June (seasonally adjusted), and sales were up 1.4% from June 2014. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $442.0 billion, a decrease of 0.3 percent from the previous month, but up 1.4 percent above June 2014. ... The April 2015 to May 2015 percent change was revised from +1.2 percent to +1.0 percent.  This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline decreased 0.4%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 3.5% on a YoY basis (1.4% for all retail sales). The decrease in June was below the consensus expectations of unchanged, and sales in April and May were revised down. A weak report.

A Surprisingly Weak Retail Sales Report For June -- Retail sales slumped in June, falling 0.3% vs. the previous month, the US Census Bureau reports. The decline was well below’s consensus forecast for a 0.3% rise. The disappointing report is a reminder that the economic rebound is having a tough time gaining traction after the first-quarter GDP decline. Nonetheless, a weak number on retail spending should be viewed in context with the stronger trend in the labor market. As long as private nonfarm payrolls are growing above the 200,000 mark, as they were in June, there’s enough forward macro momentum to push the jobless rate lower. That’s a reason to think that the latest monthly slide in retail spending is a temporary setback rather an early sign of trouble.   Keep in mind too that retail spending will likely track changes in disposable personal income, which continues to rise at a considerably faster rate: roughly 3.5% to 3.8% in nominal annual terms in recent months. As long as employment growth remains upbeat, it’s reasonable to assume that income growth will rise in the 3.5%-to-4.0% range for the near term.   In short, the stronger pace for income implies that the recent deceleration in headline retail sales to under 2% on a year-over-year basis may be due to pick up in the months ahead.

Retail Sales: Surprising Drop in June - The Census Bureau's Advance Retail Sales Report released this morning shows that seasonally adjusted sales in June were down 0.3% month-over-month and up 1.4% year-over-year. Core Retail Sales (ex Autos) came in at -0.1% MoM and 0.1% YoY. The forecasts were 0.2% for Headline Sales and 0.5% for Core Sales. Today's report shows a slight slow after last month's short-lived spring bounce in personal consumption. The chart below is a log-scale snapshot of retail sales since the early 1990s. The two exponential regressions through the data help us to evaluate the long-term trend of this key economic indicator. The year-over-year percent change provides another perspective on the historical trend. Here is the headline series. Here is the year-over-year version of Core Retail Sales. The next two charts illustrate retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places.

Retail Sales Unexpectedly Sink Below the Lowest Economist's Estimate; September Hike? Really?  --A month ago, following the Expected Retail Sales Bounce, I stated "A sales snapback was coming at some point. May was the month following months of disappoints."  The surge in spending did not continue.  Today's report not only revised last month's sales numbers lower, this month surprised if not shocked economists with negative numbers, below any forecast in the Bloomberg Consensus Estimate.Economists predicted a rise in sales of 0.3%. Actual sales came in at -0.3 percent, a half-percentage-point below the lowest estimate, and another wrong sign for the economists.  One month does not tell a story, but it may provide clues.   Let's dive into the Census report for additional details on Advance Retail Sales for June. If you are a Keynesian economist, that first column of numbers will look shockingly dismal.  If you are a normal human being with an ounce of common sense, you may come to the conclusion that spending money one does not have on junk one does not need is actually a good thing. That last chart shows the real driver for retail sales: subprime auto loans. When it goes, it's all over. Was this the month? Here is the same series year-over-year. Note the highlighted values at the start of the two recessions since the inception of this series in the early 1990s. For a better sense of the reduced volatility of the "Control" series, here is a YoY overlay with the headline retail sales. Bottom Line: June's unexpected slight slow may suggest the consumer economy will take a little bit longer to bounce back from its recent months stall.

Snow In The Summer Confirmed - Retail Sales Tumble Most Since February -- Following May's bounce in retail sales (thanks to a rise in gas prices), June's headline data printed a 0.3% plunge - the most since Feb 2015 - against expectations of a 0.3% rise. Retail Sales ex-Autos also fell MoM (down 0.1% against expectations of a 0.5% rise). This is exactly in line with our warnings last week that spending was likely to drop following a slide in credit and debit card spending as retail sales declined in autos; furniture; building materials; clothing; general merchandise; restaurants; online and miscellaneous. The control group data showed a mere 2.1% rise YoY - confirming recessionary signals from wholesale sales data. Last week we reported Bank of America's internal card data revealed that after rising for 3 consecutive months, retail spending ex autos just posted its first monthly drop, declining -0.1% from May. Based on BAC internal data, which tracks aggregate spending on credit and debit cards, retail sales ex-autos declined 0.1% mom in June on a seasonally adjusted basis. This follows a strong 0.8% gain in May. Moments ago the Dept of Commerce confirmed that this preview was absolutely correct...

Headline Retail Sales Bad In June 2015. Our View Is that the Data Is Not Terrible.: Retail sales declined according to US Census headline data and were significantly below expectations. Our view is that this month's data has improved the rolling averages. Consider that the headline data is not inflation adjusted and prices are currently deflating making the data better than it seems (but still not excellent). Overall the rolling averages are now marginally improving. Backward data revisions were downward making this month's data seem slightly better. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 2.2% month-over-month, and up 2.9% year-over-year.
  • unadjusted sales 3 month rolling year-over-year average growth accelerated 0.2% month-over-month to 1.6% year-over-year.
  • unadjusted sales (but inflation adjusted) up 4.2% year-over-year
  • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
  • in the seasonally adjusted data - there were few weak sectors.

U.S. Census Headlines:

  • seasonally adjusted sales down 0.3% month-over-month, up 1.4% year-over-year (last month was 2.7% year-over-year).

Hey, I didn’t like this AMs retail sales number either…This AM’s retail sales number offered a bit of a downside surprise, coming in at -0.3% in June against expectations of +0.3%. “Core” retail sales, which excludes a bunch of stuff and correlates with the big consumer spending part of GDP, fell slightly too, leading some GDP trackers to lower their estimates for Q2 GDP. EG, Moody’s lowered their GDP forecast from 3.5 to 3.1%, either of which would of course still be big bounce-backs from the anomalous -0.2% ding to Q1. So how worrisome is this? Not very but not none. First, you know my methods, Watson, especially with noisy, high-frequency data like monthly retail sales. If you take year-over-year changes, as in the figure below, you see a significant decline in the growth of total sales, but remember, this is a period when gas prices were dropping fast, and that also drives down the total rate. If you take gas purchases out of the picture, you see yearly sales growth a bit below where it’s been, but not much. Of course, with gas prices tanking as they did—they’ve since stabilized—I’d have expected sales to head up a bit (note that yr/yr inflation is tracking at about zero in the figure, a function of previously falling energy prices). Instead, savings rates have maybe ticked up a touch, though here too it depends on how much you squint at the data. Still, one thing you don’t see in these or other related data are households spending their gas dividends very freely. Even while consumer confidence has gone up some, this reluctance to spend savings from the pump may reflect concerns regarding the remaining weakness in the job market and the lack of raises.

The Big Four Economic Indicators: Weak June Real Retail Sales - Nominal Retail Sales in June fell -0.27%, and the two previous months were revised downward from 1.21% in May to 1.03% and from 0.24% to 0.03% in April. June Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, came in at -0.59% month-over-month. This was the fifth monthly decline over the past seven months. The chart below gives us a close look at the monthly data points in this series since the end of the last recession in mid-2009. The linear regression helps us identify variance from the trend. The early 2014 dip in sales was generally written off as a temporary result severe winter, and the return to trend sales growth gave credence to the explanation. The early 2015 dip triggered the same explanation, but the latest data and revisions puts this indicator below trend for the past seven months. The Generic Big Four The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009.

Michigan Consumer Sentiment: Down Slightly but Still Positive Outlook - The University of Michigan preliminary Consumer Sentiment for July came in at 93.3, a decrease from the 96.1 June final reading. had forecast 96.1 for the July preliminary. This is the eighth month above 90 since the 2003 to 2005 expansion. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumer confidence continued to meander sidewards with no indication of a potential break in the prevailing positive trend in sentiment. The small loss in early July reflected a slight rise in concerns about international developments which was partially offset by continued news of job gains. The July reading was the eighth month above 90.0, the best record since seventeen months were recorded from late 2003 to early 2005 during the last expansion. Consumption expenditures will remain the driving force in the economy, with the data indicating an expansion in consumption by 3% in 2015. [More....] See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

UMich Consumer Sentiment Drops, Misses By Most Since 2006 -- Since January's exuberant peak, UMich consumer sentiment has drifted lower. Expectations for July's preliminary data was 96.0 but the 93.3 print is the biggest miss since 2006. Both current and future "hope" conditions dropped markedly with details showing American less certain about retirement, less confident about income growth outpacing inflation, and businesses considerably less confident.

Consumer Price Index July 17, 2015: Consumer inflation, up an as-expected 0.3 percent in June, isn't soaring but, as Federal Reserve policy makers are predicting, underlying pressures are beginning to inch higher. The core also came in as expected at plus 0.2 percent which is up from 0.1 percent in May and with two-thirds of the gain tied to a 0.4 percent rise for owners' equivalent rent in another indication of rising demand in the housing sector. Looking at year-on-year rates, total consumer inflation is up 0.1 percent which doesn't like much at all but is the first positive reading of the year. The core is up 1.8 percent, on the rise from 1.7 percent in May and closer to the Fed's general 2 percent inflation target. The gain in the overall rate was driven higher by a 1.7 percent rise for energy within which gasoline rose 3.4 percent in the month. This is exactly what the Fed has been pointing to, that is easing downward pull from energy prices. Food rose 0.3 percent in the month with egg prices a concern, up 18.3 percent in the month. Other gains include airfares at plus 2.0 percent and tobacco at plus 0.8 percent. Pulling down the CPI was a record decline of 1.1 percent in hospital services that drove the medical care component to minus 0.2 percent in the month. Year-on-year, medical care is still on the high side compared to other prices, at plus 2.5 percent. Other readings on the negative side include apparel, down 0.1 percent in the month for a minus 1.8 percent year-on-year rate. But the key story in this report is the incremental rise in the core rate with the rise in owners' equivalent rent, the highest since way back in October 2006, a special concern. Today's report is line with expectations for a rate liftoff sometime later this year.

June 2015 CPI Annual Inflation Rate Is Now 0.1%: According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate rose from ZERO to 0.1%. The year-over-year core inflation (excludes energy and food) rate cycled up 0.1 to 1.8% (reversing last month's decline), and continues to be under the targets set by the Federal Reserve. As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator.Energy inflation was the major influences on this month's CPI. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 0.1 percent before seasonal adjustment. The seasonally adjusted all items increase was broad-based, with advances in the indexes for gasoline, shelter, and food all contributing. The energy index rose for the second straight month as the indexes for gasoline, electricity, and natural gas all increased. The food index posted its largest increase since September 2014, partly due to a sharp increase in the eggs index. The index for all items less food and energy rose 0.2 percent in June. In addition to the rise in the shelter index, the indexes for recreation, airline fares, personal care, tobacco, and new vehicles were among the indexes that increased in June. These advances more than offset declines in the indexes for medical care, household furnishings and operations, used cars and trucks, and apparel.  The all items index showed a 12-month increase for the first time since December, rising 0.1 percent for the 12 months ending June. Despite rising in May and June, the energy index has still declined 15.0 percent over the past year. However, the indexes for food and for all items less food and energy have both risen 1.8 percent over the past 12 months.

Getting to the Core of Goods and Services Prices - Atlanta Fed's macroblog -- In yesterday's macroblog post, I highlighted an aspect of a recent Wall Street Journal article that concerns how households perceive inflation. Today, I'm going back to the same well to comment on another aspect of that story, which correctly notes that service-sector prices are rising at a faster clip than the price of goods.  Of course, this isn't just a recent event. Core services prices have outpaced core goods prices over the past 50 years, save a few short-lived deviations. What's unusual about the current recovery, as the chart below shows, is how low services inflation has been.  In the nearly six years since the end of the 2007–09 recession, core services prices have risen at an annualized pace of 2.1 percent, a full percentage point below their average during the last expansion. Conversely, the annualized growth rate in core goods prices during the recovery has been 0.5 percent, compared to a decline of 0.6 percent during the last expansion (see the chart below). To see how broad-based the slowdown across core services prices has been relative to that of core goods prices, let's take a deeper dive into the components. The chart below compares the difference between a particular component's annualized growth rate during the current expansion and its growth rate during the previous expansion. A negative number here means that a component's price is growing more slowly now than it did prior to the recession. It's evident that the slowdown in core services prices is fairly broad-based (17 of 22 components are exhibiting disinflation relative to their growth rate over the previous expansion). For core goods components, that number is just five of 15 components. So, if we accept the premise of the WSJ article—that trends in services prices more closely reflect "unused domestic capacity"—then it's possible we could be farther away than we think.

Inflation: An X-Ray View of the Components - dshort - Advisor Perspectives: Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past six months. Also included are the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc. A conspicuous feature in the year-over-year table is the volatility in energy, significantly a result of gasoline prices, which is also reflected in Transportation. Here is the same table with month-over-month numbers (not seasonally adjusted). The nose-dive in energy costs is clearly illustrated, reflected here too in transportation.   The chart below shows Headline and Core CPI for urban consumers since 2007. Core CPI excludes the two most volatile components, food and energy. We've highlighted the 2% level that the Federal Reserve is targeting for inflation, although the Fed traditionally uses the Personal Consumption Expenditure (PCE) price index as their preferred inflation gauge.  Year-over-year Core CPI (the blue line) has been below 2% for 34 of the last 39 months. The more volatile Headline CPI has spent 35 of the past of the past 38 months under the 2% lower benchmark. Much of the volatility in the past few years has been the result of broad swings in gasoline prices (more on gasoline here). For a longer-term perspective, here is a column-style breakdown of the inflation categories showing the change since 2000.

U.S. Business Inventories Rise In Line With Estimates In May - Business inventories in the U.S. rose in line with economist estimates in the month of May, according to a report released by the Commerce Department on Tuesday. The report said business inventories rose by 0.3 percent in May after climbing by 0.4 percent in April. The continued increase matched the consensus estimate. The increase in business inventories primarily reflected higher wholesale inventories, which climbed by 0.8 percent in May following a 0.4 percent increase in April. Meanwhile, the Commerce Department said inventories at both manufacturers and retailers came in virtually unchanged. The report also said business sales climbed by 0.4 percent in May following a 0.5 percent increase in the previous month. Retail sales showed a substantial increase during the month, jumping by 1.1 percent in May after edging down by 0.1 percent in April. While wholesale sales also rose by 0.3 percent in May after soaring by 1.7 percent in April, manufacturing sales dipped by 0.1 percent after coming in unchanged in the previous month. The report said the total business inventories/sales ratio came in at 1.36 in May, unchanged from April but up from 1.30 in the same month a year ago.

May 2015 Business Inventories and Sales Continue to be Soft.: Econintersect's analysis of final business sales data (retail plus wholesale plus manufacturing) shows unadjusted sales declined compared to the previous month. Even with inflation adjustments, business sales is in contraction. The inventory-to-sales ratios remain at recessionary levels. Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 1.8% month-over-month, and down 4.3 % year-over-year
  • unadjusted sales (inflation adjusted) down 2.6% year-over-year
  • unadjusted sales three month rolling average compared to the rolling average 1 year ago decelerated 0.8% month-over-month, and is down 2.6% year-over-year.
  • unadjusted business inventories growth slowed 0.1% month-over-month (up 2.4% year-over-year with the three month rolling averages decelerating), and the inventory-to-sales ratio is 1.34 which is at recessionary levels (well above average for this month). However, these ratios may be distorting the real picture as inventory values may not be properly revalued for inflation.

US Census Headlines:

  • seasonally adjusted sales up 0.4% month-over-month, down 2.2 % year-over-year
  • seasonally adjusted inventories were up 0.3% month-over-month (up 2.4% year-over-year), inventory-to-sales ratios were up from 1.30 one year ago - and are now 1.36.
  • market expectations were for inventory growth of 0.1 % to 0.5 % (consensus 0.2%) versus the actual of +0.3%.

The way data is released, differences between the business releases pumped out by the U.S. Census Bureau are not easy to understand with a quick reading. The entire story does not come together until the Business Sales Report (this report) comes out. At this point, a coherent and complete business contribution to the economy can be understood.

May Business Inventories-to-Sales Ratio Remains Stubbornly In Recession Territory -- With a 0.3% rise MoM (as expected), Business Inventories grew for the 4th month in a row (but growth slowed in May from April). Sales rose slightly more MoM (+0.4%) but this left the crucial inventories-to-sales ratio deep in recession territory.  Highest level of inventories-to-sales since Lehman...Charts: Bloomberg

PPI-FD July 15, 2015: Producer prices showed slightly more pressure than expected, at plus 0.4 percent in June vs Econoday expectations for plus 0.3 percent. Ex-food and energy, producer prices rose 0.3 percent vs expectations for plus 0.1 percent with the core rate for this series, which excludes food, energy as well as services, also up 0.3 percent vs expectations for plus 0.1 percent. Showing pressure were electric power, pharmaceuticals and cigarettes. Gasoline and food, specifically eggs, contributed to the overall increase. The gains in this series will be welcome by Federal Reserve officials who are hoping inflation will move to its 2 percent year-on-year target. But there's a ways to go with the overall year-on-year rate far into the negative column at minus 0.7 percent and the ex-food and energy reading at only plus 0.8 percent with the preferred core that also excludes services at plus 0.7 percent.

June 2015 Producer Prices Year-over-Year Deflation Again Decreases: The Producer Price Index year-over-year deflation continued - but again was marginally less than last month. The intermediate processing continues to show a large deflation in the supply chain. The PPI represents inflation pressure (or lack thereof) that migrates into consumer price. The BLS reported that the headline Producer Price Index (PPI) finished goods prices (now called final demand prices) year-over-year inflation rate moved from -1.1% to -0.7%.  The producer price inflation breakdown: categorymonth-over-month changeyear-over-year change final demand goods+0.7% final demand services0.3% total final demand+0.4%-0.7% processed goods for intermediate demand+0.7%-6.3% unprocessed goods for intermediate demand+1.2%-21.7% services for intermediate demand+0.4%+1.6% In the following graph, one can see the relationship between the year-over-year change in crude good index and the finish goods index. When the crude goods growth falls under finish goods - it usually drags finished goods lower. Removing food and energy (core PPI) was originally done to remove the noise from the index, however the usefulness in the twenty-first century is questionable except in certain specific circumstance.  Econintersect has shown how pricing change moves from the PPI to the Consumer Price Index (CPI). This YoY change implies that the CPI, should continue to come in well below 1.0% YoY.

Producer Prices Rise Again Driven By Surge In Energy Costs -- If low oil pries are great for America "unequivocally," then the continued surge in Energy costs (+2.4% MoM in June) must be [fill in the blank]? PPI Final Demand rose 0.4% MoM - near the fatest pace in 3 years (beating expectations of a 0.2% rise) but fell 0.7% YoY. The huge gap between core and headline PPI continues to grow with PPI Ex Food and Energy rising 0.8% YoY, its first acceleration in 2015. PPI Final Demand rises MoM once again at near the fastest pace in 3 years. PPI Ex Food and Energy saw its YoY rise from the previous month for the first time this year... The index for final demand goods moved up 0.7 percent in June after rising 1.3 percent a month earlier. Almost 60 percent of the broad-based advance in June is attributable to prices for final demand energy, which climbed 2.4 percent. The indexes for final demand goods less foods and energy and for final demand foods increased 0.4 percent and 0.6 percent, respectively.  Thirty percent of the June advance in prices for final demand goods can be traced to the gasoline index, which rose 4.3 percent. Prices for chicken eggs, pharmaceutical preparations, residential electric power, residential natural gas, and cigarettes also moved higher. In contrast, the index for fresh and dry vegetables fell 6.0 percent. Prices for liquefied petroleum gas and electronic computers also decreased.

US wholesale chicken egg prices climb 84.5 percent June; overall inflation tame - The outbreak of avian flu caused the cost of eggs to nearly double last month for producers. Wholesale prices for chicken eggs jumped 84.5 percent in June, the Labor Department said Wednesday. The spike comes amid otherwise tame inflation across the rest of the economy. The producer price index, which measures the costs of goods and services before they reach consumers, increased 0.4 percent in June. Over the past 12 months, producer prices have actually fallen 0.7 percent due to lower oil and gasoline costs. Wholesale gas prices rose 4.3 percent last month but are down 30.3 percent from a year ago, keeping inflation firmly in check. A surprising amount of the increase in producer prices last month came from eggs, which make up an extremely small share of the broader index but have soared in price since April. "When they're rising at a 58,000 percent annualized rate, as they have the past two months, the impact is material," said Ted Wieseman, an analyst at Morgan Stanley who estimates that eggs alone account for nearly a fifth of the total 0.4 percent increase in producer prices last month. Wholesale chicken egg prices recorded the largest increase since the government began tracking the costs in 1937. More than 49 million chickens and turkeys died or were euthanized in 15 states this spring as the flu virus spread from the Pacific Northwest into Midwest farms. The loss of those birds has cut into the supply of eggs, provoking a shortage that should begin to cause higher egg prices at grocery stores, Wieseman said. Still, the producer price index showed that overall inflation remains mild.

Airlines Pocket a Record $38 Billion From Extra Fees - NBC News: When something works — and works well — you stick with it. That's the approach that airlines across the globe are taking, as a new report found ancillary fee revenue grew at a double-digit pace last year. In fact, despite grumblings from passengers about additional charges, revenue from checked bags, changed reservations and a host of other additional fees jumped nearly 21 percent to an all-time high of $38.1 billion, according the annual study by IdeaWorksCompany and CarTrawler. advertisement "This report shows ancillary fees have become a reliable source of revenue for airlines, and airlines know what they can do to increase it," said Jay Sorensen, president of IdeaWorks. Check out these 'evil' plane seats The growth in revenue from these fees is staggering. In 2007, for example, airlines collected just $2.45 billion in ancillary revenue. Other numbers showing the growth in airline fees include:

  • • Ancillary revenue per passenger among 63 airlines worldwide was $17.49, an 8.5 percent increase compared to 2013;
  • • Low-cost carriers collected more than $2.9 billion, an increase of 32.8 percent year over year;
  • • Ancillary revenue among major U.S. airlines jumped more than $2.6 billion, or 18.7 percent.

Among the largest airlines in the world, United collected the most in ancillary fees, topping $5.8 billion, according to IdeaWorks. It was followed by American/US Airways at $4.65 billion, and Delta with more than $3.2 billion.

Import and Export Price Year-over-Year Deflation Continues in June 2015, and Deflation Worse than Expectations.: Trade prices continue to deflate year-over-year - and deflation was worse than market expectations. Import Oil prices were up 0.7% month-over-month, but export agricultural prices fell 1.5%. with import prices down 0.1% month-over-month, down 10.0% year-over-year; and export prices down 0.2% month-over-month, down 5.7% year-over-year.. There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships.  According to the press release: All Imports: Overall import prices declined 0.1 percent in June, resuming a downward trend over the past year, after the index rose 1.2 percent in May. Prices for U.S imports also decreased over the past 12 months, falling 10.0 percent from June 2014 to June 2015. Overall import prices have not recorded a year-over-year advance since the index rose 0.9 percent for the year ended in July 2014. All Exports: The price index for U.S. exports declined 0.2 percent in June, after rising 0.6 percent the previous month, which was the largest advance since the index rose 0.9 percent in March 2014. Falling agricultural prices drove the June decline, although nonagricultural prices also decreased. Export prices declined 5.7 percent over the past year, and have not recorded a 12-month advance since the index rose 0.4 percent for the year ended in August 2014.

Rail Week Ending 11 July 2015: Back to Contraction: Week 27 of 2015 shows same week total rail traffic (from same week one year ago) contracted after expanding last week according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements - but weekly railcar counts continued in contraction. This analysis is looking for clues in the rail data to show the direction of economic activity - and is not necessarily looking for clues of profitability of the railroads. The weekly data is fairly noisy, and the best way to view it is to look at the rolling averages which are in contraction for the short term trends. The following chart is for railcar counts (not including intermodal). A summary of the data from the AAR: The Association of American Railroads (AAR) today reported U.S. rail traffic for the week ending July 11, 2015. For this week, total U.S. weekly rail traffic was 534,097 carloads and intermodal units, down 2.4 percent compared with the same week last year. Total carloads for the week ending July 11, 2015 were 271,494 carloads, down 6.6 percent compared with the same week in 2014, while U.S. weekly intermodal volume was 262,603 containers and trailers, up 2.4 percent compared to 2014. Three of the 10 carload commodity groups posted an increase compared with the same week in 2014. They included: grain, up 8.1 percent to 18,500 carloads; farm products, up 2.7 percent to 16,967 carloads; and miscellaneous carloads, up 0.5 percent to 8,235 carloads. Commodity groups that posted decreases compared with the same week in 2014 included: petroleum and petroleum products, down 15.9 percent to 12,882 carloads; coal, down 10.5 percent to 95,318 carloads; and nonmetallic minerals, down 8.3 percent to 36,760 carloads. For the first 27 weeks of 2015, U.S. railroads reported cumulative volume of 7,453,331 carloads, down 4 percent from the same point last year; and 7,122,647 intermodal units, up 2.6 percent from last year. Total combined U.S. traffic for the first 27 weeks of 2015 was 14,575,978 carloads and intermodal units, a decrease of 0.9 percent compared to last year.

June 2015 Industrial Production: Improved But Data Is Mixed - The headlines say seasonally adjusted Industrial Production (IP) improved but the manufacturing portion of this index was unchanged month-over-month. The internals are mixed with the headline improvement this month is attributable to utilities BUT upward backward revision the previous month makes the improvement this month stronger than it seems at first glance. Still, year-over-year growth is not strong.

  • Headline seasonally adjusted Industrial Production (IP) increased 0.3% month-over-month and up 1.5% year-over-year.
  • Econintersect's analysis using the unadjusted data is that IP growth decelerated 0.3% month-over-month, and is up 1.5% year-over-year.
  • The unadjusted year-over-year rate of growth decelerated 0.4% from last month using a three month rolling average, and is up 1.9% year-over-year.

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was unchanged this month (up 1.8% year-over-year), mining up 1.0% (down 0.8% year-over-year), and utilities were up 1.5% (up 4.3% year-over-year). Note that utilities are 9.8% of the industrial production index, whilst mining is 15.9%.

Industrial Production July 15, 2015: A plus 0.3 percent rise in June industrial production looks respectable but still overstates strength. The gain follows two prior months of sizable contraction, at minus 0.2 percent and minus 0.5 percent, and reflects a jump higher for utilities and for mining. Manufacturing, and the key component for the series, is unchanged for a second straight month -- truly dead in the water at a year-on-year rate of only plus 1.8 percent. Motor vehicle production is very weak in the June report, down 3.7 percent and more than offsetting a 0.8 percent rise for hi-tech production, a 0.7 percent gain for chemicals, and a 1.4 percent jump for furniture. Retail sales of vehicles surged back in May but turned lower in June which doesn't point to much of a rebound for vehicle production later this summer. One sign of strength is a 2 tenths uptick in the overall capacity utilization rate to 78.4 percent. But here too, the gain reflects gains for utilities and mining and not manufacturing where capacity utilization actually fell 1 tenth to 77.2 percent. This report offers the first conclusive data on the manufacturing sector during June while this morning's earlier release of the Empire State report offers the first anecdotal look at July. And the verdict? A manufacturing sector that is being hurt by weakness in exports and that's dragging down the economy's growth.

Fed: Industrial Production increased 0.3% in June -- From the Fed: Industrial production and Capacity Utilization -- Industrial production increased 0.3 percent in June but fell at an annual rate of 1.4 percent for the second quarter of 2015. In June, manufacturing output was unchanged: The output of motor vehicles and parts fell 3.7 percent, but production elsewhere in manufacturing rose 0.3 percent. The indexes for mining and utilities advanced 1.0 percent and 1.5 percent, respectively. At 105.7 percent of its 2007 average, total industrial production in June was 1.5 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.2 percentage point in June to 78.4 percent, a rate that is 1.7 percentage points below its long-run (1972–2014) average. This graph shows Capacity Utilization. This series is up 11.5 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.4% is 1.7% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. . The second graph shows industrial production since 1967. Industrial production increased 0.3% in June to 105.1. This is 26.2% above the recession low, and 4.9% above the pre-recession peak. This was above expectations of a 0.2% increase, and prior months were revised up. Much of the recent weakness has been due to lower oil prices - overall a solid report.

US Industrial Output Rises In June, But Trend Remains Weak -- US industrial output increased in June—the first monthly advance since March, according to this morning’s update from the Federal Reserve. Production rose 0.3% last month, the most since last November. Is this a sign that the industrial sector is stabilizing after months of decelerating growth? Maybe, although it’s hard to know based on a single monthly report. But let’s throw caution to the wind and say that the outlook for industrial activity looks a touch brighter in the wake of today’s numbers.  The monthly comparison firmed up in June, but the trend remains shaky. Industrial output’s annual growth inched lower for the seventh straight month. The decline rate eased. Nonetheless, output increased by a thin 1.5% for the year through June, the slowest growth in more than five years. The case for optimism for this critical index, in other words, rests largely on the latest monthly pop. That’s a thin reed, but perhaps it will become a bit thicker in next month’s update. Fed Chair Janet Yellen seems to think that’s a reasonable expectation. “Prospects are favorable for further improvement in the US labor market and the economy more broadly,” according to prepared remarks for a speech she’s scheduled to give in Congress today. “The FOMC expects US GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually.” There’s only a glimmer of support in her projection via today’s figures for industrial output. But for the moment, that’s a touch better compared with recent history for this indicator.

US Manufacturing Output Weakest Since Feb As Vehicle Production Tumbles Headline industrial production rose just 0.3% in June (modestly beating expectations of a 0.2% rise) and rather stunningly the best month since November. Utrilities werethe biggest contributor, as Manufacturing output ended June unchanged (against expectations of a modest 0.1% rise), missing for the 2nd month in a row. Notably vehicle production tumbled 5.5% MoM. Not exactly the end to Q2 that GDP hockey-stick'rs will be wanting. Worst manufacturing output since February...Charts: Bloomberg

Empire State Manufacturing: New Orders Negative 4th Time in 5 Months; Slight Bounce in Industrial Production --A couple of new economic reports were out today. Both highlight ongoing weakness in manufacturing.  Empire State New Orders Negative 4th Time in Five Months Bloomberg Econoday economists called the Empire State Manufacturing number correctly, but it was a weak one. The consensus estimate was 3.5 vs. the actual report of 3.86.  The manufacturing sector isn't picking up any steam this month based on the Empire State index which came in only just above zero, at 3.86. The new orders index, ominously, is in negative ground at minus 3.50. This is the fourth negative reading in five months for new orders which points squarely at slowing overall activity in the months ahead.And hiring this month has slowed, to 3.19 vs June's 8.65 in yet another soft signal. Price data show moderation for inputs at 7.45 vs 9.62. One plus in the report is a slight uptick in the 6-month outlook to 27.04 vs 25.84. Following unexpected negative numbers in April and May, an Industrial Production bounce in June came pretty much in line with Economist's ExpectationsA plus 0.3 percent rise in June industrial production looks respectable but still overstates strength. The gain follows two prior months of sizable contraction, at minus 0.2 percent and minus 0.5 percent, and reflects a jump higher for utilities and for mining. Manufacturing, and the key component for the series, is unchanged for a second straight month -- truly dead in the water at a year-on-year rate of only plus 1.8 percent. Motor vehicle production is very weak in the June report, down 3.7 percent and more than offsetting a 0.8 percent rise for hi-tech production, a 0.7 percent gain for chemicals, and a 1.4 percent jump for furniture. Retail sales of vehicles surged back in May but turned lower in June which doesn't point to much of a rebound for vehicle production later this summer.One sign of strength is a 2 tenths uptick in the overall capacity utilization rate to 78.4 percent. But here too, the gain reflects gains for utilities and mining and not manufacturing where capacity utilization actually fell 1 tenth to 77.2 percent.

Empire Manufacturing Beats Despite Slump In New Orders & Employment -- After printing negative for the last 3 months and falling to the lowest since Jan 2013, Empire Manufacturing jumped to 3.86 (beating expectations of a 3.0 print for the first time since Jan). While some will celebrate (and others fear good news is bad news), both New Orders and Number of Employees fell in July, as inventories plunged. The main driver of the jump in the headline index was "hope" once again, rising for the first time since March.

Philly Fed Manufacturing Survey decreased to 5.7 in July -- From the Philly Fed: July Manufacturing Survey Manufacturing activity in the region increased modestly in July, according to firms responding to this month’s Manufacturing Business Outlook Survey.... The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 15.2 in June to 5.7 this month. ... Firms’ responses suggest steady employment in July. The percentage of firms reporting an increase in employees in July was equal to the percentage reporting a decrease (12 percent). The current employment index fell for the third consecutive month, from a reading of 3.8 in June to -0.4. This was below the consensus forecast of a reading of 11.5 for July. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through July. The ISM and total Fed surveys are through June.  The average of the Empire State and Philly Fed surveys decreased in July, and this suggests a reading similar to June for the ISM survey

July 2015 Philly Fed Manufacturing Growth Rate Declines: The Philly Fed Business Outlook Survey growth fell significantly - but remained in expansion. Key elements are mixed. This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently. The the index declined significantly from 15.2 to 5.7. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) 9.0 to 18.9 (consensus 12.0). Manufacturing activity in the region increased modestly in July, according to firms responding to this month's Manufacturing Business Outlook Survey. Indicators for general activity, new orders, and shipments remained positive, although they declined from their readings in June. Employment was essentially flat at the reporting firms this month. Firms reported higher prices for raw materials and other inputs in July, but prices of manufactured goods were reported as mostly steady. The survey's index of future activity improved slightly, however, indicating that firms expect continuing growth in the manufacturing sector over the next six months.  The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 15.2 in June to 5.7 this month. With the exception of June's reading, the diffusion index has remained in the single-digit range since the beginning of this year (see Chart 1). The demand for manufactured goods, as measured by the survey's current new orders index, also expanded modestly.

Risky Loans Are 'Driving' US Auto Sales: 3 Charts -- To be sure, we’ve made no secret of our views on the state of the US auto market.   This year, we’ve written extensively about the proliferation of subprime lending, worrisome trends in average loan terms, and, most recently, we noted the astounding fact that in Q4 2014, the average LTV for used vehicles hit 137%. We presented what perhaps marked our most unequivocal statement to date on why the market looks dangerously frothy in “Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance.” In that post, the absurdities plaguing the US auto market were laid bare for all to see. Here’s a recap:

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

It’s against this backdrop that we bring you the following three charts from BofAML’s H1 review of trends in the ABS market. As you’ll see, below, the move towards riskier lending is quite clear. 

Auto Loan Rejection Rate Falls To Lowest Level On Record --If you were interested in learning about the conditions that conspired to create the great American housing bubble which burst in spectacular fashion in 2008 and brought the entire global financial system to its knees, you might start by reading the history of Fannie and Freddie, or you might take a hard look at Blythe Masters and the wizards who created the credit default swap, or, if you wanted to save yourself quite a bit of time and effort, you could just look at the current market for subprime auto loans.  You see, the much maligned "originate to sell" model - which was instrumental in making the American homeownership dream a reality for underqualified borrowers in the lead up to the crisis - is alive and well and is 'in the driver’s seat' so to speak when it comes to auto sales in America.  As we noted last month, in the consumer ABS space (which encompasses paper backed by student loans, credit cards, equipment, auto loans, and other, more esoteric types of consumer credit) auto loan-backed issuance accounts for half of the market and a quarter of auto ABS is backed by loans to subprime borrowers.The push to feed the securitization machine begets more competition among lenders for a shrinking pool of creditworthy borrowers and when that pool dries up, well, the definition of "creditworthy" must necessarily be relaxed, otherwise the securitization machine stalls for lack of fuel. For those who missed it, here are three charts which tell you everything you need to know about the market for auto loan-backed ABS:

In Troubling Sign, Ford Now Offers $10,000 Discounts On New F-150 Pickups - When oil priced tumbled last year it was supposed to be a major boon for car sales and, indeed, courtesy of car loans whose  rejections rates have never been lower and with LTVs for loans on used cars sold to subprime borrowers now a record high 150%, some such as government-favorite GM benefited greatly, with sales of Chevy Silverado jumping a solid 18.4% June. Others, however, have been struggling: sales of Ford's top-selling and most profitable line, the aluminum-bodied F-150, were down 8.9% last month as Ford's market share of big-pickup trucks dropped to 28% from 33% one year ago. Ford's response: a huge push to incentivize buyers, in the form of discounts that can exceed $10,000 on its new aluminum-bodied F-150 pickup, which has been losing sales and market share this year even, as Bloomberg reports, "the automaker works to build inventory on dealer lots." As USA Today adds, "in a move that sometimes spells sales trouble, Ford has started offering discounts of up to $10,479 its most important vehicle, the F-150 pickup."

Where Are the Most U.S. Manufacturing Workers? Los Angeles - The largest center of manufacturing in the U.S. is about as far from the rust belt as you can get. The Los Angeles metro area has the most manufacturing workers in the country. More people work in factories there than traditional blue-collar towns such as Chicago, Detroit or Philadelphia. While the number of manufacturing workers in Los Angeles and nationwide has plummeted from 25 years ago, the community has maintained its leadership position. There are about 524,000 manufacturing workers in the region, well above 409,000 in Chicago and 368,000 in New York, according to the Labor Department. Some businesses worry that increasing the minimum wage in the city of Los Angeles to $15 an hour by 2020 could threaten Tinseltown’s place atop the manufacturing list. That’s because more than one in eight manufacturing employees in Los Angeles County, which includes the city, work in the apparel industry. That sector pays much lower wages than other factory jobs. Apparel workers in Los Angeles County earned an average of $655 a week. The average weekly wage for all manufacturing workers nationwide is $830 a week. Manufacturing employment in Los Angeles and several other areas has stabilized in recent years.

NFIB: Small Business Optimism Index decreased in June - From the National Federation of Independent Business (NFIB): Small Business Takes Significant Hit in June The Small Business Optimism Index fell 4.2 points to 94.1 ... The 42 year Index average is 98.0, while the pre-recession average is 99.5 (1974-2007). This leaves the current reading 4 points below the overall average ... It looks like small businesses “hired in May and then went away”. So, small businesses took a breather from job creation in June after a string of five solid months of job creation. On balance, owners added a net -0.01 workers per firm in recent months, essentially zero. This graph shows the small business optimism index since 1986. The index decreased to 94.1 in June from 98.3 in May.  This is the lowest level since May 2014.

Small-Business Optimism Tumbles in June - Small-business owners turned much less confident about their economic situation in June, according to a report released Tuesday. The dark mood was evident at businesses in both shale and nonshale states. The National Federation of Independent Business’s small-business optimism index unexpectedly fell to 94.1 in June from 98.3 in May. Economists surveyed by The Wall Street Journal projected the index to be little changed in June at 98.4. “It’s not a recession signal, but a clear sign that economic growth on Main Street is not set for a strong second half of growth,” the report said. None of the 10 subindexes increased in June: nine declined and one was unchanged. The earnings trend subindex took a nosedive, dropping 10 percentage points to minus 17% in June. Business conditions expectations fell six points to minus 9% and plans to increase inventories fell eight points to minus 4%. The NFIB also found that the net percentage of owners reporting higher nominal sales in the past three months compared with the prior three months fell 9 points to a net minus 6%. Given the pessimism, it is no surprise that small firms rethought expansion plans last month. The subindex covering planned hiring fell three percentage points to 9%, and the capital spending plan subindex fell two points to 23% in June. Earlier in July, the NFIB reported,  on balance, small companies added a net minus 0.01 worker per firm in June, “essentially zero.” The weak labor data suggest the unemployment rate will edge up in the second half, the trade group’s report said.

NFIB: "Small Business Takes Significant Hit in June" - The latest issue of the NFIB Small Business Economic Trends is out today. The update for June came in at 94.1, a 4.2 point decline from the previous month. The index is now at the 21st percentile in this series. The forecast was for 98.6. Here is the opening summary of the news release. The Small Business Optimism Index fell 4.2 points to 94.1, likely in response to five months of lousy growth. The 42 year Index average is 98.0, while the pre-recession average is 99.5 (1974-2007). This leaves the current reading 4 points below the overall average, a deficiency of 40 net positive percentage point responses to the Index’s 10 component questions. While this is not a recession signal, it is a clear sign that economic growth on Main Street is not set for a strong second half. Nine of the 10 Index components fell and 1 was unchanged from last month. Declines in spending plans accounted for 30 percent of the Index decline, and weaker expectations for real sales and business conditions another 20 percent. The deterioration in earnings trends accounted for about a quarter of the decline. The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.  The average monthly change in this indicator is 1.3 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

Small Business Optimism Crashes To 15 Month Lows - With all hopes and dreams of economic renaissance in America pinned on small businesses (see ADP's recent gains), today's data from the NFIB will strike fear in the heart of the wealth-effect-creating Fed. The NFIB small business optimism index disappointed expectations in June (94.1 vs. consensus 98.5), falling to its lowest level since March 2014 – the biggest drop since 2012. All components were weaker but most notably hiring and plans to raise worker compensation tumbled.

Are Americans Working Less Than the Rest of the World? - A recent flap between presidential candidates Jeb Bush and Hillary Clinton raised the question: Do Americans work too little? Mr. Bush, the former Republican governor of Florida, told a New Hampshire newspaper that for the U.S. to achieve 4% annual economic growth, something last achieved in 2000, “Workforce participation has to rise from its all-time modern lows….People need to work longer hours and, through their productivity, gain more income for their families.” That led Democratic candidates to fire back. Mrs. Clinton said Americans have increased their productivity faster than their wages, sharing a chart from the left-leaning Economic Policy Institute. Sen. Bernie Sanders (I., Vt.) said on Twitter that “Americans already work the longest hours in the western industrialized world.” Sen. Sanders didn’t cite a source for his statement. So how do U.S. workers’ hours stack up? They’re about average. Here’s how average hours worked annually per worker, labor-force participation rates and change in gross domestic product compared among a group of advanced economies  in 2013: Americans work less than employees in Mexico or South Korea, but more than those in Germany and France. In 2013, the average U.S. worker logged 1,778 hours, just ahead of the mean among workers in countries that are members of the Organization for Economic Cooperation and Development, a group of 34 advanced economies.

Weekly Initial Unemployment Claims decreased to 281,000  --The DOL reported: In the week ending July 11, the advance figure for seasonally adjusted initial claims was 281,000, a decrease of 15,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 297,000 to 296,000. The 4-week moving average was 282,500, an increase of 3,250 from the previous week's revised average. The previous week's average was revised down by 250 from 279,500 to 279,250. There were no special factors impacting this week's initial claims.  The previous week was revised down by 1,000. The following graph shows the 4-week moving average of weekly claims since 1971.

JOLTS, temps, initial jobless claims point to post mid-cycle jobs slowdown: Bill McBride and I have different takes on the latest several JOLTS reports. Bill thinks that the soaring job openings make for a "solid report," while I am concerned that hires are stalling - just as hires stalled while job openings continued to increase in 2006-07. In the broader sense, it looks to me like hiring is beginning to slow down - something that it tends to do somewhere after the midpoint of an expansion. Let's take a look. So first, let's look at the JOLTS data. This series started in 1999 so there is really only one prior full expansion for which we have data: Note that hires (red) topped first, in early 2005. Quits (green) and layoffs (inverted, purple) topped in early 2006. Job openings (blue) continued to rise until late 2006. Compare with the last year. Inverted, layoffs may have peaked in late 2013. Hires and quits both appear to have made at least an interim peak in late 2014. Job openings are still rising. If - and it's a very big "if", since we only have one prior expansion to compare current data to - this expansion follows the prior pattern, then we are late in the game. Second, another data series that has weakened of late is the temporary staffing index of the American Staffing Association. Here is the 52 week graph of that index beginning with 2010:In late 2012, the index turned flat. Since the beginning of May this year, the index has gone into decline. It hasn't done that since 2008. Since temporary hiring is generally regarded as a leading indicator for hiring overall, this has to be seen with some concern. But both JOLTS and the ASA Staffing Index do not have long histories. On the contrary, jobless claims do have a long history, and we can compare hiring and firing back half a century by comparing initial jobless claims with nonfarm payrolls.

Starbucks-led Coalition Promises to Hire 100,000 Young Workers - Starbucks and more than a dozen U.S.-based companies have outlined a plan to hire 100,000 young people over the next three years, specifically looking to provide jobs and training for those that face systemic barriers to such opportunities.The hiring spree aims to make a dent in the stubbornly high unemployment rate for America’s youngest potential employees. In total, there are 5.6 million people between the ages of 16 to 24 who are out of school and not working, Starbucks said.Under a platform called the “100,000 Opportunities Initiatives,” Starbucks and other firms promised to help thousands of young workers build skills and ultimately secure a job. The coffee giant said the problem is an issue on a few levels: young people aren’t ware of opportunities and don’t always know the best steps to get a job, while employers aren’t always successful at recruiting, training and retaining this work force.Starbucks was jointed by a handful of founding companies that are also serving as partners to the mission, a group that includes JP Morgan Chase, Macy’s, Target and Walmart.This is the second time this year that Starbucks notably stepped outside its comfort zone of selling coffee and teas and angled to address a broader social matter. Earlier this year, it launched an initiative called “Race Together,” which received a lot of criticism on social platforms like Twitter and Facebook, as well as by members of the media, who questioned if asking baristas to talk with customers about the sensitive subject of race was a wise decision.

Does Disability Insurance Reduce Labor Force Participation?  --In Senate testimony earlier this year, Stanford economist Mark Duggan claimed that Social Security Disability Insurance (SSDI) was an “important factor” in the decline in labor force participation in the United States relative to other industrialized countries. In an earlier blog post, I showed that even research cited by Duggan found that disability receipt had a negligible impact on overall employment. Is it still possible that SSDI has a noticeable impact on labor force participation, a measure that includes unemployed workers actively looking for work? It might, if you believe—as Duggan does—that the process of applying for benefits is enough to make people stop looking for work. But as will be detailed in this blog post, there are more likely explanations for the relative decline in labor force participation in the United States compared to Europe, including more supportive labor market policies in Europe. Research that considers multiple causes for recent declines in participation in the United States generally finds that an aging workforce and unemployment—especially long-term unemployment—have been the main drivers (see, for example, research from the Council of Economic Advisors and Harvard University). The question is whether SSDI caused some unemployed workers to exit the labor force, or whether they would have exited regardless. Looking at longer-term trends, the biggest difference between the United States and the EU-15 has been an increase in female employment and labor force participation in Europe, in which the adoption of family-friendly labor policies likely played a role. Prime-age employment rates in Europe are now similar to the United States (solid lines in the figures below) though they remain lower for older workers (dashed lines).

What lower labor force participation rates tell us about work opportunities and incentives - The labor force participation rate in the U.S. is at historic lows. In June 2015, nearly six years after the official end of the Great Recession, the labor force participation rate is at 62.6 percent, a rate not seen since 1978. Between 2007 and today, most economic indicators have been trending in the right direction but improving slowly, while labor force participation rates are trending in the wrong direction (See Figure 1 in Appendix). For instance, unemployment and the share of long-term unemployed have been declining while average wages have trended up marginally over the course of the recovery. However, labor force participation rates are still declining. This is a worrying trend that needs attention, particularly because participation is declining not just among retiring baby boomers but also among people at prime working age and youths. In a 2006 Journal of Economic Perspectives article, Juhn and Potter (2006) show that the 2001 recession resulted in a similar dip in the participation rates for men and women many years out into the recovery. However, it was not clear whether this decline represented a mere slowing down in the participation rate or a more permanent withdrawal from the labor force for those who were not employed. We are witnessing something similar in this recession: it is not clear whether individuals have simply exited the labor market for good or whether they are temporarily discouraged and will rejoin the workforce once better times return.

26% Of People Considered "Not In Workforce" Are Engaging In Informal Work: "Informal" work refers to temporary or occasional side jobs from which earnings are presumably not reported in full to the Internal Revenue Service and which typically do not constitute a dominant or complete source of income.  New web-based applications (such as Uber) that facilitate a variety of informal earnings opportunities mean that more people may undertake informal work. The authors designed the Boston Fed's Survey of Informal Work Participation (SIWP) to identify the types of individuals who undertake in such activities, how much they earn, their current employment status, how they rate the value of informal work in helping to offset negative shocks, and to explore how the Internet and mobile applications have facilitated the opportunities for engaging in informal paid work via the "peer-to-peer" economy.  The authors calculate the following informal work participation rates among four employment-status groups: 42.8 percent of full-time workers, 59.4 percent of part-time workers, 39.6 percent of those who report wanting a job, and 26.5 percent of those classified as "other not working." Overall, about 44 percent of the survey respondents reported participating in some informal paid work during 2011 - 2013 - earning money was the most widely cited reason for doing so.  Translating their four employment categories into the three official classifications used by the Bureau of Labor Statistics (BLS), the authors find that 26 percent of those people who the BLS define as "not in the labor force" (NILF) are engaging in informal work.

Job Training isn't a Silver Bullet for Job Creation -- It's hard to understand why, with so many Americans still unemployed and looking for jobs, why additional work requirements and/or job training would be imposed on those receiving food stamps (SNAP) and/or welfare (TANF) to qualify for these benefits. Especially when so many of the new jobs that have been created are so low-paying that workers still qualify for SNAP and other government benefits.  And it's equally hard to understand why so many policymakers still believe that training (or re-training) unemployed workers will magically create more jobs.  Atlanta Federal Reserve: Have Changing Job and Worker Characteristics Restrained Wage Growth?: Our results are consistent with the analysis in a previous macroblog post, which found that changing industry-employment shares could not explain much of the sluggish growth in the average hourly earnings data from the payroll survey. So then, the U.S. didn't go from a strong unionized manufacturing economy to a low-paying non-union service economy ever since offshoring became really popular for our "job creators" with bad trade deals? — because ever since 1997 the U.S. now has 67,161 less factories. And that's not to say anything about the phony skills gap or stem skills myth being used as an excuse to displace well-paid tech workers with lower-paid H-1B visa workers.

Who’s Getting Bigger Pay Raises? Young Workers and New Hires - Stagnant wage growth has become one focus of the income-inequality debate and a frustration for Federal Reserve policy makers who want to see bigger pay raises as a sign of strengthening labor markets. A report out Tuesday argues pay raises are turning higher for some key segments of the labor market, even if the trend has not yet shown up in average hourly wage numbers in the monthly employment report. Research released by The Conference Board suggests that labor markets have tightened much faster than many expected. As a result, businesses will have to start lifting wages at a faster pace soon. “The last shoe is about to drop,” said Gad Levanon, managing director of macroeconomic and labor market research at the board. He noted pay is already accelerating among two key groups of workers: young adults and new hires. Both took it on the chin during the recession, Mr. Levanon said: “Businesses were reluctant to cut the pay of existing workers, but they didn’t hesitate to cut wages for new hires.”As a result, pay among young adults and salaries offered to new hires contracted right after the recession.That trend in pay has turned around sharply now that labor markets are tighter. Using microdata from the Labor Department’s current population survey, Mr. Levanon calculated that wage growth among workers ages 21 to 25 years old has sped up considerably in the past three years.

Have Changing Job and Worker Characteristics Restrained Wage Growth? - Atlanta Fed's macroblog -In the wake of the Great Recession, nominal wage growth has been subdued. But it is unclear how much of this relatively low wage growth reflects protracted weakness in the labor market versus other factors, such as changes in the composition of the workforce and jobs over time. Wage growth tends to vary across personal and job characteristics, so it stands to reason that changes in the composition of the workforce, alongside demographic and work characteristics, could be an important explanation of overall movements in wage growth. In this post, we explore the impact of the changing mixture of worker characteristics (by age and education) and types of jobs (by industry and occupation) on the Atlanta's Fed Wage Growth Tracker. We find that composition effects do not account for the low median wage growth experienced in recent years. Holding worker and job characteristics fixed at their 1997 shares raises the median wage growth in 2014 by only about 0.2 percentage point. Our results are consistent with the analysis in a previous macroblog post, which found that changing industry-employment shares could not explain much of the sluggish growth in the average hourly earnings data from the payroll survey.

The mystery of sluggish wage growth - CBS News: As the U.S. economy has recovered from the Great Recession, unemployment has fallen to a 5.3 percent rate. Yet wages have shown very little growth. Why hasn't pay increased as the labor market has tightened? One possible explanation is a change in the overall composition of jobs toward lower-paying occupations. This shift could occur in two ways. First, during a recession, firms tend to lay off the least productive, lowest-paid workers. Then when the economy recovers, these workers are rehired. But because their wages tend to be lower than average, this tends to restrain overall growth in wages. Second, because sluggish wage growth began decades before the recession -- that's one reason inequality has been increasing -- perhaps post-recession wage sluggishness is a continuation of the prerecession trend toward jobs becoming polarized because of technological change. That is, new technology has eliminated middle-class jobs, splitting displaced workers into two groups, one getting better jobs, the other getting jobs that aren't as good. The balance of the two has led to sluggish wage growth. What does the evidence say about the relationship between job composition and slow wage growth? Does it support either of these hypotheses? Researchers at the Federal Reserve Bank of Atlanta looked at this question and found that "changing industry-employment shares could not explain much of the sluggish growth in the average hourly earnings."

Rising Economic Insecurity Tied to Decades-Long Trend in Employment Practices - When the California Labor Commissioner’s Office ruled last month that an Uber driver was an employee deserving of a variety of workplace protections — and was not, as the company maintained, an independent contractor — it highlighted the divided feelings many Americans have about what is increasingly being called the “gig economy.” As it happens, though, Uber is not so much a labor-market innovation as the culmination of a generation-long trend. Even before the founding of the company in 2009, the United States economy was rapidly becoming an Uber economy writ large, with tens of millions of Americans involved in some form of freelancing, contracting, temping or outsourcing. The decades-long shift to these more flexible workplace arrangements, the venture capitalist Nick Hanauer and the labor leader David Rolf argue in the latest issue of Democracy Journal, is a “transformation that promises new efficiencies and greater flexibility for ‘employers’ and ‘employees’ alike, but which threatens to undermine the very foundation upon which middle-class America was built.” Along with other changes, like declining unionization and advancing globalization, the increasingly arm’s-length nature of employment helps explain why incomes have stagnated and why most Americans remain deeply anxious about their economic prospects six years after the Great Recession ended. Last year, 23 percent of Americans told Gallup they worried that their working hours would be cut back, up from percentages in the low to midteens in the years leading up to the recession. Twenty-four percent said they worried that their wages would be reduced, up from the mid- to high teens before the recession.

The Declining Number of Illegal Immigrants - The number of illegal immigrants in the United States rose very sharply through the 1990s and for almost the first decade of the 21st century, but the total peaked in 2009, and since then has declined somewhat. Jeffrey S. Passel lays out the evidence in his testimony submitted to a hearing of the U.S. Senate Committee on Homeland Security and Governmental Affairs. on March 26, 2015.  Passel's testimony draws on two recent Pew reports, available here and here.) Here's an overall figure, showing the total number of illegal immigrants. For those interested in methodology, these specific numbers are based on Census survey--specifically, the American Community Survey and the Current Population Survey. These surveys ask about whether someone is "foreign-born," but don't ask whether they are in the United States legally. Thus, one can take the total number of foreign-born, subtract out the number of legal immigrants, and get an estimate of the "unauthorized" population. Of course, one can raise various questions about this methodology. However, it's also possible to cross-check these numbers in various ways: for example, by looking at estimates based on data from Mexico and on evidence from local US surveys. Taking the cross-checking into account, the estimates based on the Census surveys seem plausible.

Does income inequality cause decreased economic growth? - Last night I watched Inequality for All, which is former U.S. labor secretary and now Berkeley professor Robert Reich's take on the causes and effects of growing income inequality in the U.S.  I will admit that I was a skeptic going in knowing that Reich in a known socialist who wants to ride tax and spend policies to the Utopia of socialism.  Beyond that, short people got no reason to live*. Despite my misgivings, I gave Reich's documentary a go, knowing I'd fall asleep in the first 10 minutes.  Two hours later, I found myself scratching my head and questioning my own conservative existence--or at least a little of what I thought before.  I'm not going to go into a lot of detail here, as I still have a lot of thinking to do, but I did want to show you a little of my initial 'research.' One of Reich's basic premises in Inequality for All is that income inequality causes decreased economic growth.  This is a less than veiled attack on trickle-down arguments.  In short (HA! Get it?  He's 4'11". Get it? Nevermind.)**, Reich argues that when income accumulates at the top of the income distribution, little reinvestment occurs as would be required for trickle-down arguments to work.  Again, I'm not ready to fully question that basic premise, but rather a thought occurred to me: If Reich is right (as opposed to left?), then we should see a negative correlation between measures of income inequality and income growth.  That is, as income becomes less equal, income growth should slow down.  And that is something I can do 'blog-level research' on.

The thing Bernie Sanders says about inequality that no other candidate will touch - There are very few unspoken rules among major-party candidates for president, and Bernie Sanders is breaking one of them. He’s saying that America’s leaders shouldn’t worry so much about economic growth if that growth serves to enrich only the wealthiest Americans. “Our economic goals have to be redistributing a significant amount of [wealth] back from the top 1 percent,” Sanders said in a recent interview, even if that redistribution slows the economy overall. “Unchecked growth – especially when 99 percent of all new income goes to the top 1 percent – is absurd,” he said. “Where we’ve got to move is not growth for the sake of growth, but we’ve got to move to a society that provides a high quality of life for all of our people. In other words, if people have health care as a right, as do the people of every other major country, then there’s less worry about growth. If people have educational opportunity and their kids can go to college and they have child care, then there’s less worry about growth for the sake of growth.”

Mass incarceration in America, explained in 28 maps and charts - America is number one — in incarceration. Over the past several decades, the country has built the largest prison population in the entire world, with the second-highest prison population per capita behind the tiny African country of Seychelles. But how did it get this way? Although it may be easy to blame one specific event, the US's path to incarceration was decades in the making — involving politicians as varied as Richard Nixon, Ronald Reagan, and Bill Clinton. Starting in the 1970s, America's incarcerated population began to rise rapidly. In response to a tide of higher crime and drug use over the preceding decade, state and federal lawmakers passed measures that increased the length of prison sentences for all sorts of crimes, from drugs to murder. This tough-on-crime mentality continued all the way to the 1990s, when President Bill Clinton approved a crime law that imposed tougher prison sentences, increased funding for prisons, and put more cops on the streets. But starting in the early 1990s — even before Clinton's crime law passed — the crime rate began to drop as the number of incarcerated Americans continued to climb. And after two decades of the crime decline, local, state, and federal lawmakers began to reconsider previous tough-on-crime policies — leading the prison population to drop for the first time in decades in 2010. The map above, compiled with data from the International Centre for Prison Studies, shows how America's incarceration levels look from a global perspective: Although the US makes up about 4 percent of the world's population, it accounts for 22 percent of the world's prison population.

Stats wiz Nate Silver: For black Americans, US is about as dangerous as Rwanda: or black and white americans, the difference between life and death is literally worlds apart. Although we may know this on some level, Nate Silver, the founder and editor in chief of FiveThirtyEight, has the startling statistics that demonstrate this reality. As he explained to me on the latest episode of The Katie Halper Show,  “If you’re a white person your chance of being murdered every year is 2.5 out of 10,000… If you’re a black person it’s 19.4, so almost eight times higher.” To put this into context, Silver explained, the murder rate for white Americans is similar to the murder rate for people living in Finland, Chile or Israel. The murder rate for black Americans, on the other hand, is similar to the rate found “in developing countries that are war zones even, like Myanmar, or Rwanda, Mexico, Brazil, Nigeria, places that have vast disorder. To me that stat was so striking that I thought this was a case where even if you kinda zoomed out, that was a data point that helped to inform the discussion.” Silver also discussed police brutality.

The Fed and African-American Unemployment -- Black unemployment tends to be twice that of the overall rate, and more than twice the white rate. Moreover, this level difference translates into change differences such that a one percentage point decline in overall unemployment often leads to a two point decline for blacks. See here for more details, e.g., “black unemployment has averaged almost twice that of overall unemployment since the monthly data begin in 1972 (average: 1.9, with standard deviation of 0.15, so not a ton of variation around that mean).”In that sense, the Fed has the potential to make a huge structural difference in the economic lives of blacks and other minorities by heavily weighting the full employment part of the their mandate relative to the inflation part, especially since there’s still considerable slack in the job market, with lower-wage, minority workers facing the brunt of it, and—importantly—little evidence of inflationary pressure (if anything, the Fed has missed their inflation target on the low side for a few years running now). ...Chair Yellen well knows this 2:1 problem, and I take her comments to mean that there’s not much the Fed can do to change it... However, economist Bill Spriggs, who knows a lot about this, argues ... that at full employment, employers cannot afford to discriminate against minorities the same way they can in slack markets. And what Bill will tell you is that this phenomenon has the potential to reduce that 2:1 ratio, which would be a tremendously beneficial structural advance.

Puerto Rico Faces Its Creditors in Early Debt Resolution Talks - If a meeting on Monday between Puerto Rico and its creditors is any indication, restructuring the island’s $72 billion in debt could be a long process.At that meeting, the commonwealth’s finance team said it had not yet determined how it would seek to revamp the island’s obligations.The roughly 350 creditors, such as hedge funds and money managers, that had packed into a Park Avenue auditorium on Monday afternoon were told they would have to wait several more weeks until a working group made up of Puerto Rico political leaders came up with formal recommendations for ending the island’s fiscal crisis.“I ask for your patience while we develop a credible plan that meets all of our stakeholders’ objectives,” Melba Acosta Febo, the president of the Government Development Bank for Puerto Rico, told the creditors gathered at Citigroup’s executive headquarters.The meeting, which lasted more than an hour, was the first time that creditors heard directly from Puerto Rico officials since Gov. Alejandro García Padilla declared two weeks ago that the island’s debt was not payable.

Puerto Rico’s debt crisis, explained --  On June 28, the governor of Puerto Rico, Alejandro Garcia Padilla, announced that the island was not going to be able to pay the $72 billion it owes. The announcement is the culmination of several years of economic woes, but the island's debt has now become an urgent problem for the US territory — and therefore, for the US. The problem is especially tricky because US bankruptcy laws don't allow government institutions in Puerto Rico to declare bankruptcy, as those in US states can. US policy did a lot to create the problem, and people on both sides of the debate — Puerto Ricans and the creditors who own their bonds — are Americans. The worst news: The island's fate is in the hands of Congress.Puerto Rico has been dealing with a worsening debt crisis for several years. It's been suffering economically since 2006, but thanks to a federal tax loophole it's continued to be able to borrow money without people paying a whole lot of attention to its creditworthiness. As a result, both the main Puerto Rican government and its "public corporations" (like utilities) have racked up immense amounts of debt through bonds and tanked their credit ratings — even while trying to cut services and raise taxes. Now the Puerto Rican government is acknowledging that it's not going to be able to keep borrowing money just to pay off old debts. So the question is whether Puerto Rico — either itself or its public corporations — will be able to declare bankruptcy and start working with a judge to restructure its debts. Congress is considering allowing some bankruptcy in Puerto Rico. But it's divided because many of the holders of Puerto Rican debt are American citizens and American investment funds.

What it’s like to actually eat the food in Oakland County Jail -- A convincing argument can be made that jail food should be pretty gross, but what it shouldn't be is rotten, maggot-infested, pulled out of the garbage, or gnawed on by rats. Unfortunately, that's exactly what it has been at times in Michigan's jails. Aramark, the company with which Oakland County and the Michigan Department of Corrections contracts for food service, seems intent on outdoing itself with each increasingly appalling headline. If you thought those maggots they served in Jackson last week were pretty gross, then check out the rotten chicken tacos they plopped on the plates in Kent County this week. While OCJ has been spared the more gruesome issues, I still got a taste of Aramark's approach to feeding inmates during my seven-month stay in four different cellblocks, and it wasn't good. The media has been on them. Not only here, but also in Ohio, Pennsylvania, Florida, New Jersey, and everywhere else where mouse turds or bugs or worms are turning up in prisoners' dinners. Thankfully, I didn't read about the extent of it until after I got out.

What If Everything You Knew About Disciplining Kids Was Wrong? --- The expression "school-to-prison pipeline" was coined to describe how America's public schools fail kids like Will. A first-grader whose unruly behavior goes uncorrected can become the fifth-grader with multiple suspensions, the eighth-grader who self-medicates, the high school dropout, and the 17-year-old convict. Yet even though today's teachers are trained to be sensitive to "social-emotional development" and schools are committed to mainstreaming children with cognitive or developmental issues into regular classrooms, those advances in psychology often go out the window once a difficult kid starts acting out. Teachers and administrators still rely overwhelmingly on outdated systems of reward and punishment, using everything from red-yellow-green cards, behavior charts, and prizes to suspensions and expulsions. How we deal with the most challenging kids remains rooted in B.F. Skinner's mid-20th-century philosophy that human behavior is determined by consequences and bad behavior must be punished. (Pavlov figured it out first, with dogs.) During the 2011-12 school year, the US Department of Education counted 130,000 expulsions and roughly 7 million suspensions among 49 million K-12 students—one for every seven kids. The most recent estimates suggest there are also a quarter-million instances of corporal punishment in US schools every year.  But consequences have consequences. Contemporary psychological studies suggest that, far from resolving children's behavior problems, these standard disciplinary methods often exacerbate them. They sacrifice long-term goals (student behavior improving for good) for short-term gain—momentary peace in the classroom.

Chicago Public Schools' budgets spend $500 million district doesn't have -- Chicago Public Schools on Monday unveiled school spending plans that rely on a half-billion dollars more than the district has on hand — an approach the head of the city's principals association compared to writing a bad check. To make the individual school budgets work, CPS is banking on help from Springfield, which has so far been uncooperative. Without that, the district said it will have to resort to "unsustainable borrowing and additional cuts" midway through the coming school year. “They’re not the budgets that we would like to be presenting,” the district's interim CEO Jesse Ruiz said in a conference call with reporters. “But they reflect the reality of where we are today: facing a budget deficit of more than $1 billion, the increasing costs of a broken pension system, and a state government that slashed education funding.” The preliminary budgets distributed to school principals for the coming school year assume state lawmakers will free CPS from having to make $500 million of a $700 million pension payment due June 30, 2016, either by giving the district more money or by allowing CPS to delay the payment until 2017 or later. CPS had tried to persuade the Chicago Teachers' Pension Fund to agree to an extension until 2017. The pension fund rejected the idea Friday.

New Chicago school leaders to tackle fiscal woes -- Chicago Mayor Rahm Emanuel announced on Thursday a new leadership team to take on massive fiscal problems at the city's public school system. Emanuel tapped his current chief of staff, Forrest Claypool, as chief executive officer of the Chicago Public Schools (CPS)and former electric utility executive Frank Clark to head the Chicago Board of Education. The third-largest U.S. public school system is projecting a $1.1 billion deficit in its fiscal 2016 budget, largely because of an approximately $675 million pension payment. It is also in negotiations with its teachers union over a new contract. "These issues are huge. There is no easy solution," Clark told reporters, adding that with cooperation from Illinois lawmakers, labor union leaders and others, a solution "is not unachievable." Both Emanuel and Claypool said that bankruptcy was not the answer for CPS. Illinois law does not provide a route for the filing of a Chapter 9 municipal bankruptcy, but Governor Bruce Rauner has been pushing for a measure to allow cash-strapped local governments and schools to file.

Did the Oil and Gas Boom Spur Men to Drop Out of High School? -  The oil and gas boom helped lift the American economy with a surge of cheaper fuel, massive business investment and the creation of tens of thousands of jobs. It also spurred more American men to drop out of high school, according to a newly released research paper by Elizabeth Cascio, an economics professor at Dartmouth College, and Ayushi Narayan, a recent graduate of the school. “Over the past decade, the advent of horizontal drilling and hydraulic fracturing has (quite literally) fueled a structural transformation of local economies across diverse swaths of the United States–from Pennsylvania to North Dakota–increasing local incomes and helping to set the U.S. on a path toward energy independence,” the authors said. “We have also demonstrated that it has had the additional consequence of generating higher high school dropout rates among teenagers, particularly the young males whose employment prospects it has more greatly affected.” Simply, the oil and gas boom, and the technology behind it, created a lot of jobs for men. But those jobs don’t typically require a college education or even a high school diploma. Or, in the clever words of the paper’s title, “Who Needs a Fracking Education?” Drawing on government data and distinguishing areas with and without shale oil and gas deposits, the authors find that the high-school dropout rate among males and females would have narrowed by 11% from 2000 to 2013 in the absence of fracking. Instead, it remained constant. “The lion’s share of the dropout effect is thus driven by the schooling decisions of local teens,”

The new trend in validating top students: Make them all valedictorians -  The top student in a high school’s graduating class used to earn the honor of being the valedictorian, and traditionally that one student delivered a commencement speech that helped send his or her classmates out into the adult world. But at Arlington’s Washington-Lee High School this year, there were 117 valedictorians out of a class of 457. At Long Beach Polytechnic in California, there were 30. And at some schools — including North Hills High outside of Pittsburgh and high schools in Miami — there were none.  The nation’s high schools are changing the way they recognize top students, struggling to balance praise for them while also quelling unhealthy competition among classmates as the college application process grows more cutthroat. The result? Some say schools have deflated the meaning of a well-earned and time-honored accolade while also vexing college admissions officers, who don’t know if a student finished first or 100th in the class. Others say getting rid of valedictorians entirely allows students to focus on their achievements without worrying about where they fall in the pecking order.

The Fields That Students Flock to During Recessions - Graduating into a recession stunts the careers of the young men and women entering the labor market. But it turns out a lot of students don’t sit back and passively accept this outcome: Many students who see a recession during their early college years switch to majors with better job prospects. According to new research the shifts can be dramatic. When the national unemployment rate rises by 1 percentage point, the share of women studying business rises by nearly two-thirds of a percentage point. The share of women studying nursing climbs by nearly a third of a percentage point. An additional quarter percentage point switch into accounting. Meanwhile, enrollment in education, literature and languages, sociology and psychology drops. All told, a rise of just 1 percentage point in the national unemployment rate leads at least 2% of women to switch majors. That means a year with a moderate rise in the unemployment rate induces tens of thousands of people to switch fields. (The paper homes in on the economy when students are age 20, and the major that they subsequently graduate with.) Men switch, too, but into a somewhat different set of majors. Men become much more likely to study engineering and somewhat more likely to study accounting, science and economics. They shift away from education, liberal arts and literature and languages.

Law Firm Stops Hiring Ivy League Grads, Demands "Gritty Street Lawyers" -- Having taken on hundreds of thousands of dollars worth of loans to achieve the ultimate goal of becoming an Ivy League law graduate, it appears, in at least one case, that your abilities are not required. As WSJ reports, Adam Leitman Bailey, a Manhattan attorney who runs a real estate firm, says he looks to hire law school graduates who have grit, ambition and a resolve to succeed in the legal profession. For that reason, he says, his firm has instituted a rule: If your resume lists your law school as Yale, Harvard, Columbia, Cornell or University of Pennsylvania, you need not apply because you won’t get the job. As The Wall Street Journal reports, Mr. Bailey, a graduate of Syracuse University Law School, says he admires the nation’s top law schools and doesn’t deny they attract some of the brightest minds. But says the best applicants hail from schools lower down the totem pole of prestige.In an article titled “Why We Do Not Hire Law School Graduates from the Ivy League Schools.” Mr. Bailey told Law Blog his ban applies to other elite schools outside the Ivy League, like Stanford and New York University.Explaining the policy, he writes that students who are accepted into top-ranked schools may have aced the LSAT, but, very broadly generalizing, they’ve climbed their way to a law degree without testing their mettle. Most importantly, the real world simulation of dealing with the pressures of a case or deal may be removed when the students do not need to compete for a job in a difficult market…

Obama: $80 billion spent on incarceration could eliminate tuition at public universities - Vox: Mass incarceration costs the US more than $80 billion in a year. That's how much corrections expenditures cost the US — mostly state and local governments — in 2010, according to the Hamilton Project.  In a tweetstorm following his speech at the NAACP's 2015 national convention, President Barack Obama provided a different way to look at that cost by explaining what that $80 billion could go to: America is home to 5% of the world's population, but 25% of the world's prisoners. America keeps more people behind bars than the top 35 European countries combined.  In 1980, there were 500,000 people in American jails. Today, there are 2.2 million. Many belong. But too many are nonviolent offenders. The $80 billion we spend each year to keep people incarcerated could pay for universal pre-K for every 3-year-old and 4-year-old in America. The $80 billion we spend each year on incarcerations could double the salary of every high school teacher in America. We could eliminate tuition at every public college and university in America with the $80 billion we spend each year on incarcerations.

These 20 schools are responsible for a fifth of all graduate school debt - Getting an advanced degree doesn’t come cheap, which is why graduate students carry nearly half of all student debt. But it turns out that a handful of schools are responsible for a large share of that money. A new study from the Center for American Progress (CAP) found that 20 universities received one-fifth, or $6.5 billion, of the total amount of loans the government gave graduate students in the 2013-2014 academic year. Those schools, however, only educate 12 percent of all graduate students. What’s striking about the Center’s findings is that a majority of the debt taken to attend the 20 schools on its list is not for law or medical degrees that promise hefty paydays. Most graduate students at those schools are seeking master’s degrees in journalism, fine arts or government, according to CAP. Still, at two foreign medical schools, St. George’s University in Grenada and Ross University in Dominica, students borrowed more than $200 million in a single school year. Medical schools in the Caribbean are often a refuge for students rejected from top American schools, but their tuition easily rival schools in the United States. Tuition for one semester at Ross, for instance, costs up to $21,710.

How Pension Funds, Universities and Endowments Pay for Private Equity Private Jets -- Yves Smith - One of the class markers of the private equity industry is that its members routinely fly on private jets. That’s often because the larger and even some of the smaller firms charge their private jet travel to private equity portfolio companies. That means that the cost is borne first and foremost by investors in private equity like public pension funds, private pension funds, universities like Harvard and Yale, and other foundations and endowments.  The enormous costs of private jets, while they are borne by the investors, are almost entirely hidden from them. PE firms keep investors in the dark by having the portfolio companies they’ve bought on behalf of their investors pay these jet bills. Amazingly, investors have been fooled by this simple ruse for decades – it’s like your stockbroker deduct his fee from your account, and you regarding his services as free because you never see a bill.  Now admittedly, there are cases, if you are taking a team of people from one not-well-air-serviced location to another, when private jet travel is cheaper than flying commercial. But those instances are rare. It does not appear that private equity firms have obtained authorization to travel at a more luxurious standard than is the norm for the investors themselves or in Corporate America generally. We searched through our stash of private equity limited partnership agreements and found no disclosure regarding the use of private jets.  In the last couple of years, PE firms have begun disclosing their use of private jets in their Form ADVs, an annual disclosure form that all but minute private equity firms must file with the SEC as of 2012. Note that this disclosure does not constitute having obtained authorization from the limited partners, which would have had to come when they were committing contractually to invest in private equity funds, not afterwards.

Pension fallout hits Chicago bonds, Cook County tax rate | Reuters: The inability to curb public pension costs in Illinois led its biggest county to hike the sales tax rate on Wednesday and left its largest city, Chicago, facing hefty interest rates for its bonds. Underwriters priced nearly $743 million of taxable Chicago general obligation bonds with yields topping out at 7.98 percent for debt maturing in 2042. Bonds due in 2023 were priced at par with a 6.361 percent coupon, representing a big spread of 400 basis points over comparable U.S. Treasuries. The remaining tax-exempt bonds in the city's $1 billion bond sale, aimed at continuing the restructuring of its short-term debt, will be priced on Thursday. The city's pension funding problems, including a $20 billion unfunded liability, led Moody's Investors Service earlier this year to drop the city's credit rating to junk. The downgrade triggered $2.2 billion in accelerated debt payments and fees that forced the city to undertake the restructuring. Meanwhile, the Cook County Board voted to raise its sales tax rate to 1.75 percent from the current 0.75 percent, largely to pay for pensions. The move pushes the total sales tax rate in Chicago to a whopping 10.25 percent, one of the nation's highest.

California State Treasurer Takes Up CalPERS Private Equity Carry Fee Reporting Lapse After NC Readers Press Him - Yves Smith - As readers may recall, our June 4 post broke the story that CalPERS Admits It Has No Idea What it is Paying in Private Equity Carry Fees. These fees are the biggest that CalPERS pays. The story got traction after it was taken up at the end of June and early July by the New York Times’ Dealbook, Dan Primack at Fortune (who depicted CalPERS as lying or suffering from a “massive breakdown in financial controls”) and then the Sacramento Bee. The SacBee article is particularly important in putting pressure on CalPERS, since the thing CalPERS is most afraid of is the California legislature, and CalPERS has clout with them. While the SacBee article no doubt did the most to get the attention of Treasurer Chiang, communiques from Naked Capitalism readers and other California voters would have helped persuade him that the issue of CalPERS’ lack of diligence in tracking expenses (the carry fees at issue are estimated by CalPERS board member JJ Jelincic as ranging between $600 million and $900 million in the last year) and broader governance issues were not going away.  The update from the Financial Times, in Calpers’ private equity problems pile up: One of California’s most senior elected officials has voiced “great concern” at Calpers’ worrying admission that America’s largest public pension scheme has no idea how much it pays its private equity managers.John Chiang, state treasurer of California, told FTfm he will demand clear answers from the $302bn pension plan over why it does not know how much has been paid in “carried interest” or investment profits over a period of 25 years to the private equity managers running Calpers’ assets.

Calpers pension fund underperforms benchmark index: The California Public Employees' Retirement System, the biggest U.S. public pension fund, on Monday reported a 2.4 percent net rate of return for the 12 months ended June 30, slightly underperfoming its benchmark index. But the $301 billion fund, known as Calpers, earned returns of 10.9 and 10.7 percent respectively in the past three and five years, marking the first time since 2007 it outperformed benchmarks for those periods. Those results far exceeded the pension fund's assumed investment return of 7.5 percent. Returns were driven by real estate and infrastructure investments, both returning over 13 percent over the past year.  The total fund's 12-month return on assets of 2.4 percent underperformed the benchmark by 9 basis points. The three- and five-year returns exceeded policy benchmarks by 59 and 34 basis points, respectively. A basis point is one one-hundredth of a percentage point

US facing $1 trillion pension shortfall -- - For many former state workers, a monthly public pension check is their bread and butter in retirement.But the gap between what states have promised retirees and how much is saved to fund those payments has grown, according to a new report from Pew Charitable Trusts. States are short $968 billion for their pension systems, an increase of $54 billion over the year before. When debts from local programs are taken into account, the total shortfall tops $1 trillion, according to the report. Three states -- Illinois, Kentucky and Connecticut -- have less than half of their pension programs funded. Illinois is in the hole by more than $100 billion. There are two big reasons states have fallen behind. First, a lot of the funds are held in stocks, and returns on those investments fell during the Great Recession. And second, some states have failed to make the required contribution to their pension programs. New Jersey, for example, made 47% of its required annual contribution in 2013 -- the lowest percentage of any state. It put away just 39% and 32%, respectively, of what was needed in the previous two years. Now, New Jersey is $51 billion in the hole, with 63% of its public pension program funded. Just 24 states set aside 95% of the contribution, a requirement states officials set themselves. The Pew report uses data from 2013, the most recent available for all states. Experts expect 2014 data to show the gap narrowing as the stock market ticked up. But don't hold your breath for a huge drop, as pension shortfall will likely remain over $900 billion.

California may let undocumented immigrants buy Obamacare - California lawmakers and activists are spearheading a first-in-the-nation plan to let undocumented immigrants buy Obamacare health insurance. Supporters say the California proposal, which would need federal approval and couldn’t start until 2017, is the next logical step in expanding health insurance to a population that was intentionally excluded from the president’s health-care law. But uniting the two highly combustible issues of Obamacare and immigration could reignite a fierce health-care reform controversy. Story Continued Below There’s no guarantee the California plan still winding through the state’s legislature will succeed, even with Democrats in control of the statehouse, the governor’s mansion and the White House. California Gov. Jerry Brown isn’t commenting on the legislation, which has been approved by the state Senate but not by the Assembly. But just last month, Brown agreed to spend millions in state dollars to provide health care to undocumented children, mirroring similar efforts in a handful of other liberal states. For the Obama administration, the California effort could mark the return of a sore point in the early days of the Obamacare debate. Republicans never trusted Democrats’ repeated assurances while the law was being drafted that the Affordable Care Act wouldn’t cover undocumented immigrants. That built up to Rep. Joe Wilson’s infamous “You lie!” moment, when the South Carolina Republican interrupted President Barack Obama’s 2009 health care address to Congress.

Obamacare’s ‘Cadillac Tax’ is an important part of the plan so don’t mess with it - Thanks to the recent Supreme Court decision reaffirming the legality of its premium subsidies, the Affordable Care Act keeps on rolling along. Millions have affordable coverage which they highly value, the uninsured rate is the lowest on record, and cost containment appears to be working in ways that are helping both households and our fiscal accounts. Of course, the assault on the ACA will continue, and one forthcoming line of attack will be on the excise tax on high-cost premiums, aka, the Cadillac tax (even Democratic candidate Hillary Clinton, a solid supporter of the ACA, is apparently having second thoughts about the tax). Well, I’ve got four reasons why the tax, which kicks in by 2018, should remain in place. First, the Cadillac tax is unlikely to hurt the vast majority of policy holders because most people “don’t drive Caddies,” i.e., most of their premium costs are below the cap. Second, the tax creates an important incentive to hold down coverage costs. Third, the tax should move much of the money employers were spending on health coverage into paychecks. Fourth, Obamacare is clearly reducing the budget deficit relative to earlier projections. But it ain’t free, and if we punt on the almost $90 billion this tax is slated to raise over 10 years, we’ll need to either raise it elsewhere or put it back on the deficit. According to some numbers I cobbled together from various sources, and making assumptions about the growth of health care costs in coming years, when the tax kicks in, it will hit a grand total of 1 or 2 percent of premium costs. Let me unpack that a bit. The Cadillac tax applies a 40 percent excise tax to health plans that exceed an annual cost in 2018 of $10,200 for singles and $27,500 for families. While a fair number of policy holders—around 5 to 15 percent, depending on assumptions about cost growth—have plans that cost that much, only a small share of those costs exceed the caps and will be subject to the tax.

Sen. Grassley Demands Red Cross Disclose Haiti Spending — And Gives Them a Deadline - Sen. Charles Grassley is demanding the American Red Cross explain how it spent nearly half a billion dollars raised after the 2010 Haiti earthquake. In a letter yesterday to Red Cross CEO Gail McGovern, the Iowa Republican gave the venerated charity until July 22 to answer 17 detailed questions, many of which it has never addressed publicly.  Grassley’s letter was prompted by a ProPublica and NPR report last month on how the charity broke multiple promises in its effort to help the impoverished country, including by building just six permanent homes.  Some of the information Grassley is asking for:

  • A breakdown of all the projects the American Red Cross funded in Haiti, how much was spent on each project, and how many people were helped. As we noted in our story, the Red Cross has so far declined to give a detailed breakdown of its spending in Haiti.
  • The criteria used to determine that a person in Haiti was successfully helped. The Red Cross has previously said it helped nearly half the population of the country, but Haitian officials doubt that figure.
  • Just how much of the money donated for Haiti went to overhead and management. Our reporting found it was more than the 9 percent that the Red Cross has claimed.
  • An explanation of what McGovern meant when she floated a “wonderful helicopter idea” in an email grasping for ways to spend remaining Haiti funds. We asked the Red Cross about the email and they didn’t explain the reference.
  • An explanation of the Red Cross’ response to a 2011 memo by the then-director of the Haiti program, who warned of “serious program delays cause by internal issues that go unaddressed.”
  • A breakdown of how many employees and whistleblowers contacted the Red Cross’ internal ombudsman about its Haiti program, what types of issues were raised and whether those disclosures have resulted in positive change..

What’s the Beef with the U.S./China Chicken Deal? -- Although the news came out more than a year ago, the U.S. Department of Agriculture’s (USDA) controversial chicken arrangement with China is still ruffling feathers. As EcoWatch reported in March 2014, the USDA now allows chicken to be sent to China for processing before being shipped back to the states for human consumption. One reason this story is resurfacing is a recent Facebook post by Erin Brockovich, who is outraged that this export/import policy exists.  Most Americans would probably agree with Brockovich that sending homegrown chicken on a 14,000-mile round trip is unnecessary and absurd, especially with China’s appalling food safety standards. Even National Chicken Council spokesman Tom Super said that the arrangement “doesn’t make much sense” economically. The big question then is why would the U.S. allow frozen chicken to be shipped to China from America, then have a Chinese company cook the chicken, refreeze it and send it back to the states?  The answer, as it was later reported by Newsweek and other publications, is that the USDA’s Chinese chicken arrangement is much more about the profitable meat product or beef, than it is about chicken.According to Vice, “The USDA’s move to bring Chinese plants into the American fold is just the first step in a politically motivated process to get the country to give the U.S. something in return. In 2003, when mad cow disease was discovered in cattle in Washington state, China enacted a ban on imported U.S. beef that continues to this day. With China’s meat consumption on the rise, it makes sense that U.S. beef producers would want to recapture that lucrative market. By starting to accept China’s processed chicken, the U.S. is apparently warming to the idea of soon accepting the country’s raw, unprocessed poultry—a move that might convince China to lift its beef ban.”

The world eats cheap bacon at the expense of North Carolina’s rural poor - Branch, 71, lives next door to a swine farmer who keeps two lakes filled with a swampy mixture of feces and urine that he periodically spreads on his crops as fertilizer. An acrid odor of rotting eggs fills her yard at least twice a week and occasionally her home, giving her nausea and on some occasions causing her to vomit. Branch is one of over 500 residents in eastern North Carolina who are suing Murphy Brown, the pork production arm of Virginia-based meat conglomerate Smithfield Foods. They’re seeking damages over the cesspools, or lagoons as the industry calls them—uncovered earthen storage pools of waste. The complainants say the lagoons disrupt their lives and devalue their properties. One couple alleges they were forced to close their family business, a restaurant, because the smell drove customers away. Another complainant says he and his wife are so embarrassed by the odor that they no longer have friends over. Others claim that when the farmers spray the waste from the lagoons onto crops, a fine mist of liquefied feces collects on their houses and cars, attracting swarms of flies. Some say their children get teased at school because their clothes smell like hog manure. The lawsuits mark the latest chapter in a decades-long battle. To outsiders, it may look like little more than a spat between neighbors. But at heart, it’s a story about poverty and racial inequality, and how those forces play out in a state where the hog industry has emerged as both essential for the economy and an oppressor of poorer communities of color. It begs questions about the quality of life the world’s richest nation will tolerate for its poorer citizens, questions that have been thrown into sharp relief by the recent entry into North Carolina of China’s—indeed the world’s—largest pork processor, WH Group. Drawn by the low cost of production there, WH Group finds it cheaper to raise pigs in North Carolina and export them to tables back home than to raise the animals in China. The irony is not lost on the residents of Duplin County. “The poor people, they literally get shit on,” says Kemp Burdette, who advocates for better water quality in North Carolina’s Cape Fear River with the nonprofit, the Cape Fear River Watch.

SeaWorld accused of infiltrating animal rights group in California – Reuters -  An animal rights group said SeaWorld Entertainment Inc, known for its dolphin and killer whale performances, sent an employee on secret missions to infiltrate events organized by the group in an attempt to undermine its work. For years, People for the Ethical Treatment of Animals (PETA) has campaigned against SeaWorld over its treatment of killer whales. In 2011, the group sued the company for violating the civil rights of a captive orca. The suit was dismissed. Since then, PETA has repeatedly called on SeaWorld to send its captive orcas to seaside sanctuaries. In a statement on Tuesday, the Norfolk, Virginia-based animal rights group said SeaWorld had become "so upset" that it deployed one of its human relations employees to masquerade as an activist, sending him on undercover missions at protests and organizational meetings in California. "But, most insidiously, he has repeatedly tried to incite people who object to SeaWorld to act illegally, stating that it's time to 'get a little aggressive,'" PETA said.

Fair trade, not free trade --The dust has barely settled from a recent, epic week of actions in D.C., with two Supreme Court decisions and Congress passing Trade Promotion Authority (TPA), or Fast Track, for so-called ‘Free-Trade’ Agreements: Trans Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), Trade In Services Agreement (TISA) and more, detrimentally impacting society. President Obama claims these deals improve and "correct" negative aspects of North American Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA). He claims they would not undermine democracy, national sovereignty or laws and regulations. He was and is wrong. This May we lost a legal trade challenge by partners Mexico and Canada, under existing trade deals, with the same dispute mechanism TPA agrees to in new deals, claiming our 1946 law, Country of Origin Labeling (COOL), gave "unfair" advantage to American meats producers via labeling. Investor State Dispute Settlement (ISDS) tribunals, under World Trade Organization, in NAFTA and CAFTA, agreed country of origin labeling impacted Mexico and Canada’s meat industry profits negatively, thus supporting facts that U.S. labeled meat was successful for U.S. meat producers’ economic markets. Corporate judges and attorneys, as prosecutors and defenders, running Investor State Dispute Settlement (ISDS) tribunals out of these deals ordered the U.S. to remove the country of origin labeling trade barrier or pay lost profits of about $3 billion annually. U.S. meat producers and their profits were sold out: our law was repealed. A direct outcome and important example of how Obama and Congress are wrong claiming these so-called "Free-Trade" deals do not infringe on rights to self-govern and economic, health and safety laws in place for many decades.

Should Washington end agricultural subsidies? -- U.S. farmers don’t need support from U.S. taxpayers, either directly or through legislation that restricts the supply of a commodity to raise its price. First, the 10% to 15% of farm families that receive more than 85% of all farm subsidies—amounting to millions of dollars a year in a few cases—have annual household incomes many times as large as those of the average U.S. taxpayer. Some estimates suggest that the farmers who receive the bulk of all subsidies—many of whom mainly raise corn, cotton, rice, peanuts, soybeans and wheat—are worth somewhere between $6 million and $10 million on average. Second, farming is anything but the risky business it is often portrayed to be. The sector certainly isn’t highly leveraged; the average debt-to-asset ratio in U.S. agriculture today is between 10% and 11%. And in contrast to the claims of the farm lobby and the private insurance companies (who take about $2 billion of taxpayer funds annually to deliver heavily subsidized crop insurance), competent farmers are perfectly capable of managing the year-to-year price and production risks they face. Less than 1% of all farms (about one in every 200) go out of business in any given year, and the three main causes of those failures are catastrophic health-care costs, divorce and incredibly poor management. Fortune 100 companies and Main Street businesses face much riskier financial environments. Third, farmers don’t need “stable” prices to stay in business, especially when stable means they can enjoy high prices but are protected from below-average prices through price-support programs. Most farmers are financially well-positioned to handle both price and production risks.

Anti-GMO Labeling Bill Just Got DARKer --This week the House Agriculture Committee is expected to mark up and vote on a bill that would take away the right of states to label food with genetically modified ingredients, or GMOs. According to Environmental Working Group (EWG), the latest draft of the measure shows it to be a bad bill that keeps getting worse. The bill originally only prevented states from labeling products with GMOs. The version to be considered this week goes a step further, prohibiting state and local governments from protecting the environment and public health from the side effects of the production of GMO crops. The bill also allows companies to make “natural” claims on foods with GMOs and blocks state efforts to prohibit these misleading claims. These are more reasons that clean food advocates call the bill the Deny Americans the Right to Know, or DARK Act. “This bad bill just keeps getting worse,” “The DARK Act has always been an infringement upon the well-established rights of states to regulate food labeling, but the most recent versions of the bill takes that overreach to a new level.” Use of herbicides linked to cancer, especially glyphosate, has exploded alongside the increase in production of GMO crops engineered to withstand the application of these toxic chemicals. In the last 20 years, use of glyphosate, which was recently identified as a probable human carcinogen by the world’s leading cancer researchers, has increased 16-fold.

Earth’s degradation threatens major health gains: study: - The unprecedented degradation of Earth’s natural resources coupled with climate change could reverse major gains in human health over the last 150 years, according to a sweeping scientific review published Thursday. “We have been mortgaging the health of future generations to realise economic and development gains in the present,” said the report, written by 15 leading academics and published in the peer-reviewed medical journal The Lancet.  “By unsustainably exploiting nature’s resources, human civilisation has flourished but now risks substantial health effects from the degradation of nature’s life support systems in the future.” Climate change, ocean acidification, depleted water sources, polluted land, over-fishing, biodiversity loss all unintended by-products of humanity’s drive to develop and prosper “pose serious challenges to the global health gains of the past several decades”, especially in poorer nations, the 60-page report concludes. The likely impacts on global health of climate change, ranging from expanded disease vectors to malnourishment, have been examined by the UN’s panel of top climate scientists. But the new report, entitled Safeguarding Human Health in the Anthropocene Epoch, takes an even broader view. The “Anthropocene” is the name given by many scientists to the period ?- starting with mass industrialisation -? in which human activity has arguably reshaped Earth?s bio-chemical make-up. “This is the first time that the global health community has come out in a concerted way to report that we are in real danger of undermining the core ecological systems that support human health,”

Scientists have discovered that living near trees is good for your health -- In a new paper published Thursday, a team of researchers present a compelling case for why urban neighborhoods filled with trees are better for your physical health. The research appeared in the open access journal Scientific Reports. The large study builds on a body of prior research showing the cognitive and psychological benefits of nature scenery — but also goes farther in actually beginning to quantify just how much an addition of trees in a neighborhood enhances health outcomes. The researchers, led by psychologist Omid Kardan of the University of Chicago, were able to do so because they were working with a vast dataset of public, urban trees kept by the city of Toronto — some 530,000 of them, categorized by species, location, and tree diameter — supplemented by satellite measurements of non-public green space (for instance, trees in a person’s back yard). They also had the health records for over 30,000 Toronto residents, reporting not only individual self-perceptions of health but also heart conditions, prevalence of cancer, diabetes, mental health problems and much more. “Controlling for income, age and education, we found a significant independent effect of trees on the street on health,” said Marc Berman, a co-author of the study and also a psychologist at the University of Chicago. “It seemed like the effect was strongest for the public [trees]. Not to say the other trees don’t have an impact, but we found stronger effects for the trees on the street.”

Wildfire Smoke Can Increase Risk Of Heart Disease, Study Finds --Tiny particles in smoke from wildfires may increase the danger of acute heart problems, including cardiac arrest and ischemic heart disease especially among vulnerable people, according to a new study published today in the Journal of the American Heart Association. The findings are especially worrisome as heavy smoke generated from wildfires in Alaska and Canada continues to drift southward. Smoke already has made its way down into the northern United States, including Montana, the Central Plains, the Upper Mississippi Valley, and into the Mid-Atlantic and Northeast.  “During bushfires there is widespread and huge quantities of smoke, and people are exposed,” . “These particulates can be easily inhaled deep into the lungs. These particles may act as a trigger factor for acute cardiovascular health events.” The new research studied the connection between exposure to wildfire-related fine particulate pollution — particles smaller than 2.5 thousandths of a millimeter in diameter, which is 1/30 the diameter of a human hair — and the risk of cardiac incidents in the state of Victoria, Australia in December 2006 and January 2007. During the two-month period, smoke reached cities far from the blazes and, on most days during the wildfires, levels of particles exceeded the recommended air quality limits.  Examining Victoria health registry data during the wildfires, the scientists found a 6.9 percent increase in out-of-hospital cardiac arrests, with a stronger link between pollution and cardiac arrests in men and individuals 65 and older. They also found a 2.07 percent increase in emergency department visits for ischemic heart disease and a 1.86 percent increase in hospitalizations for ischemic heart disease, with a stronger association in women and those 65 and older. Ischemic heart disease manifests as reduced blood flow to the heart. “This new study suggests that particles from wildfires specifically can cause adverse cardiovascular effects on a short-term basis,”

After Years of Drought, Wildfires Rage in California - It has become the first big wildfire of a California season that threatens to become a terror. Between Jan. 1 and July 11, California fire officials have responded to more than 3,381 wildfires, 1,000 more than the average over the previous five years.The map below shows this year’s fires, as detected by satellite. There are blazes big and small all across the West, but wildfires have been especially concentrated along the mountain ranges of central California.In the forests outside San Bernardino, the drought’s impact was hard to miss. Stomping down the dirt trails leading into the Lake Fire meant breathing in a fine dust, as dry as that of an Iraqi desert. The leaves of otherwise moist vegetation like Manzanita, an evergreen shrub, crunched rather than bent, and much of the wood on the ground was dry and light, some as airy as Styrofoam.  Rain, once plentiful, has maintained its absence, falling so rarely that huge sections of Big Bear Lake where fish used to dart and birds once nested are now wide-open, empty meadows.  When Nick Bruinsma, a Big Bear firefighter and spokesman for the United States Forest Service during the Lake Fire, stood on a ridge at the fire’s edge, it took him only a moment to interpret the smoke rising from the miles of mountains before him. He pointed to the light gray puffs, identifying the source as burning underbrush. Then he turned his attention to the darker clouds rising in narrow plumes. “That’s a good clump of trees right there,” he said. He explained how the color of the smoke corresponds to the density of the fuel.He described how fire – in such arid conditions – climbed quickly up mountain ridges and spread vertically, going from the grasses at ground level to smaller branches that act as ladders to the bodies of dry trees.Dead trees were, in part, what allowed the fire to keep going. And they can be found all over California.The Forest Service conducted aerial surveys in April, flying over the most drought-stricken land several months earlier than normal this year, in response to reports from the field that more trees had died.

USGS: High levels of contaminants found in California public-water supplies — With the state’s water resources running dry due to California’s unabating drought, a new study by the U.S. Geological Survey says that about one-fifth of the raw groundwater contains high levels of contaminants. The study looked at data from about 11,000 public-water-supply wells in the state that supply 99 percent of Californians using public water systems. U.S. Geological Survey Groundwater Assessment chief Kenneth Belitz said Wednesday the study found several million people that rely on public water systems whose raw supplies have potentially unsafe levels of arsenic, uranium and manganese. In the North Bay, 22% of the regions groundwater has high concentrations of those elements, compared to 19% statewide. Traces of those elements was found in 9% of the groundwater on the Peninsula, South Bay and parts of Alameda County. Livermore’s groundwater resource was found to have 19% levels of high concentration elements, with nitrate accounting for 27% of the contaminants found in that resource. The findings underscore that it can take decades for contamination to show up in public water systems, Belitz said. In the Central Valley’s farmlands, several rural schools in Tulare County, which was found to have 73% of high concentration elements, has put drinking fountains off limits to pupils.

A New Court Ruling Could Threaten California’s Ability To Regulate Water Use Amid Drought - On Friday, a California court issued a ruling that could hinder the state’s ability to issue mass water cuts amid its historic drought. Sacramento County Superior Court Judge ShelleyAnne Chang told the State Water Board that it can’t enforce water cuts without first letting farmers and irrigation districts defend their water rights at a hearing. Water rights, Chang said, are essentially property rights, and taking them away without a hearing violates due process. “The practical implication is that the court has reminded the state board that water rights are a form of property rights, and they have to use a lot more care when they are trying to regulate them,” Jennifer Spaletta, an attorney with the Central Delta Water Agency, told the Associated Press.  Four irrigation districts in California’s Central Valley, including the Central Delta Water Agency, filed a petition in late June alleging that the California State Water Board violated property rights by issuing curtailment notices to farmers without first holding a public hearing. California issued notices of curtailments to senior water rights holders — those with claims to the water dating before 1914 — in mid-June. Almost immediately, several affected water districts filed lawsuits challenging the curtailments. Chang sided with the plaintiffs, issuing a temporary restraining order on the curtailments.

5 Signs the Historic Drought Is Getting Much Worse -- The drought is bad. Really bad. While the water catastrophe is usually associated with California, many other water-pinched states are also reeling from this historic drought. Here are five ways the devastating drought has affected lives, rural towns and even fish populations the American West.Severe drought has caused lethal conditions for fish. About 50 dead sockeye salmon, infected with gill rot disease associated with warm water, were found this week in the Deschutes River.

  • 1. It’s reached Portland. While fairing better than its neighbors, the entire state of Oregon is feeling some degree of drought, including normally wet Portland. “Washington had their warmest and third driest June ever, and Oregon was warmest and seventh driest,” OPB reported.
  • 2. The West Nile virus is spreading. California, now in its fourth year of drought, is seeing numbers of the mosquito-borne disease. There were 801 reported human cases of West Nile virus in the state last year, with 31 people who succumbed to the disease, the Los Angeles Times reported. And according to the San Jose Mercury News, 152 dead birds and 348 mosquito samples across the state have also tested positive for the virus already this year.
  • 3. The poor are relying on water bottles and drinking toxic water. As wells and groundwater dry up due to the ongoing drought and nearby agricultural and mining operations, some families in California’s rural San Joaquin and Coachella valleys have (for years) been subsisting on bottled water and consuming potentially hazardous levels of arsenic-laden water, The Washington Post reported.
  • 4. Seattle isn’t getting any rain. The typically rain-soaked city hasn’t seen more than a tenth of an inch of rain in 42 days, according to local news affiliate KIRO 7. Making matters worse, local firefighters have warned that the lack of rain caused by drought is only causing homes to light up faster.
  • 5. River fish are dying from heat and disease. Record low snowpacks and record high temperatures have caused low-flowing, extra-warm rivers this summer, leading to salmon and trout deaths. As the Associated Press reported, a Wild Fish Conservancy survey of 54 rivers in Oregon, California and Washington revealed that three-quarters were warmer than 70 degrees Fahrenheit, a temperature that could be fatal for salmon and trout.

California Water Wars Escalate: State Changes Law, Orders Farmers To Stop Pumping -- "In the water world, the pre-1914 rights were considered to be gold," exclaimed one water attorney, but as AP reports, it appears that 'gold' is being tested as California water regulators flexed their muscles by ordering a group of farmers to stop pumping from a branch of the San Joaquin River amid an escalating battle over how much power the state has to protect waterways that are drying up in the drought. As usual, governments do what they want with one almond farmer raging "I've made investments as a farmer based on the rule of law...Now, somebody's changing the law that we depend on." This is not abiout toi get any better as NBCNews reports, this drought is of historic proportions - the worst in over 100 years. The current drought has averaged a reading of -3.67 over the last three years, nearly twice as bad as the second-driest stretch since 1900, which occurred in 1959. Other studies using PDSI data drawn from tree-ring observations reaching even further back in time reveal similar findings. One such study from University of Minnesota and Woods Hole Oceanographic Institute researchers showed the current drought is California's worst in at least 1,200 years. And as AP reports, regulatords are changing the laws to address the problems...The State Water Resources Control Board issued the cease and desist order Thursday against an irrigation district in California's agriculture-rich Central Valley that it said had failed to obey a previous warning to stop pumping. Hefty fines could follow.

Boehner Blames California Drought On Obama -- House Speaker John Boehner (R-OH) took to Facebook on Tuesday to recast California’s worst drought in 1200 years as a “man-made water shortage” — not worsened by climate change, but by President Obama himself.  He also asserted that, in the midst of the historic Dust Bowl conditions, Americans still have a God-given right to green lawns. Boehner, of course, famously said in May that he is “not qualified to debate the science over climate change.” That just affirmed what was clear from his bizarre 2009 assertion: “The idea that carbon dioxide is a carcinogen that is harmful to our environment is almost comical.”  But admitted scientific ignorance doesn’t slow the Speaker down. What has sparked his blinkered outrage this time is this photo he posted on Facebook:  Boehner brags here about what “Congress is doing to end President Obama’s man-made water shortage in the West.” Indeed, the House just passed a bill that essentially blames environmental polices for causing the drought, specifically policies that reduce water use to protect endangered fish species.  Actual scientists explained earlier this year that the primary extent to which the drought has a man-made component is that man-made global warming is making it a lot worse.   Meanwhile, Boehner is outraged that people are being urged not to maintain their water-intensive green lawns in a semi-arid region during this epic drought. From his Facebook post: If ever there was a phrase that perfectly encapsulates liberal environmentalists’ backwards priorities and regressive ideology of restriction and scarcity, it is the one now displayed on a government sign in Arcadia, California: “It’s ‘green’ to go brown.”

­How the West Overcounts Its Water Supplies - Mr. Matuska, a hydrologist, is one of about a dozen accountants for the federal Bureau of Reclamation, which controls water distribution along the lower half of the Colorado River. His job is to count the water used by cities like Needles and the farms around them — lands close to the essential Colorado — and make sure they don’t take more than their share of the river.As it happens, Needles gets most of its water from underground — pumping an average of about 700 million gallons a year from four wells it has drilled into the local aquifer. In recent years, such withdrawals have taken on more importance in the West, particularly in California and Arizona, as streams shrivel, rivers are fought over and reservoirs run dry. About 60 percent of California’s water now comes from underground, according to estimates by NASA researchers. Arizona, staring down imminent rationing of Colorado River water, pumps nearly half its supplies from aquifers.But in allowing their residents to tap underground resources this way, regulators and legislators in those states have ignored a basic truth about how much water is actually available. In many places, groundwater in aquifers and surface water in rivers and reservoirs are not separate supplies but interconnected parts of the same system.What this means is that there is even less water than people think in a region already afflicted by a prolonged drought that has led to water rationing and fears for the future. How much less, and exactly where the overlaps exist, are not fully known. But the Needles example suggests that the overlap could be enormous.

California To Get Relief from Drought: El Niño to the Rescue -- California is finally set to get some drought relief …Specifically, forecasters say a strong El Niño is heading our way. Time gives odds:  The National Oceanic and Atmospheric Administration (NOAA) said there is now a 90% chance that El Niño will last through the winter and an 80% chance it will last into spring 2016. As does the Los Angeles Times: Scientists say the likelihood that a significant El Niño will happen is more than 90%, and some models suggest there is a nearly 100% chance it will be strong this fall. El Niño increases rainfall in California. Forecasters say this could be the strongest El Niño in 50 years. Indeed, it could be so large that it sets “a new all-time recordUSA Today notes: There is growing evidence California could see an even stronger El Niño event this winter than the 1997 one that caused massive flooding across Northern California. However, even a very wet winter probably won’t be enough to erase California’s drought.  Scientific American reports: “California would probably need to experience its wettest year on record (by a fairly wide margin) to erase ongoing deficits in a single year,” Swain wrote on his blog. “While it’s not physically impossible, that would be a very tall order, indeed.”

Very strong El Niño likely during autumn/winter 2015-2016; significant impacts possible in California --El Niño has been making headlines in the weather and climate community for the better part of two years now. Early forecasts from winter/spring 2014 hinted that a major event might take shape during summer 2014–but, as regular readers of this blog are acutely aware, those initial projections failed to come to fruition. A weak “El Niño-ish” event instead developed and persisted through late winter 2015. The atmosphere failed to respond to the unusually warm ocean conditions in the way we typically observe during canonical El Niño events, and global impacts did not resemble those usually associated with El Niño (though global temperatures were still the warmest on record in 2014). Starting earlier this calendar year–during late winter and early spring 2015–a series of westerly wind bursts (WWBs) developed in the tropical West Pacific Ocean, allowing much of the extremely warm water that has accumulated over the past two decades of persistent “La Niña-like” conditions to “slosh” back eastward. Several large oceanic Kelvin waves generated in response to these westerly wind bursts propagated across the entire Pacific basin, inhibiting  upwelling off the west coast of South America and allowing ocean temperatures near the Peruvian coast to rise dramatically. For a while, early 2015 looked a lot like early 2014: the atmospheric precursors to a major El Niño event were in place, and the ocean was beginning to respond. But unlike 2014, the ocean was already in a weak El Niño state in early 2015–and the early WWBs acted to reinforce the already anomalous state of the tropical Pacific Ocean.

Water is a precious commodity, but B.C. is just giving it away - As events in the Western United States have proven in the past few years, fresh water is an increasingly precious natural resource. That reality has been driven home here in British Columbia this summer, with strict watering bans now in place in response to ever-diminishing reservoirs. It’s against this backdrop that a full-fledged revolt has begun over the provincial government’s decision to give our fresh water away to corporations effectively for nothing. It is a policy that urgently needs to be reviewed.Under regulations in an otherwise commendable piece of new legislation – the Water Sustainability Act – the B.C. government will begin charging companies a small fee to access the province’s groundwater. (Now it is free.) One of the biggest corporate users of that groundwater is the Swiss multinational Nestlé SA, which does business in this country. Starting in 2016, the government will begin charging Nestlé Waters Canada (and other industrial users) a fee of $2.25 per million litres of water. Yes, you read that correctly. Nestlé can withdraw a million litres of some of the finest drinking water anywhere in the world for the price of one of their chocolate bars. It takes about 265 million litres of the liquid gold every year for the outrageous sum of $596.25 – or the cost of a backyard barbecue. Then it turns around, packages it in clear plastic bottles and sells it as “pure natural spring water” – and makes millions doing it. One doesn’t have to stare too long at this picture to conclude there is something dreadfully wrong. Tens of thousands have come to the same conclusion, signing an online petition that has now reached 160,000.

Water Crisis Brings Out Puerto Rico’s Creative Side - — On an island that is flirting with default, fending off comparisons to Greece and losing its people to the mainland, the biggest problem most people face is something more elemental — one of the worst droughts in Puerto Rico’s history.There has been so little rain here that two months ago the government was forced to start rationing water on the populous eastern side of the island, including in many San Juan neighborhoods. Carraizo, the major reservoir serving parts of the city, has dropped nearly 18 feet in recent months, shrinking so noticeably that people can now fish off its sandy shores. The last time water rationing was ordered on the island was two decades ago. For 160,000 residents and businesses on the island, water is turned off for 48 hours and then back on for 24 hours, sending people into a frenzy of water collection. Another 185,000 are going without water in 24-hour cycles, and 10,000 are on a 12-hour rationing plan.The drought here has not received as much attention as the one in California and other Western states. But the dry weather, which meteorologists say is caused by the Pacific warming pattern known as El Niño, has spread across much of the Caribbean, affecting countries like Cuba and the Dominican Republican as well as crops and livestock. In Puerto Rico, some reservoirs have come within 30 days of running out of water. The drought here has cost the water authority as much as $15 million a month as payments have fallen and operating costs have risen, a big hit for an agency already $5 billion in debt. So far, 340,000 households and businesses — about 28 percent of the island’s total — in 13 municipalities are at times going without water. And the problem is growing worse. The United States Drought Monitor reported last week that 73 of 78 municipalities on the island were experiencing drought, some on the extreme side. The desertlike weather is making it difficult for ranchers to feed their cattle, and farmers on the south coast have postponed planting vegetables so far. Even fish are feeling the pain. At La Plata reservoir in Toa Alta, thousands of sardines have died from lack of oxygen.

When will Sana’a run out of water? --Yemen’s capital, Sanaa, may run out of economically viable water supplies by 2017 as available groundwater is unable to keep pace with the needs of a fast-growing population, experts warn. Per capita water consumption is right now about two hundred cubic meters per year, compared to a scarcity threshold of 1700 cubic meters per year. The cost of water has tripled in the last year, and the population of the city is expected to double within the next ten years. There has been talk of moving the capital, as well as desalinating seawater on the coast and pumping it 2,000 metres uphill to Sanaa. But there are no concrete plans. It may be too late for the removal of various water subsidies to make a difference, even assuming that were to happen.  In the meantime, there have been few positive developments and of course the war is a huge negative.  It would be tragic, and in modern times unprecedented, if and when a major city simply runs out of water, and that could happen in about two years’ time.  Here is further coverage.

Why Parts of the World Are Experiencing Record-Breaking Rainfall  --If you think you’re getting an unusually hard soaking more often when you go out in the rain, you’re probably right.  A team of scientists in Germany says record-breaking heavy rainfall has been increasing strikingly in the last 30 years as global temperatures increase.“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,” says co-author Dim Coumou, a PIK researcher into the links between atmospheric circulation and extreme weather events. Before 1980, they say, the explanation was fluctuations in natural variability. But since then they have detected a clear upward trend in downpours that is consistent with a warming world. The scientists, from the Potsdam Institute for Climate Impact Research (PIK), report in the journal Climatic Change that this increase is to be expected with rising global temperatures, caused by greenhouse gas emissions from burning fossil fuels. High-impact flooding Short-term torrential rains can lead to what the team calls “high-impact” flooding. For example, extreme rainfall in Pakistan in 2010 brought devastation that killed hundreds of people and led to a cholera outbreak. Statistical analysis of rainfall data from 1901 to 2010, derived from thousands of weather stations around the globe, shows that from 1980 to 2010 there were 12 percent more of these intense events than would be expected in a climate without global warming. In the last year of the period the team studied, there were 26 percent more record-breaking daily rainfall events globally.

Ocean warming leads to stronger precipitation extremes  -- That the temperatures on our planet are rising is clear. In particular, the increasing emissions of greenhouse gases such as carbon dioxide continue to warm the atmosphere. The effects of global warming on the hydrological cycle, however, are still not fully understood. Particularly uncertain is how the strength of extreme summertime thunderstorms have changed, and how it may change in the future. In coastal regions neighboring warm seas, the sea surface temperature can play a crucial role in the intensity of convective storms. The Black Sea and eastern Mediterranean have warmed by about 2 C since the early 1980s. Russian and German scientists investigated what impact this warming may have had on extreme precipitation in the region. "Our showcase example was a heavy precipitation event from July 2012 that took place in Krymsk (Russia), near the Black Sea coast, resulting in a catastrophic flash food with 172 deaths", said Edmund Meredith, lead author of the study. "We carried out a number of very-high-resolution simulations with an atmospheric model to investigate the impact of rising sea surface temperatures on the formation of intense convective storms, which are often associated with extreme rainfall", Meredith continued. Simulations of the event with observed sea surface temperatures showed an increase in precipitation intensity of over 300%, compared to comparable simulations using sea surface temperatures representative of the early 1980s. "We were able to identify a very distinct change, which demonstrates that convective precipitation responds with a strong, non-linear signal to the temperature forcing",

International report confirms: 2014 was Earth’s warmest year on record:  In 2014, the most essential indicators of Earth’s changing climate continued to reflect trends of a warming planet, with several  markers such as rising land and ocean temperature, sea levels and greenhouse gases ─ setting new records.  These key findings and others can be found in the State of the Climate in 2014 report released online today by the American Meteorological Society (AMS).  The report, compiled by NOAA’s Center for Weather and Climate at the National Centers for Environmental Information is based on contributions from 413 scientists from 58 countries around the world (highlight, full report). It provides a detailed update on global climate indicators, notable weather events, and other data collected by environmental monitoring stations and instruments located on land, water, ice, and in space.   “This report represents data from around the globe, from hundreds of scientists and gives us a picture of what happened in 2014. The variety of indicators shows us how our climate is changing, not just in temperature but from the depths of the oceans to the outer atmosphere,” The report’s climate indicators show patterns, changes and trends of the global climate system. Examples of the indicators include various types of greenhouse gases; temperatures throughout the atmosphere, ocean, and land; cloud cover; sea level; ocean salinity; sea ice extent; and snow cover. The indicators often reflect many thousands of measurements from multiple independent datasets.

Hottest June Puts 2015 On Track For Hottest Year On Record By Far -- NASA reported Wednesday that this was the hottest June on record (tied with 1998). And it’s now all but certain 2015 will be the hottest year on record, probably by a wide margin — as what increasingly appears to be one of the strongest El Niños in 50 years boosts the underlying global warming trend. Climate expert Dr. John Abraham amended this NASA chart to show how the first six months of 2015 compares to the annual temperatures of previous years: The gap between 2015 and all other years seen in that chart is likely to grow because the El Niño that NOAA announced a few months ago has been growing stronger — and it is projected to grow even stronger and last the entire year. The rising ocean temperatures in the central and eastern equatorial Pacific, which are characteristic of an El Niño, just keep rising. “Confidence continues to grow that this El Niño will be one of the stronger El Niños over the past 50 years,” AccuWeather Senior Meteorologist Brett Anderson said Thursday El Niño Southern Oscillation (ENSO) junkies should be following the Twitter feed of the International Research Institute (IRI) for Climate & Society, where you will learn “Last week’s NINO3.4 temps were ~+1.5. If that level holds for the month of July, the #ElNino will be considered a strong event” and “#ElNino forecast is off the charts! Both dynam & stats models calling for stronger event than last month.” You’ll also see this: Odds of El Niño at about 100 percent through winter according to update @climatesociety & @NOAA forecast:

Alaska's Climate Refugees (photo-essay -35 photos) The village of Newtok, Alaska, sits on the shore of the Ninglick River, on increasingly unstable land affected by erosion and melting permafrost. To escape the predicted collapse of the village site, residents will soon have to relocate to more stable ground. Newtok, with a population of approximately of 375 ethnically Yupik people, was founded in 1959, but the Yupik have lived on the coastal lands along the Bering Sea for thousands of years. Today, as global temperatures rise, Newtok and several other remote Alaskan villages are threatened by melting permafrost, widening rivers, coastal erosion, and larger storms that come in from the Bering Sea. According to the U.S. Army Corps of Engineers, the highest point in Newtok—the school—could be underwater by 2017. A new village site called Mertarvik has been established about nine miles away, though so far families have been slow to relocate. Getty Images photographer Andrew Burton spent several days in Newtok recently, documenting the environment, the new town site, and the Yupik way of life in this threatened remote village. (Also worth reading is this earlier story on The Atlantic: When Global Warming Kills Your God.)

Alaska Starts Cleaning Up Debris From Japan Spread by 2011 Tsunami - — A large-scale cleanup is getting underway in Alaska, with tons of marine debris — some of it most likely from the 2011 tsunami in Japan — set to be airlifted from rocky beaches and taken by barge for recycling and disposal in the Pacific Northwest.Hundreds of heavy-duty bags of debris, collected in 2013 and 2014 and stockpiled in Kodiak, will also be shipped out. The barge is scheduled to arrive in Kodiak by Thursday, before setting off on a roughly one-month venture.The scope of the project, a year in the making, is virtually unheard-of in Alaska. It was spurred, in part, by the mass of material that has washed ashore — things like buoys, fishing lines, plastics and fuel drums — and the high cost of shipping small boatloads of debris from remote sites to port, said Chris Pallister, president of the cleanup organization Gulf of Alaska Keeper, which is coordinating the effort. The Anchorage landfill also began requiring that fishing nets and lines — common debris — be chopped up, a task described as impossible by Janna Stewart, the state’s tsunami marine debris coordinator. . The cost to operate the barge is $17,000 a day, Ms. Stewart said. Many of the project sites are remote and rugged. . The need to keep moving down the shoreline as the cleanup progresses, combined with terrain littered with boulders and logs, makes it tough to set up a camp,

Global warming is causing rain to melt the Greenland ice sheet: Greenland, one of the largest ice sheets in the world, is melting. In fact, it is melting ahead of schedule as the world warms. Scientists are working hard to deepen their understanding of this ice sheet’s behavior so that we can predict how fast and how much of the ice sheet will melt in the coming decades and centuries. It might seem obvious that in a warming world, the Greenland ice sheet will melt. But, what seems obvious and simple can be more complex when investigated more deeply. With respect to Greenland, it is expected that warmer temperatures increase melting but warmer temperatures can also mean more snowfall, as there is more moisture in warm air which can then fall as snow. So, it has been a question of which of these two competing processes would win out. Would Greenland get smaller because of melting or would it grow as more snow fell? Over the past few years, the verdict has become clear. The Greenland ice sheet is losing mass at an increasing rate. In fact, Greenland currently contributes twice as much as the Antarctic to rising sea levels.A new study, just published in Nature Geoscience, makes an important new contribution to our understanding of the forces at play in Greenland. Dr Samuel Doyle and an international team captured the wide-scale effects of an unusual week of warm, wet weather in late August and early September, 2011. They found that cyclonic weather led to extreme surface runoff – a combination of ice melt and rain – that overwhelmed the ice sheet’s basal drainage system. This drive a marked increase in ice flow across the entire western sector of the ice sheet that extended 140 km into the ice sheet’s interior. According to Dr. Doyle, It wasn’t just rainfall. We saw 10 to 15% of the total annual surface melt occur in this event in late summer 2011. When this water reached the bed, the ice sheet lifted up and moved faster towards the sea.

The Really Big One -- Just north of the San Andreas, however, lies another fault line. Known as the Cascadia subduction zone, it runs for seven hundred miles off the coast of the Pacific Northwest, beginning near Cape Mendocino, California, continuing along Oregon and Washington, and terminating around Vancouver Island, Canada. The “Cascadia” part of its name comes from the Cascade Range, a chain of volcanic mountains that follow the same course a hundred or so miles inland. The “subduction zone” part refers to a region of the planet where one tectonic plate is sliding underneath (subducting) another. Most of the time, their movement is slow, harmless, and all but undetectable. Occasionally, at the borders where they meet, it is not.  In the Pacific Northwest, everything west of Interstate 5 covers some hundred and forty thousand square miles, including Seattle, Tacoma, Portland, Eugene, Salem (the capital city of Oregon), Olympia (the capital of Washington), and some seven million people. When the next full-margin rupture happens, that region will suffer the worst natural disaster in the history of North America.. FEMA projects that nearly thirteen thousand people will die in the Cascadia earthquake and tsunami. Another twenty-seven thousand will be injured, and the agency expects that it will need to provide shelter for a million displaced people, and food and water for another two and a half million.  The question is when. The water will surge upward into a huge hill, then promptly collapse. One side will rush west, toward Japan. The other side will rush east, in a seven-hundred-mile liquid wall that will reach the Northwest coast, on average, fifteen minutes after the earthquake begins. By the time the shaking has ceased and the tsunami has receded, the region will be unrecognizable. , “Our operating assumption is that everything west of Interstate 5 will be toast.”

In Fiery Speeches, Francis Excoriates Global Capitalism - His speeches can blend biblical fury with apocalyptic doom. Pope Francis does not just criticize the excesses of global capitalism. He compares them to the “dung of the devil.” He does not simply argue that systemic “greed for money” is a bad thing. He calls it a “subtle dictatorship” that “condemns and enslaves men and women.”Having returned to his native Latin America, Francis has renewed his left-leaning critiques on the inequalities of capitalism, describing it as an underlying cause of global injustice, and a prime cause of climate change. Francis escalated that line last week when he made a historic apology for the crimes of the Roman Catholic Church during the period of Spanish colonialism — even as he called for a global movement against a “new colonialism” rooted in an inequitable economic order.The Argentine pope seemed to be asking for a social revolution.“This is not theology as usual; this is him shouting from the mountaintop,”  The last pope who so boldly placed himself at the center of the global moment was John Paul II, who during the 1980s pushed the church to confront what many saw as the challenge of that era, communism. John Paul II’s anti-Communist messaging dovetailed with the agenda of political conservatives eager for a tougher line against the Soviets and, in turn, aligned part of the church hierarchy with the political right.Francis has defined the economic challenge of this era as the failure of global capitalism to create fairness, equity and dignified livelihoods for the poor — a social and religious agenda that coincides with a resurgence of the leftist thinking marginalized in the days of John Paul II. Francis’ increasingly sharp critique comes as much of humanity has never been so wealthy or well fed — yet rising inequality and repeated financial crises have unsettled voters, policy makers and economists.

A Radical Vatican? - Naomi Klein --  An evangelism of ecology, I realize, is what I have been witnessing take shape during the past three days in Rome—in the talk of “spreading the good news of the encyclical,” of “taking the Church on the road,” of a “people’s pilgrimage” for the planet, in Miranda laying out plans to spread the encyclical in Brazil through radio ads, online videos, and pamphlets for use in parish study groups. A millennia-old engine designed to proselytize and convert non-Christians is now preparing to direct its missionary zeal inward, challenging and changing foundational beliefs about humanity’s place in the world among the already faithful. In the closing session, Father McDonagh proposes “a three-year synod on the encyclical,” to educate Church members about this new theology of interconnection and “integral ecology.” Many have puzzled over how “Laudato Si’ ” can simultaneously be so sweepingly critical of the present and yet so hopeful about the future. The Church’s faith in the power of ideas—and its fearsome capacity to spread information globally—goes a long way toward explaining this tension. People of faith, particularly missionary faiths, believe deeply in something that a lot of secular people aren’t so sure about: that all human beings are capable of profound change. They remain convinced that the right combination of argument, emotion and experience can lead to life-altering transformations. That, after all, is the essence of conversion. The most powerful example of this capacity for change may well be Pope Francis’s Vatican. And it is a model not for the Church alone. Because if one of the oldest and most tradition-bound institutions in the world can change its teachings and practices as radically, and as rapidly, as Francis is attempting, then surely all kinds of newer and more elastic institutions can change as well.

Winter is Coming: Scientist Says Sun Will Nod Off in 15 Years -- Might want to start stockpiling those down jackets: The sun could nod off by 2030, triggering what scientists are describing as a “mini ice age.” Professor Vlentina Zharkova of Northumbira University presented the frigid findings at the National Astronomy Meeting in Llandudno, Wales.  Modern technology has made us able to predict solar cycles with much greater accuracy, and Zharkova’s model predicts that solar activity will drop by more than half between 2030 and 2040. Solar activity was thought to be caused by a turbine-system of moving fluid within the sun. In search of a more accurate system of prediction, Professor Zharkova and her team discovered fluctuating magnetic waves in two layers of the sun. By studying the data of the dual waves, she says, predictions are far more precise. “Combining both waves together and comparing to real data for the current solar cycle, we found that our predictions showed an accuracy of 97 percent,” said Zharkova, whose findings were published by the Royal Astronomic Society. Using this method, she and her team discovered that there will be far less solar activity in sun cycles 25 and 26, leading to a prolonged period of solar dormancy. We predict that this will lead to the properties of a ‘Maunder minimum’,” said Zharkova. The Maunder Minimum is the title given to periods of time when sunspots are rare. It last occurred between 1645 and 1715, when roughly 50 sunspots were recorded, as opposed to the standard 40,000. That time was marked by brutal, river-freezing temperatures in Europe and North America.

Media Reports The World Will Enter A ‘Mini Ice Age’ In The 2030’s. The Reverse Is True. -- U.K. tabloids, conservative media, and others are (mis)reporting that the Earth will enter a “mini ice age” in the 2030s. In fact, not only is the story wrong, the reverse is actually true. The Earth is headed toward an imminent speed-up in global warming, as many recent studies have made clear, like this June study by NOAA. Indeed, a March study, entitled “Near-term acceleration in the rate of temperature change,” makes clear that a stunning acceleration in the rate of global warming is around the corner — with Arctic warming rising 1°F per decade by the 2020s! Also, right now, we appear to be in the midst of a long-awaited jump in global temperatures. Not only was 2014 the hottest year on record, but 2015 is in the process of blowing that record away. On top of that, models say a massive El Niño is growing, as USA Today reported last week. Since El Niños tend to set the record for the hottest years (since the regional warming adds to the underlying global warming trend), if 2015/2016 does see a super El Niño then next year may well crush the record this year sets.  Whatever near-term jump we see in the global temperatures is thus likely to be followed by an accelerating global warming trend — one that would utterly overwhelm any natural variations such as a temporary reduction in solar intensity. A recent study concluded that “any reduction in global mean near-surface temperature due to a future decline in solar activity is likely to be a small fraction of projected anthropogenic warming.”

Sunspot cycles won't cause a “Mini Ice Age” by 2030. - A new study and related press release from the Royal Astronomical Society is making the rounds in recent days, claiming that a new statistical analysis of sunspot cycles shows “solar activity will fall by 60 per cent during the 2030s” to a level that last occurred during the so-called Little Ice Age, which ended 300 years ago.  Since climate change deniers have a particular fascination with sunspot cycles, this story has predictably been picked up by all manner of conservative news media, with a post in the Telegraph quickly gathering up tens of thousands of shares. The only problem is, it’s a wildly inaccurate reading of the research Sunspots have been observed on a regular basis for at least 400 years, and over that period, there’s a weak correlation between the number of sunspots and global temperature—most notably during a drastic downturn in the number of sunspots from about 1645 to 1715.  Though that idea is still widely circulated, it’s been disproved. In reality, sunspots fluctuate in an 11-year cycle, and the current cycle is the weakest in 100 years—yet 2014 was the planet’s hottest year in recorded history. If you look closely at the original press release, the study’s author, Valentina Zharkova, never implied a new ice age is imminent—only that we may see a sharp downturn in the number of sunspots. Yes, the sun is a variable star, but its output is remarkably stable. The amount of energy we receive from the sun just doesn’t change fast enough to cause a rapid-onset ice age in just a few decades. The root of the problem here may be a poorly worded quote in the press release implying an imminent 60 percent decline in solar activity. Yes, numbers of sunspots can vary by that much or even more on an 11-year cycle, but the sun’s output—the total amount of energy we get—is extremely stable and only changes by about 0.1 percent, even in extreme sunspot cycles like the one Zharkova is predicting.

Major greenhouse gases hit record highs in 2014: report: ll the major greenhouse gases that fuel global warming hit record highs last year, while the planet’s surface temperature reached its hottest point in 135 years, international researchers said Thursday. The findings of the 2014 State of the Climate report — a peer-reviewed study that examines temperature, precipitation and weather events experienced around the world — were released by the National Oceanic and Atmospheric Administration.A total of 413 scientists from 58 countries around the world contributed to the report, which is based on data collected by environmental monitoring stations and instruments on land, water, ice and in space. “Carbon dioxide, methane, and nitrous oxide — the major greenhouse gases released into Earth’s atmosphere — once again all reached record high average atmospheric concentrations for the year,” said the study. Amid worldwide heat records, eastern North America was the only major region of the world to experience below-average annual temperatures. “Europe observed its warmest year on record by a large margin, with close to two dozen countries breaking their previous national temperature records,” said the study.“Many countries in Asia had annual temperatures among their 10 warmest on record; Africa reported above-average temperatures across most of the continent throughout 2014; Australia saw its third warmest year on record, following record heat there in 2013.” In Latin America, Mexico had its warmest year on record, while Argentina and Uruguay each had their second warmest year on record. The world’s oceans experienced record warmth last year, and sea level was at its highest in modern times, too.

A Hard Deadline: We Must Stop Building New Carbon Infrastructure by 2018 -- In only three years there will be enough fossil fuel-burning stuff—cars, homes, factories, power plants, etc.—built to blow through our carbon budget for a 2 degrees Celsius temperature rise. Never mind staying below a safer, saner 1.5°C of global warming. The relentless laws of physics have given us a hard, non-negotiable deadline, making G7 statements about a fossil fuel-phase out by 2100 or a weak deal at the UN climate talks in Paris irrelevant.“By 2018, no new cars, homes, schools, factories, or electrical power plants should be built anywhere in the world, ever again unless they’re either replacements for old ones or are carbon neutral? Are you sure I worked that out right?” I asked Steve Davis of the University of California, co-author of a new climate study.“We didn’t go that far in our study. But yes, your numbers are broadly correct. That’s what this study means,” Davis told me over the phone last fall. Davis and co-author Robert Socolow of Princeton University published a groundbreaking paper in Environmental Research Letters last August, entitled “Commitment accounting of CO2 emissions.” A new coal plant will emit CO2 throughout its 40- to 60- year lifespan. That’s called a carbon commitment. A new truck or car will mean at least 10 years of CO2 emissions. Davis and Socolow’s study estimated how much CO2 will be emitted by most things that burn oil, gas, or coal, and it is the first to actually total up all of these carbon commitments.  Based on their work, I estimated that if we continue to build new fossil fuel burning stuff at the average rate of the last five years, we’ll make enough new carbon commitments to blow through our 2°C carbon budget sometime in 2018.

Zero Carbon or Bust - On July 10 in Paris a gathering of nearly 2,000 scientists and academics reaffirmed what most climate scientists have been saying for decades: The cost of making cuts in greenhouse gas pollution rises with every day of delay and zero emissions must be the goal for this century. Such was the outcome of the Our Common Future under Climate Change conference held in Paris from July 7–10 by the United Nations Educational, Scientific and Cultural Organization, better known by its acronym, UNESCO, and meant to advise the upcoming international negotiations to curb global warming in Paris this December. The dangers include sea level rise of more than six meters at an unknown rate, more downpours, heat waves, wildfires and droughts as well as the loss of ice everywhere, among other challenges. To avoid global warming of as much as 4 degrees Celsius by the end of the century, the scientists suggested civilization has a total budget of 900 billion metric tons of carbon dioxide in the atmosphere, and the world has already added roughly 592 billion metric tons since 1780.Nobel laureate economist Joseph Stiglitz of Columbia University suggested at the conference that the world has already missed an opportunity during the Great Recession to start the necessary shift to a low-carbon energy system by neglecting to invest in more climate-friendly energy infrastructure, which would have both stimulated the global economy and reduced income inequality. He called for an enforceable global price on carbon—not the spotty global cap-and-trade program presently in effect—to drive this shift, along with cross-border carbon tariffs for laggard nations. This rise in carbon taxes could then be used to reduce other taxes, which could mean low or even negative costs to countries. "This reflects the basic economic principle: that it's better to tax bad things than good things," he said.

Climate Defeatism is as Much a Threat to Human Survival as Climate Denial – Part 2 (Part 1 )- The sources of climate defeatist attitudes are and will be diverse though one vast supply of defeatist sentiment will originate from those in the climate denial camp who must now concede that the climate has been changed, probably for the worse, by human activity.   For instance, Rex Tillerson, Exxon CEO has attempted to spread an attitude of climate defeatism in some of his public utterances, when he is not acting as if climate change doesn’t exist in his role as Exxon CEO.  It is perhaps not completely accurate to apply the “defeatist” label to those who have always worked for the defeat of climate action for a variety of personal, economic, and political reasons.   “Defeatism” suggests that the person has in some way struggled on the side of the good and righteous and then decided to give up; those in the climate denial camp have always been against climate action.  Still there are many in this camp and they can insert themselves into the broader discussion as “honest brokers” who pedal a message of defeat that reinforces their pre-existing worldview. The climate denial camp, mostly shills for fossil fuel industries or dye-in-the-wool believers in neoliberal/libertarian ideas about the fallibility of government action, can in part be viewed as also a range of political factions tailored for cynical people, who believe that their opposition to others’ good intentions is always and only a sign of a tough, realistic attitude to life rather than an almost complete failure of moral imagination and commitment.  So the transition to stoking doubts about our ability to face anthropogenic global warming and quiescence in the face of climate catastrophe is a natural for those who have always adhered to climate denial.  Their climate denial was often only about right-wing contrarianism and opposing the implementation of well-intentioned programs by governments to help people, in the case of climate action help people survive as an organized species.  This source of climate defeatism then comes from the same “episteme” (mental framework) as climate denial and those, in a choice of narcissism over human survival as a species, who are committed to their mental framework over reality will continue to choose the former.

Australia Moves To Ban Wind And Rooftop Solar From Its Clean Energy Investments - In another blow from Prime Minister Tony Abbott’s administration to clean power, Australia’s renewable energy investment agency has been told not to invest in wind farms or small-scale solar projects. Opposition leaders and solar energy supporters say the government directive prohibiting the Clean Energy Finance Corporation (CEFC) from investing in rooftop solar will cripple the industry and further diminish Australia’s chances of transitioning to a clean energy economy. “I don’t agree with the prime minister that if you just don’t have any government support for the future of renewable energy, that the renewable energy will just miraculously grow and increase in Australia,” opposition leader Bill Shorten told the Australian Broadcasting Corporation.  He told reporters that striking wind farms and rooftop solar from the CEFC will mean that “the only thing the CEFC can invest in is flying saucers.” The CEFC is a public fund that has invested more than $3 billion in clean energy projects and technologies. Wind and solar accounted for nearly half of CEFC’s portfolio last year. Without wind and small-scale solar, the CEFC can ostensibly only invest in what Abbott calls “new technologies,” such as bioenergy and ocean power. The fund also invests in efficiency projects, such as energy monitoring systems, industrial improvements, and refrigeration technology.

Invisible Green Triumphs - Krugman  I’ve been struck by how people on the right know, just know, that Obamacare has been a dismal failure. More than 15 million Americans have gained coverage, costs are well below predictions, and employment growth has accelerated since the “job-killing” law went into effect — but they know none of that, because all they hear from their preferred information sources is tales of disaster.Some things I’ve been reading lately remind me that there’s another major Obama initiative that is the subject of similar delusions: the promotion of green energy. Everyone on the right knows that the stimulus-linked efforts to promote solar and wind were a bust — Solyndra! Solyndra! Benghazi! — and in general they still seem to regard renewables as hippie-dippy stuff that will never go anywhere.So it comes as something of a shock when you look at the actual data, and discover that solar and wind energy consumption has tripled under Obama. True, it started from a low base, but green energy is no longer a marginal factor — and with solar panels experiencing Moore’s Law-type cost declines, we’re looking at a real transformation looking forward.You can argue about how much this transformation owes to federal policy. But only a combination of rigid preconceptions and sheer ignorance can explain the way right-wingers still go around sniggering about Obama’s green-energy promotion. Far from being a bust, that policy was at least a contributing factor to an energy revolution.

Natural gas surpasses coal as biggest US electricity source -- Natural gas overtook coal as the top source of U.S. electric power generation for the first time ever earlier this year, a milestone that has been in the making for years as the price of gas slides and new regulations make coal more risky for power generators. The research company SNL Energy in a new report using data from the U.S. Energy Department says about 31 percent of electric power generation in April came from natural gas, and 30 percent from coal. A drilling boom that started in 2008 has boosted U.S. natural gas production by 30 percent and made the United States the world’s biggest producer of oil and natural gas. Hydraulic fracturing has allowed energy companies to tap huge volumes of gas trapped deep underground in shale formations.

US coal train loadings fall to year-low totals: STB filings - Coal train loading volumes on the four major US railroads fell week over week to year-low totals, according to reports filed with the Surface Transportation Board. Data in EP 724 filings by BNSF, CSX, Norfolk Southern and Union Pacific released Thursday show on average a year-low 101 coal trains were loaded each day for the week ending July 3, down from 106.6 trains the prior week. The previous year-low average was 106.1 train loadings for the week ending May 29. Coal train loadings have steadily dropped since the end of winter, with average loadings in five of the last six weeks featuring the five lowest totals of 2015.Year to date, an average of 119.9 trains have been loaded a day, a volume that has not been reached since mid-April. Coal loadings fell to year-low totals in Northern Appalachia for the week, averaging 4.8 trains a day down from 12.2 trains a day the previous week. Daily Central Appalachia coal loadings slipped to 14.6 trains from 18.5 trains the prior week. It was the third-lowest daily loadings count for the region this year. Combined, daily coal train loadings for Appalachian basins have averaged 33.6 trains a day but fell to 19.4 trains a day in the previous report. Shipments of coal from the Power River Basin and Illinois Basin actually increased week over week.

Editorial: Time to protect Great Lakes from oil spill is now - An oil pipeline running through the Straits of Mackinac should be shut down. On this point, most parties now agree — except, we presume, Enbridge Energy Partners, the Canadian company that owns and operates the pipeline. In this conflict, the cause has found a champion in state Attorney General Bill Schuette, who deserves praise for his efforts to shed light on this looming environmental disaster. Though the report details and solutions for Michigan’s aging oil pipeline network, it does not make clear how or when a shutdown might occur. The task force, led by Schuette and Michigan Department of Environmental Quality Director Dan Wyant, released its findings this week. Among its suggestions: prohibiting Enbridge from moving heavy crude through the straits pipeline, requiring Enbridge to share public safety information about the pipeline’s condition, and calling for an independent analysis of the straits with suggested alternatives — presumably, the first step toward shutting down the pipeline. Statewide, the report called for better mapping of existing pipelines and improved safety response. The report and its recommendations convey a sense of urgency. That Enbridge is the pipeline’s operator instills no one with confidence. That company was responsible for a devastating 2010 spill on the Kalamazoo River, the largest inland oil spill in U.S. history. An oil spill in the straits would be an environmental disaster that would permanently scar our lakes — not just an irreplaceable natural resource, but the source of drinking water for many Michiganders.

Special Report: Ohio invests more money into well plugging, revamps program -   Ohio’s recent oil and gas boom is generating new money for the state program that finds and plugs abandoned wells. But at the program’s current pace, the state will need 24 years to plug the 580 known wells on its list. Thousands more abandoned wells are likely out there, waiting to be discovered. Since 2010, drillers have come to Ohio in increasing numbers to explore the Utica Shale, using horizontal wells and hydraulic fracturing. Some 1,500 new wells have been drilled with striking results. In 2013, the state’s natural gas production nearly doubled and oil production jumped 62 percent over the previous year. Old wells are the problem. Ohio has one the longest histories of oil and natural gas drilling in the country. At least 275,000 wells have been drilled in the state since 1860; 56,000 are still producing. As happened in other states, drilling in the early days outpaced record keeping and well plugging. Companies bankrupted during busts left wells with no one to care for them. And well plugging before the 1950s used methods that weren’t up to modern standards. The legacy is an unknown number of wells that are improperly plugged, or were never plugged at all. Those abandoned wells leak oil, natural gas and brine into water and soil, and can cause explosions when natural gas collects in a building. Leaks can increase when a new well is drilled and hydraulically fractured nearby. State regulators say Utica Shale wells haven’t caused any old wells to leak. The new wells are much deeper — more than a mile in some cases — than the older, shallow abandoned wells. But the risk of old wells leaking could increase as horizontal drilling is used in formations that have been heavily drilled, such as the Clinton Sandstone underlying Stark County.

Brown: Citizens need protection from trains with hazardous materials - (WKBN) – U.S. Senator Sherrod Brown was in Youngstown on Monday, building support for his plan to make dangerous oil trains a bit safer.  Brown, D-Ohio, started working on this issue after 27 Investigates reported on major oil train routes crossing the Mahoning Valley. These routes transport millions of gallons of explosive crude oil and gas from the Bakken Crude Oil in North Dakota to refineries across the country, including some in Pittsburgh. Two of these routes cross through Mahoning and Columbiana counties. The senator said safer train cars are needed to keep people safe, and rail companies need to let local emergency crews know when the trains are coming through.“The HazMat crews that come out don’t necessarily know what was on that train and what the hazardous materials are,” Brown said. “When they arrive on scene, they have got to spend time figuring out what’s in this car, what happened, instead of arriving with the knowledge and they know what kind of strategy they can put together.” He said there have been problems all over the country as more flammable, volatile material, typically liquid material, is brought through on increasingly older tank cars. Those older tank cars can’t handle the modern chemicals extracted by the fracking process. Youngstown Fire Chief John O’Neill agrees that action is needed. “Mass quantities of the most dangerous materials we will see in transport. It is either toxic or highly flammable or explosive,” O’Neill said.

Akron passes resolution opposing state fracking bill - Akron wants to keep fracking out of its parks and the land around the parks. Akron City Council unanimously passed a resolution Monday opposing House Bill 8, which would allow the forced inclusion of public land, including municipal parks, in a drilling unit without the permission of the public entity for horizontal drilling and fracking. “The way I see it, this is a small opportunity for us to provide some assistance to preserving our parks,” said Councilman Rich Swirsky, who chairs council’s new Green and Sustainability Committee. Akron is the latest of several public entities, including the Summit Metro Parks board, that have passed resolutions against the state legislation, which has been approved by the Ohio House drilling permitand is pending in the Senate. Summit Metro Parks asked Akron City Council to take up the issue. Mike Johnson, Metro Parks’ interim director, told council’s green committee Monday that the legislation would allow a property owner who lives adjacent to a park to count acreage in the park in a request for a drilling permit. If a property owner, for example, needed 40 acres of property to get a permit and only had 30, he or she could include 10 acres of the park property and park officials would have no say in this decision. “We’re very concerned that it takes local control away,” Johnson said. Johnson said the legislation is unclear as to whether a driller would have access to park property, such as to build an access road to a drilling site or to sink a well peg on the property.

Fracking Democracy - As more and more evidence emerges on the potential harm to air, water and land from fracking and as oil and gas companies get more aggressive in growing their operations, communities are saying “enough” and fighting to retain or restore their democracy. The most recent battleground is Ohio where communities are trying various tactics, including charter reform, to ban fracking operations within their borders. It’s pitted local officials against the Ohio Department of Natural Resources (ODNR) and the courts. This week Akron City Council passed a resolution opposing a bill currently in the legislature that would allow the forced inclusion of public lands in a fracking operation without permission of the public entity. Summit Metro Parks already passed such a resolution and asked the Akron City Council to do so as well. “We’re very concerned that it takes local control away,” said Summit Metro Parks interim director Mike Johnson. This is merely the latest in a series of skirmishes around the state whose eastern half, sitting atop the Utica and Marcellus shale formations, has become a mecca for fracking operations. The liberal college community of Athens, in southeastern Ohio, has long been a hotbed of fracking, as well as anti-fracking activism. It successfully passed a fracking ban last November with 78 percent of the vote, while bans failed in three other Ohio communities.

Group appeals election board rejection of charter measure - An attorney for a group proposing a charter government for Athens County, with restrictions on oil and gas drilling, has appealed a Board of Elections decision last week declaring the proposal invalid. The elections board is scheduled to meet at 9:30 this morning “concerning the request for court action from the law office of Terry Lodge on behalf of the Petition for Proposed County Charter.” The appealing group, the Athens County Bill of Rights Committee, is urging members and supporters to gather at the Athens County Courthouse before the Board of Elections meeting with protest signs urging reconsideration of the charger amendment for the local election ballot. Last Monday morning, the elections board said no to the ballot measure not because it didn’t have enough signatures but because the board determined the measure to be invalid. This was based on an opinion expressed by Athens County Prosecutor Keller Blackburn that the proposal did not meet the minimum requirements of being a county charter. At the same time, however, the prosecutor had recommended that the elections board approve the measure for a public vote anyway while awaiting the opinion of state officials.

Athens County Board of Elections Rejects Community Bill of Rights: It hasn’t been a good week for anti-fracking activists and the Community Environmental Legal Defense Fund (CELDF). Just a few days ago, CELDF suffered yet another court ruling against the so-called “Community Bill of Rights” to ban fracking. Today, the CELDF was dealt another blow, as the Athens County Board of Elections voted unanimously to reject the recent ballot initiative for a “bill of rights”, leaving anti-fracking groups devastated and calling the defeat a “travesty”.As a reminder in Ohio, local controls have been rejected as the Ohio Department of Natural Resources has been given sole regulatory authority over the oil and gas industry, per the Ohio Revised Code.  Despite the clear language of the petition, which states the exact opposite found in the CELDF authored charter amendment, the Athens News reported a community leader saying,“I do not believe that enactment of this charter will allow the Board of County Commissioners to make sweeping changes on horizontal drilling, injection wells, Numbers Fest, or the use of eminent domain, as some may contemplate. The charter process allows a county to take or share power of a municipal corporation. To date, a charter has never taken authority from the state.” While the anti-frackers may have a serious case of sour grapes, as result of their two recent defeats, the taxpayers of Athens County can breathe of sigh of relief that their county board of elections did their homework before casting their unanimous votes to keep this costly ballot initiative off November’s ballot.

Judge OKs county charter for ballot -  Despite the Athens County Board of Elections’ rejection of a local anti-fracking group’s petitions, Athens County Common Pleas Judge George McCarthy ruled Wednesday that the board must put the group’s issue on the November 2015 ballot. If approved at the ballot, the measure will give Athens County a charter form of government that includes a community bill of rights with restrictions on certain oil and gas drilling activities. Serious questions remain, however, on whether those restrictions would be enforceable. Judge McCarthy said during a crowded special hearing Wednesday morning that it was a matter of “constitutional importance” to put the charter on the ballot. Athens County now joins three other Ohio counties – Meigs, Medina and Fulton – which have placed county charters on their November ballots so far this year. Each contains similar “community bill of rights” language to restrict oil and gas industries’ operations in those counties, though the restrictions vary from county to county.

Athens County and Ohio deserve better fracking regulation - Ohio is becoming the dumping ground of the Midwest for fracking wastewater. And guess which of Ohio's 88 counties is going to be getting the most — Athens County. This is made possible by the opening of an injection well at Torch by S&H Partners. It will more than double the amount of wastewater brought into Athens County to something in excess of 6 million gallons a year.  In 2013, 16 million gallons of fracking waste was dumped in Ohio. When the figures are added up for this year, the total is likely to be least 20 million. What disturbs me most is that half of this wastewater is coming from out of state. Most of it comes from Pennsylvania and West Virginia. You probably can guess why. Regulation of wastewater disposal is less rigorous in Ohio than in those two states. A study of fracking wastewater disposal in eight states by the Government Accounting Office said: "Ohio has the worst fracking waste disposal process of any state of the eight studied." A major problem in Ohio is that disclosure of the chemicals in the fracking compounds is not required. In the other states studied it is. The companies claim the composition of the compounds is a trade secret. This is not appropriate because the compounds could contaminate drinking water. How much wastewater disposal will affect drinking water is not known. The problem comes when disposal wells leak. If properly constructed they usually don't leak, but it is obvious that regular inspection of wells is needed. Ohio does not seem to have enough inspectors to achieve this.Many legislators have made it clear that they consider the interests of the oil and gas industry and the campaigns contributions from that industry more important than clean water for people 75 miles away from Columbus.

ODNR sets rules for fracking well pads - The Ohio Department of Natural Resources announced on Thursday that it is implementing new rules for the construction of horizontal well-pad sites. Horizontal well pads are used for fracking, when a well is drilled vertically but then goes horizontally underground, allowing for more than one well. Shawn Bennett, executive vice president of the Ohio Oil and Gas Association, said horizontal pads can include eight to 18 wells at the same time. The regulations come out of a long legislative process dating back to June 2012, when the Ohio legislature passed stricter regulations on new drilling technologies, including fracking. Eric Heis, ODNR public-information officer, said the legislation tasked ODNR with developing the rules and going more into detail with them. The regulations, he said, are necessary because the number of wells in Ohio has been growing at a fast clip. One of the regulations will require drilling companies to submit a detailed plan of the horizontal well-pad site before starting construction. But Bennett said regulations already are being followed by most drilling companies as part of the best-practices guidelines. “Some of them are necessary, others will put an unnecessary burden on the industry,” Bennett said. He mentioned that some regulations, such as needing ODNR permission before making any kind of modification to the pad construction, is costly and not time-efficient.

Commission has tight time frame for fracking taxes study - --A new legislative tax commission that must deliver a recommendation on increasing Ohio’s tax on shale fracking technically will have just 24 hours to meet and complete its work. Senate President Keith Faber, R-Celina, wanted to put a new severance tax into the two-year, $71 billion state budget that took effect July 1. But House GOP leaders who had already pulled Gov. John Kasich’s proposed severance tax out of the budget said they would not pass the tax as part of the spending bill. Instead, Faber agreed to hand the issue to a new six-member tax study commission that House leaders had already added to the budget. But not wanting the joint House-Senate panel to sit on its hands and further prolong a tax debate that has already stretched nearly three years, he insisted on a hard deadline of Oct. 1 to create a recommendation. One problem: That portion of the budget signed by Kasich on June 30 doesn’t take effect until Sept. 30. So the commission technically does not exist until one day before the severance tax study deadline. “It’s odd that they put that deadline in,” said Rep. Jeff McClain, R-Upper Sandusky, chairman of the House Ways and Means Committee and co-chairman of the new joint tax study commission.But McClain said he and Sen. Bob Peterson, R-Sabina, his fellow co-chairman of the tax commission, have been holding conversations on the process, even if it doesn’t involve formal hearings.“Bob and I are committed to have discussions and try and do as much as we can and be ready to go whenever we get the go-ahead,” McClain said. “We don’t think we can just sit here and do nothing and use it as an excuse that, ‘You didn’t appoint us until yesterday.'”

Study finds natural gas reserves in Appalachia larger than estimated - A shale formation that runs through portions of West Virginia and neighboring Appalachian states has more recoverable natural gas reserves than initially estimated, a new study released on Tuesday has found. Release of the findings comes one day after industry officials announced that natural gas has surpassed coal as the nation’s top source of electricity, a development made possible by years of investment in gas extraction and the passage of costly federal regulations that require coal-fired power plants to reduce their planet-warming carbon emissions. The two-year study, led by West Virginia University, found evidence that the Utica Shale, which spans from New York to Kentucky and includes portions of Pennsylvania, West Virginia and Ohio, is much larger than predicted, holding recoverable resources that could rival those found in the Marcellus Shale, the largest shale oil and gas reserve in the country and second largest in the world.Study findings, compiled by the Appalachian Oil and Natural Gas Research Consortium, an offshoot of the National Research Center for Coal and Energy in Morgantown, estimate that the Utica Shale holds 782 trillion cubic feet of natural gas and nearly 2 billion barrels of oil, reserves one researcher said will likely push forward the “shale revolution.” “As far as West Virginia is concerned, natural gas can legitimately become a second player in the state,” Currently, coal dominates West Virginia’s energy sector, accounting for more than 90 percent of the state’s electricity production. According to U.S. Energy Information Administration data, West Virginia produces 5,776 gigawatt hours of coal-fired electricity, compared to just 36 for natural gas. Patchen went on to say that oil and gas companies in the region will have to determine whether it is financially feasible to drill into the formation, which lies 4,000 to 12,000 feet below West Virginia’s Marcellus Shale play, something he said could be done in conjunction with current drilling into higher strata of rock.

Study estimates Utica shale holds gigantic amount of recoverable gas - The amount of natural gas trapped in the Utica shale might rival what drillers hope to extract from its more famous neighbor the Marcellus, a group of geologists said Tuesday. “It’s comparable to the highest number I’ve seen for the Marcellus,” said Doug Patchen, head of the Appalachian Oil and Natural Gas Research Consortium at West Virginia University and lead editor of a geologic report on the Utica. The Utica Shale Play Book, the result of a two-year study by federal, state and university researchers, estimates the shale rock formation below the Marcellus holds 782 trillion cubic feet of recoverable gas. Estimates for the Marcellus range from 500 to 800 trillion. Gas companies last year pulled 4 trillion cubic feet from Pennsylvania shale wells. “It’s going to take many years to drill it up. It will take decades,” Patchen said of the implications of the report. “It’s not a flash-in-the-pan thing.” Estimates of recoverable gas in shale layers fluctuate. In 2012, the U.S. Geological Survey estimated the Utica had 38 trillion cubic feet. Exploration of the reserves help improve estimates. The study led by Patchen used core samples of rock from drilling operations and production data from companies. Drillers have been tapping the Utica — which is below the Marcellus — in Ohio since 2012 and have moved east to the northern panhandle of West Virginia and western Greene and Washington counties. A few Utica test wells in northeastern Pennsylvania showed big results, though Patchen said the rock there is riskier.

WVU Study Finds Bounty of Utica Shale NatGas Waiting For Production -- A West Virginia University-led study released Tuesday suggests that the Utica Shale formation contains more than 20 times as much technically recoverable natural gas resources than a previous estimate from the U.S. Geological Survey (USGS) released in 2012. To an extent, the study reaffirms the work of producers in Pennsylvania, Ohio and West Virginia in recent years that have padded their reserves through the drill bit. But the latest estimates, taken from a broader study that defined the Utica's fairways, examined its geological characteristics and compared the formation to equivalent rocks, surpasses the USGS' most recent estimate for all recoverable resources across the Appalachian Basin and shows that the Utica is comparable to the nation's largest gas field in the Marcellus Shale. The Appalachian Oil and Natural Gas Research Consortium -- a program of the National Research Center for Coal and Energy at WVU -- said the Utica contains technically recoverable resources of 782 Tcf of natural gas and nearly 2 billion bbl of oil. That's compared to the USGS' last Utica estimate of 38 Tcf of natural gas and 940 million bbl of oil (see Shale Daily, Oct. 5, 2012). Based on cumulative production data and proven reserves recorded in 2004, the USGS said earlier this year that the ultimate recoverable oil and natural gas in the Appalachian Basin is about 25.5 billion boe, or 4.76 bbl of oil and 124.9 Tcf of natural gas (see Shale Daily, March 27).

Chinese tankers to carry US shale gas to Europe - Two gas tankers built by the Sinopacific Offshore and Engineering were named on Tuesday, and will soon be shipping shale gas to Europe from the United States, officials said. The ships will join an eventual eight-strong fleet of tankers operated by Swiss-headquartered petrochemical manufacturer Ineos Group Ltd, which will carry 800,000 tons of shale gas annually from the US to its European manufacturing plants. Jim Ratcliffe, Ineos’ founder and chairman, said the US$1 billion project will help revolutionize the European chemicals industry by reducing both feedstock and energy costs. “Bringing US shale gas to Europe is a huge undertaking, involving Ineos experts from across the globe. To see these two ships finally completed here in China means that this vast project will soon be fully operational.” Simon Liang, Sinopacific Offshore and Engineering’s chairman and CEO, said more than 2,000 people had been involved in the building of the two “Dragon Class” ships, each of which required about one-million man hours of work. The JS Ineos Insight and JS Ineos Ingenuity will join six other vessels in creating what the company described as a “virtue pipeline”, to transport over 800,000 tons of gas a year at minus 90 degrees centigrade across the Atlantic to plants in Norway and Scotland.   Each ship will be the length of two soccer pitches and be able to carry over 27,500 cubic meters of liquefied gas. The first two ships will begin their maiden voyage this month.

Utica bigger than Marcellus - — It’s been known for some time that the Marcellus shale is just the beginning of the natural gas horizontal fracking boom for this part of the country. More than 200 industry members got a look at the next big thing Tuesday: The Utica shale. . WVU’s Doug Patchen, consortium director and co-editor and co-author of the study, explained before the daylong workshop that the majority of the Utica play lies beneath the Marcellus Shale play — ranging from 4,000 feet below the Marcellus in Ohio to more than 6,500 feet in West Virginia. The Utica plunges as deep as 12,000 feet in West Virginia. Attendees learned that while the play is referred to as the Utica Shale Play, the play is neither technically Utica nor purely shale. Evidence points to beds of limestone and organic-rich shale in the underlying Point Pleasant Formation as the preferred drilling target.Because the formation sits closer to the surface in eastern Ohio, drilling activity in the Point Pleasant has been concentrated in roughly a north-south trend in eastern Ohio, where the gas is rich in oil and other liquids — such as ethane — but is moving eastward and may eventually dip south into Kentucky.Through the end of May, attendees learned, about 2,425 permits have been issued to drill horizontal wells into (what everyone is still calling) the Utica — the lion’s share in eastern Ohio, but with about 253 in Pennsylvania and 29 in the Northern Panhandle counties of West Virginia. The Utica footprint is slightly larger and thicker than the Marcellus (which is the largest shale oil and gas play in the nation and the second-largest in the world), Patchen said. As a result of the study, estimates for the potential recoverable Utica yield have been revised dramatically upward.

Reaction to Utica Shale Study Mixed - A study released earlier this week about the potential of the Utica Shale formation was met with praise from the Consumer Energy Alliance. But the West Virginia Sierra Club doesn’t share that enthusiasm. The Utica Shale Play Book Study released on Tuesday says there may be 20 times as much recoverable gas and twice as much recoverable oil in the Utica Shale formation as was previously thought.  Brydon Ross was very excited to hear the news. Ross is the vice president of state affairs with the Consumer Energy Alliance, a nonprofit group that bills itself as an advocate for energy consumers with ties to the energy industry. “For companies and industries that are looking to invest in the Utica Shale area and all through Appalachia as well, I mean you’re talking about areas that really need the money and need the investment is right where a lot of this resource potential is, so we see this as nothing but positive,” he said.   The Utica Shale runs under parts of five states, including northern West Virginia and Kentucky, eastern Ohio, Pennsylvania and New York. Not everyone agrees that looking for more fossil fuels is the way to go. Jim Kotcon deals with energy issues for the West Virginia chapter of the Sierra Club. He says the emphasis on hydro-carbon extraction is misplaced. “We cannot use all of the reserves we’ve already found without very serious adverse affects from climate change. And so if we’re going to control the increase in temperature from climate change, then finding more gas won’t help us,” Kotcon said.

Utica and Marcellus activity in Ohio --Activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to the last the well activity update, and according to a new report, the Utica Shale formation might just be larger than the Marcellus Shale formation. The Appalachian Oil and Natural Gas Research Consortium, a program of the National Research Center for Coal and Energy at West Virginia University (WVU), recently shared a report from its two-year geological study focusing on the Utica Shale formation. The report, titled Utica Shale Play Book Study, involved over 200 industry members and was co-edited and co-authored by WVU’s Consortium Director Dan Patchen.  Evidence points to beds of limestone and organic-rich shale in the underlying Point Pleasant Formation as the preferred drilling target.” Attendees also learned that while many refer to the Utica as Ohio’s shale formation, operations are now moving into Kentucky. While the Marcellus Shale formation has been known as the largest shale oil and gas play in the U.S., the Utica’s footprint is actually larger and thicker than the Marcellus. According to Patchen, the shale’s recoverable natural gas and oil yield has been revised and increased dramatically.To read the full article regarding WVU’ Utica report and study, click here.The following information is provided by the Ohio Department of Natural Resources (ODNR) and is through the week of July 11th. The ODNR reported 443 wells were permitted, 421 drilled, 188 drilling, 922 producing, 25 inactive, 24 in final restoration and 3 abandoned wells in Ohio’s Utica formation. This brings the total number of wells in the Utica to 1,974. The Marcellus Shale in Ohio remains unchanged from last week’s well report. The area is still sitting at 15 wells permitted, 11 drilled, 17 wells producing and one well inactive. There are a total of 44 wells in the Ohio Marcellus Shale.

Marcellus permit activity in Pennsylvania --The Marcellus Shale formation in Pennsylvania saw a little bit of action over the last week, along with the U.S.’s largest publicly traded water and wastewater utility company. American Water Works Company announced last week that it has officially acquired Keystone Clearwater Solutions. The Hershey, Pennsylvania-based company is a water service provider that offers a wide range of water services to the energy industry, specifically oil and gas companies. Keystone’s customers are mainly located in the Appalachian region, which is located throughout Pennsylvania, Ohio and West Virginia. According to American Water, the acquisition helps it achieve its goal of developing complementary businesses. Paired with the company’s already existing shale activity, Keystone will allow American Water to enhance its ability to provide additional water services solutions to shale development related companies. To read the full article regarding American Water Works Company’s latest acquisition and future plans, click here. The following information is provided by the Pennsylvania Department of Environmental Protection and covers July 7th through July 12th. New: 22 - Renewed: 2

Marcellus shale field lab zeroes in on gas drilling efficiency - The first integrated, long-term examination of shale gas drilling — from before a rig breaks ground to post-production — is under way in West Virginia to help energy companies find ways to drill more cheaply and lessen environmental impacts. “We call it unprecedented, and it is,” said Ray Boswell, technology manager for the federal Department of Energy's National Energy Technology Laboratory, a partner in the five-year, $11 million Marcellus Shale Energy and Environmental Laboratory at a well pad in Morgantown.  Technology has moved so fast, enabling extraction of so much natural gas from deep shale, that “the only way you survive is to become more efficient,” said Tim Carr, a geology professor at West Virginia University, which is leading the research.  The project began last fall, and vertical drilling of “top holes” for three gas wells started recently at the field laboratory in Morgantown Industrial Park. Other partners in the project are Ohio State University and Northeast Natural Energy, a Charleston-based oil and gas company that owns and operates the well pad.

Other shales than Marcellus drawing industry attention -- The Marcellus Shale put Pennsylvania on the map as a gas-producing state, but other rock layers have the potential to keep it there far into the future. Drillers have sought unconventional well permits for 12 geological formations other than the Marcellus, according to state records compiled and organized by The state Department of Environmental Protection has issued permits for about 900 wells, site developer Carl Hagstrom said. Most of those are in the western part of the state; about 520 of those have been drilled. Other than the Marcellus, which has more than 15,000 well permits, the most popular target formations in Pennsylvania are the Utica Shale with 258 permits, the Burket/Geneseo Shale with 246 permits and the Point Pleasant Shale with 159 permits. Although sometimes listed separately, the Point Pleasant is technically considered part of the Utica, according to a presentation by the Pennsylvania Geological Survey. “They are all classic formations that have new life due to horizontals with classic hydraulic fracturing,” Lackawanna College School of Petroleum and Natural Gas dean Richard Marquardt said in an email. “They are all basically silty shales.” These black shales with high organic content were formed over hundreds of millions of years ago when organisms, most likely algae, died then settled to the bottom of the ocean, said Allegheny County petroleum geologist Gregory Wrightstone, who has more than 35 years’ experience with unconventional formations in the Appalachian Basin.

Study shows increased hospitalizations in Pennsylvania shale gas region --A study released today in the journal PLOS One shows a rise in hospitalization rates that researchers say correspond to an increase in the number of shale gas wells in Northeast Pennsylvania. The report used information from the Department of Environmental Protection along with data from the Pennsylvania Healthcare Cost Containment Council between 2007 to 2011 in Bradford, Susquehanna and Wayne counties. Bradford and Susquehanna counties experienced a drilling boom during that time period, as well as an increase in the number of patients admitted to hospital.  Wayne county remains free of gas wells due to the de-facto moratorium on drilling in the Delaware River Basin. Wayne county’s hospitalization rates actually decreased in keeping with nationwide trends. Wayne county, which has similar demographics as Bradford and Susquehanna counties, served as the control for the study. Prior to 2007, hospitalization rates were trending down in all three counties. The most notable impact the researchers found was the association of well density and well proximity with cardiovascular admissions. The report’s authors say this could be related to air pollution associated with gas drilling. The study also reports an association between gas drilling activity and patients admitted for neurological illnesses and skin conditions.

Hospitalizations increase near fracking sites, study shows - Medical Xpress - People living in areas of Pennsylvania where hydraulic fracturing is booming are suffering increasing rates of hospitalization, a new study says. The study is one of a small but growing number suggesting that the practice could be affecting human health. It appears this week in the scientific journal PLOS ONE.  Scientists examining records from two counties in northeastern Pennsylvania found a 27 percent increase in hospitalization rates for cardiology-related complaints such as stroke in areas where wells were most dense. They also found significantly increased hospitalizations for neurological illnesses and skin ailments. The increases corresponded with a meteoric rise in hydraulic fracturing, or fracking, between 2007 and 2011. A third county where fracking did not take place saw no such rises. Before 2007, overall hospitalization rates in all three counties had been trending downward. The study, which looked at 198,000 hospitalization records, was done by researchers from the University of Pennsylvania, Columbia University's Mailman School for Public Health, and Columbia's Lamont-Doherty Earth Observatory. Lead author Reynold Panettieri, a professor of pulmonary medicine at UPenn, said the study did not prove that fracking itself was causing the illnesses, but the said hat it was suggestive. One factor, he said, could be tremendous increases in diesel exhaust and noise from big trucks; these, he said, could translate into disrupted sleep, stress and rising hypertension. Panettieri said the rise in hospitalizations was striking because it took place in such a short time. An increasing number of studies has linked fracking in Pennsylvania and elsewhere with groundwater contamination, but no one has yet proved health effects resulted. The UPenn researchers say they hope to track this in the future.

Hospitalization rates jump near 'fracking' sites - -- People who live near "fracking" sites may be at increased risk for hospitalization for heart problems, neurological disorders and other conditions, new research suggests. Hydraulic fracturing -- widely referred to as fracking -- has increased dramatically in the United States over the past decade, raising concerns about water and air pollution.Pennsylvania is a hotspot for fracked wells, the researchers said. In this study, hospitalization rates in three northeastern counties in Pennsylvania were tallied.Two of the counties -- Bradford and Susquehanna -- had a significant increase in fracked wells between 2007 and 2011. No fracking was allowed in the third county -- Wayne -- due to its proximity to the Delaware River watershed.The researchers looked at the top 25 specific medical categories for more than 198,000 hospitalizations among residents of the three counties between 2007 and 2011. They found that rates of hospitalizations for heart and neurological problems were much higher among people who lived closer to active fracked wells.  Specifically, people living in areas of Bradford and Susquehanna counties with a fracked well density of more than 0.79 wells per square kilometer were 27 percent more likely to be hospitalized for heart problems than people in Wayne County.Hospitalization rates for cancer, urologic problems and skin conditions were also higher among people who lived closer to active fracked wells.

Activists say fracking wastewater too toxic for sewage plants - – Toxic fracking wastewater shouldn’t be treated at facilities that can’t handle its hazards, Congressman Matt Cartwright (D-Pa.), clean water and public health advocates, and more than 30,000 Americans said today, a day before the public comment period closes for a proposed federal rule to prohibit fracking waste shipments to sewage treatment plants. “It’s crazy that highly toxic, radioactive wastewater can still be treated at the same place as dirty bath water, then released into the rivers and lakes we drink from,” said Rachel Richardson, director of Environment America’s Stop Drilling program. “Preventing this practice is a critical step toward protecting our water and our health from the dangers of fracking.” Fracking, or hydraulic fracturing, is the process by which large volumes of water along with sand and toxic chemicals are injected underground to extract shale gas. Much of this fracking fluid mixture returns to the surface as toxic wastewater, often with radioactive elements. Municipal water treatment plants, which treat waste and then release it into drinking water supplies, aren’t suited to treat such hazards. The mixture of bromides in wastewater and the chlorine used at sewage treatments plants also can produce a toxin linked to bladder cancer, miscarriages and still-births. The issue received attention in Pennsylvania in 2011, when fracking chemicals were detected in western rivers, and officials ordered 15 treatment plants to stop accepting and treating fracking waste. While no known municipal treatment plants now accept fracking waste, federal rules still allow it, and the option could become more attractive to drillers as standards tighten on other waste disposal methods.

High Levels of Radium Found in PA Stream Near Drinking Water Supply -- Pittsburgh’s Action News 4 reported yesterday that high levels of radiation—up to 60 times higher than the maximum allowed in drinking water—were found in Ten Mile Creek, which flows into the Monongahela River in Greene County, Pennsylvania. Ken Dufalla of the Izaak Walton League conservation group has been taking samples from 10 Mile Creek for years, frequently finding high levels of total dissolved solids, according to Action News 4. “I wouldn’t touch it. As you can see, I try to keep my hands off it all I can because I don’t know what’s in this water,” Dufalla told the Pittsburgh news station. Dufalla pressured the Pennsylvania’s Department of Environmental Protection (DEP) to do comprehensive testing. The DEC results showed levels of radium 226 and radium 228 totaling 327 picocuries per liter at one location, and 301 picocuries per liter of radium 226 at another location—meaning both samples had 60 times the U.S. Environmental Protection Agency drinking water standard of 5 picocuries per liter. Ten Mile Creek feeds into the Mon River near Fredericktown and less than a mile down river is a water treatment plant, which has regulators and residents very concerned. Action News 4 interviewed John Stolz, a biologist at Duquesne University, who says radium can be hazardous.“The reality is, if it’s getting into the water that is being used as a source of drinking water, then it is a problem,” Stolz said, since standard filtering process does not easily get rid of radium.

One Congressman’s Fight To Keep Fracking Waste Out Of Drinking Water -  Wastewater from fracking has been linked to drinking water contamination, and earthquakes.  But obviously oil and gas companies can’t dump fracking water into our public water treatment system, right?  Wrong.  In fact, that ability is the subject of a current Environmental Protection Agency (EPA) proposal. The Effluent Limitations Guidelines and Standards for Oil and Gas Extraction would ban fracking wastewater from being treated at publicly owned water treatment plants. The comment period for the proposal ends Friday. “It’s crazy that highly toxic, radioactive wastewater can be treated like bathwater,” Rachel Richardson, the director of Environment America’s Stop Drilling program, said on a call Thursday. Richardson and her group have collected 30,000 signatures showing support for making the proposal into a rule under the Clean Water Act.  Congressman Matt Cartwright (D-PA) joined the call Thursday, offering his support to the EPA proposal and pledging to reintroduce legislation that will close environmental loopholes for oil and gas companies.  “The rule proposed by the EPA is not going to comprehensibly protect us,” Cartwright said. “It is finally time to treat the oil and gas industries as we do every other industry.”  Under the so-called “Halliburton Rule” — the Resource Conservation and Recovery Act — oil and gas companies are exempt from multiple environmental protection regulations, including the Safe Drinking Water Act, Clean Water Act, and Clean Air Act.  Cartwright’s legislation is part of a larger package, known as the “frack pack” that seeks to close loopholes in environmental regulation of oil and gas activities. H.R. 1175 would allow the EPA to require states to permit fracking runoff and other effluents. The EPA is currently prohibited from requiring that type of oversight.

Special Report: Dangers of old wells - Abandoned wells can leak natural gas, oil and brine. Some of those hazards can be a nuisance; others can be very serious, as these examples illustrate: Pennsylvania’s Department of Environmental Protection identified several incidents since the late 1990s where pressure changes caused by the hydraulic fracturing of new wells caused gas and fluids to leak from abandoned wells.

    • • McKean County, late 1990s: Natural gas vented from an abandoned well at a rate of more than 100,000 cubic feet per day after hydraulic fracturing operations at a nearby well.
    • • East Vandergrift, Westmoreland County, 2008: After hydraulic fracturing at a conventional gas well, a large amount of natural gas seeped into the ground from a buried abandoned well that remained unidentified. The gas came within 8 feet of a home.
    • • French Lick Creek, Tioga County, 2012: A hunting cabin’s water well overflowed and gas bubbles were found in a nearby stream in an area where several wells were being drilled and fracked.
    • • Greene County, 2014: About 1,000 gallons of oily material — similar to a type of clay used in well plugging and drilling — was pushed out of an abandoned well while a new well was being fracked. The material flowed into a stream that supplied a cattle farm.

In 1985, natural gas leaked into a Ross Department Store in Los Angeles and caused an explosion that injured two dozen people. The gas seeped into the building through a geological fault and an abandoned well. A U.S. Geological Survey report in 1988 found that brine leaking from abandoned wells had polluted an aquifer near West Point, Kentucky. The aquifer supplied drinking water to 50,000 people and Fort Knox. Several water wells were closed.

Pipeline foes dominate Oneonta hearing -- About 125 people attended a Federal Energy Regulatory Commission scoping review at the Foothills Performing Arts Center on Thursday to consider the potential environmental impacts from the proposed Northeast Energy Direct pipeline. A similar meeting took place in Schoharie. The scoping process was still underway at 9 p.m. with about 35 people speaking. Overall, the meeting proceeded in an orderly fashion, but most who spoke were opposed to the natural gas transmission system by Tennessee Gas Co., whose parent company is Kinder Morgan. The proposed project includes a compressor station sited on Franklin farmland. FERC representative Paul Friedman opened the meeting saying public concerns that have been previously identified include impact on land use, groundwater, air quality and noise from the compression station. Additional data is being sought to fill in the data gaps before a draft environmental impact study is issued. Among those who spoke against the project was Franklin Supervisor Jeffrey Taggart who said his concerns include emissions from the compressor station. It might be better to have no such structure and adjust the size of the pipeline, he said. Sidney resident Colleen McKinney said in her objections to the recently FERC-approved Constitution pipeline, “I’ve learned that FERC does not care about us. It is in the business of approving pipelines,” with their budget paid for by the oil and gas industry. She speculated they have no incentive to deny the permit, while residents assume health and safety risks.

Shale Gas Supply Held Hostage by Oil to Drop by Most in a Year - After four years of record supply, America’s natural gas output is showing signs of weakness as producers retreat amid tumbling oil prices. Gas production from the seven largest U.S. shale basins will fall 0.6 percent to 45.1 billion cubic feet a day in August from a month earlier, the biggest drop since March 2014, the U.S. Energy Information Administration said Monday in its monthly Drilling Productivity report. EIA estimates have shown supply declines since June. The government’s forecasts signal the collapse in crude oil prices, which have plunged by about half over the past year, is reverberating in the natural gas market. As drillers shut wells in liquids-rich deposits from North Dakota to Texas, they’re also curtailing gas output from those reservoirs. That may prevent further price declines for gas, which has slid almost a third over the same period. “Gas is being held captive by oil,” Aaron Calder, senior market analyst at Gelber & Associates in Houston, said by phone Monday. Natural gas for August delivery fell 2.4 cents, or 0.8 percent, to settle at $2.84 per million British thermal units on the New York Mercantile Exchange after reaching $2.934, the highest intraday price since June 17. U.S. benchmark West Texas Intermediate crude rose 1.6 percent to $53.04 a barrel. The forecast drop in August gas output was led by the Eagle Ford shale, the biggest oil reservoir in the U.S., EIA data show. Gas supply there will slide 1.7 percent, while output from the Utica deposit in the U.S. Northeast, where propane and ethane help to subsidize gas drilling, is poised to climb 0.8 percent.

Flare from pumping station raises residents' temperatures - The sight of a flame burning at a natural gas pumping station in West Cornwall Township raised concerns among area residents on Monday. Burn-off of propane is a normal part of a maintenance process underway on the Mariner East 1 Pipeline, owned by Sunoco Logistics, and should not raise safety concerns, said a company spokesman said Tuesday. The Mariner East 1 pipeline is a 300-mile pipeline that crosses the southern portion of Lebanon County, including South Annville, South Londonderry, West Cornwall, South Lebanon and Heidelberg townships. It is undergoing major modifications to convert it from an east-to-west fuel and heating oil pipeline to a west-to-east liquid natural gas pipeline. The company notified West Cornwall Township last week that as part of that project, it would be doing repairs along the length of the pipeline that would include emptying it of propane and flushing it with nitrogen gas. The company advised the township that a release of high-pressurized nitrogen could create a loud noise, which some have compared to an airplane lifting off. A story about the maintenance project also was published by the Daily News last Tuesday, which reported no flame would be used. On Monday, however, Cornwall police received reports from residents seeing flares rising high in the sky from remote vantage points around the pumping station along Route 322, just east of Butler Road.

The FrackHouse Effect: How Fracking is Slow Cooking the Planet -- Fracking is the world’s fastest growing climate changer. Fracking for natural gas is notoriously leaky process – from producing wells that vent methane to transport via pipelines that must be vented to distribution in leaky gas pipes. Each molecule of methane allows the sun’s radiation to enter and heat the biosphere transparently, but blocks the re-radiation of that heat, in the infrared spectrum, out of the biosphere, thus trapping the heat in like a blanket: the Greenhouse Effect:  We know that old gas pipes leak, before they explode, we know that LNG tankers have to vent methane or they blow up, and we know that fracked gas wells vent methane – a lot more than the EPA ever imagined or the frackers are willing to admit.If you want to keep the planet from being cooked with clean abundant natural gas, you have to ban fracking.   Studies of 30,000 Barnett Shale wells shows the EPA has vastly underestimated methane emissions.  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.

Aircraft to start hunt for Atlantic oil off East Coast – An aerial hunt for oil and natural gas reserves in the Atlantic Ocean is poised to launch, a first step in the plan to lease waters off Georgia, North Carolina, South Carolina and Virginia to drilling. But controversial seismic cannons, considered the best method to find where the oil and gas is, won’t be unleashed off the coast until at least next year. Jim White, president of the geophysical company ARKeX, said Tuesday he’s received his permit to start the aerial search. The development will represent the first oil and gas survey in decades for the Atlantic Ocean off the East Coast, which has been kept off limits to drilling since the 1980s. White’s company uses the aircraft to measure variations in the Earth’s gravitational field. Known as full tensor gravity gradiometry, it evaluates density of the subsurface and identifies areas that could hold oil and natural gas reserves. Little is known about how much oil and gas is off the East Coast. White told the House energy subcommittee that his findings can help companies decide where to target seismic exploration for oil and gas in the Atlantic. Those seismic surveys are on hold while the U.S. Fish and Wildlife Service weighs the risks to endangered whales and other marine life.

Oil spill cleanup continues in southwestern Illinois - The cleanup continues in southwestern Illinois after a weekend oil spill dumped more than 4,000 gallons of crude into a creek. Houston-based Plains All-American Pipeline says it has deployed 2,700 booms in response to a Friday pipeline break at a pump station about 40 miles east of St. Louis near Highland. The company said it contained “a portion” of the 4,200-gallon spill on site before it reached Little Silver Creek, which feeds into Silver Lake. The lake is a municipal drinking water source for Highland and the nearby town of Grantfork. A May breach at a Plains All-American pipeline near Santa Barbara led to California’s largest coastal oil spill in 25 years. An estimated 21,000 gallons reached the Pacific Ocean, with tar balls washing up on beaches 100 miles away.

Here We Go Again: Fracking Industry Mangles More Facts  -- A new set of peer-reviewed scientific papers pointing to 50 percent higher than estimated regional methane emissions from oil and gas operations in Texas were published this week. And like clockwork, the oil and gas industry’s public relations machine, Energy In Depth (EID), proclaimed that rising emissions are actually falling, and that the industry’s meager voluntary efforts are responsible. This is, of course, wrong on both counts. In fact, it’s a willful misrepresentation of the findings.  First, the assertion that emissions are going down is flat wrong. The U.S. Environmental Protection Agency’s (EPA) latest inventory released in April reports that in 2013 the oil and gas industry released more than 7.3 million metric tons of methane into the atmosphere from their operations—a three percent increase over 2012—making it the largest industrial source of methane pollution. So much for those voluntary efforts.  But EID also fumbles the two main findings of the studies: First, that traditional emissions inventories underrepresent the magnitude of the methane problem by 50 percent or more; and second, that this undercount is primarily due to relatively small but widely distributed number of sources across the region’s oil and gas supply chain, coming from leaks and equipment malfunctions not currently accounted for in the emission inventories everyone has been pointing to. In short, the Barnett papers tell us there’s a pervasive but manageable pollution problem occurring across the entire supply chain that requires a comprehensive, systematic monitoring effort and effective repair regime to address it.

Use of fracking technology planned for groundwater cleanup - — A company plans to use fracking technology on a small scale to help clean up groundwater pollution at its soybean extraction plant in Lincoln following the state’s preliminary approval for the work. Archer Daniels Midland Co. plans to inject emulsified iron and vegetable solutions under high pressure into the ground to help remove lingering contaminants, including carbon tetrachloride, that have been there for decades, the Lincoln Journal Star ( ) reported. The hazardous chemicals were once commonly used as a grain fumigant to kill insects during the 1950s and 1960s. Company officials believe the contamination was there before it bought the grain elevator complex in 1966. Supervisor Tom Buell, of the state agency’s voluntary cleanup program and Superfund unit, said there’s no public health risk associated with the groundwater contamination. “The pathways are controlled,” he said. “Currently, nobody’s drinking the water, and we’re very confident nobody is exposed to contaminated soil or vapors.”

N.D. oil output up slightly even as fewer rigs are active in the Bakken - North Dakota’s oil output recovered slightly in May, rising again to 1.2 million barrels per day, a level that the state’s top oil regulator believes is sustainable even as oil prices have dipped again. “The industry is going to find it pretty easy to stick at the 1.2 million barrels per day mark,” Lynn Helms, North Dakota’s top oil regulator said Friday as he released May production figures. ” … People are hoping that prices increase and we go can go back into a growth mode, but we are capable of sustaining production for a couple of years.” The number of rigs drilling for North Dakota oil fell to 73 this month, the lowest number since November 2006, and down 67 percent from the peak in 2012. More than 14,000 drilling jobs have been lost, he added. Even so, oil production in May climbed nearly 3 percent over April, though it was still 26,000 barrels per day short of the record set in December. Natural gas output set a record in May as more wells connected to pipelines. On a conference call with reporters, Helms said several factors are sustaining production even as oil companies slashed drilling budgets. Some drillers, including Slawson Cos. of Wichita, and Houston-based Occidental Petroleum, have at times idled all their rigs, he added.

ND cracks down on illegal water sales in the Bakken - The North Dakota State Water Commission is cracking down on illegal industrial water sales in the Bakken oil fields where massive volumes of water are required for drilling operations, reports the Forum News Service. Last year, penalties for illegal water sales amounted to $1.6 million, fees imposed by agreements made between the Commission and the parties cited for violations. One such group includes the Lignite Volunteer Fire Department, which seized the opportunity to turn on its spigots and began selling its water to drilling crews. Over the course of a few years, the department collected over $650,000 from the sales. The State Water Commission, however, blew the whistle, and upon investigating the activity determined that the fire department lacked a permit to sell the water and issued a fine equal to the profits of the water sold. The increased enforcement of water sale violations began in 2012 when the Commission began imposing penalties in an effort to deter potential violators and to scale back the collected illegal profits. The Commission’s Director of Water Appropriations Jon Patch told the FNS, “We did kind of a swarm of them early on in 2012 and 2013. They’ve kind of tapered off, and it’s business as usual.” This year fines for water violations have dropped significantly compared to last year, with penalties to date totaling only about $25,000. Patch added, “I think the word has gotten out about the need for a permit. We take violations seriously. If we find out about it, it’s a pretty serious matter.”

Firm objects to delay in drilling on land sacred to Indians — A Louisiana company seeking to drill for natural gas on Montana land held sacred by some American Indians objected to a 75-day review period sought by a federal panel considering the proposal. After decades of bureaucratic delays, Solenex LLC of Baton Rouge hoped to begin drilling this summer on its more than 9-square-mile federal energy lease in the Badger-Two Medicine area next to Glacier National Park. That timetable appears increasingly unlikely. The Advisory Council on Historic Preservation has said it needs until Sept. 21 to issue its recommendations on whether drilling would degrade the area’s significance to the Blackfoot tribes of Canada and Montana. Also pending is a decision in a 2013 lawsuit from Solenex that seeks to lift the suspension.

Hillary Clinton Says She Would Phase Out Fossil Fuel Drilling On Public Lands — Just Not Yet  -- At a town hall event in New Hampshire, Elaine Colligan, a Action Fellow, asked Clinton “will you commit to banning fossil fuel extraction on public lands in this country … yes or no will you ban this?” Clinton struck a moderate tone — not committing to an immediate halt to fossil fuel extraction on public lands, but voicing support for phasing it out over time. “The answer is not until we got the alternatives in place, and that may not be a satisfactory answer to you but I think I would have to take the responsible answer,” she said. “I am 100 percent in favor of accelerating the development of solar, wind, advanced biofuels, energy efficiency, everything we can do. And I would hope that we could get to the point that you made which is looking at the public lands and cutting back over time, phasing out the extraction of fossil fuels.” Most people support accelerating the development of renewable fuels. The key to the climate crisis is the deployment of those low-carbon fuels that already exist, are already cheap, and can already help shift the world away from climate disaster. The reason she could not commit to a ban, Clinton said, is that fossil fuels are still required to provide electricity and fuel transportation. “We still have to run the economy, we still have to turn on the lights, we still have to make sure that businesses operate,” she continued. “So I want to do as much as I can as quickly as I can to make this energy transition. But I could not responsibly say to you that I could automatically stop the source of fossil fuels right away without having a substitute in order to keep the economy going, to keep people employed, to keep the lights on.” The largest source of greenhouse gas emissions in the United States comes from coal produced from public lands.

Buffett may benefit as train lobby bids to weaken safety rule – Billionaire investor Warren Buffett is set to be a chief beneficiary of a bid by Senate Republicans to weaken new regulations to improve train safety in the $2.8 billion crude-by-rail industry, a key cog in the development of the vast North American shale oil fields. A series of oil train accidents, including the July 2013 explosion of a train carrying crude in Lac-Megantic, Quebec, that killed 47 people, led U.S. and Canadian regulators to announce sweeping safety rules in May. Among other things, U.S. oil trains are required to install new electronically controlled pneumatic (ECP) brakes. But in late June, the Republican-controlled Senate Commerce Committee approved a measure to drop that requirement, and order years of new research to confirm the safety benefits of ECP brakes. On Wednesday, the panel will decide whether to send the measure to the full Senate, setting the stage for a fight with Democrats who say the repeal would delay the use of feature that can help avoid catastrophic derailments and minimize the consequences of accidents that do occur. The looming debate pits Democrats, federal regulators, safety advocates and environmentalists against the crude-by-rail industry, which claims that installing the brakes would slap an unnecessary $3 billion cost on railroads, oil refiners and other owners of rolling stock, and potentially jeopardize safety.

Crude oil train derails in rural northeastern Montana — An oil train derailed Thursday in rural northeastern Montana, prompting the evacuation of some homes and leaving at least two of the cars leaking crude, authorities said. There were no immediate reports of injury or fire, but of the 21 cars that derailed only two remained upright, Roosevelt County Sheriff Jason Frederick said. Burlington Northern Santa Fe spokesman Michael Trevino said the train was pulling 106 loaded crude oil cars when it derailed near Culbertson near the North Dakota border just after 6 p.m. MDT. Police, fire and other emergency responders were at the site of the derailment, which forced the closure of federal Highway 2, the region’s main artery. Frederick told The Associated Press that crews are not going too close to the leaking cars until a BNSF hazardous materials team, enroute from Texas, reaches the scene. But he said that there was no immediate threat to public safety.

3 rail cars leaking crude after oil train derails in Montana — More than 20 cars on an oil train derailed in rural northeastern Montana, and at least three of them were leaking crude, leading some homes to be evacuated, authorities said. There were no immediate reports of injury or fire, but of the 21 cars that derailed Thursday evening, only two remained upright, Roosevelt County Sheriff Jason Frederick said. Authorities had earlier reported just two cars were leaking, but Burlington Northern Santa Fe spokesman Matt Jones updated the number to three in a statement Friday morning. The oil had been contained, and railroad employees were on the scene, Jones said. The train was pulling 106 loaded crude oil cars when it derailed close to Culbertson near the North Dakota border just after 6 p.m. MDT Thursday. The cars typically haul about 30,000 gallons of oil apiece. Police, fire and other emergency responders were at the site of the derailment, which forced the closure of U.S. Highway 2, the region’s main artery. The sheriff didn’t know how many homes were evacuated but described area as a rural setting with ranch homes spread apart. The derailment came about six hours after rail traffic started moving again following another BNSF derailment further west near Fort Kipp on Tuesday, the Billings Gazette reported. Rail officials declined to specify if the train was hauling crude from North Dakota’s Bakken oil patch, where growing numbers of shipments have raised safety concerns. Trains hauling crude from the Bakken region have been involved in multiple derailments in recent years, some causing fires.

35,000 Gallons of Oil Spills After Montana Train Derailment  -- Three tank cars continued to leak crude oil on Friday in rural, northeastern Montana in the wake of a 21-car derailment that downed a power line, closed a major highway and forced the evacuation of a town. Emergency workers responding to the Thursday evening derailment said cleanup of the leaking crude could not begin until the arrival of a Texas-based Burlington Northern Santa Fe hazardous materials team. The wreck is the latest in a string of derailments this year exposing the still-unchecked dangers that crude-oil trains pose to people and the environment, and how unprepared communities are to deal with the threat.A train carrying oil derailed in northeast Montana Thursday.“This derailment is only the latest reminder that the dangers of transporting crude by rail are magnified by the lack of equipment and training available to local emergency workers,” said Jared Margolis, an attorney at the Center for Biological Diversity who focuses on the impacts of energy development on endangered species. “Communities should not be forced to wait for industry hazmat teams to travel across the country while leaking oil contaminates our water and soil.” The accident involving the 106-car train came just hours after another derailment had shut down rail traffic through the area. The accident comes on the heels of six other major oil train derailments just this year, including several explosive spills.

Panel probes California oil spill that blackened beaches - The nation’s top pipeline regulator is lagging in meeting congressional requirements imposed several years ago but it is planning to increase staff for safety inspections, its interim director says. The federal Pipeline and Hazardous Materials Safety Administration has been facing new questions about its effectiveness after a May 19 break near Santa Barbara created the largest coastal oil spill in California in 25 years. Interim Executive Director Stacy Cummings said in testimony submitted to the House Energy and Power Subcommittee that a 2011 law included 42 requirements for the agency, and 26 of the reforms have been completed. “While we are pleased to report that we have completed more than half of the mandates, we understand that there is still much more work to be done,” she told the committee, according to remarks posted on the committee’s website. “Some of them are a heavy lift,” she added. Following the California spill, the committee asked why the agency is behind on changes ordered by Congress several years ago, and it planned to examine at a hearing in Washington on Tuesday whether the failure to meet those requirements compromised safety, especially in light of the California break.

Oily Patches Found Off Australia’s Coast Prompt Concern For Great Barrier Reef -- Oil was spotted off the coast of Queensland, Australia on Friday, sparking fears that a spill might threaten the Great Barrier Reef. A fisherman reported a sheen of about 1 kilometer (about .6 miles) Friday afternoon (Australia time), the Guardian reported. Officials took to helicopters and water vessels to search for the spill, and while they couldn’t locate the slick, they did spot oily patches of water south of Townsville, Queensland. In addition, officials found “oily residue” on the boat of the fisherman who reported the spill. “We can confirm some patches of oily water have been sighted in the water south of Townsville,” an official told the Brisbane Times. The oil spots were about 3 feet in diameter, but officials didn’t say the size of the area covered by the patches.  Officials are planning to take aircraft out again Saturday morning to search for evidence of a spill in the ocean, islands, and coastline.  It’s not yet known where the oily patches have come from or whether they’ll impact the Great Barrier Reef. But the reef — which is the world’s largest coral reef system and its “biggest single structure made by living organisms” — is facing multiple environmental threats, major oil spill or none. Last year, scientists warned the Australian Senate that the reef was in the worst state it’s been in since record keeping began, due in part to coastal development and dredging. The dredging has been occurring as Australia expands its ship ports along its coast, development which entails dredging — or digging up — the sea bed. The waste produced by the dredging has been smothering coral reefs.

Canadian Pipeline Spills 1.3 Million Gallons Of Bitumen, Produced Water, And Sand -- An pipeline spill in Alberta, Canada has leaked some 1,320,000 gallons, or 31,000 barrels, of emulsion — a mixture of bitumen, produced water, and sand — south of Fort McMurray, a hub for Canada’s tar sands mining and refining industry.  The leak, which was discovered Wednesday afternoon, is the largest pipeline spill in the province in 35 years, when a 54,000 barrel oil spill became Canada’s worst-ever pipeline incident.  Nexen Energy, the pipeline operator, and the Alberta Energy Regulator, have not yet identified the cause of the leak, which has been contained. At this point there are no reports of injuries to wildlife or contamination of nearby bodies of water. The spill covered some 170,000 square feet, of four acres, mostly along the path of the pipeline.  Bitumen is a combination of viscous tar sands crude oil and liquid chemicals like benzene that dilute the crude so it can be piped to refineries. Produced water is water used during the process of oil or gas extraction that can contain hydraulic fracturing chemical additives and naturally occurring substances and is not suitable for irrigation or drinking. It must be stored in tanks or pits before being treated and disposed.  In a statement about the spill, Greenpeace communications officer Peter Louwe said the leak is “a good reminder that Alberta has a long way to go to address its pipeline problems, and that communities have good reasons to fear having more built.”

Nexen Pipeline Spills 5 Million Litres Of Emulsion Near Fort McMurray: - A pipeline at Nexen's Long Lake oilsands project in northeastern Alberta has failed, spilling an estimated five million litres of bitumen, produced water and sand. The company, which was taken over by China's CNOOC Ltd. in 2013, said the affected area is about 16,000 square metres, mostly along the pipeline's route. The company and the Alberta Energy Regulator say it's too soon to say what might have caused the leak AER spokesman Peter Murchland said it's been contained. "They've effectively stopped the source of the release, so that's good news," he said. Nexen said the spill was discovered Wednesday afternoon. The company is investigating how long the pipeline was leaking before it was shut off, spokesman Kyle Glennie said in an email. A portion of the Long Lake operations has been shut down, but Nexen did not disclose production figures. So far, there has been no reported harm to the public or wildlife. The regulator is requiring Nexen to implement a wildlife protection plan in the area. The emulsion has not flowed into a body of water, but it did spill into muskeg, the AER said.

Nexen pipeline leak in Alberta spills 5 million litres - One of the largest leaks in Alberta history has spilled about five million litres of emulsion from a Nexen Energy pipeline at the company's Long Lake oilsands facility south of Fort McMurray. The leak was discovered Wednesday afternoon. Nexen said in a statement its emergency response plan has been activated and personnel were onsite. The leak has been stabilized, the company said.  The spill covered an area of about 16,000 square metres, mostly within the pipeline corridor, the company said. Emulsion is a mixture of bitumen, water and sand. The pipeline that leaked is called a "feeder" and runs from a wellhead to the processing plant. "All necessary steps and precautions have been taken, and Nexen will continue to utilize all its resources to protect the health and safety of our employees, contractors, the public and the environment, and to contain and clean up the spill," the company said in the statement issued Thursday. Peter Murchland, public affairs manager for the Alberta Energy Regulator, said officials were notified late Wednesday and had staff onsite Thursday to work with Nexen. "My understanding is that the pipeline and pad site had been isolated and shut-in earlier today, effectively stopping the source of the release," Murchland said Nexen has contained the leak and started cleaning up the area, he said. There was no word on how long that might take.

View from above: The Nexen pipeline spill in Alberta | CTV News: A broken pipeline in Alberta has leaked the equivalent of two Olympic-sized swimming pools of bitumen, water and sand into the Alberta wilderness. The 5-million-litre spill occurred in a remote area near Nexen’s Long Lake operations. It happened about 15 kilometres from the community of Anzac, and has affected about 16,000 square metres along the pipeline route. This is Alberta’s fourth large spill in recent years. A 2.7-million-litre spill occurred northeast of Peace River in March, three million litres escaped near Rainbow Lake in 2012 and 4.5 million litres leaked in 2011 near Little Buffalo. A road had to be built and special mats were laid over the ground Friday so that a clean-up crew could reach the site and start vacuuming up the mess.  Ron Bailey, senior vice-president of Canadian operations for Nexen, apologized. He said the problem was discovered Wednesday afternoon by a contractor after the pipeline’s fail-safe systems failed to alert technicians. He said the hole in the double-walled pipeline, built in 2014, may be very small. The pipeline connects a well to an upgrader and has a capacity of 20,000 barrels a day.

‘We sincerely apologize': Nexen’s ‘failsafe’ system didn’t detect massive northern Alberta pipeline spill -n Oil and gas company Nexen’s automatic detection system didn’t detect a ruptured pipeline that resulted in a massive bitumen emulsion spill this week, senior vice-president Ron Bailey told reporters in Calgary Friday morning. “There’s failsafe systems that were designed to actually detect” pipeline failures such as the rupture through the double-walled pipeline that resulted in the spill, Bailey said.  “This is a modern pipeline. We have pipeline integrity equipment, in fact some very good equipment,” he said. “Our investigation is looking at exactly why that wasn’t alerting us earlier.” Nexen still doesn’t know what caused the pipeline rupture — or even when the rupture occurred, Bailey said. The investigation will also try to determine “why we’ve ended up with a breach of both layers of the pipe.” The leak, which the company discovered on Wednesday afternoon, spilled an estimated 5,000 cubic metres of emulsion – about 5 million litres of bitumen, sand and wastewater – over a 16,000-square-metre area about 36 kilometres southeast of Fort McMurray. Alberta’s Energy Regulator is investigating the spill and issued environmental protection orders late Friday afternoon. The order asks Nexen to “contain the spill, identify affected parties and notify them, and conduct testing in the area for hydrocarbons and chlorides; develop a water body management plan, wildlife mitigation plan and detailed delineation and remediation plan; develop daily public reports and publish them to the Nexen website; and  submit a final report to the AER within 30 days of the completion of all work required in compliance with the Order.”

Canada’s Nexen says crews working around the clock at spill site – Canada’s Nexen Energy said on Friday its crews in northern Alberta were working “around the clock” to clean up an oil sands pipeline leak that is one of North America’s largest-ever oil-related spills on land. The subsidiary of China’s CNOOC Ltd said it detected the spill at its Long Lake facility on Wednesday afternoon. The pipeline leaked 31,500 barrels of emulsion, a mixture of bitumen, water and sand. The spill covered 16,000 square meters and the Alberta Energy Regulator (AER) said the leak did not contaminate any water bodies. Even so, the incident is another blow for the environmental record of the oil sands industry, already under fire from environmental groups for its carbon-intensive production process. The regulator has sent investigators to Long Lake to try and determine the cause of the pipeline failure. Environment Canada’s Enforcement Branch said it had opened a file on the incident, and was in the early stages of gathering information. Nexen shut down the pipeline at its 72,000 barrel per day Long Lake facility, about 36 kilometers (22 miles) south east of the oil sands hub of Fort McMurray, and isolated it as part of the clean up operation. The company will hold a news conference in Calgary at 1100 a.m. MT (1700 GMT) to discuss the leak. Alberta Premier Rachel Notley, who on Friday finalized a Canadian energy strategy with other provincial leaders after a series of meetings this week, is also due to hold a press conference later on Friday.

Alberta faces growing backlog of abandoned oil and gas wells - As Alberta's energy companies struggle through a prolonged bout of low prices, more and more are walking away from their oil and gas wells, leaving a little-known industry group to clean up the mess. Alberta's Orphan Well Association is now responsible for 704 wells, up from 164 last year, according to Pat Payne, the association's manager. "Industry is not doing as well, and it's due to the low commodity prices, low price of oil, low price of gas and declining production," Payne said. "Declining reservoirs [are] catching some of the companies and they're not able to survive." When a company walks away from a well, it is capped off, but thousands of metres of tubing remain underground and can still transport remaining oil or gas to the surface. "There is often some level of contamination with these older sites, and the costs really escalate quickly," said Jason Unger of Edmonton's Environmental Law Centre. He wrote a 2013 report arguing for a faster pace in reclaiming abandoned wells. "The longer sites sit abandoned and unreclaimed, there is ongoing risk." he said in an interview. Unger's report notes that, over time, abandoned wells become more prone to failures that can lead to ground and surface water contamination, and threats to plants and animals in the area. The report also points to the economic costs of leaving a site abandoned for years.

Oil output from U.S. shale plays seen down for fourth month - EIA - Oil production from U.S. shale in August is expected to fall by the most since at least 2007, according to the U.S. agency tasked with tracking oil output, the latest sign a price rout will shrink the nation’s crude output. Oil production from the largest U.S. shale plays will plunge in August for a fourth consecutive month, forecasts from the U.S. Energy Information Administration showed on Monday. Output was expected to decline by 91,000 barrels per day, 12 percent over July’s forecast production decline, to 5.4 million bpd, the lowest level since November for the seven shale plays tracked in EIA’s productivity report. Energy firms fired thousands of workers and cut back on new drilling after U.S. crude futures collapsed 60 percent from over $107 a barrel in June 2014 to near $42 in March on oversupply concerns and lackluster world demand. Despite the cuts, however, U.S. production averaged 9.6 million bpd during the week ended July 3 for a seventh week in a row, its highest level since the early 1970s, according to the most recent government data. Several energy firms decided to return to the well pad during May and June when prices averaged $60 a barrel after rebounding off the March lows. The firms have not publicly changed those new drilling plans even though crude prices fell last week and were now trading around $52 a barrel.

EIA Confirms: Oil Production Peaked -- U.S. oil production has peaked…at least for now. That is the conclusion from a new government report that concludes that U.S. oil production is on the decline. After questions surrounding the resilience of U.S. shale and when low oil prices would finally cut into production, the EIA says the month of April was the turning point.  In its Short-Term Energy Outlook released on July 7, the EIA acknowledged that U.S. oil production peaked in April, hitting 9.7 million barrels per day (mb/d), the highest level since 1971. In May, production fell by 50,000 barrels per day, and EIA says that it will continue to decline through the early part of next year. Still, the declines won’t be huge, according to the agency’s forecast – production will average 9.5 mb/d in 2015 and 9.3 mb/d in 2016.  The EIA figures move a little closer to what some critics have been saying for some time. Data from states like North Dakota and Texas had pointed to slowing production for months while EIA posted weekly gains in production figures for the nation as a whole. Along with several consecutive weeks of inventory drawdowns, EIA figures started to look a little suspect. The latest report is sort of an acknowledgement that those figures were a little optimistic. Nevertheless, as the EIA affirms peak production in the second quarter of 2015, the fall in output over the next few quarters should bring supply and demand back into balance, or at least close to it. Supply exceeded demand by more than 2.5 mb/d in the second quarter of this year, but that gap will narrow to 1.6 mb/d in the third quarter and just 500,000 barrels per day in 2016.

U.S. refiners' golden era fading as LatAm export boom stalls (Reuters) – Big U.S. oil refiners along the Gulf of Mexico, which have led an almost charmed life for the past five years, may have to brace themselves for leaner times in the months ahead. A boom in domestic shale production yielded a gusher of high-quality oil available at discounted prices thanks to an longstanding ban on U.S. crude exports. Refiners made billions by turning half of that extra supply into products such as gasoline and diesel that could be freely exported to countries including Brazil and Colombia. More recently, while drillers reel from the collapse in crude prices, refiners such as Valero Energy Corp and Phillips 66 are still riding high on healthy margins, savoring an OPEC-induced surplus of crude while low pump prices revive domestic demand. But that business may start losing some of its luster in the coming months, according to a Reuters analysis of refining capacity and export data. Key customers in Latin America, where about half of U.S. fuel exports go, are poised to import less as they finish refinery projects while an expected contraction in regional economic activity saps demand. Some 300,000 barrels per day of new capacity will come online in Latin America later this year, according to Reuters calculations. That is equivalent to the combined imports by Brazil and Ecuador, two of the biggest buyers of U.S. fuel, in the first four months of the year.

How the plunging price of oil has set off a new global contest - He’d spent years touting his vision that America would one day dominate one of the world’s most powerful markets. And when Harold Hamm, a pioneer in discovering vast reserves of shale oil under American soil, took the stage in front of several hundred oil luminaries, he never acknowledged that the narrative was in doubt. “For the next 50 years, we can expect to reap the benefits of the shale revolution,” Hamm said one day this spring. “It’s the biggest thing that ever happened to America.” But away from the stage, the U.S. oil industry — and Hamm — was in crisis. In the previous six months, Hamm, founder of oil giant Continental Resources, had lost $6.5 billion, more than one-third of his net worth. The industry that Hamm had helped create was facing its greatest test in a frantic race to stay profitable as rival Saudi Arabia worked to drive down oil prices and, according to some analysts, undermine America’s oil industry at the most important moment in its history. Behind the low price of a gallon of gas at the pump this summer lies a competition worth trillions of dollars and which is capable of swinging the geopolitical balance of power. On one side are Hamm, a famous wildcatter, and other American oilmen who rode the discovery of hydraulic fracturing to tens of billions of dollars of wealth and a promise of, in Hamm’s words, ending the “disastrous” days of Saudi Arabian control. On the other are the Saudis and their allies in the Organization of the Petroleum Exporting Countries, which are trying to stem rising U.S. oil power and maintain their 40 years of dominance.

Shale Industry May Need A Complete Rethink To Survive --  Shale reservoirs have become an important part of North American oil and gas supply and their development has begun a new era of oil and gas production worldwide. Advances in well drilling and completion technologies supported the rapid development of shale resources which contributed to the almost overwhelming success of U.S. shale in recent years. Globally, Argentina’s Neuquén Basin and China’s Sichuan Basin are the two front-runners to emulate the successes of the United States, with Poland, Algeria, Australia, Colombia, Russia, and Mexico still in earlier phases of exploration and evaluation, while Saudi Arabia also has plans for domestic shale investment and development. Many more countries have yet to fully review their potential shale strategy and policies. Global oil consumption, according to BP’s Statistical Review 2015, has been rising annually at a compound growth rate of 1 percent during the last 10 years – despite several years of slow global economic growth, a trend that is forecasted to continue. Despite this low oil price situation, the U.S. shale boom will likely not end anytime soon as the industry is adapting to find a new equilibrium. Companies are looking for more financial protection, as their hedging positions end, potentially reconsidering their asset portfolio, with some considering extensive consolidation, mergers and acquisitions.If the shale industry is to survive, it must become even more competitive through better efficiency and massively reduced costs.

More Job Losses Coming To U.S. Shale -- With the recently concluded nuclear deal between Iran and the P5+1 countries, oil prices have already started heading downward on sentiments that Iran’s crude oil supply would further contribute to the already rising global supply glut. The economic crisis in Greece, OPEC’s high production levels and China’s market turmoil have created more pressure on oil prices, making a price rebound look highly unlikely in the near future. So, with the prices of both Brent and WTI moving towards $50 per barrel, the short to medium-term outlook for oil remains mostly bearish. This is bad news for the U.S. shale sector which is already dealing with rising debt and the ever-increasing risk of default. A recent Bloomberg report stated that U.S. driller’s debts stood at $235 billion at the end of first quarter of 2015, which is quite worrying. Does this mean that the U.S. oil sector is likely to witness a lot more layoffs than we have seen so far? Surprisingly, a recent IHS study had revealed that the U.S. shale sector has been boosting job creation in addition to supporting around 1.7 million jobs in U.S. But with rising negative sentiment pertaining to oil prices, is U.S. the shale sector prepared to face one of its biggest tests yet? Will the industry be able to sustain another long period of low oil prices or will it once again resort to trimming its workforce? Low oil prices will most likely result in more job losses…

The Multi-Trillion Dollar Oil Market Swindle --In the past, I documented the overstatements by both the IEA and EIA in 2014 & 2015 in terms of supply, inventory and understatements of demand. Others also noticed these distortions and, whether intentional or not, they exist and they are very large in dollar terms. These distortions, which are affecting price through media hype and/or direct/indirect price manipulation, are quite possibly the largest in financial history.   Putting numbers behind it, with worldwide production running some 95 million barrels per day, and assuming $55 per barrel for oil, the market for crude oil is about $5.2 billion per day. Each $10/Barrel change is worth nearly $1 billion/day or $365 Billion/year for the worldwide crude oil market. Add the worldwide equity market caps of oil and oil related equities and debt you have a scandal that is in the trillions; a number that cannot be ignored. The EIA has created the appearance of an imbalance of supply by some 500 million barrels or $2.5 trillion in the last 5 quarters alone. This has easily swung oil by at least $20/barrel if not more. I have maintained that oil should have corrected to around $70 in the fall of 2014, tied to U.S. production increases which at the time represented the price at which drillers would continue to add to supply. That price tied to cost reductions has probably been reduced to $60ish currently. But today, with the consensus oversupply widely quoted in the media as some 2 million barrels per day worldwide, it’s clear that if the numbers are correct below, the perceived oversupply wouldn’t exist at all. Suffice it to say prices would be at least at the point where production would need to be added, perhaps around $60-$70 per barrel, if not higher.

Crude Extends Gains After API Reports Large Drop In Inventories -- After a brief respite of 2 weeks of inventory builds, API just reported a major 7.3 million barrel inventory draw (far bigger than the 1.2mm barrel expected) and the biggest since July 2014...WTI Crude has jumped back above $53 on the news... Charts: Bloomberg

DOE Confirms Larger Than Expected Crude Inventory Draw, Production Drops Most In 2 Months --Confirming API's report of a significant inventory draw, DOE just reported that, after 2 weeks of builds, US crude inventories fell 4.346 million barrels last week. Crude production also fell 0.44% - the most in 2 months. Crude initially drooped but is rising now... Significant draw... And production fell the most in 2 months... But Crude prices are dropping modestly after this draw... Charts: Bloomberg

WTI Tumbles Back To A $50 Handle On Iran, Default, And Cushing Build Fears -- Having surged on Tuesday when the Iran "deal" was confirmed and tumbled yesterday despite inventory draws and production decreases, WTI crude is re-slumping back to a $50 handlethis morning as traders cite more Iran concerns (flattening the curve) and a Genscape report that indicates inventory builds at Cushing once again...It appears the algos have been turned upside down...

Crude Oil Price Slips on Iran Deal, Not Lower Inventory - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 4.3 million barrels last week, maintaining a total U.S. commercial crude inventory of 461.4 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 7.3 million barrels in the week ending July 3. For the same period, Platts analysts estimated a decrease of 1.8 million barrels in crude inventories. Total gasoline inventories increased by 100,000 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 9.6 million barrels a day for the past four weeks, up by 6.5% compared with the same period a year ago. The potential addition of a million barrels of Iranian crude to the world’s oil markets only had a negative effect on the price of crude for a few hours on Tuesday. Crude closed higher much to most people’s surprise. There are a couple of reasons this should not have happened. First of all, if sanctions against Iran are lifted, that is not expected to happen until December. Second, most industry watchers believe Iran has 30 million to 40 million barrels of oil in floating storage sailing in circles in the Persian Gulf. Those would be available as soon as sanctions are lifted. Both actions should depress crude prices.

U.S. oil drillers cut rigs as crude prices collapse – Baker Hughes -- U.S. energy firms cut seven oil rigs this week after adding rigs for the last two weeks as U.S. crude prices fell nearly 15 percent this month in the biggest slump since December, data showed on Friday, a sign some drillers were waiting for higher prices before returning to the well pad. That was the 30th weekly oil rig decline in the past 31 weeks, bringing the total down to 638, the lowest since the last week in June, oil services company Baker Hughes Inc said in its closely followed report. U.S. crude oil futures continued to decline this week, falling about 4.2 percent as prices continued to recede from a recent high over $62 in early May. Production declines in the largest U.S. shale plays were set to deepen in August, the U.S. Energy Information Administration said earlier this week in its drilling productivity report. While the EIA expected declines from the Bakken and Eagle Ford, the agency forecasted production growth from the Permian month or month of some 5,000 barrels per day. The increase in rig counts comes as Iran has started to ship oil to Asia that it had been storing offshore for months after Tehran and other world powers reached an agreement about the nation’s nuclear program, clearing the way for an easing of international sanctions.

BHI: US rig count falls 6 units to 857 - -- The US drilling rig count fell 6 units to reach 857 during the week ended July 17, essentially cancelling out the last 3 weeks’ worth of gains, according to data from Baker Hughes Inc.The losses came from rigs drilling on land and in inland waters. Land rigs were down 3 units to 824, while those drilling in inland waters also fell 3 units to reach 2 rigs working. During the week, rigs targeting oil fell 7 units to 638. Gas-directed rigs, meanwhile, were up 1 unit to 218. Rigs considered unclassified were unchanged at 1 rig working. Rigs engaged in horizontal drilling fell 4 units to 650. Directional drilling rigs lost 4 units to 84. Rigs drilling offshore and in the Gulf of Mexico were both unchanged this week, both maintaining counts of 31. Canada’s rig count continued its upward climb, jumping 23 units to 192. Its count has now risen in 8 of the last 10 weeks. This week’s gain was spurred by a rebound in gas-directed rigs, which were up 16 units to 94. Oil-directed rigs, meanwhile, were up 7 units to 98 rigs working. Canada’s overall count is still down 189 year-over-year.Among the major oil- and gas-producing states, Louisiana lost 3 units to reach 69 rigs working. Texas, North Dakota, and Pennsylvania each were down 2 rigs, reaching respective totals of 366, 68, and 43. Oklahoma, at 105, and California, at 11, were each down 1 unit. Unchanged from a week ago were Wyoming, 21; Ohio, 19; West Virginia, 18; Utah, 7; and Arkansas, 4. Four states gained a single rig this week: New Mexico, 50; Colorado, 39; Alaska, 11; and Kansas, 11. At 98 units, there were 4 fewer rigs drilling in the Eagle Ford this week, while the Marcellus area lost 3 units to 59.

U.S. oil drillers cut rigs as crude prices collapse - U.S. energy firms cut seven oil rigs this week after adding rigs for the last two weeks as U.S. crude prices fell nearly 15 percent this month in the biggest slump since December, data showed on Friday, a sign some drillers were waiting for higher prices before returning to the well pad. That was the 30th weekly oil rig decline in the past 31 weeks, bringing the total down to 638, the lowest since the last week in June, oil services company Baker Hughes Inc said in its closely followed report. U.S. crude oil futures continued to decline this week, falling about 4.2 percent as prices continued to recede from a recent high over $62 in early May. Production declines in the largest U.S. shale plays were set to deepen in August, the U.S. Energy Information Administration said earlier this week in its drilling productivity report. While the EIA expected declines from the Bakken and Eagle Ford, the agency forecasted production growth from the Permian month or month of some 5,000 barrels per day. The increase in rig counts comes as Iran has started to ship oil to Asia that it had been storing offshore for months after Tehran and other world powers reached an agreement about the nation's nuclear program, clearing the way for an easing of international sanctions

Crude gives up gains as US oil rig count falls --Crude oil prices briefly rose but gave up gains after a weekly count of U.S. oil rigs fell, capping two weeks of increases. Front-month U.S. crude futures closed down 2 cents, at $50.89 a barrel. It is down more than 4 percent this week and 15 percent in July. The August contract expires on July 21. Brent crude was slightly higher at $57 a barrel, but off more than 3 percent for the week and about 10 percent for the month. Brent's August contract expired on Thursday. Oilfield services firm Baker Hughes reported U.S. drillers took seven oil rigs out of fields last week, bringing the total to 638, compared with 1,554 active rigs at this time last year. The prior two weeks' gains were the first in more than seven months. Oil came under pressure in choppy trading Friday, heading for a third week of losses and feeling pressure from a stronger dollar and expectations of increased exports from Iran.

OilPrice Intelligence Report: $50 Oil Looming For The Markets: The bear market for oil continues. The historic deal with Iran has sparked a lot of speculation about how much Iranian oil will come back to the market, and how quickly. The estimates run the gamut, as we explained in Tuesday’s Newsletter, but suffice it to say Iran could bring somewhere near 1 million barrels of crude per day back online within a year. December 2015 is the earliest date that sanctions will come off. In the meantime, Iran has around 40 million barrels of oil sitting in storage that could be sold off much more quickly. As the markets try to digest Iran’s potential, oil prices have sunk. WTI dropped on July 16, falling dangerously close to the psychologically important threshold of $50 per barrel, flirting with the possibility of sub-$50 oil for the first time in several months. The ongoing slump in oil prices continues to hit the largest oil companies. ConocoPhillips announced its decision to further slash capital expenditures on deep-water drilling and instead divert more of its resources to boost its dividend by one cent to 74 cents per share. The company decided to cancel its contract with the Ensco DS-9 drillship, which ConocoPhillips had planned on using to drill a deep-water well in the Gulf of Mexico later this year. Cancelling a contract is not cheap however. ConocoPhillips must pay the owner of the ship, Ensco, termination fees equal to about two years’ worth of daily renting of the rig. That could come out to around $550,000 per day, for two years, plus other fees that Ensco might incur from the contract cancellation. The problem for the oil majors is still the cost of production. Much has been made about the efficiency gains that oil companies are making, locking in lower costs for services and equipment, which lowers the breakeven cost for oil projects. But the larger savings are occurring in the shale patch, where most of the oil majors have relatively little exposure. For the largest companies, it is still a lot more expensive to produce oil than it was in years past.

Shell expects oil price recovery to take several years (Reuters) – Royal Dutch Shell expects oil prices to recover gradually over the next five years, with progress slowed by persistent global oversupply and receding Chinese demand growth. The Anglo-Dutch energy giant is betting on crude rising to $90 a barrel by 2020, a key assumption in its move to buy rival BG Group for $70 billion to help transform it into a leading player in the costly deepwater oil production and liquefied natural gas (LNG) markets. “We are not banking on an oil price recovery overnight. It will take several years but we do believe fundamentals will return,” Andy Brown, Shell’s upstream international director, who oversees the company’s oil and gas production outside North America, told Reuters in an interview. “Until such time, we, like other companies, will have to make sure we stay robust,” he said, referring to deep spending cuts taken by oil companies in recent months in the face of a near-halving of oil prices since June last year. A rise in global supplies, mainly due to a sharp increase in output from U.S. shale, has weighed on oil prices. In the nearer term, Shell expects Brent crude oil to show only a modest recovery from today’s $58 a barrel, with 2016 prices forecast to average $67 a barrel and $75 a barrel in 2017, based on the company’s BG offer. Oil companies rarely reveal the price forecasts that underpin their future strategies. The chief executive of Shell’s rival BP , Bob Dudley, said recently he expected oil prices to remain low for “a couple of years most certainly.”

Investors Get Caught in Oil’s Slippery Wake - WSJ: Falling oil prices are hitting investors who bought energy shares this year. The value of shares sold by U.S. and Canadian exploration-and-production companies this year in 47 follow-on offerings sit $1.41 billion shy of the $15.87 billion investors paid for them, according to a Wall Street Journal analysis of Dealogic data. The pullback “has really taken the Street by surprise,” said William Herbert, co-head of securities at Houston investment bank Simmons & Co. International. After pushing above $60 a barrel over the past two months, U.S. crude has dropped 16% since hitting its settlement high for the year on June 10. On Wednesday, it closed at $51.41, down 3.1% on the day, on the New York Mercantile Exchange. “There are a decent number of institutional investors that are in a state of shock,” Mr. Herbert said. Investors said the decline is muting demand for further share sales, potentially limiting the options available to energy firms that need to raise fresh cash. Companies in the second quarter sold less than half of the stock, by dollar volume, than they did in the first quarter, when investors bought more than $11.5 billion of shares, a quarterly record for follow-on offerings for North American energy companies. Follow-on offerings are issuance of new stock subsequent to a company’s initial share offering.

The Global Impact of Lower Oil Prices - iMFdirect -- Remember when oil was the big story? Yeah, us too.  And we’re still thinking through the issues and what they mean for oil importers and exporters, as well as the global economy. This week IMF economists released a new paper, and we interviewed the lead author in this podcast, that delves into the benefits of lower oil prices for consumers and for the global economy.

Heat rises on Britain to change shale gas laws after projects blocked: (Reuters) – Pressure is mounting on Britain’s pro-shale government to make changes to the planning system after local politicians rejected two projects that could have become Britain’s first shale gas producing wells. Prime Minister David Cameron, who has promised to go “all out for shale”, said he respected the planning process but still wanted shale gas to go ahead. His quest to replicate at least a small slice of the United States’ success in bringing down energy prices with the help of shale gas is now looking bleaker than ever. In order to save his dream, Cameron has to reform the planning system to give the government the final say in approving new projects, legal experts and industry representatives said. Discussions have already taken place between the government and shale gas developers in which industry representatives have urged politicians to adjust policies, industry sources said. A small group of local government politicians in a town near Blackpool on England’s northwest coast stunned the energy industry late last month when they refused planning permission for a Cuadrilla Resources shale gas project, ignoring legal and technical advice.“This is clearly a very important decision and a major setback for the shale industry,”

Greece says it receives three bids for deep sea oil, gas drilling - Greece said on Tuesday that it had received three bids for deep sea oil and gas drilling in the west of the country and south of the island of Crete, the latest phase of an ambitious attempt to develop untapped oil potential. The names of the bidders will not be disclosed until tender documents are unsealed, the Energy Ministry said. Greece, which clinched a deal with its international creditors on Monday to avoid bankruptcy, has made several fruitless attempts over the last 50 years to find big oil and gas reserves. Its debt crisis prompted the country to step up those efforts to boost revenue. It invited investors last year to bid for test drilling in 20 offshore blocks stretching over more than 200,000 square kilometers in the Ionian Sea and south of Crete. In March this year the new left-wing government extended the deadline for the submission of bids by two months to July 14 in an effort to attract more interest in the tender. In April it invited Chinese oil firms to bid for the tender and has also said that it expected Russian companies to show interest. The fact that three bids were submitted was a “positive step, taking into account difficult conditions presently prevailing in the oil and gas market,” the Energy Ministry said. “It is assessed as a positive step in the country’s attempts to utilize its subsea wealth,” it said.

Saudi Arabia borrows $4bn as oil price reality hits home - Saudi Arabia has borrowed $4bn from local markets in the past year, selling its first bonds for eight years as part of efforts to sustain high levels of public spending as oil prices slump. Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, said the government would use a combination of bonds and reserves to maintain spending and cover a deficit that would be larger than expected. “We expect to see an increase in borrowing,” he said, according to a report in the economic daily Al-Eqtisadiah newspaper over the weekend. Analysts have estimated a deficit of about $130bn this year. The government, which had not tapped bond markets since 2007, has been dipping into its large foreign reserves, which peaked at $737bn last August, to sustain spending on wages, special projects and the Saudi-led air war on Yemen. It has drawn down $65bn since oil prices fell. Bonus payouts for state employees and the military made by the new king, Salman bin Abdulaziz Al Saud, have placed further pressure on state coffers. “Reality is hitting home, and necessity is also hitting home,” said John Sfakianakis, director for the Gulf region at Ashmore, a fund manager. Saudi Arabia needs an oil price of $105 a barrel to meet planned spending requirements, but the average price for the year is estimated at $58 a barrel, he said. “If the government continues business as usual and draws down like this it will deplete reserves faster than expected, by the end of 2018 or early 2019,” added Mr Sfakianakis. The issuance of domestic bonds should ease the rate of drawdown on Sama’s overseas assets, which declined to $672bn in May. The domestic bond programme marks a shift in strategy as the sustained slump in oil prices takes its toll on Saudi finances.

Iran nuclear talks: 'Historic' agreement struck - BBC News: World powers have reached a deal with Iran on limiting Iranian nuclear activity in return for the lifting of international economic sanctions. US President Barack Obama said that with the deal, "every pathway to a nuclear weapon is cut off" for Iran. His Iranian counterpart, Hassan Rouhani, said it opened a "new chapter" in Iran's relations with the world. Negotiations between Iran and six world powers - the US, UK, France, China, Russia and Germany - began in 2006. The so-called P5+1 want Iran to scale back its sensitive nuclear activities to ensure that it cannot build a nuclear weapon. Iran, which wants crippling international sanctions lifted, has always insisted that its nuclear work is peaceful.There has been stiff resistance to a deal from conservatives both in Iran and the US. The US Congress has 60 days in which to consider the deal, though Mr Obama said he would veto any attempt to block it. The Republican Speaker of the US House of Representatives, John Boehner, said the deal would only only "embolden" Tehran. "Instead of stopping the spread of nuclear weapons in the Middle East, this deal is likely to fuel a nuclear arms race around the world," he added. Israel's government has also warned against an agreement. Prime Minister Benjamin Netanyahu said it was a "stunning historic mistake" that would provide Iran with "hundreds of billions of dollars with which it can fuel its terror machine and its expansion and aggression throughout the Middle East and across the globe". He said he did not regard Israel as being bound by this agreement. "We will always defend ourselves," he added.

Iran and major powers reach nuclear deal: After years of talks, Iran and six major powers clinched a historic nuclear deal Tuesday, sending oil prices lower. The agreement will see some sanctions on Tehran eased in exchange for restrictions to its nuclear program. In a tweet, Iranian President Hassan Rouhani said the deal showed that "constructive engagement works." Oil prices came under pressure following the news, in anticipation of Iran bringing more oil onto the market and forcing prices down. However, experts suggest this could be a couple of years off as Iran will need to invest in infrastructure to come back online. Brent crude fell 2 percent on the news, but pared losses to trade around $57.63 a barrel at 1 p.m. London time. Negotiations between Iran and the U.S., Britain, France, Germany, Russia and China finally came to a head in Vienna this week, as Tehran came under pressure to curb its nuclear program in return for relief from economic sanctions that have crippled its economy. In the so-called Joint Comprehensive Plan of Action (JCPOA), the world powers put restrictions on Iran's ability to enrich uranium. Iran is allowed could carry out "specific research and development (R&D) activities for the first 8 years" of the deal, with further enrichment activities possible afterwards, "for exclusively peaceful purposes," according to a copy of the JCPOA posted on the Russian government's Facebook page. Tehran is also not permitted to stockpile large amounts of enriched uranium. The International Atomic Energy Agency (IAEA) will be the watchdog that monitors Iran's nuclear activities.

Iran reaches nuclear deal with US and other major powers: ‘Today the world has breathed a huge sigh of relief’ -  Major powers clinched a historic deal Tuesday aimed at ensuring Iran does not obtain the nuclear bomb, opening up Tehran’s stricken economy and potentially ending decades of bad blood with the West. Reached on day 18 of marathon talks in Vienna, the accord is aimed at resolving a 13-year standoff over Iran’s nuclear ambitions after repeated diplomatic failures and threats of military action. It was hailed by Iran and the European Union as a new chapter of hope for the world but branded a “historic mistake” by the Islamic republic’s arch-foe Israel. “I think this is a sign of hope for the entire world and we all know this is very much needed in this time,” EU foreign policy chief Federica Mogherini said at the start of a final meeting which formally approved the accord. “We are certain that today the world has breathed a huge sigh of relief,” Russian President Vladimir Putin said in a statement.

OilPrice Intelligence Report: What The Iran Deal Actually Means For Oil Markets -- After months of speculation and anticipation, Iran and the P5+1 nations finally reached a historic agreement on its nuclear program. The deal puts limits on Iran’s ability to develop nuclear weapons in exchange for sanctions relief (full text here). Here are a few of the key points:
•    Iran commits to reduce its uranium stockpile and number of centrifuges
•    Enrichment is banned at certain nuclear facilities
•    The International Atomic Energy Agency (IAEA) will verify Iran’s compliance 
•    Sanctions on Iran related to its nuclear program will be removed, allowing for greater oil exports
•    An arms embargo on Iran will gradually be lifted
Oil prices dropped a bit on July 14 following the announcement, but with the markets having already taken the deal into account over the past week, prices did not fall as much as one might think given the large volume of Iranian crude that could come online over the next year. WTI was trading flat at $52 per barrel as of mid-day trading and Brent fell by less than 1 percent to $57.47 per barrel. After the meltdown in prices over the past two weeks, which likely included some recognition of the Iran deal, the markets were relatively quiet following the announcement. How much oil can Iran bring online and how fast? Iranian Oil Minister Bijan Namdar Zanganeh thinks Iran can manage to bring an additional 500,000 barrels online right after sanctions are removed. That is probably a bit too optimistic, but Iran could likely bring somewhere between 500,000 barrels per day and 1 mb/d within a year or so. Iran’s Deputy Oil Minister said that the country is targeting oil exports at 2.3 mb/d day, up from 1.2 mb/d currently.

Iran needs time and favorable conditions to boost oil output (Reuters) – Iran has big ambitions to increase oil and gas production once sanctions are lifted but a substantial increase in exports is probably years away. The country has the world’s fourth-largest proved reserves of crude oil (behind Venezuela, Saudi Arabia and Canada) and the largest proved reserves of natural gas (ahead of Qatar and Russia), according to BP. It is the oldest major oil producer in the Middle East and output peaked at more than 6 million barrels per day (bpd) in 1974 ( ). But decades of revolution, war and sanctions have cut production of crude and condensates to just 3.6 million bpd in 2014 (“BP Statistical Review of World Energy” 2015). In contrast, Saudi Arabia, Iran’s main rival, has raised liquids output from 8.6 million bpd in 1974 to 11.5 million bpd in 2014. Sanctions imposed by the United States and the European Union amid concerns about Iran’s nuclear program have hit Iran’s production and exports particularly hard. Exports of crude and condensates have been cut from 2.6 million bpd in 2011 to 1.4 million bpd in 2014, according to the U.S. Energy Information Administration. Following the conclusion of the nuclear negotiations with the major powers, Iran hopes to raise oil production and exports significantly.

After Iran deal, U.S. companies face being left out in cold - Within hours of the announcement of an Iran nuclear deal early on Tuesday, lawyers around Washington were fielding calls from U.S. corporate clients eager to know what the 159-page deal would mean for their business prospects. In the near term, the answer for most of them is: not very much. U.S. companies face losing out to foreign competitors in Iran as they wait for signs that Tuesday’s historic nuclear agreement is sticking and that U.S. lawmakers are willing to loosen long-standing restrictions on trade and investment, according to corporate lawyers and company executives. Iran’s agreement with major world powers to curtail its nuclear program in exchange for the lifting of economic sanctions opens up the world’s fourth-largest oil reserves, second-largest natural gas reserves and an 80 million population to multinationals. But the strict, decades-old U.S. restrictions on doing business with Tehran, which predate the nuclear crisis and relate to other concerns such as terrorism support and human rights abuses, will remain in place. “U.S. persons and banks will still be generally prohibited from all dealings with Iranian companies, including investing in Iran, facilitating cleared country trade with Iran,” a senior U.S. administration official said at a briefing on Tuesday. The deal hammered out in Vienna does open some avenues for U.S. companies to expand in Iran. U.S. firms will now be allowed to sell or lease commercial passenger aircraft to Iran, as long as they procure licenses from the U.S. government, giving companies such as Boeing an opportunity.

Swift conclusion --Deep down in Tuesday’s nuclear agreement between Iran and six great powers…

19. The EU will terminate all provisions of the EU Regulation, as subsequently amended, implementing all nuclear-related economic and financial sanctions, including related designations, simultaneously with the IAEA-verified implementation of agreed nuclear-related measures by Iran as specified in Annex V, which cover all sanctions and restrictive measures in the following areas, as described in Annex II:
i. Transfers of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions;
ii. Banking activities, including the establishment of new correspondent banking relationships and the opening of new branches and subsidiaries of Iranian banks in the territories of EU Member States;
iii. Provision of insurance and reinsurance;
iv. Supply of specialised financial messaging services, including SWIFT, for persons and entities set out in Attachment 1 to Annex II, including the Central Bank of Iran and Iranian financial institutions;
Which would mean the deal isn’t just the first time UN Security Council sanctions under Chapter VII have been brought to an end without going to war. (“IAEA-verified implementation” may take from weeks to months.)

Iran Nuke Deal Dooms Daesh Caliphate ? --Because Iran now has a greenlight to build a natural gas pipeline to Europe, right through the ISIS Caliphate. As reported here, the civil war in Syria started over competing natural gas pipelines– one from the Gulf states north through Syria, shown below: The others shown below in yellow from Iran through Iraq and Syria. The ISIS Caliphate blocks both those routes, as previously discussed.  The Iranian pipeline goes through Kurdistan, who will be more than happy to eliminate the Caliphate to secure the right of way.  With the Iranian gas line to Europe now back in play, this makes it more important for the Arabs to clear a right of way for their pipeline  – right through Daesh’s Syrian Caliphate.

Obama & Iran Deal – Behind the Curtain - Whenever there is some political deal, it is NEVER what they present to the public with such magnanimous fanfare. There is always a hidden agenda. Here, Obama tells the American people this deal will prevent Iran from gaining nuclear weapons. Why the sudden change of heart? Surely, negotiations could have produced the same result five years ago. Ah – they will claim the sanctions worked. But is it suddenly the sanctions working or is there a darker inner truth? You have to clear the stench left behind by the lies. This sudden deal with Iran is actually Part II of an attempt to cut off Russia and isolate it. This is part of Obama’s New Cold War against Russia. Part I was to prevent Syria from blocking a pipeline to be constructed through its territory to deliver Saudi gas to Europe to compete with Russia. Hence, we heard about the atrocities of the Syrian dictator and their people suddenly needed American troops to intervene, as did Iraq and Afghanistan. The entire Syrian folly was of course to overthrow the government to allow the pipeline to cut off Russia from selling gas to Europe. Cut off Russia’s energy market and you will starve the Bear.

Here Comes The Oil Glut: First Iranian Oil Tanker Sets Sail -- Amid what is being reported as worrying discrepancies between the U.S. and Iranian interpretations of what had been agreed, an Iranian supertanker with 2 million barrels of oil is on its way to Asia after sitting in Iranian waters for months, likely to be the first vessel holding floating excess stocks to sail after the nuclear deal. As David Sheppard (@OilSheppard) explains,

  • Vessel is the Starla from Iran's NITC. Loaded at Iran's Kharg Island terminal just over a month ago before going dark  
  • Appeared labelled as sailing to Iraq's Basrah on June 8 - a smuggling tactic UK insurers have warned of in past  
  • Starla now listed as sailing to Singapore - which doesn't have a waiver from US to take any Iranian oil  
  • If this is Iran (tanker owned by NTIC) sending message would be very interesting.
  • Tanker was in floating storage/off radar for month 
  • So interesting that Iran oil sailing to country that US does NOT allow to import Iran oil

Iran Is Hiding 51 Million Oil Barrels At Sea, Maritime Tracker Reports -- With yesterday's appearance what seems like the first Iran oil tanker to set sail post-nuke-deal,Haaretz reports that Iran has been hiding millions of barrels of oil it never reported to the United States or in the world oil market, according to a company that has developed sophisticated maritime tracking technology. With the world’s fourth-largest oil reserves, Iran denies it’s storing oil at sea, despite reports that surfaced in The New York Times as early as 2012; but Ami Daniel, Windward founder and cochairman, shows "the Iranians are taking huge, 280-meter-long ships and filling them with oil, to sit at sea and wait. Because the sanctions allow for production of only three million barrels a day, they began storing the remainder... oil tankers have been sitting in the Gulf for anywhere between three and six months, just waiting for orders." Searching for ships that do not want to be found... As Bloomberg explains, based in Tel Aviv, Windward was founded four years ago by two Israeli naval officers... The algorithms Windward developed were initially intended to tackle illegal fishing by analyzing and profiling normative patterns in sea traffic. The entrepreneurs discovered that their technology could also be used to monitor unusual behavior near, say, oil-drilling ports in Libya. These anomalies of maritime behavior, which occur daily, would have probably gone undetected in the past. Today, advanced satellite imaging and communications technology, coupled with analytical software developed by an Israeli startup called Windward, identifies potential illegal activity in real time.

China’s Rocky Road Ahead, Financial Liberalization versus Financial Stability - Perry Mehrling -- A summary of the 3rd annual joint conference of the People’s Bank of China and the International Monetary Fund offers a snapshot of the state of debate.  So-called “renminbi internationalization” has been official policy since 2009.  By the end of this year, expect to see the launch of a new “China International Payments System” to facilitate use of RMB as a settlement currency, and perhaps also inclusion of the RMB in the official definition of the SDR.  But these are small steps, and the eventual ambition is much bigger. Among the foreign guests, Eswar Prasad and Louis Kuijs stake out the most optimistic and most pessimistic positions. Prasad:  “The renminbi is already well on its way to becoming a widely used currency in international trade and finance.  It is likely that the renminbi will become a competitive reserve currency within the next decade, eroding but not replacing the dollar’s dominance” (p. 14). Kuijs:  “RMB internationalization—which calls for more capital account opening to facilitate access by foreign residents to China’s financial markets and onshore RMB-denominated assets—complicates financial and monetary reform, and increases the risks involved. Policymakers will have to prioritize economic and financial objectives. In the bigger scheme, compared with objectives such as economic growth and social and financial stability, RMB internationalization should probably not be a key objective” (p. 104). Who is right?

China’s Incendiary Market Is Fanned by Borrowers and Manipulation - — At the height of the frenzy for Chinese stocks, just about every company was a winner.An online gaming start-up was valued at $7 billion. Shares in a fireworks company that had moved into finance shot up 300 percent. A struggling property developer was transformed into a stock market darling, just by changing its name to suggest it was an Internet company.Then there was the case of Beijing Baofeng Technology, an online video company whose stock price soared 4,200 percent in the three months after it went public early this year. The company’s shares climbed by 10 percent — the maximum amount allowable under exchange rules — nearly every day for more than 30 days.Viewed through the lens of the recent market tumult, experts said China’s stock bonanza bordered on the insane.Before things fell apart a few weeks ago, China’s remarkable bull run was reminiscent of the Internet bubble that gripped the Nasdaq stock market between 1998 and 2000, when companies like and Webvan that had no profit quickly became more valuable than some industrial stalwarts. At the time, everyone talked about how technologies and industries would transform society, justifying eye-popping valuations. The same may now be said of China in early 2015. Even as stocks have stabilized in recent days, investors have continued to pummel such smaller companies, the same ones they had bid up in the boom.

US Automakers Worst Nightmare: Chinese Auto Inventories Explode In May --A week ago we exposed the massive number of cars piling up in GM's parking lots in China. A few days later, we note that Chinese auto sales have collapsed at the fastest rate in 3 years and an increasing number of new orders are being cancelled as the stock market crashes. But the triple whammy for US auto manufacturers - who have incessantly pitched China as their growth engine - is news from Huaxia Times that China's import car dealers saw inventory days reach a mind-blowing 143 days in May. For context, the normal average has been 24-36 days. Once again it appears the serial extrapolators at the automakers, excited by the serial extrapolators at the big banks have excitedly mal-invested right at the turn. Car Sales The Wall Street Journal reports, China sold 1.51 million passenger vehicles last month, down 3.4% from a year earlier, the China Association of Automobile Manufacturers said Friday. That compares with a 1.2% year-over-year rise recorded in May and a 3.7% increase in April.The performance was the worst since February 2013 when car sales fell 8.3% on-year during the weeklong Lunar New Year Holiday when car showrooms are closed. Stripping out the holiday factor, the last time China’s car market posted a decline was in September 2012, when a territorial dispute between Beijing and Tokyo over a group of uninhabited islands in the East China Sea hit demand for Japanese cars.... also cut its growth forecast for China’s automobile market in 2015 to 3% from the previous 7%.“2015 will be an off-year for the Chinese car market,” said Dong Yang, a vice president for the auto manufacturers’ association. He said the slowdown was caused by a confluence of factors including the cooling economy, increasing restrictions on car ownership to combat congestion and pollution and stock market volatility.

Signs of a Growing Hush in China’s Economy -  As China’s stock market tumbled over the last month, some wealthy apartment owners began trying to sell. Shopping malls became quieter. And customers at automobile dealerships across the country asked to defer delivery and payment for previously ordered cars.While share prices have rebounded modestly in recent days, many business owners in China remain nervous, as they start to notice a perceptible economic chill.  “Of course car sales have not returned to normal levels — people are still very wary,” . “They feel this spike in the stock market today is probably not sustainable.”  Even with the rebound, $3.1 trillion in market value, much of it financed with borrowed money, has been erased since mid-June. Many experts worry about the damage to the Chinese economy, particularly if stocks continue to fall. Consumer confidence could suffer, weighing on the country’s growth and on economies elsewhere that depend on exports to China.The government is clearly worried about the potential fallout, at a time when growth is already slowing. In recent weeks, Beijing has moved aggressively to prop up stocks, which is helping to stabilize the market. The economic damage could take two forms. The more straightforward lies in the so-called wealth effect. Chinese consumers may buy less if they feel less prosperous after stock market losses. The more complex risk lies in whether China’s financial drubbing has created yet-unseen problems in the country’s vast array of structured products. Many were introduced over the last year, allowing investors to borrow large sums and control big blocks of stock.

China Q2 growth seen dipping to 6.9 per cent, a six-year low - China's economic growth is forecast to be the weakest since the global financial crisis in the second quarter, which together with a stock market rout raises pressure on authorities to do more despite little pay-off so far from a run of stimulus steps. Data confirming China lost more momentum in the June quarter would do little to reassure investors reeling from a sharp plunge in shares over the past month, and analysts are wary on China's outlook given a weak property market, erratic global demand and fears of more losses in its wild stock market. A poll of 52 economists found annual GDP growth was expected at 6.9 per cent in the April-June quarter, down from 7 per cent in the first quarter and the weakest for the world's second-largest economy since early 2009, when it tumbled to 6.6 per cent . A massive stimulus package pulled China out of the slump then, but at a cost of saddling local governments with a mountain of debt that is now a major economic risk and a limit on what the government can do to spark activity. "We have yet to see any signs of stabilisation or recovery, but expect growth to improve slightly in the second half due to policy measures,"

"Everything Is Awesome" In China - Retail Sales, Industrial Production, & GDP All Mysteriously Crush Expectations - Retail Sales increased 10.6% YoY (smashing expectations of a 10.2% YoY Gain); Industrial Production rose 6.8% (crushing expectations of a 6.0% YoY gain); and the big daddy of goalseeked data, China GDP managed to rise 7.0% (comfortably beating expectations of just 6.8% but still the lowest since Q1 2009). Now it is up to the markets to decide if good data is bad news because it gives the government less excuses to throw more "measures" at the market; or is good data, good news as it "proves" the economic fundamentals underlying massively exponential gains in Chinese stocks (and excessive valuations compared to the rest of the world) are justified. When the data hit Chinese stocks were at the lows of the day, and for now, it appears good data is bad news as stocks are not bouncing at all.

Shanghai Composite Widens Losses After China GDP. - Asian equities were mixed on Wednesday, with Shanghai stocks deepening losses despite better-than-expected Chinese gross domestic product data. The world's second-largest economy grew 7 percent on year in the April-June period, unchanged from the previous quarter but slightly better than Reuters estimates for a 6.9 percent rise. A spokesperson for the country's statistics bureau insisted that the figure was accurate, denying accusations that it was inflated, Reuters reported. Other data released on Wednesday showed June industrial output and retail sales also beating forecasts. The decline in mainland stocks has nothing to do with Wednesday's economic data, Fraser Howie, director at Societe Generale Prime Services, told CNBC. "China's economy and its stock market are completely uncorrelated at the moment. There's been so much volatility in the market that the GDP print would have to be substantially different than estimates in order to change things." The idea that positive data will limit future stimulus is also hurting mainland equities.

China Business Outlook Index Drops to Record Low -Optimism towards business activity, new business and employment falls to record low. Business revenues and profits forecast to rise at slower rates. Inflationary pressures set to ease. The latest Markit Business Outlook Survey indicated that confidence among Chinese companies declined to a record-low this summer. A net balance of +23 percent of firms expect activity levels to rise over the next year, down from +30 percent in February and the lowest reading in nearly six years of data collection. In line with the trend for activity, optimism towards new business also fell in June. A net balance of +21 percent of Chinese companies expect new workloads to increase over the coming year, down from +28 percent in February and the lowest reading seen since the survey began in late-2009.  Reduced optimism towards activity and new business growth led companies to temper their expectations for business revenue s growth for the year ahead. June data indicated that a net balance of +20 percent of firms expect business revenues to increase over the next year, down from +27 percent in February and a new series low. As a result, confidence towards profits growth also declined to a record low in June, as highlighted by a net balance of +14 percent in the latest survey period.

China growth beats forecasts but stocks dive again - China's economy grew an annual 7 percent in the second quarter, beating analysts' forecasts, though its volatile stock markets took a sharp dive in a reminder of the threats to Beijing's efforts to direct the economy out of a slowdown. Policymakers had already unleashed a series of measures to pull stocks out of a 30 percent nosedive and appeared to have succeeded last week, but Wednesday's tumble could reawaken concerns over the government's ability to manage the economy. The day began on a positive note with the growth figures and monthly activity data that also beat expectations across the board, with factory output hitting a five-month high, following reports of increased bank lending on Tuesday. As the National Bureau of Statistics released the upbeat figures, it described the stock markets as key to economic stability. As if on cue, the key indexes, already down in morning trade, fell more than 4 percent in the afternoon. The CSI300 index eventually ended down 3.5 percent, while the Shanghai Composite Index lost 3 percent.

China Unleashes $483 Billion to Stem the Market Rout - China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month. That’s probably enough to restore confidence among China’s 90 million individual investors, says Bocom International Holdings Co. The Shanghai Composite Index jumped 3.5 percent on Friday, capping a two-week rally that’s turned it into one of the world’s best-performing equity gauges. “It doesn’t have to use up all the money, as long as it can make the rest of the market believe that it has enough ammunition,” said Hao Hong, a China strategist at Bocom International in Hong Kong. “It is a game of chicken. For now, it seems to be working.”

Chinese economic growth based on 'money created from thin air' - China's economic growth coming in at 7 per cent in the June quarter was somewhat of a surprise. Economists had been forecasting something closer to 6.8 per cent as industrial production had been grinding down for some time which, in turn, had been squeezing the brakes right across the world's second biggest economy. Domestic demand looked to be stalling and the property boom has bust. However, four rate cuts from the Peoples' Bank of China (PBoC) since late last year and the freeing up credit by easing banks' capital requirements helped land the GDP number right on the government's target. The stock market collapse happened too late to be reflected in the June quarter figures yet, in many ways, it is a reminder that the number churned out by Government statisticians may not be an accurate reflection of what's actually going on. Economy propped up by 'money created from thin air' Research director at the Beijing-based J Capital Research Anne Stevenson-Yang said the collapse has exposed the potential overstatement of the Chinese economy and pointed to its reliance on debt. "The stock market expansion is the most naked expression yet of the way in which Chinese authorities have created money in order to suspend in air the edifice of debt that is the economy, even as real spending, real production, total factor productivity, and the quality of life for Chinese citizens spiral into decline," Ms Stevenson-Yang wrote in a recent note to clients. "The roughly 24 trillion yuan - $US3.8 trillion ($5.2 trillion) - added to the value of traded shares over the last year did not come from new value created by the companies, which have seen earnings decline, most of the money was created from thin air."

China-Led Bank Will "Keep America Honest," Provide Alternative To IMF, Nomura Says -- The membership drive and subsequent launch of the Asian Infrastructure Investment Bank has been a favorite topic of ours since the UK threw its support behind the China-led venture in March. London’s move to join the bank marked a diplomatic break with Washington, where fears about the potential for the new lender to supplant traditional US-dominated multilateral institutions prompted The White House to lead an absurdly transparent campaign aimed at deterring US allies from supporting Beijing by claiming that the AIIB would not adhere to international standards around governance and environmental protection.  In the weeks and months following the UK’s decision, dozens of countries (including many traditional US allies) expressed interest in the new lender and by the time the bank officially launched late last month, the US and Japan (who dominate the IMF and ADB, respectively) were the only notable holdouts.  As we never tire of discussing, the reason the AIIB matters is that it represents far more than a new foreign policy tool for Beijing to deploy on the way to cementing its status as regional hegemon.  The lender’s real significance lies in the degree to which it represents a shift away from the multilateral institutions that have dominated the post-war world economic order. In short, it’s a response not only to the IMF’s failure to provide the world’s most important emerging economies with representation that’s commensurate with their economic clout, but also to the perceived shortcomings of the IMF and ADB. The AIIB isn’t alone in this regard. Indeed, the BRICS bank can be viewed through a similar lens.

China May Tip World Into Recession: Morgan Stanley - Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession. That is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 percent, a threshold he views as equivalent to a world recession. It would be the first global slump over the past 50 years without the U.S. contracting. “The next global recession will be made by China,” Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters in New York. “Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.” While China’s growth is slowing, the country’s influence has increased as it became the world’s second-largest economy. China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley. It’s the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa. The International Monetary Fund last week cut its forecast for global growth this year to 3.3 percent, down from an estimate of 3.5 percent in April, citing weakness in the U.S. While the Washington-based lender left its projection on China unchanged at 6.8 percent, the slowest since 1990, it said “greater difficulties” in the country’s transition to a new growth model pose a risk to the global recovery. The Chinese government expects 7 percent growth this year.

China's real estate, credit and investment bubble risks global recession: China is the number one threat to the global economy, analysts say, with an over-inflated "triple bubble" threatening to drag global gross domestic product below 2 per cent. If house prices fall by 15 per cent or more, then we think that we are likely to get a hard landing and the authorities risk running out of fiscal firepower.  On the surface things appear to have stabilised in China this week. The nation's second-quarter GDP number came in at 7 per cent, above analyst estimates of 6.8 per cent, while retail sales and industrial production figures well exceeded expectations.  But GDP growth is still at its lowest level since 2009, and the Shanghai Composite Index failed to bounce on the positive news on Wednesday, although it has largely stabilised this week, down 1.4 per cent on Friday. Credit Suisse's global research team, led by Andrew Garthwaite​, said China's "triple bubble" – a combination of the third biggest credit bubble, the biggest investment bubble and the second-biggest real estate bubble of all time – was the single-biggest risk to the global economy. China's private sector debt-to-GDP stands at 196 per cent, 40 per cent above its long-term trend. This is more extended than the US at the peak of its credit bubble. "Historically, a financial crisis has been preceded by credit being more than 10 per cent above trend," Mr Garthwaite said. The investment share of GDP in China was higher than any other country in history, Mr Garthwaite said. China was in the middle of a transition from investment to consumption-led growth, which historically leads to a halving of the growth rate. "China has consumed more cement in the past three years than the US did in the entire 20th century," he said.

Japan's Central Bank Trims Growth Forecast - — The Bank of Japan trimmed its forecast for economic growth on Wednesday but offered no new stimulus, convinced that an expected increase in consumption would help accelerate inflation toward its target of 2 percent.Defying market skepticism over its rosy outlook, the central bank roughly maintained its forecasts that inflation will reach its target in the fiscal year beginning in April 2016.The Bank of Japan’s governor, Haruhiko Kuroda, reiterated his optimism about the global economy, pointing to data showing that China’s economy had grown a better-than-expected 7 percent in the second quarter.“Export and output growth have moderated somewhat, but we expect this to be temporary,” he told reporters after the two-day rate review. “But as for the outlook, exports are expected to increase moderately, albeit with some fluctuations, due to improvements in overseas economies and the boost from a weak yen.”As widely expected, the Bank of Japan kept intact its pledge of expanding base money at an annual pace of 80 trillion yen, or $648 billion, via aggressive asset purchases.Japanese policy makers, who had braced for market turbulence from Greece’s debt crisis and China’s stock market rout, were relieved when Beijing’s rapid-fire support steps restored a measure of calm to its markets and Athens clinched a last-minute conditional bailout.But nodding to signs of weakness in external demand, the bank offered a slightly gloomier view on exports and output, saying that they have been “picking up, albeit with some fluctuations.”

BOJ Lowers Price Forecasts, Stands Pat on Policy - The Bank of Japan tempered its optimism on prices in a quarterly projection released Wednesday that may reignite talk of additional easing measures, although the central bank kept its policy unchanged this time. Japan’s primary inflation gauge will likely rise 0.7% in the year ending March 2016, the BOJ said in its latest quarterly review of three-year growth and price projections. The figure for the current fiscal year was down from April’s forecast that the core consumer price index would rise 0.8%. The BOJ has lowered its forecast for this year for four straight quarters. It started revising the figure down in October, when it expanded its annual asset purchase target to the current Y80 trillion a year. The bank also cut its price forecasts for the following two years to 1.9% and 1.8%, respectively. Japan’s inflation fell to around zero in recent months, in a blow to the credibility of Gov. Haruhiko Kuroda who launched the easing measures about two years ago with a promise to achieve 2% inflation relatively quickly. The latest price projections remain uncertain at best, as concerns remain over Greece’s debt problems and slowing global growth that is threatening Japan’s already slowing export-led recovery.

Happy Meals make way for hearing aids in Japan CPI reshuffle as population ages -- Japan is conducting a reshuffle of goods in its consumer price index basket that will ditch items on the kids' menu in exchange for hearing aids to reflect changes in consumer spending caused by its rapidly aging population. The reshuffle, which takes place once every five years, removes items from the basket that consumers are spending less on and replaces them with items that shoppers are buying more often. Wine glasses also make way for cheap take-away coffee sold at Japan's ubiquitous convenience stores in a sign that people prefer a pick-me-up to get them through a busy day over relaxing with a glass of red at the end of one. Japan has the highest percentage of people aged 65 or more among countries belonging to the Organisation for Economic Cooperation and Development. Japan also has one of the lowest fertility rates in the OECD, and its graying demographics are changing consumption. Consumer prices are a hot topic in Japan because the country's central bank has launched a massive quantitative easing program to guide inflation to 2 percent and vanquish the risk of returning to deflation. However, core inflation, which excludes fresh food but includes energy, is hovering at just 0.1 percent and the pessimists say it could take years for the central bank to hit its price target.

Japan's Economic Disaster: Real Wages Lowest Since 1990, Record Numbers Describe "Hard" Living Conditions  -- While “Abenomics” has succeeded in boosting the stock market and food prices, it has utterly failed to raise wages. In fact, wages adjusted for inflation have plunged to the lowest since 1990. As such, a record number of households now describe their living conditions as “somewhat hard” or “very hard.” From Bloomberg: Prime Minister Shinzo Abe came to power vowing to drag Japan out of deflation and stagnation. His logic was that rising prices would drive higher salaries and increased consumption. More than two years on, prices are rising, but wages adjusted for inflation have sunk to the lowest since at least 1990. A record 62 percent of Japanese households described their livelihoods as “hard” last year in a survey on incomes. A sales-tax increase in 2014 helped drive up living costs faster than wage gains.  At the same time, the Bank of Japan’s quantitative easing drove down the currency, boosting the cost of imported energy.

Taiwan's debt obligations total almost NT$24 trillion: TIER -- Taiwan's government debt and future government obligations have reached nearly NT$24 trillion (US$774 billion), which could impose a heavy financial burden on Taiwan, the Taiwan Institute of Economic Research said Tuesday. The TIER, one of Taiwan's leading think tanks, said public debt accumulated by the central and local governments stood at NT$5.25 trillion and NT$731.2 billion, respectively, as of the end of 2014, according to Ministry of Finance statistics. The total debt -- NT$5.99 trillion -- was 37.2 percent of gross domestic product in 2014, approaching the average of 40.6 percent ceiling imposed by the Public Debt Act in the previous three years before 2014, TIER President Lin Chien-fu told reporters. That number compares favorably with other advanced economies, including Germany (with a government debt to GDP ratio of 78 percent in 2013), the United States (101.53 percent), and Japan (230 percent). More problematic, Lin said, are the government's future obligations that are not reflected in the government debt figures, such as pensions to be paid to civil servants, labor insurance program debts, and the cost of private land needed for public use in the future.

AIIB membership has costs and privileges | Bangkok Post: opinion: When 50 of 57 prospective founding members of the new Chinese-led Asian Infrastructure Investment Bank (AIIB) in late June signed on in Beijing to the new international financial institution’s Articles of Agreement, Thailand was among seven nations that held back. Three of them are from Asean. Denmark, Kuwait, Malaysia, the Philippines, Poland and South Africa also did not sign the accord. Reasons vary, and all have until the end of the year to join. The Chinese government, however, noted some countries may have domestic procedures still to complete. This may well be the case for Thailand given the government's focus on a new constitution and other domestic issues. As for the Philippines, officially that nation continues to “study” the costs and benefits of membership. Philippines President Benigno Aquino said at a Nikkei event in Tokyo on June 3: “I think it behooves our sense of fiscal responsibility to look at how the governance structure of the AIIB will be, so that the economic help that is supposed to be afforded will not be subject to vagaries of politics between our countries and the lead proponent.” More simply? The context and the “cost of membership” are clear. The Philippines has brought its territorial dispute with Beijing over islands in the South China Sea to a United Nations arbitration tribunal. In such times, why give China another “easy win” and a communications victory in its efforts to establish what might well prove to be a rival to the Manila-based Asian Development Bank (ADB) and a route to further strengthened economic engagement and political involvement across the region.

Huge International Coalition Calls for a Big Change to WTO Agenda -- Negotiations in the WTO are heating up -- and they are going badly. In November last year, WTO members agreed to come up with a "Work Program" for resurrecting the Doha Round by July 31. As you may remember, it had been stalled for years, but since the new Director-General, Roberto Azevêdo of Brazil, took over in September of 2013, he has been shaking things up. The first WTO expansion agreement, on "Trade Facilitation," was concluded in December 2013, along with a promise to negotiate to reduce WTO constraints WTO on developing countries' ability to feed their poor.  It must be remembered that developing countries only agreed to launch a new round of negotiations in order to address problems with the previous round that resulted in the founding of the WTO in 1995. Since then, they have been advocating for a series of fixes to the existing agreements. Many of their proposals dovetail with calls from global civil society for a turnaround in the global trade agenda.  However, after nearly 14 of negotiations, the United States has decided that India, China, Brazil, and other developing countries -- in which the vast majority of the world's impoverished people live -- can no longer be considered as developing countries. Even worse, they want to clear the deck of the development demands and get on with introducing even more radical liberalization agenda. Thus the U.S. -- sometimes in conjunction with the European Union, Japan, Australia, New Zealand, and Canada, but sometimes unilaterally -- is insisting on jettisoning the previous agreements, "re-calibrating" the talks, and reducing the ambition of the deal. Unfortunately, what they are pushing to keep is the wrong agenda, and the agreements they are insisting on abandoning are all of the desperately needed improvements.That's why today, 341 civil society organizations from more than 100 countries sent a letter to WTO members demanding that governments stop negotiating on the wrong agenda of WTO expansion, and instead take up an agenda focused on food security and urgent development needs of countries for global trade rules that facilitate rather than hinder development.

TPP Could Actually Make Working Conditions Worse in Vietnam -- It’s been a long journey out of the aftermath of civil war for Vietnam, transforming from the object of American invasion into a bastion of American neoliberalism.  So when President Obama toured Nike’s headquarters in Oregon and heralded the Trans-Pacific Partnership as a boon for US jobs, that translated in Vietnam as a bonanza for low-wage factory workers, who currently make up a third of the brand’s global manufacturing workforce. The mega trade pact is alleged to help equalize these trading “partners,” supposedly bringing Vietnamese labor protections in line with international standards. Trade ministers insist that such deals commit signatory countries to enhancing labor, environmental, and social regulations. But actually, the reason businesses tend to relish free-trade agreements, and unions loathe them, is precisely that trade liberalization allows multinational brands to exploit the absence of those labor protections in poorer countries. While US unions have denounced the pending trade deal as a pathway to more offshoring of jobs, the bigger labor crisis lies in the kind of jobs that end up on those far-flung shores. Now that trade liberalization has devastated American manufacturing, the anticipated effect of the TPP on US workers is vastly dwarfed by the influx of “opportunities” for Vietnamese workers, who vie with their relatively better off Chinese counterparts for contracts with Western companies. That typically means “competing” downward on safety protections and job security—as evidenced by the massive strike at Yue Yuen shoe factory earlier this year, which was sparked in part by fears of seeing their jobs drift to even cheaper southern neighbors (sound familiar?). So when those jobs in Nike’s supply chain land in Vietnam, a top source of US apparel imports, they bring grueling labor conditions.

Shanghai Cooperation Organization turns Pan Asian - The Shanghai Cooperation Organization (SCO) finally delivered on its earlier pledges to enlarge the grouping. The organization — that currently includes Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan — accepted major South Asian nations thus moving towards a new reincarnation of Pan-Asianism. The organization that originated from bilateral border talks between China and the former Soviet Union now becomes truly multilateral. At the summit meeting in Ufa on July 10, Russia approved entry of India and Pakistan into the SCO. The SCO apparently aimed to strengthen the grouping by inviting the subcontinent’s major states. In his summing up remarks, President Vladimir Putin said the upcoming accession of India and Pakistan into the SCO would help the organization to face current challenges and threats. For the first time in its 15-year history, the SCO made a decision on its enlargement, he said. Putin also noted the interest of several nations of South Asia, South-East Asia and the Middle East in gaining the status as SCO dialogue partner and observer nation. In the meantime, Belarus’ status was raised from a dialogue partner to an observer nation, while Azerbaijan, Armenia, Cambodia and Nepal became SCO’s dialogue partners.

SCO membership to give India extra leverage in Central Asia - The procedures for India and Pakistan to join the Shanghai Cooperation Organization (SCO) as full members will soon be initiated with the six existing members unanimously passing a resolution to the effect. Russia was the main backer of India’s full membership of the security grouping. It is not exactly clear as to when the countries will become full members of the SCO, but sources close to the situation say that next year’s summit in Uzbekistan will see India and Pakistan participating as full members. Membership of the SCO gives India major strategic inroads into Central Asia, a region that New Delhi has looked at stepping up engagement with from the 1990s.The only obstacle that India faced from joining the grouping as a full member was China’s initial reluctance. The entry of Pakistan to the SCO is seen by some analysts as China’s counterbalancing strategy. Nepal joins Sri Lanka as the second South Asian nation to have dialogue partner status.  Uzbekistan, Kyrgyzstan and Tajikistan all share India’s concerns on the threats posed by a potential return of the Taliban to power in Afghanistan. This is likely to lead to the grouping calling for harder measures and a joint policy to tackle the growing threat of the Taliban. A senior diplomat involved with India’s access to the SCO says, “Pakistan will find it increasingly difficult to continue to sponsor the Taliban and harbor visions of strategic depth in Afghanistan.”

India, Pakistan accession to SCO may change balance of power on world arena — Uzbek leader -- The accession of nuclear powers of India and Pakistan to the Shanghai Cooperation Organization (SCO) will not only change the political map, but may also influence the balance of power on the world arena, Uzbekistan’s President Islam Karimov said on Friday. "How will the accession process of these two states [India and Pakistan] happen taking into consideration that these are not ordinary states but they possess nuclear weapons? If we look through this lens, then tomorrow their accession to the SCO will not simply change the political map, but I think may change the balance of power," Karimov said at the meeting with Russian President Vladimir Putin on the sidelines of the SCO summit in Russia’s Ufa. The Uzbek leader proposed to the Russian leader to discuss the issues linked to the accession of new members to the SCO during the upcoming presidency of Uzbekistan in the organization. The Russian president joked saying that "it will be like: Uzbekistan President Karimov has brought India and Pakistan to the SCO and created a new political world reality," adding: "Let’s talk about that."

Pakistan's Growing Population: Blessing or Curse? -- Much of the developed world has already fallen below the "replacement" fertility rate of 2.1.  Fertility rates impact economic dynamism, cultural stability and political and military power in the long run. Pakistani women's fertility rates have been declined significantly from about 4.56 in 2000 to 2.86 babies per woman in 2014, a drop of 37% in 14 years. It is being driven drown by the same forces that have worked in the developed world in the last century: increasing urbanization, growing incomes, greater participation in the workforce and rising education.  Pakistan now ranks 65 among 108 countries with TFR of 2.1 (replacement rate) or higher.  Pakistan is already the most urbanized country in South Asia and its urbanization is accelerating. Pakistan has also continued to offer much greater upward economic and social mobility to its citizens than neighboring India over the last two decades. Since 1990, Pakistan's middle class had expanded by 36.5% and India's by only 12.8%, according to an ADB report titled "Asia's Emerging Middle Class: Past, Present And Future. Pakistan has the world’s sixth largest population, seventh largest diaspora and the ninth largest labor force with growing human capital. With rapidly declining fertility and aging populations in the industrialized world, Pakistan's growing talent pool is likely to play a much bigger role to satisfy global demand for workers in the 21st century and contribute to the well-being of Pakistan as well as other parts of the world.

Debasing the US TIP report --  Alarming reports are coming from Washington about the highly anticipated Trafficking in Persons (TIP) report. It seems that US officials have been ordered to promote Malaysia from Tier 3, the bottom ranking where Thailand was controversially placed last year. The reports - not denied by US officials - say Malaysia's rise back to Tier 2 was for purely political reasons, because President Barack Obama needs Malaysia's support for the Trans-Pacific Partnership (TPP) trade negotiations. The US has already helped to debase its own report, by refusing to address the issue. The initial news came from the Reuters news agency, and last weekend The New York Times said it had confirmed it. The TIP 2015 report will be rolled out in at least semi-disgrace. Country reports and rankings seen as objective, made under a single set of standards, now appear tainted by political influence. Another hugely important issue is one that has been raised several times by Prime Minister Prayut Chan-o-cha and the government. Malaysia reportedly is to be promoted from its Tier 3 rating because its parliament has passed an anti-trafficking bill, and because of Malaysian help on dealing with the Rohingya exodus of April and May. Thailand has been told the 2015 report covers anti-trafficking activities only through to March. We will soon learn the truth. If Malaysia is promoted from Tier 3 for recent actions, then the report is a partial sham. So is the claim that the US has a single, objective set of standards to rank countries. Clearly, to promote Malaysia because of a new law ignores Thailand, which has passed several such laws in the past three years. What's more, claiming that Malaysia deserves Tier 2 promotion for its actions in April and May contradicts the US claim of a March 31 cutoff date.

How the US is Using a Secret Agreement on Services to Wriggle Out of Its WTO Obligations -- It is increasingly evident that the TiSA negotiations are an attempt to pressure developing countries to grant greater liberalisation in sectors of interest to the US and other industrialised countries, without the latter having to pay any price for it. WikiLeaks has done us all a favour by leaking the draft negotiating texts of the ‘Trade in Services Agreement’ – or TiSA, to use the current official trade jargon. Read together with the secret chapters of the TransPacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) it leaked earlier, we now have a clear textual picture of the attempts by the United States to drive a coach and four horses through the entire post-war multilateral trade, money and finance systems and establish in their place global corporatism and American hegemony over the world. Each of these so-called “high quality” global trade agreements is being promoted and negotiated in secret by the United States, with the administration of President Barack Obama keen to conclude them on its watch, without too much contemporaneous public or parliamentary scrutiny and debate within participating countries. With Capitol Hill having ceded its authority in such matters to the administration under the Trade Promotion Authority (TPA), the Obama administration can conclude the agreements, and send them to the US Congress for ‘rubber stamping’, with Congress having the right only to just vote ‘yes’ or ‘no’ but not change any part.Other participating countries will be signing on – and restricting even more their development policy options by giving free rein to global corporate activities within their borders – without even this minimum level of legislative scrutiny. “Together, the three treaties (TPP, TTIP and TiSA) 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,”  WikiLeaks publisher Julian Assange aptly declared in a press statement.

Canada being sued for billions under NAFTA investor protections | Toronto Star: The private owner of the Detroit-Windsor bridge is suing Canada for billions under NAFTA, one of many legal cases cited in a new study on corporations’ growing use of investor protection measures to challenge the Canadian, U.S. and Mexican governments. Michigan billionaire Matty Moroun, owner of the existing bridge connecting Windsor to Detroit, is claiming damages from Ottawa in connection with Canada’s plan to help build a second bridge linking Ontario to Michigan at Detroit. Moroun, whose bridge company opposes the Canadian project, claims Canada’s handling of the pre-construction phase of the proposed new bridge has violated his firm’s right under NAFTA provisions to be treated no differently than a Canadian company. In an initial filing, Moroun’s company asked a NAFTA arbitration tribunal for $3.5 billion in damages from Ottawa. In the ensuing proceedings, Canada has argued the case should be thrown out because Moroun’s company did not file a complaint within the time deadline for Chapter 11 suits, which is three years after a complainant becomes aware of an alleged rights violation. The case is still before the NAFTA dispute settlement tribunal. It’s only one example of claims against Canada by U.S. or Mexican companies or private investors who say they have been treated unfairly by environmental, health, trade and economic regulations by governments in Canada. The claims against Ottawa for damages under the Chapter 11 investor-state dispute settlement (ISDS) mechanism in NAFTA total billions of dollars, according to the summary of cases by the Canadian Centre for Policy Alternatives (CCPA), an Ottawa think tank that has often criticized federal policies.

Canada’s “Atrocious” Turn of Events -- The Governor of the Bank of Canada (BOC), Stephen Poloz, was not kidding when he warned that the first quarter of 2015 would be “atrocious.” After a respectable fourth quarter in 2014, the Canadian economy took a turn for the worse: domestic demand fell by 1.7%, owing to a huge drop in business investment, while the other components of GDP barely registered positive results (see Chart 1). Canada is still suffering from the oil price shock, as much of this drop in business investment is from cancelled oil projects and lowered expected future production. Anticipating a weak first quarter, the Bank of Canada lowered its overnight bank rate from 1.00% to 0.75% in January both as insurance against a particularly bad performance and to weaken the Canadian Dollar. The BOC hoped that lower borrowing costs and a cheaper currency would sufficiently increase capital formation and improve Canada’s trade balance—especially with the U.S—to offset expected energy-related contractions. In a separate survey Statistics Canada said capital spending in the non-residential sector is expected to decline a further 4.9% from 2014, while investment in energy is expected to decline by another 10%. Clearly, cutting the bank rate is not generating the new capital formation that the BOC desired, and it is becoming apparent that Canada cannot count on new investment to turn the economy around. With business reducing investment and consumers spending less, the two major engines of growth are idle at this important juncture. Can Canada rely on exports to revive the economy?

Mexico kingpin 'Chapo' Guzman stages brazen jailbreak in blow to president -  Mexico's most notorious drug lord, Joaquin "El Chapo" Guzman, broke out of a high-security prison on Saturday night for the second time, escaping in a tunnel built right under his cell, and heaping embarrassment on President Enrique Pena Nieto. The kingpin snuck out of the prison through a subterranean tunnel more than 1.5 km (1 mile) long that ended at an abandoned property near the local town, National Security Commissioner Monte Alejandro Rubido told a news conference on Sunday. Guzman, who had bribed his way out of prison during an escape in 2001, was seen on video entering his shower area at 8:52 p.m. on Saturday (0152 GMT Sunday), then disappeared, the National Security Commission (CNS) said. Wanted by U.S. prosecutors and once featured in the Forbes list of billionaires, Guzman was gone by the time guards entered his cell in Altiplano prison in central Mexico, the CNS said. "This is going to be a massive black eye for Pena Nieto's administration," said Mike Vigil, former head of global operations for the U.S. Drug Enforcement Administration. "I don't think they took into account the cunning of Chapo Guzman and the unlimited resources he has. If Chapo Guzman is able to make it back to the mountainous terrain that he knows so well in the state of Sinaloa ... he may never be captured again."

Stowaways and Crimes Aboard a Scofflaw Ship - Few places on the planet are as lawless as the high seas, where egregious crimes are routinely committed with impunity. Though the global economy is ever more dependent on a fleet of more than four million fishing and small cargo vessels and 100,000 large merchant ships that haul about 90 percent of the world’s goods, today’s maritime laws have hardly more teeth than they did centuries ago when history’s great empires first explored the oceans’ farthest reaches.Murders regularly occur offshore — thousands of seafarers, fishermen or sea migrants die under suspicious circumstances annually, maritime officials say — but culprits are rarely held accountable. No one is required to report violent crimes committed in international waters.Through debt or coercion, tens of thousands of workers, many of them children, are enslaved on boats every year, with only occasional interventions. On average, a large ship sinks every four days and between 2,000 and 6,000 seamen die annually, typically because of avoidable accidents linked to lax safety practices.  Ships intentionally dump more engine oil and sludge into the oceans in the span of three years than that spilled in the Deepwater Horizon and Exxon Valdez accidents combined, ocean researchers say, and emit huge amounts of certain air pollutants, far more than all the world’s cars. Commercial fishing, much of it illegal, has so efficiently plundered marine stocks that the world’s population of predatory fish has declined by two thirds.

Rich countries rejected an international plan to let the UN help fight tax evasion - Quartz: At a global summit that addressed how illicit financial flows interfere with reducing poverty, wealthy nations rejected a plan to expand the UN’s power to fight global tax evasion. The plan, promoted by developing economies and transparency groups, was the subject of the meeting between delegations of UN members from around the world in Addis Ababa, Ethiopia this week. The goal was to figure out how to pay for the next generation of development goals that the UN will adopt later this year. Many developing countries see more money slip out of their borders illicitly through tax and trade fraud than what enters as development aid and foreign investment, which ultimately impedes their economic advancement. African nations have been among of the worst victims of illicit flows; In recent years, Ethiopia has lost the equivalent of 11% of its annual production. This year’s finale communique, to be released July 15, will recognize illicit flows from trade fraud as a development problem and commit to substantially reducing them by 2030, and eventually eliminate them, sources tell Quartz.

The Age of Megaprojects » We seem to be entering a new age of megaprojects, as countries, in particular those of the G-20, mobilize the private sector to invest heavily in multi-million (if not multi-billion or multi-trillion) dollar infrastructure initiatives, such as pipelines, dams, water and electricity systems, and road networks. Already, spending on megaprojects amounts to some $6-9 trillion a year, roughly 8% of global GDP, making this the “biggest investment boom in human history.” And geopolitics, the pursuit of economic growth, the quest for new markets, and the search for natural resources is driving even more funding into large-scale infrastructure projects. On the cusp of this potentially unprecedented explosion in such projects, world leaders and lenders appear relatively oblivious to the costly lessons of the past. To be sure, investments in infrastructure can serve real needs, helping meet an expected surge in the demand for food, water, and energy. But, unless the explosion in megaprojects is carefully redirected and managed, the effort is likely to be counterproductive and unsustainable.  The trouble is that public-private partnerships are required to provide a competitive return on investment. As result, according to researchers at the London School of Economics, they “are not regarded as an appropriate instrument for [information technology] projects, or where social concerns place a constraint on the user charges that might make a project interesting for the private sector.” Private investors seek to sustain the rate of return on their investments through guaranteed revenue streams and by ensuring that laws and regulations (including environmental and social requirements) do not cut into their profits. The risk is that the quest for profit will undermine the public good.

Whatever happened to the Brics? - When Jim O’Neill coined the acronym Bric in 2002, he brilliantly identified the main force that would drive global economic growth for the next decade. These four economies – Brazil, Russia, India and China – had little in common, except that they had the scale and growth potential to transform the growth rate of global GDP as never before. For many years, their startling performance was the main manifestation of the phenomenon that became known as “globalisation”. When the leaders of Brics (which has included South Africa since 2010) met for their annual summit last week, however, they knew that their collective lustre had faded. The bursting of the Chinese equity bubble, following the hard landing in the real estate sector, now looms as a major downside risk for global financial markets and world economic growth. Brazil and Russia have been mired in deep recessions, taking the aggregate Brics growth rate down to only about 2 per cent in April, according to Fulcrum’s “nowcast” activity models. Although these models have identified a pick-up in recent weeks, growth in the Brics remains well below its (falling) long-term trend rate, and Markit reports that manufacturing business surveys in the emerging economies fell in June to the lowest readings since the financial crash in 2009. Since 2010, the long run underlying growth rate of the Brics has slowed from 8 per cent to 6 per cent. This is not surprising in view of the pronounced tendency for economies to revert to their mean long-run growth rates over time. But the actual growth rate has dropped even more sharply, from 11 per cent to 5 per cent. A cyclical downturn has been built on top of a secular one. What had once been the brightest spark in the global economy has now become its big headache. What went wrong with the Brics and can they recover?

Putin Leads BRICS Uprising -- There’s been a virtual blackout of news from this year’s seventh annual BRICS summit in Ufa, Russia.  None of the mainstream media organizations are covering the meetings or making any attempt to explain what’s going on.  As a result, the American people remain largely in the dark about a powerful coalition of nations that are putting in place an alternate system that will greatly reduce US influence in the world and end the current era of superpower rule. Leaders of the BRICS (Brazil, Russia, India, China and South Africa) realize that global security cannot be entrusted to a country that sees war as a acceptable means for achieving its geopolitical objectives.  They also realize that they won’t be able to achieve financial stability as long as Washington dictates the rules, issues the de facto “international” currency, and controls the main levers of global financial power. This is why the BRICS have decided to chart a different course, to gradually break free from the existing Bretton Woods system, and to create parallel system that better serves their own interests. Logically, they have focused on the foundation blocks which support the current US-led system, that is, the institutions from which the United States derives its extraordinary power; the dollar, the US Treasury market, and the IMF. Replace these, the thinking goes, and the indispensable nation becomes just another country struggling to get by. 

Russian Industry Drops for Fifth Month, Longest Slump Since 2009 - Russian industrial production fell more than forecast by economists, contracting for a fifth month in the longest slump since 2009. Output at factories, utilities and mines fell 4.8 percent from a year earlier in June after a 5.5 percent decline in May, the Federal Statistics Service in Moscow said Wednesday in an e-mailed statement. The median of 18 estimates in a Bloomberg survey was for a 4 percent drop. A slump in consumer demand is rippling through the economy as Russia enters its first recession since 2009 after oil prices fell and sanctions were imposed over the conflict in Ukraine. Reeling from the country’s worst currency crisis since 1998, companies are continuing to reduce fixed investment even as the central bank has lowered borrowing costs four times following its emergency increase in December. “Russia’s notoriously low investment rate and outdated infrastructure will continue to hold industry back,” . “Further ahead, industry is likely to bottom out as the squeeze on households’ purchasing power eases and the slump in investment stabilizes.”

Beyond Greece, the world is filled with debt crises -- With its shuttered banks, furious public protests and iconoclastic politicians, the plight of Greece, brought to its knees by a crippling debt burden, has been gripping and heartbreaking in equal measure: a full-blown sovereign debt crisis on the doorstep of some of the wealthiest countries in the world. Yet new analysis by the Jubilee Debt Campaign reveals that Greece’s plight is far from unique: more than 20 other countries are also wrestling with their own debt crises. Many more, from Senegal to Laos, lie in a debt danger zone, where an economic downturn or a sudden jump in interest rates on world debt markets could lead to disaster. One  Jubilee reports that the rock-bottom interest rates across major economies, which have been a key response to the crisis, have in many cases prompted governments, firms and consumers to go on a fresh borrowing binge, storing up potential problems for the future. Judith Tyson of the Overseas Development Institute thinktank says the flipside of the latest round of borrowing has been investors and lenders in the west looking for bigger returns than they could get at home, a process known in the markets as a “search for yield”. “Since 2012, there’s been a huge increase in sovereign debt, in Africa in particular,” she says. Some of the countries involved were beneficiaries of the debt relief programme that G8 leaders signed up to at the Gleneagles summit in 2005. “They were given debt relief with the idea that it would give a clean slate to go forward,” Tyson says.

Italy's public debt reaches new record high - Italy's public debt has risen to a new record of 2.2 trillion euros ($2.4 trillion), up by 23.4 billion euros in May. The figure published by the central bank on Tuesday brought recriminations by opposition politicians against Finance Minister Pier Carlo Padoan for not bringing down the debt load, which had even at lower levels threatened a sovereign debt crisis. Italy's economy is only now showing signs of sustained growth. Italy's debt-to-GDP ratio is above 132 percent, up from 130 percent in 2013 and 120 percent in 2010. Padoan told the Italian daily il Sole 24 Ore in an interview published Tuesday that "18 months ago we risked much more," but that structural reforms had helped create "the path to growth."

'1984' Comes To Europe - The End Of Freedom Of Speech In Spain -- Spain has shown that it is fully on board with the Brussels authoritarian direction of ending democracy. Those in power have simply convinced themselves that the people do not understand what is good for them so they must impose their will upon the people but raw force. How does this differ in any what from the justification of imposing communism?This is the death of all freedom and it is upon our doorstep. Here are the new laws in Spain:

  • 1. If you photograph security personnel and then share these images on social media: up to €30.000 fine (particularly if photo exposes violence used against a member of the public). This fine could increase depending on the number of Instagram or social media followers you have.
  • 2. Tweet or retweet information or the “location of an organized protest” can now be interpreted as an act of terrorism as it incites others to “commit a crime” (now that “demonstrating” in many ways has become a crime). Sound “1984”-ish? Read about Orwell and his time in Spain.
  • 3. Snowden-like whistle blowing is now defined as an act of terrorism. If you write for a local publication, be careful what you print, whom you speak to, and whether the government is listening.
  • 4. Visiting or consulting terrorist websites – even for investigative purposes – can be interpreted as an act of terrorism.
  • 5. Be careful with the royal jokes! Any satirical comment against the royal family is a new crime “against the Crown”. For example, “What did Leticia and the Bishop have to say after they ––“ (SORRY CENSORED).
  • 6. No more hassling elected members of the government or local authorities – even if they say one thing in order to be elected, but then go and do the exact opposite.
  • 7. Has your local river been so polluted by that plastic factory along the edge that all life has extinguished? Well, tough! Greenpeace or similar protests are now finable from €601–€30.000.
  • 8. Protests in a spontaneous way outside Parliament are now illegal.
  • 9. Obstructing an officer in the course of their business, “resisting arrest”, refusing to leave a demonstration when told, or getting in the way of a swinging baton are all now finable offences from €601 – €30.000.

EU fines Spain $21 million for fudged deficit figures -- European Union authorities have fined Spain almost 19 million euros ($21 million) for manipulating economic statistics for one of its regions, the first penalty of its kind. The European Council said in a statement Monday that an investigation showed "serious negligence" concerning the recording of health expenditure in the eastern region of Valencia. The body said that led to Spain's incorrect reporting of its national deficit in 2012 to Eurostat, the EU's statistical office. It said this was the first time a fine has been imposed for data manipulation under powers brought in 2011, enabling the EU to monitor the finances of European governments. Much of the blame for the continent's recent debt crisis was placed on misreported and unreliable government accounting.

Europe fails to rid itself of deflation threat (Reuters) - Europe is failing to shake off the threat of deflation, with prices falling in Sweden, flat-lining in Britain and barely registering any increase in Germany and Italy. Data on Tuesday underlined that central banks across the continent are making little headway in boosting inflation despite flooding their economies with cash through rock-bottom interest rates and/or outright money-printing. At the same time, commodity prices, especially for oil, are falling on a number of factors, including an economic slowdown in China, and should feed even lower inflation over time. "It is a worry in particular in the euro zone where you still have spare capacity," said Jennifer McKeown, senior European economist at Capital Economics in London, referring to less-than optimal production. "There is a real risk that this becomes more sustained." Euro zone industrial production figures for May came in far lower than expected, at minus 0.4 percent compared with an expected plus 0.1 percent. Deflation -- the sustained falling of prices -- can become an aggravated assault on economies, prompting consumers to put off purchases in search of a better price and hence bringing growth to a halt or worse. There is no firm sign of that to date, but Tuesday's tranche of inflation reports made grim reading for those seeking to get inflation back up to the around 2 percent yearly rate that many consider healthy. Germany, Europe's economic engine, reported consumer prices harmonised to compare with other European countries were up just 0.1 percent year-on-year and fell 0.2 percent between May and June. Italy fared slightly better, but still only saw prices rise 0.2 percent.

Survey Shows Eurozone Inflation Below Target for Some Time to Come - –Forecasters polled by the European Central Bank only slightly raised their inflation outlook for this year and next year, a report published by the central bank showed on Friday. The predictions signal continued weakness on the inflation front and likely underscore the need for the ECB to continue with its quantitative easing program in an effort to push inflation closer to the ECB’s target of just below 2%. The Survey of Professional Forecasters now sees inflation in the currency bloc at 0.2% this year, a 0.1 percentage point upward revision from the previous forecast in April. The SPF sees inflation at 1.3% next year, versus 1.2% seen in April, and 1.6% in 2017, matching the previous forecast. The report said the “main factors” for the expected rise in inflation in 2016 and 2017 were “the confirmation of ongoing, albeit moderate, growth in economic activity, monetary policy measures, exchange rate developments and base effects from past oil price developments.” The longer-term outlook showed inflation expectations only marginally increasing to 1.86% versus 1.84% in the previous round. The SPF’s inflation outlook is lower than the forecast issued by the ECB’s staff in June, which saw inflation this year at 0.3%, 1.5% next year and 1.8% in 2017.

ECB's Draghi: EM slowdown to hit eurozone growth - The eurozone economic recovery is expected to continue in the months ahead, but may be hit by sluggish growth in emerging markets, European Central Bank President Mario Draghi said at a news conference on Thursday. "The ongoing slowdown in emerging market economies continues to weigh on the global outlook and economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms," he said. He cautioned, however, that the the adverse effect on growth has generally been contained by the central bank's monetary-easing program, as well as low oil prices and a weak euro

Draghi's commitment to easy policy knocks euro to seven-week low: The euro fell to a seven-week low against the dollar as European Central Bank President Mario Draghi reiterated his commitment to providing unprecedented stimulus to the euro area. The shared currency weakened versus all but one of its 16 major peers after Draghi said that the central bank increased emergency liquidity assistance to Greece on Thursday. Draghi said at a press conference that recent market uncertainty hasn't changed the region's economic outlook and that stimulus measures, including a €1.1 trillion bond- buying program, will push inflation back toward target. "The ECB's still stuck in quantitative easing," while the Federal Reserve edges closer to raising interest rates, John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark, said by phone. That's "helping the euro lower and the dollar higher". The euro dropped 0.7 per cent to $US1.0875 as of 5pm New York time and touched $US1.0856, the lowest since May 27. It weakened 0.4 per cent to 135.01 yen.

A Grexit Looks Almost Inescapable -- Yves Smith - Despite my generally dour outlook, I never thought we’d arrive at the insane juncture we are at now, that of a Grexit being all but baked in. This would be a catastrophic outcome, most of all for the Greek 99%. If a Grexit comes to pass, it should deservedly blacken the names of everyone involved, most of all Merkel, whose incrementalism meant that all of the unresolved contradictions of the Eurozone produced intensifying pressure on its fault lines, and Greece proved to be the breaking point. But as we’ll see soon, her finance minister Wolfgang Schauble would also get a particularly large badge of dishonor.  You don’t need to know much to know that the odds of Greece escaping a Grezit are becoming vanishingly small as time progresses, and there is perilously little time left. And mind you, this sorry trajectory is occurring even after the Greek government prostrated itself and offered to meet even more stringent conditions than its voters overwhelmingly rejected in a referendum less than a week ago.  Greek banks will die by the end of the day Monday if the ECB does not give them more liquidity under the ELA. That pretty much means a Grexit. Even if they get some ELA funds, it’s almost certain depositors will suck the money right out unless very stringent measures are taken to make sure the funds are used almost entirely on behalf of importers (and even that could be abused to get cash out). The ECB will not give more funds under the ELA unless it gets a guarantee from Eurozone members. That is just about as hard as getting a deal done, despite much smaller amounts of money at risk, but it is the only mechanism that looks to be open for an 11th hour respite.

Russia Readies Fuel Deliveries To Athens, Will Support Greek "Economic Revival" - Russia and Greece have a "special relationship of spiritual kinship and religious and historical affinity," Vladimir Putin said yesterday, following the BRICS summit in Ulfa.  Over the course of the unfolding crisis in Greece, Athens has at various times gone out of its way to remind Angela Merkel that allowing the country to crash out of the currency bloc may force the Greeks to turn to their other international "friends" (to use Nigel Farage’s words) for assistance. Facing economic sanctions from the EU in connection with its alleged role in destabilizing Ukraine not to mention a spiteful anti-trust suit against Gazprom, the Kremlin has been more than happy to use the rising tensions between Athens and Brussels to its geopolitical advantage.  So far, discussions between Russia and Greece have revolved primarily around energy, and several months back, when negotiations between Athens and creditors began to deteriorate in earnest, reports began to surface that Moscow may consider advancing Greece some €5 billion against the future proceeds from the Greek portion of the proposed Turkish Stream natural gas pipeline. Although the loan never materialized, the agreement on the pipeline did, and it was held up last week as proof that Greece is "no one's hostage." Now, that contention will be put to the test as Greece faces the prospect of a "swift time-out" from the eurozone if PM Alexis Tsipras can't convince parliament to agree to a new term sheet from creditors which seeks the implementation of a number of draconian measures in exchange for a third bailout. Of course, as we noted earlier today, a "time-out" is a polite way of saying "get the hell out," and in the event of a messy exit and forced redenomination, an acute cash and credit crunch will likely mean a shortage of critical imports and, in short order, a humanitarian crisis.

Greece Financial Crisis Hits Poorest and Hungriest the Hardest - Behind the lace curtains of a soup kitchen run by a parish in the humble Athens neighborhood of Kerameikos, the needy and hungry sit down to a plate of sliced cucumbers, three hunks of bread, a shallow china bowl of chickpea soup and often a piece of meat. But on Thursday, the priest, Father Ignatios Moschos was worried that he would no longer have enough food to go around if the country’s economic paralysis continues, as it seems likely to do even if Greece and its creditors manage to work out a last-minute deal this weekend to avert a Greek exit from the euro. Poverty in Greece has been deepening since the financial crisis began more than five years ago. Now, aid groups and local governments say they are beginning to feel the effects of nearly two weeks of bank closings, as Greece struggles to keep its financial system from failing and to break out of years of economic hardship. And any deal with creditors this weekend will bring further cuts in government spending. It will also bring higher taxes and, as a consequence, more short-term pressure on the economy.As Athens takes on the aura of Soviet Russia, with lines of people outside banks waiting to receive their daily cash allowance, some aid groups are seeing their supply channels narrow. By some accounts, lines for food, clothing and medicine have grown fivefold in parts of the capital in the last two weeks alone.

What were the Greeks thinking? Here’s a poll taken just before the referendum.-- Sunday’s referendum asked the Greek people a very specific and complicated question: Whether voters agreed to accept the proposal the country’s creditors had made on June 25, 2015. But everyone understood that the vote would have much wider implications for Greece’s membership in the euro and the European Union.  What exactly these implications would be, however, was highly contested during the one-week campaign. The government argued that a no (“OXI”) vote would give Greece a better negotiating position, which would let it quickly secure a deal that would end austerity. The “yes” camp, in contrast, warned that a no vote would lead to “Grexit,” or Greece’s departure from the euro zone and possibly the E.U., and therefore even worse economic hardship in the months to come.  The referendum result was much more definitive than expected: more than 61 percent voted “no.” But Greece’s future is now highly uncertain. Euro-zone and E.U. politicians have made it clear that Prime Minister Tsipras’s promise of a better and quickly negotiated deal isn’t forthcoming. No one knows what will happen next. What were the Greek people thinking as they went to the polls, and what does that imply for future negotiations? We fielded an original telephone survey on Greek public opinion on Saturday, the day before the referendum, asking 989 respondents how they intended to vote, what they expected from a no vote, and what they believed should happen in Greece’s future. The results give us a unique glimpse into the deliberations of the Greek people about to vote on the country’s future. They show that the referendum question split Greek society along sociodemographic and partisan lines. “No” was strongly favored by younger, less educated, and unemployed voters, who have been heavily hurt by austerity politics. Voters favoring the governing parties, Syriza and ANEL, or the radical right party Golden Dawn, were significantly more like to vote no.

24 hours to save the euro: Germany prepares for a 'temporary' Greek exit as euro project on the brink of collapse - Telegraph: The German government has begun preparations for Greece to be ejected from the eurozone, as the European Union faces 24 hours to rescue the single currency project from the brink of collapse. Finance ministers failed to break the deadlock with Greece over a new bail-out package, after nine hours of acrimonious talks as creditors accused Athens of destroying their trust. It leaves the future of the eurozone in tatters only 15 years after its inception. In a weekend billed as Europe’s last chance to save the monetary union, ministers will now reconvene on Sunday morning ahead of an EU leaders' summit later in the evening, to thrash out an agreement or decide to eject Greece from the eurozone. Should no deal be forthcoming, the German government has made preparations to negotiate a temporary five-year euro exit, providing Greece with humanitarian aid while it makes the transition. An incendiary plan drafted by Berlin's finance ministry, with the backing of Angela Merkel, laid out two stark options for Greece: either the government submits to drastic measures such as placing €50bn of its assets in a trust fund to pay off its debts, and have Brussels take over its public administration, or agree to a "time-out" solution where it would be expelled from the eurozone. German vice-chancellor Sigmar Gabriel said they were Greece's only viable options, unless Athens could come up with better alternatives.

Greece Has Made No Preparation for a Grexit -- Yves Smith - This is as bad as we’ve feared. We regularly warned that there were no signs that Greece was preparing in a meaningful way for a Grexit, but sources close to Syriza have said in public what amounted to the same thing, that the government was completely preoccupied with the tactics of the negotiations and was not thinking or acting beyond that.  From the BBC’s Robert PestonSo the first rather chilling thing I’ve learned, from well-placed bankers, is there have been no conversations between the Bank of Greece, the government or regulators and Greece’s commercial banks about the technicalities of leaving the euro and adopting a new currency. This is astonishing – and some would say pretty close to criminal – given that on Wednesday night the president of the European Union, former Polish prime minister Donald Tusk, was explicit that this weekend’s negotiations were all about whether Greece would stay in the eurozone.  It’s “close to criminal” not to have considered it when European leaders told the Greek government before the election that they regarded an “Oxi” vote as tantamount to leaving the Eurozone and the ECB stopped increasing the ELA. The ECB has the means to force a de facto Grexit and top European officials were saying with a united voice that they were prepared to go that far. I’ve been saying privately for weeks that this feels like Lehman: one side not willing or able to hear it won’t get its rescue, the other side not choosing or able to hear (until very late in the game) that they weren’t getting the message and neither side preparing for the rupture. This comparison clearly understates the consequences for Greece and potentially Europe. With pharmaceutical supplies, particularly critical ones like insulin running short, lives are already at risk. Greece is not self sufficient in food. Calorie consumption in Greece has already fallen by 30% since austerity started, and only some of that can be attributed to population decline. Food suppliers are already finding it impossible to import. What happens when Athens, one of the densest cities in the world, begins to run short? A Grexit will be a disastrous, inexcusable failure of leadership. Many people, virtually all of them the wrong ones, will pay for it.

Timothy Geithner reveals Schauble’s plan to kick Greece out of the euro and ‘terrify’ the rest of Europe: In his new book ‘Stress Test’ just released in the US, Timothy Geithner has revealed that in 2012 German Finance Minister Wolfgang Schaeuble had presented him with a plan to kick Greece out of the eurozone. This, he said, would appease German voters and terrify Europe.Geithner states that during the meeting Schaeble presented him with a plan to kick Greece out of the eurozone. This, according to the German Finance Minister, would allow Germany to provide the financial support necessary to the Eurozone as the German people would no longer perceive the assistance as a bailout of the corrupt and profligate Greeks. Furthermore, according to Schauble’s logic, a Greek exit would scare the rest of Europe enough for them to commit to providing sufficient financial assistance in order prevent the system from collapsing. Schaeuble told his US counterpart that there were many in Europe who considered this reasonable and even a desirable strategy. For his part Geithner called the idea ‘frightening’ writing that he felt that it would create a crisis of confidence that would be difficult to contain regardless of how much money the Europeans subsequently pledged to shore up bankrupt states. He adds that he could not see why the Germans would feel better about bailing out Spain or Portugal than they would Greece.

Troika Says Greek Proposal Not Enough To Meet Targets, Serves As "Basis For Negotiations" -- Early on Saturday morning, the Tsipras government passed the Greek bailout proposal which it told the Greek people to reject - which they did - less than a week earlier. The grotesque farce continued until the very end when 15 Syriza lawmakers who voted yes said they nonetheless are against the reform package and expressed their opposition to the government’s proposal in a joint statement issued immediately after the vote in parliament.   Energy Minister Panagiotis Lafazanis, Deputy Labour Minister Dimitris Stratoulis as well as the speaker of parliament, Zoe Constantopoulou, all called "Present", in effect abstaining from the vote and withholding their support from the government. "The government is being totally blackmailed to acquiesce to something which does not reflect what it represents," Constantopoulou said.  At the end of the vote, the Tsipras government narrowly escaped the loss of a parliamentary majority, as 17 Syriza lawmakers, which holds 149 seats in parliament, abstained, were absent or voted no. Among legislators who were absent were former Finance Minister Yanis Varoufakis (who went on holiday earlier to his wife's island vacation house), Speaker of Parliament Zoe Konstantopoulou (who penned the famous Greek "Odius Debt" declaration) and two cabinet ministers.The ruling coalition's parliamentary majority was saved by the deputies of the right-wing Independent Greeks, who hold 13 seats in parliament. According to Reuters, the Troika told Eurozone governments that proposals from Greece for a bailout loan are a basis for negotiation, an EU official said on Saturday. "The three institutions have made a first joint assessment of the Greek reform proposals submitted Thursday night. Under certain conditions, they jointly see the proposals as a basis for negotiating an ESM program. This assessment was sent to the Eurogroup president last night," the official said.

It's Not Just The Troika: 79% Of Greeks Oppose Syriza's Third Bailout Proposal --While we, and Syriza, await to see just how violently the Troika will throw up all over the Greek proposal (which may have been valid on June 26 but no longer is now that the Greek economy has ground to a halt and virtually all supply-chain linkages are broken leading to a freefall in GDP) and just how many more austerity and pension cut demands that red-pen covered creditor mark up will have, there is a new and far more pressing problem facing Greek PM Tsipras. It turns out that after urging the Greek nation to vote "Oxi" to the June 26 Troika deal proposal, a demand which over 61% of the country followed, and less than a week later flip-flopping and capitulating to all demands (and then some) does have consequences for the Greek prime minister Tsipras, whose days in government now appear numbered. According to a snap poll by Bridging Europe, a whopping 79% of respondents said they areagainst the Third bailout proposal of the Greek government, with a further 74% stating they believe that the Greek government's proposals go against the 61% of the Greeks who voted "No" in the referendum.And while the poll appears to have miscalculated just how willing the entire parliament is to sell out democracy, with 53% stating that the proposal would likely not pass parliament with full support (it did), another 51% believe that Greece will have snap elections in the "next couple of  months."

Finland Echoes Germany, Wants Greece Out; Five Other Nations Back Grexit -- Initially it was just an unconfirmed rumor circulating in the German FAS media that the local FinMin had proposed a "temporary Grexit" option. It now appears that this was not only not a rumor, but Schauble's sentiment is contagious: moments ago Finnish broadcaster MTV reported that first Finland, and then the Eurozone's smaller, if somewhat more solvent nations, Estonia, Lithuania, Slovakia, Slovenia and even the Netherlands, support the German position on temporarily suspending Greece' Euro membership. MTV3: Finnish gov't supports the idea of temporary euroexit for #Greece (I don't buy this 100% and no confirmation)  Head of grand committee won't comment whether news claiming FIN gov't supports temporary #Grexit are correct. "Position is secret."  Okay, already 3 big Finnish news outlets (MTV3, HS, YLE) reporting same thing: Finland wants #Greece out of eurozone.  But... Schauble may just be following Merkel's orders, as the two are mmerely playing good cop, bad cop. German government sources: Idea of a temporary Grexit was agreed on by Merkel and vice-chancellor Gabriel. #Greece In which case forget Grexit: at this point of total diplomatic failure, one should be worried how long before all the other insolvent, if actively pretending to be doing ok, PIIGS have before the wrath of "Northern Europe" turns their way. As for Greece, it now appears just a matter of time.

"It's Not Possible To Reach A Deal Today" - EU Summit Canceled As Leaders Scramble To Keep The Dr€am Alive -- It was a weekend in which, according to traders, Greece facing an "absolutely final" was going to be saved. Instead, it may go down in history as the weekend in which the Eurozone finally split and its long-overdue disintegration began. After yesterday's dramatic report that Germany, together with 5 other nations, are contemplating a "temporary" 5 year Grexit, it started to become clear that Schauble does indeed want to make an example of Greece (perhaps for France and Madame Frexit, perhaps for the rest of the European periphery where the recovery is so "strong", record youth unemployment still assures landslide anti-austerity and anti-Euro victories) and so he did, when the finmin meeting devolved into a total fiasco which ended in the most acrimonious manner yet, one where not even a statement was forthcoming. The negotiation spilled over into today, where hours ago leader soundbites made it very clear that nothing would be resolve. Case in point, Finland's FinMin Stubb who said that while he is still hopeful "I think we’re very far away from the types of conditionality that we need. If this was a negotiation from one to 10, I think we’re still standing somewhere between 3 and 4. So making progress but not there yet.  No one is blocking a deal, we’re all constructively trying to find a solution in a very difficult situation."And just as we warned on Friday, when we said the proposed Greek offer would be nowhere near enough, so it was again confirmed: "The conditionality that has been presented by the Greeks is simply not enough at this stage. We need to have clear commitments, clear conditionality and clear proof that those conditions will be implemented at the end of the day."

Eurogroup Fails To Reach Deal, Gives Greece 24 Hours To Accept Draconian Terms -- When earlier today we revealed the terms of the "leaked" Eurogroup statement, which as we also reported would fail to reach a deal for a Greek Bailout #3, we said "Germany and 5 other "northern" states want Greece out, but they generously offer Greece the opportunity to push the "Grexit" button itself (especially since it is only "temporary"). Unless, of course, Greece is willing to cede all of its sovereignty to Germany in which case it can generously stay." That's pretty much what just happened when after a day-long meeting of the Eurogroup, the European FinMins were unable to reach a conclusion on the third Greek bailout and instead once again punted the revised term sheet, this time with absolutely draconian terms, back to Tsipras, and told him he has until tomorrow to agree to the terms, and until Wednesday to pass them into law, for talks to even begin!

EU Leaders Deeply Divided As Draghi Debates Bank Lifeline, Tsipras Faces Party Rebellion -- Facing abject humiliation at the hands of the German finance ministry, Alexis Tsipras arrived at Sunday’s Eurosummit a broken man. Having gambled his country’s future in the eurozone on a referendum he might well have expected to lose, the Greek PM found himself in a completely untenable position last Monday. Greeks had overwhelming rejected Europe’s latest proposal, sending the country’s economy into a veritable tailspin and leaving Tsipras to contemplate how he might salvage Greece’s place in the EU without betraying Syriza’s constituency.  It was an impossible task.  On Thursday, Tspiras submitted a "revised" version of the proposal Greeks had rejected at the ballot box. The revisions were insignificant to the point of meaninglessness, leaving voters with a feeling of betrayal. The silver lining was supposed to be that by the end of the weekend, Greece place in the eurozone would be secure, a new bailout program would be in place, and Greek banks would be on their way to reopening by mid-week. But Germany had other plans. Indignant at Tsipras’ brazen referendum call and incredulous at the prospect of putting German taxpayers on the hook for a recap of Greece’s banks, German finance minister Wolfgang Schaeuble (with the implicit blessing of Chancellor Angela Merkel) did not accept Tsipras’ surrender and instead rallied his fellow finance ministers around a new term sheet that outlined a set of draconian measures which Tsipras must now pass through the Greek parliament and enshrine into law by Wednesday or else face a five-year “time-out” (i.e. Grexit) from the EMU.

Greece Clears First Hurdle to Avoid Grexit - Greece has cleared the first hurdle in its attempt to stay in the eurozone after the bloc’s bailout monitors gave the go-ahead for negotiations over a future rescue programme. The so-called “institutions”, which consist of the European Commission, European Central Bank and IMF, said that the Greek proposals could be a “basis” for a new bailout programme under “certain conditions”, according to two officials. These conditions include clearer and more detailed targets on things such as opening up Greek professions, according to EU officials. An EU diplomat said: “Under certain conditions, they jointly see the proposals as a basis for negotiating an ESM programme.” Any proposals must first be examined by the European Commission, the ECB and IMF, formerly known as the troika. Greece put forward a host of reforms earlier this week as part of a bid to receive a third bailout worth €53.5bn over three years. Greek lawmakers overwhelmingly backed the proposals in a late-night session in Athens on Saturday morning, with pro-EU opposition parties coming to the government’s aid after a rebellion.  EU officials warned on Friday that the Greek proposals did not include the cash needed to recapitalise the country’s struggling banking sector, meaning that the total bill could reach more than €80bn. Officials in Paris had welcomed the Greek proposals, with French president François Hollande labelling them “serious and credible”.

Greece: Tsipras and Merkel Must Make a Decision - SPIEGEL - It is a document that shouldn't even exist. But it does, and is kept hidden behind the gray door of a safe with a black combination lock. The paper, around 1,000 pages thick, is stored in the presidential offices of the European Commission in Brussels and contains plans for a situation unforeseen in European Union treaties: the insolvency of a euro-zone member state and its exit from the common currency regime.Commission President Jean-Claude Juncker and his most important advisor, Martin Selmayr, recently checked to make sure the document was still there. They opened the heavy door and were relieved to see it inside. Without reading it, they locked up the safe again. The scenario of a Grexit, Juncker said at the Greece summit on Tuesday, has been "worked out in detail." It is looking increasingly possible that the scenario will become reality, perhaps sooner, perhaps later. Once again, European leaders have granted Greek Prime Minister Alexis Tsipras a final deadline, and once again nights will be spent in Brussels going over lists of reforms and details of potential emergency bailout loans. But last weekend, when almost two-thirds of Greek voters cast their ballots against "extortion and humiliation," as Tsipras himself characterized Europe's reform demands, it became clearer than ever that there is no basis left for cooperation between Athens and Brussels. Greece and European leaders are at loggerheads. From the Greek perspective, the EU, German Chancellor Angela Merkel and the euro zone are all synonymous with poverty and exploitation. From the perspective of most European Union leaders, on the other hand, Greece is little more than a failed state governed by clientelism and nepotism, a country whose economy has little to offer aside from olive oil and beach bars.

Germany floats Greek euro 'time-out' without more reforms - The German government has argued that Greece could take a five-year "time-out" from the euro zone and have some of its debts written off if Athens fails to improve proposals it has made for a bailout. In a paper reviewing an offer of reforms from the Greek government in return for a three-year loan, Finance Ministry officials said the plan lacked "paramount important reform areas" and wrote: "We need a better sustainable solution." The paper, seen by Reuters and first reported by Germany's Frankfurter Allgemeine Sonntagszeitung, offered "two avenues": either tighter conditions binding the Greek government to its new promises or a temporary exit from the euro. Sources in the ruling left-right coalition in Berlin said the paper was drawn up after discussions among conservative Chancellor Angela Merkel, her centre-left deputy Sigmar Gabriel and Finance Minister Wolfgang Schaeuble. They stressed that the preferred option was for Greece to reform and keep the euro. Schaeuble told euro zone peers at a crisis meeting in Brussels on Saturday that leftist Greek Prime Minister Alexis Tsipras had to do more to persuade Berlin to open negotiations on a new loan. But several sources familiar with the talks said Schaeuble did not raise the option of "Grexit" at the table.

Rift Between German and France Widens -- Fraught negotiations in Brussels over a €86bn bailout package at the weekend created fresh uncertainty for Greece’s future in Europe’s monetary union after finance ministers failed to agree a way out of the biggest crisis to face Europe since 2012. French president François Hollande pledged to get an agreement and warned that at stake was not just whether Greece stayed in Europe but “our conception of Europe”.  But a grim Ms Merkel said: “There’s not going to be an agreement at any cost.” Eurozone leaders, she added, were considering “nothing more and nothing less” than the preconditions for a Greece rescue by Europe’s bailout fund — a stance that appeared to cast doubt on whether a full accord could soon be reached.  Highlighting the drama, Luxembourg has warned Germany that pressing for Grexit would bring “a profound conflict” with France and “catastrophe for Europe”. Jean Asselborn, foreign minister, told the Süddeutsche newspaper that it would be “fatal for Germany’s reputation in the EU and the world” if Berlin did not seize the chance offered by the Greek reform promises.  Germany exerted maximum pressure, with the finance ministry raising the possibility of a five-year timeout from the eurozone for Greece, and transferring €50bn of assets to an “external fund” for privatisation to help fund debt repayment. Among Germany’s staunchest allies is Finland, where the populist Finns party threatened to resign from the two-month-old coalition government if a Greek bailout went ahead.

Eurozone finance ministers deadlocked over Greece - Eurozone finance ministers have failed to end the deadlock in the Greek crisis after marathon talks over a possible third €53.5bn bailout for the country broke up without agreement. Following nine hours of tense discussions finishing shortly before midnight in Brussels, the 19-member group decided to meet again on Sunday morning for a renewed push to narrow the still deep differences between Greece and most of its creditors. “It’s still very difficult but work is still in progress,” said Jeroen Dijsselbloem, eurogroup president. Luis de Guindos, the Spanish finance minister, said: “It could have been better, it could have been worse.” Not all were as optimistic. One commission official labelled the meeting “deeply frustrating”. The deadlock prolongs the uncertainty hanging over the near-bankrupt Greek economy and increases the risks that the country could be forced out of the eurozone. In a sign of the growing seriousness of the crisis, all 28 EU leaders will meet later on Sunday for a summit that German chancellor Angela Merkel has said will be “decisive”. While France has supported the radical Greek government’s latest bid to secure a deal, Germany has led a chorus of sceptics, raising doubts about Greek prime minister Alexis Tsipras’s ability to deliver the tough measures he has promised in his new plan. The German finance ministry raised the possibility of a five-year timeout from the eurozone for Greece, according to a ministry position paper that leaked on Saturday. . The paper proposed that either Greece rapidly put forward a far bigger reform programme than the one currently under discussion or leave the eurozone for five years while remaining in the EU. Negotiations were complicated by Finland, after the populist Finns party threatened to resign from the two-month old coalition government if a Greek bailout went ahead.

French deny EU report of possible loan for Greece - Two official French sources denied a report by a senior European Union official on Monday that France could give Greece a bilateral loan to help it over an immediate funding crunch pending agreement on a third bailout for Athens. The EU official said a bilateral loan from Paris was one option under discussion to help raise some 7 billion euros that Greece needs by July 20 to avoid defaulting on a bond redemption to the European Central Bank, which could force the ECB to end funding for Greek banks. Other options included paying out about 3.4 billion euros in profits from the ECB's holdings of Greek bonds that were returned to member states, and tapping a 60-billion-euro fund held at the European Commission known as the European Financial Stability Mechanism, the official said

Political will keeps Greece’s stopgap loans — for now - As eurozone leaders argued over the fate of Greece, Mario Draghi was watching their every move with mounting anxiety. As president of the European Central Bank he is responsible for the Greek banks’ main lifeline — €89bn in emergency loans that have kept the lenders from collapse. Mr Draghi stopped increasing these credits — called emergency lending assistance (ELA) — last month, when radical Greek premier Alexis Tsipras broke off negotiations and launched his controversial referendum. But the ECB decided against recalling the loans, allowing Greek banks just enough breathing space to permit customers to withdraw up to €60 a day. ECB rules make it difficult for the central bank to lend to a country which has left its official bailout programme. However, Mr Draghi judged that there was just enough political will in eurozone capitals to keep talking to Greece to allow him to keep the ELA in place. That was still the case this weekend, with the ECB giving no sign that the latest dangerous twists in relations between Greece and the country’s international creditors were about to force its hand. Mr Draghi was clearly expecting some progress at Sunday’s eurozone summit — or at least the avoidance of a complete rupture.

Greek Bailout Talks Yield Progress but Deal Still Uncertain - WSJ: —The eurozone edged closer to a new bailout deal for Greece, but the agreement considered by European leaders meeting here Sunday would require a near-total surrender of the government of Prime Minister Alexis Tsipras to creditors’ demands. A statement prepared by the currency union’s finance ministers ahead of the summit and seen by The Wall Street Journal said negotiations on a new rescue could only start once the Parliament in Athens had passed pension overhauls and sales-tax increases, along with further financial-policy measures. The parliamentary votes would have to happen by Wednesday, according to the statement, which foresaw Greece’s financing needs rising to as much €86 billion ($96 billion), up from €74 billion estimated by the institutions representing Greece’s creditors on Saturday. The statement from ministers was intended to serve as the basis of discussions for the leaders’ talks. Despite the progress in talks on Sunday, Greece’s future in Europe’s currency union still hangs in the balance. In case no deal can be reached, the statement suggested that “Greece should be offered swift negotiations on a time-out from the euro area.” While that sentence remained in brackets—a sign that it wasn’t backed by all 19 finance ministers—it made clear what was at stake in negotiations here.

Disaster In Europe -- Paul Krugman --  Tsipras apparently allowed himself to be convinced, some time ago, that euro exit was completely impossible. It appears that Syriza didn’t even do any contingency planning for a parallel currency (I hope to find out that this is wrong). This left him in a hopeless bargaining position. I’m even hearing from people who should know that Ambrose Evans-Pritchard is right, that he hoped to lose the referendum, to give an excuse for capitulation.  But substantive surrender isn’t enough for Germany, which wants regime change and total humiliation — and there’s a substantial faction that just wants to push Greece out, and would more or less welcome a failed state as a caution for the rest. The thing is, all the wise heads saying all the wise heads saying that Grexit is impossible, that it would lead to a complete implosion, don’t know what they are talking about. What I mean instead is that nobody has any experience with what we’re looking at. It’s striking that the conventional wisdom here completely misreads the closest parallel, Argentina 2002. The usual narrative is completely wrong: de-dollarization did *not* cause economic collapse, but rather followed it, and recovery began quite soon.There are only terrible alternatives at this point, thanks to the fecklessness of the Greek government and, far more important, the utterly irresponsible campaign of financial intimidation waged by Germany and its allies. And I guess I have to say it: unless Merkel miraculously finds a way to offer a much less destructive plan than anything we’re hearing, Grexit, terrifying as it is, would be better.

Are we Sure that Tsipras Caved In? -  Germany did not speak yet, and until then nothing is certain. But it looks like the new Tsipras proposal may turn into an agreement between Greece and its creditors. .. At first sight, this does not look good for Tsipras..., in fact the new package is even more “austerian” than the Juncker plan, as it contains deficit reduction for 12 billions instead of 8. This said, if Tsipras manages to link the package to the obtention of a new loan (plus unblocking of structural funds) for a duration of three years, he will have obtained what he has been asking so far in vain, and what had been refused to Papandreou in 2011: Time and money. ... In this light the referendum was very important. By asking the Greek people the mandate to negotiate while remaining in the euro, he succeeded in throwing the ball in the creditors camp. Those speaking of betrayal of the people’s will probably did not pay attention to the Greek debate in the week of July 5th. This is why Syriza keeps climbing in the polls, by the way. Tsipras had to pay the price of a stricter austerity than he would have wished for. But he gains breathing space, which is orders of magnitude more valuable. No surprise that Germany is hesitant. If a deal is not reached, as of now, it will be clear to all who will have kicked Greece out.

“Greece Brought a Latte to a Gunfight”  --The weekend’s European news could not be more extraordinary. A superb opinion piece by Yanis Varafoukas in The Guardian brought everything to a head: …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. …Greeks, rightly, shiver at the thought of amputation from monetary union…To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available. …After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone. This is a truly bizarre confession. Yanis can see with razor sharp clarity the economics and politics at play. But at the same time he sees them as somehow new, as if Schäuble and German position has “suddenly” altered in some way in recent days. This is plain wrong, as MB’s own Delusional Economics pointed out five months ago when Yanis was first elected, he displayed an impressive grasp of economics and political naivete in equal measure.

Tsipras' Choice: Capitulation or Grexit; Text of 4-Page Eurozone Demands -- We finally have "THE Final Offer" (I think). The Financial Times has the Four-Page Text of the Eurozone Demands on Greece. The document is in a form that cannot easily be copied. I retype and shorten the ideas below. Greece has Three Days to "Rebuild Trust" and Do the Following

  • Streamline VAT and broaden tax base to increase revenue.
  • Upfront comprehensive pension reform
  • Adopt Civil Procedure Code with major overhaul of civil justice system
  • Safeguard full legal independence of ELSTAT
  • Fully implement Treaty on Stability, make Fiscal Council operational before finalizing Memorandum of Understanding (MoU)
  • Introduce quasi-automatic spending cuts in case of deviation from targets after seeking advice from Fiscal Council and subject to the approval of the institutions
  • Transpose the BRRD within a week with support from European Commission
  • Carry out ambiotious reforms to fully compensate for the fiscal impact of the Constitutional Court ruling on 2012 pension clause
  • Implement a zero deficit clause or mutually agreeable measures by October 2015
  • Adopt more ambitious market reforms with a clear timetable for implementation ofall OECD toolkit recommendations including Sunday trade, sales periods, pharmacy ownership, milk, bakeries, ferries, etc., etc.
  • Privatize electricity network
  • Undertake rigorous reviews of collective bargaining, industrial action, and collective dismissals
  • Modernize framework for collective dismissals
  • Strengthen financial sector including decisive action on non-performing loans
  • Eliminate political interference in appointment process and governance of HFSF

Grexit: An Indecent Proposal From Germany - On Saturday evening, however, a remarkable document emerged that went a long way toward confirming Varoufakis’s claim. It was a one-page briefing paper from the German finance ministry, entitled “Comments on the latest Greek proposals.”  As its title indicated, it represented its anonymous author’s view of the Greek government’s most recent offer, which, on the face of things at least, accepted most of the creditors’ demands, including a continuation of austerity policies that have helped bring about a historic economic collapse inside the country. When the Greek offer was delivered, on Thursday night, many commentators portrayed it as a forced surrender. Yet the offer apparently still wasn’t enough for the German finance ministry. “These proposals lack a number of paramount important reform areas to modernize the country, to foster long term economic growth and development,” the leaked document said. “Among these, labour market reform, reform of public sector, privatisations, banking sector, structural reforms are not sufficient. This is why these proposals can not build the basis for a completely new, three year ESM [bailout] program, as requested by Greece. We need a better, a sustainable solution.” And what might that solution be? The document suggested two options. Under the first of them, the Greek government would “improve their proposals rapidly and significantly,” and obtain another vote of approval from the Greek parliament. The “improvements” would include not just agreeing to more reforms, but the imposition of automatic spending cuts if Athens failed to hit the budget targets it had agreed to, and the “transfer of valuable Greek assets of [50 bn] Euros to an external fund like the Institution for Growth in Luxembourg, to be privatized over time and decrease debt.” No, that wasn’t a misprint, or a bit of mischief on my part. The document proposed that Greece, in addition to accepting a new set of demands from its creditors, hand over some unidentified national assets—airports? ports? the Parthenon?—to a foreign agency, which would auction them off to the highest bidder.

Killing the European Project - Paul Krugman -- Suppose you consider Tsipras an incompetent twerp. Suppose you dearly want to see Syriza out of power. Suppose, even, that you welcome the prospect of pushing those annoying Greeks out of the euro.  Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.  Can anything pull Europe back from the brink? Word is that Mario Draghi is trying to reintroduce some sanity, that Hollande is finally showing a bit of the pushback against German morality-play economics that he so signally failed to supply in the past. But much of the damage has already been done. Who will ever trust Germany’s good intentions after this? In a way, the economics have almost become secondary. But still, let’s be clear: what we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity. It’s as true as ever that imposing harsh austerity without debt relief is a doomed policy no matter how willing the country is to accept suffering. And this in turn means that even a complete Greek capitulation would be a dead end. Can Greece pull off a successful exit? Will Germany try to block a recovery? (Sorry, but that’s the kind of thing we must now ask.) The European project — a project I have always praised and supported — has just been dealt a terrible, perhaps fatal blow. And whatever you think of Syriza, or Greece, it wasn’t the Greeks who did it.

Possible scenarios for Greece - It’s very clear that two things have to happen from here. First, Greece needs relief from its mountain of debt, and second, the country needs to find a way to become more competitive economically. The traditional way these goals would be achieved is first, creditors would accept substantial haircuts and restructuring of the outstanding debt, and second, a big currency depreciation would give Greek exports a competitive international advantage to get the economy growing again without new borrowing. The main complication preventing these steps in the current situation is Greece’s participation in the euro system. On the first issue, this meant that European governments, banks and the ECB extended substantial loans on the (mis)understanding that Greece’s membership in the European union meant default was impossible. On the second issue, devaluation would seem not to be an option because Greece does not have control over the value of its currency. But the reality that everyone needs to recognize is that, one way or another, both changes are eventually going to happen. It’s just a question of when and how. That Greece’s creditors are going to have to accept substantial restructuring of the sums they receive is simply an unavoidable consequence of the fact that, through a combination of a lack of tangible economic resources and the reality of Greek politics, Greece isn’t able to make the annual interest payments on its current load of debt. This reality has been quite evident for some time, though up to now Europe kept valiantly kicking this can down the road.

Why NATO Fears 'Grexit' -- With Greece tottering on the brink of leaving the Eurozone, experts of all stripes have been debating Grexit's security implications, including Athens' relationship with NATO. While naysayers argue that the geopolitics behind Grexit "are actually pretty boring," others warn that the implications for the bloc could be far more serious. Over the past couple of weeks, US and European media have been busy pondering the implications of the Grexit for European security, particularly as it relates to the NATO alliance. Following an initial outburst of panic and alarm about NATO standing to lose its Mediterranean outpost to Moscow before being flooded by immigrants, NATO Secretary General Jeans Stoltenberg urged for calm, noting that the Greeks "have not linked the problems within the European Union and the euro with their strong commitment to NATO," and adding that Athens will remain "a close partner." Influential US news and geopolitical analysis publication Foreign Policy echoed Stoltenberg's tone, brushing off security fears with a recent headline reading "The Geopolitics of a Grexit Are Actually Pretty Boring." The piece, written by former European Council on Foreign Relations Senior Policy Fellow Dimitar Bechev, argues that "those fretting that a Greek departure from the Eurozone will unleash a flood of migrants and send Athens into the arms of a waiting Putin should calm down," noting that "none of this is going to happen."Bechev states out that the "alarmist" arguments over Greece have turned the country, a "peripheral member of the West that accounts for a mere 3 percent of the eurozone's GDP, into a pivotal country." Moreover, dismissing arguments about the country's 'dangerous' "flirtation with Russia," Bechev posits that in actuality, the "Russian gambit," aimed at providing the Syriza-led coalition with "some space to maneuver" in relation to Brussels and Berlin, has "failed to pay off."

Roach Motel Economics - Paul Krugman --So we have learned that the euro is a Roach Motel — once you go in, you can never get out. And once inside you are at the mercy of those who can pull your financing and crash your banking system unless you toe the line. I and many others have had a lot to say about the politics of this reality. But let me say a word about the economic implications for the euro area as a whole — which are basically that Europe has created a system that treats surplus and deficit countries asymmetrically, even more than the classical gold standard, and leads to a severe deflationary bias.This is true both for fiscal issues and for balance of payments issues. Debtors are forced into draconian austerity, while creditors face no pressure to reflate; economic crisis, which should be met with expansionary policy, instead leads to contraction because of this asymmetry. Meanwhile, countries that find themselves overvalued are forced to deflate in an effort to regain competitiveness, while undervalued counties face no pressure to help out with a higher inflation rate — so at times of major misalignment, when moderate inflation can help, the overall effect is declining inflation and maybe even deflation.  And we’re talking about huge costs here. Look at the crude Phillips curve I estimated for Greece a few days back, shown in the chart.

Tentative Deal Strips Greece of Sovereignty, Makes Debt Relief Dependent on Compliance  --Yves Smith - The cost of Greece avoiding a Grexit is submitting to becoming an economic serf of the Eurozone, subject to even more draconian austerity than was ever on the table before. I’ve embedded the statement that sets forth the deal that was tentatively agreed today. The Greek government still has to pass four bills by the 15th and another two by the 22nd to comply. It’s not clear that that will take place. This deal is simply vicious. This is far and away the most one-sided agreement I’ve ever seen, by an insanely large margin. Even the language is shamelessly punitive. For instance, the document repeatedly mentions that all the previous terms under consideration will need to be made vastly more stringent in light of the deterioration of the economy and how the Greek government needs to prostrate itself to gain the trust of the creditors. As puts it As the dust settles this morning on the Greek bailout crisis, it is increasingly clear we are witnessing one of the most daring raids on national democracy in post-war political history. If this new plan passes the Greek parliament, Greece can no longer be said to be a genuinely sovereign state. Brussels and Berlin are taking over Athens. Even one of Alexis Tsipras’ minor victories – that a £50 billion privatisation fund would be based in Athens, not Luxembourg – was entirely superficial. As Angela Merkel insisted this morning, it would not be under Greek control. The fact that Greece is even considering it means that they recognize what we have argued: that a Grexit would be such a cataclysm that even this dreadful deal would be considerably less costly to Greece and its citizens. But this is like asking someone to choose between cutting off an arm versus cutting off both legs.. According to the Financial Times: Under the planned deal, the stricken Greek economy would receive its third rescue in five years, a three-year programme, funded mainly by the ESM (European stability mechanism) , the eurozone rescue fund, and by the International Monetary Fund. Mr Tsipras has promised to pass tough new reform laws, including on tax and pensions, by Wednesday and prepare further rapid reforms, such as labour market liberalisation, opening up closed professions, deregulating Sunday trading and reinforcing the financial sector. In a particularly humbling move, the government has to reverse some of the extra spending measures it introduced earlier this year, when it trumpeted its ambitions to end five years of EU-imposed austerity.

Greek Pudding -- Kunstler -- The proof of the pudding is in the eating, the old saw goes. This one, alas, is a mélange of several old shit sandwiches bound in liaison of subterfuge and seasoned with political absurdities. Having been fooled in this bistro before, citizen-patrons leave the table resigned to yet another bout of food poisoning as the music of universal upchuck rings across the European Union from Helsinki to Lisbon. What is on display more brightly and clearly than ever, though, is the utter fakery of international banking. The players have lost faith in their own shenanigans. They simply go through the motions now awaiting the political fallout, which is to say the revolt of the people who can still do arithmetic. So, now Greece can supposedly expect another $90-equivalent in new loans on top of the $350-equivalent already racked up. That’s rich. The loan repayment schedule must look like a map of Middle Earth.  Most perplexing is the fact that the rescue package will take weeks, perhaps months, to gin up while Greece is right now so utterly paralyzed in bankruptcy that no goods can move, no bills can be paid, and the economy cannot deliver the necessities of daily life. The old refrain, “your check is in the mail” may not be so reassuring to folks who haven’t eaten for three days. Personally, I would expect the gasoline bombs to be flying around Syntagma Square before the middle of the week. Has anyone noticed the eerie paucity of news emanating from the other hard-luck nations of the EU, namely Spain, Portugal, Italy, and Ireland? The money hole that these deadbeats are in makes Greece look like a dimple in the sand. What, I wonder, is the message to them from the Greek negotiation melodrama? (Lend more money to real estate developers to build more houses and condos that will never be sold? That’ll work!) No, the entire EU debt fiasco harks back to the original meaning of “ring around the rosie” — a theme song of the Black Death. The eventual implosion of the European Union, and the banking system hugging its face vampire squid style, will be the financial equivalent of the Black Death. Kingdoms will fall and social systems will be turned upside down.

Greek crisis: surrender fiscal sovereignty in return for bailout, Merkel tells Tsipras -- European leaders have confronted the Greek government with a draconian package of austerity measures entailing a surrender of fiscal sovereignty as the price of avoiding financial collapse and being ejected from the single currency bloc.  A weekend of high tension that threatened to break Europe in two climaxed on Sunday night at a summit of eurozone leaders in Brussels where the German chancellor, Angela Merkel, and President François Hollande of France presented Greece’s radical prime minister, Alexis Tsipras, with an ultimatum.  In what a senior EU official described as an “exercise in extensive mental waterboarding” to secure Greek acquiescence to talks on a third bailout in five years worth up to €86bn (£62bn), the two leaders pressed for absolute certainty from Tsipras that he would honour what was on offer. Two days of high-stakes negotiations between the finance ministers of the currency bloc resulted in a four-page document that included controversial German elements leaked on Saturday. Those measures included Greece leaving the euro temporarily by taking a “time-out” from the currency bloc if it refuses terms for talks on the new bailout or, in the event of agreement, that Greece sets aside €50bn worth of assets as collateral for new loans and for eventual privatisation. Both passages, however, did not enjoy a consensus among eurozone leaders. Under the terms set before Tsipras on Sunday night, the Greek parliament has to endorse the entire package on Monday and then pass several pieces of legislation by Wednesday, including on pensions reform and a new VAT regime, before the eurozone will agree to negotiate a new three-year rescue package.

EU Demands Complete Capitulation From Tsipras - European leaders gave Greek Prime Minister Alexis Tsipras a straightforward choice: ditch his principles or quit the euro. Tsipras was presented with a laundry list of unfinished business from Greece’s previous bailouts at an emergency summit that stretched in its 14th hour by 5:59 a.m. Monday in Brussels. Euro-area chiefs gave Tsipras three days to enact their main demands to keep alive chances of adding bailout funds of as much as 86 billion euros ($96 billion) to earlier commitments of 240 billion euros. With Greece running out of money and its banks shut the past two weeks, the gathering was billed as the country’s last chance to stay in the euro. Tsipras, who says he wants to keep Greece in the currency union, has been in financial limbo since his government missed a payment to the International Monetary Fund and allowed its second rescue package to lapse on June 30. “The situation is extremely difficult if you consider the economic situation in Greece and the worsening in the last few months, but what has been lost also in terms of trust and reliability,” German Chancellor Angela Merkel told reporters. The summit and the finance ministers’ meeting that preceded it featured skirmishes pitting hardliners led by Germany against others. French President Francois Hollande rejected the notion of suspending Greece from the currency. Earlier, German Finance Minister Wolfgang Schaeuble snapped at European Central Bank President Mario Draghi. An official in Brussels said the document was very bad for Tsipras and the Greek people. “They want to wreck us,” Defense Minister Panos Kammenos posted on Twitter. “Enough is enough.” “This Eurogroup list of demands is madness,” Nobel laureate Paul Krugman wrote on his blog. “It’s a grotesque betrayal of everything the European project was supposed to stand for.”

Eurozone leaders reach deal on Greece - Greece caved in to an ultimatum from Germany and its other creditors and agreed to rush through long-resisted economic reforms in just three days in a desperate attempt to secure a €82bn-€86bn rescue and stay in the eurozone. Worn down by a 17-hour eurozone leaders’ summit that capped a weekend of talks, Greek premier Alexis Tsipras yielded on Monday to the most intrusive economic supervision programme ever mounted in the EU. He agreed to sequestrate €50bn of Greek assets — for privatisation, bank recapitalisation and debt repayment — and put them into a special Athens-based fund. He also swallowed his pride and accepted plans for a high level of domestic economic supervision by the bailout monitors, including the IMF, and a public administration overhaul overseen by the European Commission. Mr Tsipras must implement the list of economic pledges by Wednesday as a precondition for a possible start to formal negotiations this week on a financing package to stave off the bankruptcy of the fast-deteriorating economy. But by midday on Monday the deal was already running into resistance from leftwingers in Mr Tsipras’ Syriza party. Panos Skourletis, labour minister, told Greek television that Mr Tsipras’s parliamentary majority was in danger. “Right now there is an issue of a governmental majority. I cannot easily blame anyone who cannot say ‘yes’ to this deal.”

Eurozone Leaders Reach Unanimous Agreement on Greece - WSJ: Eurozone leaders said they would give Greece up to €86 billion ($96 billion) in fresh bailout loans as long as the government of Prime Minister Alexis Tsipras manages to implement a round of punishing austerity measures in the coming days. The rescue deal—hammered out after 22 hours of at times acrimonious negotiations between the currency union’s leaders and finance ministers—requires the Greek left-wing government’s near-total surrender to its creditors’ demands. But it gives the country at least a fighting chance to hold on to the euro as its currency. “The deal is hard,” Mr. Tsipras said after the summit, warning that the measures required by creditors will send the country’s economy further into recession.European stocks rallied Monday on the news. The Stoxx Europe 600 rose 1.7% early in the afternoon, building on Friday’s hefty gains. By Wednesday, Athens’s parliament has to pass pension overhauls and sales tax increases that voters overwhelmingly rejected in a referendum just one week ago. Greece now has to implement European Union rules that make it easier to wind down broken banks, including by sharing the cost with investors and creditors. “Trust needs to be restored,” German Chancellor Angela Merkel said at a news conference. “The agreement was laborious. It took time but it was done,” said Jean-Claude Juncker, the president of the European Commission.

No debt forgiveness in the Greek deal, as austerians announce Phyrrhic victory - There’s still much to learn about re the (heart-) breaking news re what looks like a terribly harsh and austere deal to keep Greece in the eurozone, but this ‘graf from the NYT story is, if not unexpected, really unfortunate: But any easing of Greece’s debt repayment obligations would not include something Greece had previously made a condition of any deal: a so-­called haircut, or reduction of the overall debt, which is more than €300 billion. The document issued on Monday made its resistance to that demand clear in one sentence: “The Euro Summit stresses that nominal haircuts on the debt cannot be overtaken.’’ For those who don’t read German, that’s saying screw the evidence, including recent research from one of the three main creditors–the IMF–that some amount of debt forgiveness must be an essential part of any plan to keep Greece in the zone. Otherwise, their ability to begin to grow their way out of this mess will be severely hamstrung. Though I’m well-versed in the rath of the creditors, well aware that they’ve tossed balanced economics out the window months ago, this development and path to a possible compromise gave me an inkling of hope.Silly me. Because of such short-sightedness, this isn’t over. The arithmetic does not become any less forgiving just because creditors ignore it. Until Greek insolvency and the counterproductivity of such deep austerity is recognized, this drama will continue to haunt us.

Greece's Tsipras faces storm at home over debt talks -- Whatever the outcome of wrangling in Brussels over its debt problems, Greece may be heading for further political turmoil as defections by left-wingers weaken Prime Minister Alexis Tsipras's grip on government. Out of 149 lawmakers in his radical-left SYRIZA party, 17 refused to support him in Saturday's vote which authorized the government to reopen negotiations for a bailout in exchange for austerity measures. The revolt meant Tsipras could not count on his majority in the 300-seat assembly. He got the votes he needed with the backing of the right-wing opposition and a coalition that included Socialist and other left-wing legislators. Since the vote Greece has plunged back into tense talks with the 18 other members of the eurozone over a potential bailout to keep the heavily-indebted nation in the euro. But any deal will inevitably come tied to tough conditions, demanded especially by northern European countries. It will require the approval of the Greek parliament – and Tsipras will again not likely be able to rely on the support of a portion of his party. Fifteen SYRIZA MPs who had backed Tsipras on Saturday sent a letter to the premier saying he should not count on them to approve any future reforms demanded by Greece's creditors.

What Assets Did Greece Just Hand Over To Europe: "Airports, Airplanes, Infrastructure And Most Certainly Banks" -  With the provocative and dramatic Greek "time out" language pulled from the final finmin and summit draft language, the two most humiliating aspects of the latest extend and pretend"deal" for the Greek people will be the return of the Troika's (surely we can call it the Troika again as part of the Greek capitulation) IMF mission to Athens, and the escrowing of some €50 billion in  Greek assets in a liquidation fund. Granted said fund will not be domiciled in Luxembourg as was originally envisioned, but Europe will still have control and first refusal rights over what are technically Greek properties, in the process Athens handing over about 25% of Greek GDP (and sovereignty) over the Brussels. What are these assets? For the answer we go to the horse's mouth, Jeroen Dijsselbloem, who laid out the holdings of the proposed Greek privatization that would be sold off as follows: "it still is going to be an independent fund, valued at €50 billion which can be airplanes, airports, infrastructure and most certainly banks.” Bloomberg quotes the Eurogroup finmin president: They will be brought in with the target to privatize those in the coming years, but we will take our time for that. We then hope for proceeds of EU50 billion, but that will be clear later. The banks first have to be refinanced from this aid program, but after that I take it that they’re worth money and then we can sell them. The proceedings are aimed at lowering Greece’s national debt.

Munchau: "The Eurozone As We Know It Is Destroyed" --Despite the euphoria in global equity markets, The FT's Wolfgang Munchau - once one of the keenest euro enthusiasts - warns regime change is coming in Europe. The actions of the creditors has "destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union," Munchau exclaims, fearing they have "demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order." He concludes rather ominously, "we will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable." As The FT reports, the best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change...In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.But it was not just the brutality that stood out, nor even the total capitulation of Greece. The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: regime change in the eurozone.The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident — and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems.

"I'm Not Stupid" - Who Has The Last Laugh Caption Contest -- According to eyewitness accounts, the atmosphere at the marathon Greek bailout discussions in Brussels over the weekend began to resemble a "crazy kindergarten" on Saturday evening when the incorrigible German FinMin clashed with ECB chief Mario Draghi. Any eurocrat who dared to suggest leniency for the Greeks incurred the terrible wrath of "The Schaueble" that night and indeed by the time the Eurosummit concluded on Monday morning, Germany got its way and no matter how "strong" Draghi might have appeared to the EU officials present in Brussels, the last laugh ultimately belongs to the German finance ministry.For those who missed it, here are the details from Reuters followed by an image which we'll leave it to readers to caption. Schaeuble also crossed swords with ECB governor Mario Draghi, snapping at the Italian central banker "I'm not stupid!""It was crazy, a kindergarten," said a source describing the overall course of nine hours of talks on Saturday among weary ministers attending their sixth emergency Eurogroup in three weeks. "Bad emotions have completely taken over."Schaeuble and others seemed to favour a "Grexit", another participant said. The European Central Bank's Draghi seemed "the strongest European" in the room, most opposed to the risky experiment of cutting Greece loose and braving Schaeuble's ire by interrupting him during a discussion on Athens' debt burden.

Impending disaster in Greece -- Paul Krugman analyzes the debacle in Greece. Although Greeks voted barely a week ago to reject the bailout terms offered by the EU, which called for uninterrupted austerity, Prime Minister Alexis Tsipras proposed to the EU to accept almost all of the terms if there was some true financial relief. Instead, what the European Union, spurred by Germany, proposed today demanded all of the pain, and none of the gain that Tsipras sought. Indeed, Germany has essentially demanded regime change in Greece, even though Tsipras only came to office in January. As Krugman says, “It is, presumably, meant to be an offer Greece can’t accept.”  The Germans, it would appear, have decided to push Greece from the eurozone. But demanding an end to Greek sovereignty and austerity as far as the eye can see is simply evil. Moreover, it negates the long-successful stand of European Central Bank (ECB) president Mario Draghi that the ECB would do “whatever it takes” to keep the eurozone intact. The ECB’s reputation would be damaged greatly should crisis recur in Spain, Portugal, Ireland, etc., now that the world knows the ECB will not do “whatever it takes.” This is a recipe for a new recession in Europe spreading from the EU periphery.  The German demands are particularly “grotesque,” as Krugman says, when you consider that Greece has already endured 25+% unemployment for three years (see chart). This is an unemployment rate that the United States never saw even at the height of the Great Depression in 1933, when it peaked at 24.9%. However, I believe Krugman’s argument actually overlooks an important point. His point is that eurozone membership has removed Greece’s ability to exercise monetary policy autonomy and respond to its specific conditions, including via currency devaluation. Indeed, there can be no doubt that monetary union was flawed from the start. But Krugman overestimates the ability of devaluation to fix an economic crisis. At the same time, he underestimates the ability of creditors to destroy a government whose economic policies they disapprove of.

Deal on Greek Debt Crisis Exposes Europe’s Deepening Fissures -  Chancellor Angela Merkel of Germany said about Greece on Sunday that “the most important currency has been lost: that is trust and reliability.” But many Germans think the most important currency that has been lost is the deutsche mark, the symbol of rectitude and confidence that embodied West Germany’s ascent from the ashes of World War II. That same sense of solidity is badly lacking in the European Union as it confronts the limits of its ambitions, and Monday morning’s painful deal on Greece seems unlikely to restore it. The latest effort to preserve Greek membership in the eurozone has only deepened the fissures within the European Union between north and south, between advanced economies and developing ones, between large countries and smaller ones, between lenders and debtors, and, just as important, between those 19 countries within the eurozone and the nine European Union nations outside it. In the name of preserving the “European project” and European “solidarity,” the ultimatum put to Greece required something close to the surrender of the nation’s sovereignty. For all of Greece’s past sins, and for all of the gamesmanship and harsh talk of the governing Syriza party, this outcome arguably had elements of punishment as well as fiscal responsibility.Photo Chancellor Angela Merkel of Germany conferred with Prime Minister Alexis Tsipras of Greece, right, and President Francois Hollande of France in Brussels on Sunday. Credit John Macdougall/Agence France-Presse — Getty Images Whether this is good or bad for Greece, in the end, the Greeks will decide. But it averted an outcome that could have left Europe even more badly fractured. And it highlighted the willingness of some leaders to make a compelling case for unity over narrow national interest, especially President François Hollande of France, who played an important role in mediating between Germany and Greece.

NEP’s Pavlina Tchernerva on RT discussing Greece -- Pavlina appears on RT’s Boom Bust segment discussing Greece and austerity. She appears starting at 18 minutes.

It Starts: Greeks Rebel Against Bailout, Risk Collapse | Wolf Street: Greece’s union of civil servants, Adedly, called for a 24-hour strike on Wednesday, and for a series of demonstrations, the first one tonight at Syntagma Square, just below the Parliament, and another one on Wednesday evening, when Parliament is expected to vote on the new, even tougher, and immensely hated bailout package. The union for local government employees, Poe-Ota, also called for a 24-hour strike on Wednesday, the AFP reported. Two other demonstrations against austerity and the “euro” are planned for Monday night, one organized via social networks, the other by Antarsya, an anti-euro party that didn’t make it into Parliament. It would be the first strike against the leftwing Syriza coalition since it came to power six months ago. An ironic plot twist in this tragedy. Syriza was the big force in the demonstrations against the two prior bailout packages, totaling over €240 billion from taxpayers in other countries, conditioned on economic reforms pushed through Parliament by the conservative governments at the time. Now Syriza is looking at having to pass even tougher measures, including an increase in the Value Added Tax and pension reform, in return for only €86 billion in new money from taxpayers in other countries. Syriza’s junior coalition partner, the Independent Greeks, is already getting cold feet.

Greeks Rebel Against Bailout, Risk Collapse - Yves Smith -  One of the biggest threats to the punitive proposed deal with Greece getting done, ironically, is democratic procedures. Even though there are widespread reports that Tsipras will be able to muster the votes via effectively forming a new coalition (something he started working on the morning after the referendum), he also needs to pass the legislation on an expedited basis to meet the creditor’s June 15 deadline for the first four legislative commitments. From the New York Times: But with many other parties willing to vote for the package, his most pressing problem was more likely the speaker of Parliament, Zoi Konstantopoulou, also a member of Mr. Tsipras’s Syriza party, who objected to Mr. Tsipras’s attempts to pass narrower proposals last Friday. Some analysts said that Ms. Konstantopoulou, a stickler for rules, could prevent him from using the fast-track procedures that would be necessary to get the job done in time to satisfy European leaders. Portions of the plan must be passed by Wednesday, and more a week from Wednesday. We pointed out that the left wing of Syriza constrained Tsipras in dealing with the Troika. We suspected his pattern of making commitments to Eurocrats and then partially or fully repudiating them when he got back to Athens was due to being disciplined by internal dissenters. They may still have the power to derail a deal. How can what amounts to a puppet government have any authority? As Clive Crook points out at Bloomberg: The first paragraph of the summit declaration says: The Euro Summit stresses the crucial need to rebuild trust with the Greek authorities as a prerequisite for a possible future agreement on a new ESM program. In this context, the ownership by the Greek authorities is key, and successful implementation should follow policy commitments.  One doesn’t know whether to laugh or cry at the idea that Greece owns this program. Yet the statement is right to say that ownership is crucial. Greek national pride will be bound up with recoiling at these constraints and releasing them. If the Greek parliament, lacking better alternatives, passes the laws demanded of it this week, there’s little reason to suppose that future governments — which will doubtless appear sooner rather than later — will feel bound by them.

Premier of Greece, Alexis Tsipras, Accepts Creditors’ Austerity Deal - Forced by his nation’s creditors into broad new concessions to avert financial collapse, Prime Minister Alexis Tsipras of Greece returned home on Monday with just days to sell the deal to fractured lawmakers and a dazed electorate.The agreement he struck with other European leaders early Monday after a contentious all-night bargaining session would give Greece the chance to receive its third international bailout in five years, a package of as much as 86 billion euros, or $96 billion, as well as easier repayment terms on some of its existing debt of more than €300 billion and a short-term economic stimulus plan.But it would require Greece to swallow a wide array of measures, including pension cuts and tax increases, and effectively subject itself to intensive international oversight in order to qualify for the aid.The agreement gave Mr. Tsipras only through Wednesday to win legislative approval for central elements of the agreement, most of which he and his left-wing Syriza party had adamantly opposed for months. And he flew back from Brussels into a political landscape in upheaval, with portions of his party in revolt, his coalition partner rejecting the deal and his own role in the long-running drama completely changed. He also returned to ordinary citizens who fear sweeping economic changes that would upend traditions and long-established ways of life. In signing on to the deal, however reluctantly, Mr. Tsipras suddenly found himself the champion of policies he was elected to oppose and the best hope for de-escalating a crisis he had helped create. Should he succeed in carrying out the policies set out in the agreement, he would oversee just the kind of market-based changes that creditors have been demanding and successive Greek governments have been failing to deliver for years.

The Greek bailout deal resolves nothing - Before the bailout deal was struck, the Greek impasse had descended into point-scoring and finger-pointing, with creditors blaming Greece for the country’s economic woes, and Greeks – and the centre-left in other countries – blaming the creditors for insisting on more austerity and trying to humiliate the country. Now that a deal has been struck, the argument will shift onto whether Alexis Tsipras, with his confrontational bargaining strategy, has won anything that a more emollient government would not. Tspiras and his supporters claim that debt relief and a long-term programme of fresh lending would not have been on the table without playing hardball. But the truth is that Greece capitulated on Monday July 13th, not the creditors, and this has important ramifications for the bailout’s success. Germany’s strategy is clear: impose harsh conditions on any government that seeks to change the austere rules of the game, knowing that electorates in Greece and elsewhere are terrified of the leap into the unknown that would be exit from the euro. Germany’s finance minister, Wolfgang Schäuble, demanded that Greece temporarily leave the eurozone, a move which would almost certainly have become permanent, and which would have resulted in severe short-term economic disruption. Germany later demanded European control over privatisations, whose assets would be put into an escrow account in Luxembourg, so that their contribution to paying back any bailout would be supervised by creditors. Neither of these two demands were met,  but they were intended to act as tough opening offers that would be jettisoned when Greece capitulated on all other fronts. The new bailout will consist of €82-86 billion of loans in exchange for Greece moving towards a primary budget surplus (a surplus before debt service is deducted) of 1 per cent this year, rising to 3.5 per cent by 2018. VAT increases and pensions cuts must start immediately, and the legislative process to pass a raft of other structural reforms must begin this week, under the close watch of creditor officials. Privatised assets will remain in Greece, with the Greek government nominally in control, but their sale will be managed by creditors’ officials.

Greece is being treated like a hostile occupied state - Like the Neapolitan Bourbons – benign by comparison – the leaders of the eurozone have learned nothing, and forgotten nothing. The cruel capitulation forced upon Greece after 31 hours on the diplomatic rack offers no conceivable way out the country’s perpetual crisis. The terms are harsher by a full order of magnitude than those rejected by Greek voters in a landslide referendum a week ago, and therefore can never command democratic assent. They must be carried through by a Greek parliament still dominated by MPs from Left and Right who loathe every line of the summit statement, the infamous SN 4070/15, and have only agreed – if they have agreed – with a knife to their throats. EMU inspectors can veto legislation. The emasculation of the Greek parliament has been slipped into the text. All that is missing is a unit of EMU gendarmes. Such terms are unenforceable. The creditors have sought to nail down the new memorandum by transferring €50bn of Greek assets to “an independent fund that will monetise the assets through privatisations and other means”. It will be used in part to pay off debts. This fund will be under EU "supervision". The cosmetic niceties of sovereignty will be preserved by letting the Greek authorities manage its day to day affairs. Nobody is fooled.  In other words, they are seizing Greece’s few remaining jewels at source. This is not really different from the International Committee for Greek Debt Management in 1898 imposed on Greece after the country went bankrupt following a disastrous Balkan war.

Schaeuble's Modest Proposal For Greek Bridge Loan: Pay Salaries In IOUs -- While Greek PM Alexis Tsipras is busy figuring out how best to go about pushing the "deal" he reached on Monday morning in Brussels through parliament, EU finance ministers are scrambling to put together billions in bridge financing that will hold Athens over until the activation of the ESM program which is likely at least four months away. Greece needs between €7 and €12 billion in the interim according to most estimates, and faces a critical payment to the ECB on July 20 - with Greek banks dependent solely on ECB liquidity, missing this payment isn’t an option.   Of course any "payments" made by Greece to external creditors (i.e. to anyone other than former or current Greek public sector employees) will only be possible by way of circular funding schemes much like the SDR reserve raid that allowed Greece to pay the IMF with its own money in May.

Complete Humiliation: Greek Parliament Pressed To "Approve" German "Coup" -- Months ago we said the following about the future of Greek politics: It is becoming increasingly clear that the Syriza show will ultimately have to be canceled in Greece (or at least recast) if the country intends to find a long-term solution that allows for stable relations with European creditors althoughit may be time for Greeks to ask themselves if binding their fate to Europe is in their best interests given that some EU officials seem to be perfectly fine with inflicting untold economic pain upon everyday Greeks if it means usurping the 'radical leftists.' At the risk of overstating the case, that assessment has now proven to be almost entirely accurate.  Greeks did indeed ask themselves if they wished to bind their fate to European "partners" who seem bent on punishing the country for its decision at the ballot box in January and nearly two-thirds of Greeks said the terms of continued EMU membership as presented by creditors were unacceptable.  Despite that clear mandate, PM Alexis Tsipras declined what some (The Telegraph’s Abrose Evans-Pritchard for one) have suggested was a better option in German FinMin Wolfgang Schaeuble’s 5-year, Brussels managed, “time-out”, in favor of a deal so bad that it might have only been proposed because no one thought he would accept it.

Greece’s Alexis Tsipras faces Syriza rebellion over ‘humiliation’ - Alexis Tsipras, Greek prime minister, on Tuesday will seek to shore up support within his own government after he accepted the most intrusive programme ever mounted by the EU as the price for a new €86bn bailout to keep Greece in the eurozone. Mr Tsipras looks set to be forced to rely on opposition support to pass a swath of economic reform measures by Wednesday’s EU-imposed deadline or face the country’s bankruptcy, as a growing number of far-left MPs voiced opposition to the deal. The ruling Syriza party’s extremist Left Platform called it a “humiliation of Greece”. The leader of the Independent Greeks, the rightwing coalition partner, also said that his party could not agree to the accord, calling it a “coup by Germany” and its hardline eurozone allies, the Netherlands and Finland. Marina Chrysoveloni, the Independent Greeks spokeswoman, said on state TV on Tuesday there were “limits” to the party’s support for the government “that are shaped by the mandate of the Greek people, both in January’s elections and in the referendum”. Greece passed a test for global investors on Tuesday when it repaid a 20-year samurai bond, with the outstanding Y11.7bn ($94.5m) payment on the yen-denominated note being made in Tokyo. The hard-fought agreement between Athens and its eurozone partners eased the greatest crisis facing the EU and its eurozone core, fending off, at least for now, Greece’s exit from the single currency and the instability that could follow. But the deal was only reached after a fraught 17-hour summit of eurozone leaders that pitched Mr Tsipras against Angela Merkel, German chancellor. Officials said that “Grexit” appeared imminent at about 6am on Monday, when both prepared to walk away from talks, convinced that no deal was possible. Instead, the two agreed to terms that a diplomat from one Germany-allied country described as akin to turning Greece into an economic protectorate, including a plan to place the country’s most valuable publicly owned assets into a €50bn privatisation fund supervised by EU authorities.

IMF calls for Greece debt relief as Germany talks tough | Reuters: A secret International Monetary Fund study showed Greece needs far more debt relief than European governments have been willing to contemplate so far, as Germany heaped pressure on Athens on Tuesday to reform and win back its partners' trust. The IMF's stark warning on Athens' debt was leaked as Greek Prime Minister Alexis Tsipras struggled to persuade deeply unhappy leftist lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a new bailout. The study, seen by Reuters, said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Or else they must make annual transfers to the Greek budget or accept "deep upfront haircuts" on existing loans. The Debt Sustainability Analysis is likely to sharpen fierce debate in Germany about whether to lend Greece yet more money. German Finance Minister Wolfgang Schaeuble made clear in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the euro zone temporarily rather than take another bailout.

BOE Governor Carney Says Greece Needs Debt Relief - Bank of England Gov. Mark Carney said Tuesday that Greece needs debt relief, adding to international voices calling for the stricken nation’s debt load to be reduced. “There will need to be debt relief, in our view,” Mr. Carney told lawmakers. Mr. Carney’s remarks chime with the latest assessment of the International Monetary Fund, which on Thursday said that Athens requires debt relief to ease the burden of repaying loans equivalent to some 177% of annual output. In an agreement struck with eurozone governments early Monday, Greece agreed to implement a range of economic reforms in exchange for EUR85 billion ($96 billion) of new rescue loans. Eurozone leaders agreed to examine the case for some kind of debt restructuring later this year if Athens pushes through economic reforms. Mr. Carney acknowledged that debt relief alone wouldn’t be sufficient to solve Greece’s problems, saying the proposals for reforms and privatizations agreed by Greece and its eurozone partners were also needed. He described the task facing Athens and others to get Greece back on the road to durable growth as “Herculean.” Mr. Carney reiterated a view he and other policy makers have long espoused–that the eurozone’s troubles highlight the need for much deeper political integration between the members of the currency union.

Pavlina on American Interest Discussing Greece’s Bailout -- Pavlina Tcherneva discusses Greece’s Bailout with Richard Aldous on American Interest. You can listen here. She describes a deal that seems to contain more austerity than was initially proposed, and calls some of its economic incentives perverse. She discusses why the economic situation in Greece today is in some ways worse than was America’s Great Depression, and compares the decision to bail out Greece to Ireland’s austerity experience.

Greek debt crisis: Goldman Sachs could be sued for helping hide debts when it joined euro - Goldman Sachs faces the prospect of potential legal action from Greece over the complex financial deals in 2001 that many blame for its subsequent debt crisis. A leading adviser to debt-riven countries has offered to help Athens recover some of the vast profits made by the investment bank. The Independent has learnt that a former Goldman banker, who has advised indebted governments on recovering losses made from complex transactions with banks, has written to the Greek government to advise that it has a chance of clawing back some of the hundreds of millions of dollars it paid Goldman to secure its position in the single currency. The development came as Greece edged towards a last-minute deal with its creditors which will keep it from crashing out of the single currency. Goldman Sachs is said to have made as much as $500m from the transactions known as “swaps”. It denies that figure but declines to say what the correct one is. The banker who stitched it together, Oxford-educated Antigone Loudiadis, was reportedly paid up to $12m in the year of the deal. Now Jaber George Jabbour, who formerly designed swaps at Goldman, has told the Greek government in a formal letter that it could “right historical wrongs as part of [its] plan to reduce Greece’s debt”.

Exclusive: Greece needs debt relief far beyond EU plans - Secret IMF report --  Greece will need far bigger debt relief than euro zone partners have been prepared to envisage so far due to the devastation of its economy and banks in the last two weeks, a confidential study by the International Monetary Fund seen by Reuters shows. The updated debt sustainability analysis (DSA) was sent to euro zone governments late on Monday, hours after Athens and its 18 partners agreed in principle to open negotiations on a third bailout program of up to 86 billion euros in return for tougher austerity measures and structural reforms. "The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date - and what has been proposed by the ESM," the IMF said, referring to the European Stability Mechanism bailout fund. European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept "deep upfront haircuts" on their loans to Athens, the report said. It was leaked as German Finance Minister Wolfgang Schaeuble disclosed that some members of the Berlin government thought Greece would have been better off taking "time-out" from the euro zone rather than receiving another giant bailout.

The IMF May Twist Itself Again to Help Keep Greece Afloat - To help keep Greece afloat, the International Monetary Fund may have turn back into a financial contortionist. In 2010, the IMF’s growth forecasts were widely criticized as far too optimistic. But they allowed the IMF to say Greece’s debt was sustainable and didn’t need restructuring, paving the way for the fund to join Europe’s bailout and help the region contain its financial troubles. Set aside the longstanding risk of bailout fatigue and a host of other questionable assumptions threatening to derail the tentative deal. The country’s debt sustainability is once again key. The emergency-lender’s involvement this time will require the IMF to rely on debt-relief assurances from Europe that have so far proved elusive. Under the terms outlined in the eurozone leaders’ statement, the preliminary bailout deal relies on continued IMF bailout support. Eurozone members want to keep the IMF in Greece for two reasons: To help cover the country’s estimated EUR86 billion in cash needs over the next three years, and to lend the program economic credibility. For the IMF to participate, the bailout package must ensure the cost of Greece’s debt won’t asphyxiate the country. IMF rules prohibit the fund from lending to Greece unless the program makes Greece’s debt sustainable.And, as the IMF has made clear several times over the past two weeks, that means Greece’s eurozone creditors must restructure the country’s debt. The eurozone leaders’ statement, however, doesn’t promise debt relief. Rather, it largely reiterates its 2012 agreement to consider debt relief “if necessary.”

White Knight Irony: IMF Threatens to Walk Away From Bailout Deal Citing Unsustainable Debt --In the final minutes of the gunpoint "negotiation" between Greece and its creditors, the last two sticking points were IMF involvement and €50 billion in pledged Greek assets in return for another "bailout". Prime minister Alexis Tsipras said he could not give in on those demand. In the end, Tsipras bowed down and kissed the feet of German chancellor Angela Merkel and her finance minister Wolfgang Schäuble on those issues, and everything else they demanded as well. Ironically, it could very well be the IMF that comes to the rescue and sinks this inane deal.Please consider IMF Signals it Could Walk Away from Greek Bailout DealIn the three-page memo, sent to EU authorities at the weekend and obtained by the Financial Times, the IMF said the recent turmoil in the Greek economy would lead debt to peak at close to 200 per cent of economic output over the next two years. At the start of the eurozone crisis, Athens’ debt stood at 127 per cent. “Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far,” the memo reads.Under its rules, the IMF is not allowed to participate in a bailout if a country’s debt is deemed unsustainable and there is no prospect of it returning to private bond markets for financing. The IMF has bent its rules to participate in previous Greek bailouts, but the memo suggests it can no longer do so.According to EU officials, Ms Merkel stood firm on the issue, telling the Greek premier there would be no bailout — and therefore “Grexit” from the eurozone — without a formal request made to the IMF for participation in a new programme. The final bailout deal states that “Greece will request continued IMF support” once its current IMF programme expires.

IMF Throws a Spanner in Proposed Greece Deal, Says Financing May Not Be Enough -- Yves Smith - The IMF today took a stronger version of the line it has been taking recently on Greece, that the it may not be able to carry the debt about to be imposed on it. Given that the ECB’s strangulation of the banks has taken the weakened economy to a lower level, and it’s not clear when the ELA will be restored, it’s likely that the the IMF can’t even make an assessment until conditions have stabilized. One also has to note that the IMF has dropped this shoe before the Greek government has passed any of the legislation required in the pending deal.  The fact that an organization that believes in austerity, at least on the program side, has never been able to make the math on Greece work even with its dubious assumptions is pretty damning. The question then is why is the IMF piping up now? The issue that the IMF flags, and this is a killer from the Eurozone perspective, is that the way that the Eurozone members want to give Greece debt relief is via interest rate reductions and extension of maturities. It will not reduct the face value of the debt; that was stated explicitly in the letter to Greece. The reason for not lowering the face amount of the debt, as opposed to using other means to lower the economic value of the loans, is that given how the loans to Greece have been structured (the governments did not fund them in cash but gave guarantees to lending facilities) is that a writedown would result in the need to pay investors for the loss immediately. That means big bills to taxpayers under Eurozone rules, which put strict limits on government deficits. By contrast, the payments on the loans to Greece now are so attenuated that even in the event of a total default, the losses would be recognized gradually over decades, starting in 2020, and would be much less painful.  From the Wall Street Journal: The International Monetary Fund in a paper made public Tuesday questioned the ability of Greece to deliver on promised bailout overhauls and warned in its starkest language yet that the eurozone must commit to debt restructuring to ensure the program will work.“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date-and what has been proposed by” eurozone authorities, IMF says that even extending debt maturities out deep into the second half of the century may not be enough to put Greece’s debt back on a sustainable path after the ravages of capital controls.

I.M.F. Demands Greece Debt Relief as Condition for Bailout - The International Monetary Fund threatened to withdraw support for Greece’s bailout on Tuesday unless European leaders agree to substantial debt relief, an immediate challenge to the region’s plan to rescue the country.The aggressive stance sets up a standoff with Germany and other eurozone creditors, which have been reluctant to provide additional debt relief. The I.M.F role is considered crucial for any bailout, not only to provide funding but also to supervise Greece’s compliance with the terms.A new rescue program for Greece “would have to meet our criteria,” a senior I.M.F. official told reporters on Tuesday, speaking on the condition of anonymity. “One of those criteria is debt sustainability.”Debt relief has been a contentious issue in the negotiations over the Greek bailout. Athens has pushed aggressively for creditors to write down the country’s debt, which now exceeds €300 billion. Without it, Prime Minister Alexis Tsipras has argued the debt will remain a heavy weight on Greece’s troubled economy.But Germany and other countries, including the Netherlands and Finland, are loath to grant Greece easier terms, which are a tough sell to their own voters. German Chancellor Angela Merkel has ruled out a “classic haircut” on Greece’s debt. The I.M.F. is now firmly siding with Greece on the issue. In a report released publicly on Tuesday, the fund proposed that creditors let Athens write off part of its huge eurozone debt or at least make no payments for 30 years. The report was initially submitted to eurozone officials before a weekend meeting to consider the new bailout deal for Greece.

IMF stuns Europe with call for massive Greek debt relief - The International Monetary Fund has set off a political earthquake in Europe, warning that Greece may need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression. "The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a confidential report. Greek public debt will spiral to 200pc of GDP over the next two years, compared to 177pc in an earlier report on debt sustainability issued just two weeks ago. The findings are explosive. The document amounts to a warning that the IMF will not take part in any EMU-led rescue package for Greece unless Germany and the EMU creditor powers finally agree to sweeping debt relief. This vastly complicates the rescue deal agreed by eurozone leaders in marathon talks over the weekend since Germany insists that the bail-out cannot go ahead unless the IMF is involved. The creditors were aware of the IMF’s report as early as Sunday, yet chose to sweep it under rug. Extracts were leaked to Reuters on Tuesday, forcing the matter into the open. The EMU summit statement vaguely mentions “possible longer grace and payment periods”, but only at later date, and only if Greece is deemed to have complied with all the demands. Germany has ruled out a debt “haircut” altogether, claiming that it would violate Article 125 of the Lisbon Treaty. The IMF said there is no conceivable chance that Greece will be able to tap private capital markets in the foreseeable future, leaving the country entirely dependent on rescue funding.

No really, here’s how we’d restructure Greece’s debt, by the IMF - Here is another very strange, and short, document. Click to read. It’s an update to the Greek debt sustainability analysis by IMF staff — yes one of those analyses again — which was originally published just before Greece’s July 5th referendum. That DSA was dead on arrival because of what happened to Greece’s banks. This update was for European leaders, to give a sense of how big the holes were ahead of the negotiations that eventually turned into Monday’s agreement to start talks on a third bailout. That means two things. One is that this reads like a “why are we still here?” document by IMF staff. The fund has been defaulted on, it has little influence on the actual politics of debt relief in the eurozone, and future loans to Greece will now have a very rough time passing the IMF board. Secondly though, the IMF has stayed involved, given how the summit turned out (and the Greece programme technically operates until March next year once the fund is paid back). That suggests the IMF won’t just walk away now and upend the deal.

Greece: Revolt over austerity deal grows ahead of vote - — Greece's left-wing government launched a frantic 24-hour effort late Tuesday to push more austerity measures through Parliament and meet demands from European creditors as it faced down mounting anger at home. The belt-tightening measures, which include pension cuts and higher sales tax rates on everything from condoms to racehorses, were agreed upon with eurozone leaders to prevent the Greek economy from collapsing, and as part of a planned third bailout worth 85 billion euros ($94 billion). The new measures mean economically-battered Greeks will pay more for most goods and services by the end of the week. Hard-liners in Prime Minister Alexis Tsipras' own Syriza party were in open revolt, and unions and trade associations representing civil servants, municipal workers, pharmacy owners and others called or extended strikes to coincide with Wednesday's Parliament vote. Energy Minister Panagiotis Lafazanis said lead eurozone lender Germany and its allies had acted like "financial assassins" by forcing the deal on Athens, and urged Tsipras to reject it. "The deal is unacceptable," Lafazanis said in a statement. "It may pass through Parliament ... but the people will never accept it and will be united in their fight against it."

Debt Crisis: Greeks Say Bailout Austerity Will Cause a 'Revolution' - Greece faced a day of political turmoil and public protests Wednesday as its parliament voted on whether to accept a $94 billion bailout that would bring painful austerity measures. Workers' strikes and several rallies were planned in Athens, with Prime Minister Alexis Tsipras facing an open revolt in his left-wing party over the tax rises and pension cuts demanded under the European deal.  The crisis deepened late Tuesday when an International Monetary Fund study showed that Greece needs far more debt relief than European governments had offered, and that the loan package agreed by leaders on Monday was unsustainable. It leaves ordinary Greeks wondering if decades of economic anguish are a price worth paying for remaining in the euro currency zone. "The people simply don't have the means to endure these harsh measures," said Greek-American Jennifer Patronis, 40, from Ohio. "The deal that has been made now … has sealed Greece's fate. There can be no economic growth or job creation under the asphyxiating terms." The office manager, who withdrew all her savings and left Greece in 2012 because of the crisis, said it was unlikely she would be able to move back anytime soon.

Spain’s Podemos attacks Greek bailout deal: Spain's left-wing party Podemos has criticized the Greek bailout deal struck by the country's Syriza government, calling it "unsustainable." Podemos Economy Spokesperson Nacho Alvarez told CNBC on Wednesday that the reforms-for-aid deal will maintain the exact austerity policies that got Greece into trouble in the first place. "This agreement was not designed to solve the economic problems (of Greece)," Alvarez told "Worldwide Exchange." "It's not a good agreement." The comments come as Greek lawmakers vote on a set of swingeing austerity and reform measures, insisted upon by creditors for Greece to get a much-needed third bailout. Prime Minister Alexis Tsipras could face a revolt from inside his own party, however, amid discontent over the austerity measures both at home -- and now abroad. "It was basically designed with political objectives," Alvarez added, saying that creditors were taking advantage of the "enormous financial pressure" that Greece is under and were trying to "break" the country's government.

Varoufakis Attacks Greece's New Bailout Agreement - Former finance minister Yanis Varoufakis said in parliament that the new bailout agreement proposed to Greece is doomed to fail, calling it ” Versailles Treaty,” and stated he will vote against it. Varoufakis accused German Finance Minister Wolfgang Schaeuble of working hard to bring back harsh memoranda because the Greek people voted “no” in the referendum. “The troika, in cooperation with Schaeuble, was waiting to drag Greece back into the catastrophic clarity of the memoranda,” Varoufakis said. “We suggested an honest deal – a bridge deal jointly drafted with the Chancellery of Germany to prevent Dr. Schaeuble,” he said, “But the troika with the institutions and Dr. Schaeuble worked hard to restore the hard and toxic memoranda.” The former minister cited economist John Maynard Keynes in his speech. He argued that powerful European countries demanded terms they were not entitled to claim. “What we have before us is a new Versailles Treaty,” he said, adding that with this agreement Greece will remain a debt colony. Varoufakis also expressed the opinion that the agreement will not materialize because the International Monetary Fund “refuses to participate.” Also, because the European Stability Mechanism will refuse to proceed without the involvement of the IMF. “Unfortunately, once again, we are dragged to debt restructuring after the failure of the program… Everything will depend on the restructuring of the debt,” he said.

Greek deputy finance minister resigns over bailout deal - Reuters: One of Greece's two deputy finance ministers resigned from the leftwing government on Wednesday, ahead of a crucial vote on reforms demanded by the country's creditors in exchange for a third bailout. In a letter to Prime Minister Alexis Tsipras made public by the finance ministry, Deputy Finance Minister Nadia Valavani, in charge of taxation and overseeing privatizations, said she could no longer be a member of his cabinet. "...It is impossible to continue being a member of the government," Valavani said in the letter, explaining that austerity measures demanded for a third aid program would set the country on a moribund path.

German muscle threatens European solidarity - This is not the end of the drama for the European Union. Perhaps, the passion play we are witnessing is just the prologue to tragedy. Tragedy, after all, depends upon the blossoming of flaws that undermine an otherwise noble character. In this case, it makes the Europe Union wrestle with the central conundrum behind its existence. The European dream was conjured out of a nightmare - it was, in origin, a project to exorcise the family ghost: the vast power of one country, Germany. There are many other, more obvious, flaws to be examined. With Greece treated not far short of a satrapy of permanent recession, the climax to the crisis raises one of the most serious charges against the European Union - that it overrides national democracy. That the International Monetary Fund (IMF) regards the plan as all but pointless adds to the angst. Germany's interests are central to the other big question - if the euro is not fit for purpose, what new rules could make it function better? For this and other reasons, this is a pivotal point for modern Germany.

Odds Favor a Greece Deal Failure and Defacto Grexit -- Yves Smith - The odds now favor the tentative deal struck over the weekend to “rescue” Greece, which many have correctly depicted as a brutal economic colonization of Greece by its lenders, coming unraveled. It’s hard to see how Greece could muddy through, given that a sketchy plan attribute to German Finance Minister Wolfgang Schuble over the weekend, that of a five-year temporary Grexit, was so obviously a napkin doodle rather than a plan as to be a negotiating chip and a taunt rather than a serious idea. But the lack of any alternative to the punitive plan that is starting to go pear shaped means that Greece would stumble into a Grexit utterly unprepared, with its banks unable to open at any foreseeable time in the future. That’s a game plan for utter catastrophe. If you think the unplanned Lehman bankruptcy was an unmitigated disaster, a Grexit would make that look like a walk in the park.*Why does a deal now look to be in such dire shape? Unlike the earlier extended Greece v. everyone else impasse that went on for months, the underlying problem was that the two sides had no bargaining overlap between their positions and were conducting the negotiations in a media fishbowl. That made it impossible to find areas of mutual interest (having the new government improve Greece’s broken tax system, which only taxes the incomes of about 30% of the public, cracking down on oligarchs) and figuring out ways to come up with optical solutions on the issues where they were odds so each side could declare a victory.  The impediments now are what are informally called “too many moving parts”. It’s also one of the reasons that many people make bad calls about the likelihood of something succeeding, like a new venture.

Convert to the Drachma – Piece of Cake. Right… One of the things that’s been nagging away at the back of my mind in this ongoing discussion about leaving the Eurozone is what that means in terms of following through. I think that the average person on the left who considers this to be a sine qua non for Greece moving forward has no idea of what’s involved. It is not just printing new currency and delivering it to the banks. It is also a mammoth undertaking from the IT standpoint. Think in terms of what it would take to reverse engineer something like this: As someone who worked in IT for 44 years and on some very large scale projects such as developing a completely new system from top to bottom for Goldman-Sachs, this is a huge project that would require banks and any other large-scale corporations in Greece to manage. And that does not get into the problems that the civil service would have to deal with. Pension systems, the tax system, et al would have to be reprogrammed. I now realize that when people were demanding that Syriza conduct a two-tier operation, one that sought an end to austerity within the Eurozone, and another on a parallel track that would switch over to the drachma, they had no idea what this would entail. Frankly, I don’t think that Greece is capable of converting to the drachma today even if the government voted for it. Billions of dollars would be required to do such a conversion and the cash-starved government agencies would even have less money for such a project than private corporations. I have heard what seems like dozens of leftists complaining about Alexis Tsipras’s failure to deliver a contingency plan. These are people who almost certainly have never sat in cubicle and programmed a financial system in COBOL as I did for twenty years before I moved over to UNIX based systems at Columbia University.

Prime Minister Tsipras’ Bailout Reform Package: An Act of Treason against the Greek PeopleAfter having launched a Referendum to refute and refuse the debt bailout agreement put together by the Troika, Prime Minister Tsipras together with his newly instated Finance Minister, comes up four days latter with an austerity package broadly similar to the one which was turned down by the Greek government in June. This about-turn had been carefully engineered. The Greek people were misled and deceived. The Referendum was an outright  ”ritual of democracy”.   Tsipras had made a deal with the creditors. He was in favor of accepting the demands of the creditors all along.  Tsipras led the “NO” campaign while having already decided that in the wake of the Referendum, he would say YES to the creditors and cave in to their demands. This is tantamount to an Act of Treason. There was no attempt by the Tsipras government in the immediate wake of the Referendum to renegotiate  or extend the deadline on behalf of the Greek people in response to the NO Vote. On Monday morning, the day following the Referendum, Yanis Varoufakis who had led the negotiations with the Troika resigned as Finance minister. Did he wilfully resign or was he “dismissed” to facilitate an agreement with the Troika?

Greek Parliament Passes Bailout Legislation --  Yves Smith - The margin of victory, if you can call it that, was 229 out of 300. The approval of draconian austerity measures took place in the face of demonstrations in Athens that turned into a riot as the evening wore on.   That sort of reaction was to be expected in the face of the government’s stunning reversal in such a short period of time. What was surprising is the degree to which Tsipras was able to tamp down defections in his own party. He did not lose the support of his own coalition. Failure to maintain that would almost certainly have led to new elections. It appears that only the members of the left faction, which have been long-standing internal dissenters, rebelled. From the Wall Street Journal: Greece’s Parliament passed austerity measures needed to secure a fresh bailout, but a rebellion within the ruling Syriza party is testing whether Prime Minister Alexis Tsipras can hold his government together as he seeks to complete the deal. The measures, which include spending cuts and tax increases, were approved early Thursday by 229 lawmakers in the country’s 300-seat Parliament, many of them opposition lawmakers. Among a total of 149 lawmakers in Mr. Tsipras’s left-wing Syriza party, 32 voted against the deal, six abstained and one was absent from the vote. And you can see members of Syriza, whose name translates as “Radical Left Coalition,” taking up neoliberal memes. This is a reflection of the success in organizing the economic and political order along neoliberal lines over the past 35 years:

ECB Expected to Continue to Strangle Banks, Not Provide More ELA Funding Today, Despite Greek Parliament Passing Austerity Legislation -- Yves Smith - The ECB is in full sack-of-Carthage mode if it fails to increase the ELA today to give Greek banks some hope of survival and more important for the economy, of providing payment services to citizens, businesses (particularly importers) and tourists. From Bloomberg: Current opinion in the Governing Council is for the cap on Emergency Liquidity Assistance to stay at the current 88.6 billion euros ($96.8 billion), the people said, asking not to be named as the meeting is private. The ECB’s Executive Board recommended that the limit stay in place for now, one person said. The Greek central bank asked for an increase of 1.5 billion euros, the people said. Spokesmen for the ECB and the Bank of Greece declined to comment. If this comes to pass (the ECB is to make its decision later today), the refusal is utterly insane and horrifically destructive. Even if Greece were to get an ELA increase, it would take time for banks to begin restoring services. The economy will continue to decay at an ever-accelerating rate and the damage will become more and more permanent as businesses fail, which means workers will lose jobs and income.  The apparent rationale is that the ECB is not willing to take any more credit risk and wants its July 20 bond payment in hand first: While Greek lawmakers have now passed reform measures demanded by creditors in return for negotiating a third bailout package, that may not yet be enough for the ECB to change its stance. With European-led funding still not signed off, Greece’s ability to repay a 3.5 billion-euro bond to the central bank on July 20 isn’t guaranteed. Sadly, this is consistent with prior ECB statements that it wanted a guarantee from the Eurozone countries before it would extend more credit to Greece (it apparently regards any remaining collateral at Greek banks as too rancid to use as a basis for more loans).

Lagarde Distances the IMF From Implications of leaked Debt Sustainability Report --Earlier this week I did a detailed analysis of the way the media misreported Lew and Lagarde’s statements last week regarding Greece. Yesterday this type of misreporting reared it’s ugly head again when an update to the Debt Sustainability report by IMF staff released a couple of weeks ago was leaked to the press. The report outlines the obvious: the banking system shut down has had a major impact on the economy and thus makes the previous estimates of growth and Greece’s budget position out of date. As a result, more debt restructuring than previously “estimated” will be needed to make their debt sustainable. This is all based on the IMF staff’s estimates for Greece’s future budget position, which have been notoriously and consistently inaccurate for years. It must be emphasized that what is being argued about is not whether Greece’s debt is sustainable in reality, what is being argued over is whether it is sustainable in their projections. In general, when discussing large complicated institutions distinctions must be made between parts of this institution. The mainstream press is particularly bad at that kind of nuance because these organizations are already complicated: making further distinctions between IMF managing directors, IMF staff and the IMF executive board gets needlessly obscurant in their view. However, these distinctions are important. The report that was leaked two weeks ago and the latest update to that report was written by IMF staff and specifically “neither discussed with nor approved by the IMF’s Executive Board”. Additionally, Christine Lagarde or her title “managing director” appear no where in this document. Thus to say that the “IMF” is saying anything in this report is deeply misleading.

Greeks cannot tap cash in safe deposit boxes under capital controls -- Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place, a deputy finance minister told Greek television on Sunday. Greece's government shut banks and imposed capital controls a week ago to prevent the country's banks from collapsing under the weight of mass withdrawals. Deputy Finance Minister Nadia Valavani told Alpha TV that, as part of those measures, the government and banks had agreed at the time that people would also not be allowed to withdraw cash from safe deposit boxes.

German Company is Top Tax Evader in Greece -- A German company was found to be the biggest tax evader in Greece. A court in Athens found that Hochtief, the German company that was running the “Eleftherios Venizelos” Athens International airport was not paying VAT for 20 years. It is estimated that Hochtief, will have to pay more than 500 million Euros for VAT arrears. Together with other outstanding payments, like those to social security funds, it might have to py more than 1 billion Euros. It must be noted that under the “Troika” austerity programme Greek employees lost around 400 million Euros from cuts to their salaries. Hochtief, which is the biggest German Construction company, specializing in airports, was also running the Athens International airport through a subsidiary until 2013, when it sold it’s share to a Canadian company. (source: neurope)

Greece bailout: Protesters clash with police at anti-austerity march as parliament debates bailout - Greek anti-austerity protesters have hurled dozens of petrol bombs at police in front of parliament ahead of a key vote on a bailout deal, in some of the most serious violence in over two years.  Riot police responded with tear gas, sending hundreds of people fleeing in central Syntagma Square. Earlier, thousands took to the streets of Athens in a series of otherwise peaceful marches during the day to protest against the new bailout deal that saved Greece from bankruptcy but will impose more reforms on a country already deep in crisis. Once a common sight in protest marches in Greece, clashes with police had been very rare since the leftist Syriza party came to power in January. Just before the clashes, protesters marched waving banners reading "Cancel the bailout!" and "No to the policies of the EU, the ECB and the IMF". Pharmacists pulled down their shutters across Greece and civil servants walked off their jobs in protest in a 24-hour strike against reforms. The split widened in prime minister Alexis Tsipras's Syriza party with Greece's deputy finance minister Nadia Valavani resigning in protest at the reform proposals being put forward. "I'm not going to vote for this amendment and this means I cannot stay in the government," Ms Valavani told reporters. She submitted her resignation in a letter to prime minister Alexis Tsipras.

Greece, Its Back to the Wall, Adopts Austerity Steps -  — Under threat from the nation’s creditors to move quickly or lose any chance of obtaining a desperately needed new bailout package, Greece’s Parliament approved painful new austerity measures early Thursday, virtually guaranteeing that life would get harder for millions of Greeks.With banks closed and the economy on the verge of collapse, Prime Minister Alexis Tsipras had urged the adoption of the measures, saying that while it was a difficult deal the creditors were offering, it was the only one available and would avert a humanitarian and fiscal disaster.The measures passed easily, with a vote of 229 to 64, with six abstentions. Yet much of the support came from opposition parties. Thirty-two members of Mr. Tsipras’s own Syriza party voted no, including three of his ministers, throwing the stability of his left-wing coalition government into question.Mr. Tsipras, who unexpectedly took the floor before the vote to make his case that the country could move forward even under the harsh terms of what was being offered, left immediately after the roll call. The vote came a day after the International Monetary Fund signaled that it might not back the new bailout unless the pact substantially reduced the debt burden on Athens. That stance aligned it with Mr. Tsipras on the question of debt reduction and provided him with new ammunition to argue that the bailout plan did not do enough to get the Greek economy back on its feet. But with the country teetering on the edge of insolvency, Athens moved ahead with the vote. It needed to begin unlocking the aid necessary to meet a debt payment on Monday, put its banks on sounder footing and negotiate a three-year package that would provide it with as much as 86 billion euros, or about $94 billion, in assistance.

Majority of Syriza central committee reject austerity deal - The 12th of July in Brussels, a coup took place in Brussels which demonstrated that the goal of the European leaders was to inflict an exemplary punishment on a people which had envisioned another path, different from the neoliberal model of extreme austerity. It is a coup directed against any notion of democracy and popular sovereignty. The agreement signed with the “Institutions” was the outcome of threats of immediate economic strangulation and represents a new Memorandum imposing odious and humiliating conditions of tutelage that are destructive for our country and our people. We are aware of the asphyxiating pressures that were exercised on the Greek side, we consider nevertheless that the proud NO of working people in the referendum does not allow the government to give up in the face the pressures of the creditors. This agreement is not compatible with the ideas and the principles of the Left, but, above anything else, is not compatible with the needs of the working classes. This proposal cannot be accepted by the members and the cadres of Syriza. We ask the Central Committee to convene immediately and we call on the members, the cadres and the MPs of Syriza to preserve the unity of the party on the basis of our conference decisions and of our programmatic commitments.

German lawmakers back starting talks on fresh Greek aid in test votes (Reuters) - Conservative and Social Democrat lawmakers voted overwhelmingly in favour of starting talks on further aid in test ballots on Thursday even though German Finance Minister Wolfgang Schaeuble questioned whether Greece would ever get a third aid package. Both Chancellor Angela Merkel's conservative bloc and her Social Democrat (SPD) junior coalition partner strongly backed giving Berlin a green light to start talks on a third multi-billion euro aid package in test votes, sources in these parliamentary factions said. As a result, Merkel is likely to get the mandate from the Bundestag lower house of parliament on Friday, with some opposition parties also expected to vote 'Yes'. But she faces a revolt within her own conservative ranks where an increasing number of lawmakers doubt that Athens will implement reforms and can one day stand on its own again. In a sign of frustration with Athens, 48 conservatives in the test vote opposed new negotiations, according to participants. During a five-hour debate, many critics expressed doubt about the Greek government's willingness to implement reforms. In February, 29 conservatives voted against an extension of Greece's second bailout. Both Merkel and Schaeuble had urged conservatives to back the deal that was reached in Brussels, a source said, with the chancellor stressing that Germany had left its mark on the agreement and it included strict reform conditions and supervision of Greece.

Eurogroup Agrees To €7 Billion Bridge Loan So Greece Can Repay Troika; No ELA Increase On Deck -- Back in February, when the ill-fated Greek attempt to renegotiate its existing bailout (instead culminating with a new, €86 billion bailout program 5 months later) was launched, Eurogroup chief Jeroen Dijsselbloem rejected a request for a short-term financing agreement to keep the country afloat while it renegotiates the terms of its bailout program. "We don’t do bridge loans", Dijsselbloem told reporters in The Hague, when asked about Greece’s request.Turns out "we do" after all. After last night's full capitulation vote by Greece which will push its debt beyond 200% just so the insolvent nation can repay its creditors, the next step would be of course finding a funding solution until the terms of the full ESM bailout are ironed out. Which means, coming up with a bridge loan just so Greece has the funds to repay its default to the IMF now amounting about €2 billion as well as the ECB's €3.5 billion payment on Monday. Sure enough, moments ago Bloomberg reported that Euro-area finance ministers agreed in principle to extend a €7 billion($7.6 billion) bridge loan to Greece, citing an official familiar with the decision. The loan is due to be announced tomorrow once technical details are sorted and national parliaments vote on the bailout deal, the official said, and since this loan has to be funded ahead of the ECB's maturity, this is one deadline the Eurogroup will keep. Furthermore, with the sanctity of the ECB's balance sheet in question it meant that even one of the staunchest opponents to a 3rd Greek bailout, Finland, would have to promptly fall in line, and so it did:

With Greek Sales Tax, Policy Makers Again Choose Short-Term Pain -  It is striking how policy makers managing economies most in need of long-term reform keep choosing short-term pain in the process. Greek lawmakers agreed Wednesday to a new package of austerity measures, including increased value-added taxes, in exchange for up to 86 billion euros worth of new loans to keep its financial system afloat. The idea is to raise government revenue and harmonize generally-low Greek sales taxes with the rest of the European Union. (Of course, if German policy makers really wanted harmonized sales taxes, they could also cut theirs and give the limp European economy a shot in the arm in the process.) We know how this will play out for Greece in the short-run. Twice in the past two decades Japanese policy makers have increased sales taxes in a weak economy to address long-term budget issues. Japan’s economy sank into recession, increasing the nation’s ratio of government debt to economic output. In the U.S., the Obama Administration and Congress after the financial crisis were unable to reach a deal on long-term budget reforms. Instead they chose short-run cuts to discretionary spending and immediate higher taxes on the wealthy, draining the U.S. expansion of energy. Budget reform seems best enacted slowly for economies in distress, a point former Federal Reserve Chairman Ben Bernanke made repeatedly and to little effect during U.S. budget debates. Trust is a central problem here, especially in Greece. If policy makers don’t take hard steps right away, it’s not clear they will ever follow through on promises to streamline budgets. Still, austerity now for Greece is going to be an awfully painful – and potentially counterproductive — way to rebuild trust.

IMF's Lagarde: Greek plan not viable -  The head of the International Monetary Fund said eurozone creditors' plan for Greece is "categorically" not viable without a reduction in debt. Speaking on France's Europe1 Radio from Washington, Christine Lagarde reiterated that Greece needs debt relief. She wouldn't say what amount of relief Greece would need, but said the current plan isn't viable. Ms Lagarde said the IMF will participate in a "complete" bailout package. She will support a significant extension on Greek debt maturities and reimbursement deadlines. The long-term aim is that Greece returns to the market. Ms Lagarde's comments echo those call from European Central Bank president Mario Draghi yesterday. He said debt relief is "uncontroversial" and the only question is "what form this takes." Greek banks are tentatively set to re-open on Monday after the ECB said it would raise its emergency loans to them by €900m, though it's not yet a done deal.

ECB Joins IMF In Call For Greek Debt Cut, Schaeuble Shoots It Down (Again) --Despite earlier commenting that Greek debt sustainability is hard without a write off, German FinMin Schaeuble just told German lawmakers bluntly that there will be no Greek debt cut. What is problematic for Merkel and her minions is that Mario Draghi just confirmed what The IMF has been 'secretly' leaking - that it is "uncontroversial that Greek debt relief is necessary." As this confusion reigns, The Eurogroup has issued a statement "welcoming the adoption by the Greek parliament" of the measures imposed upon the Greek people to drive them further into depression. The Eurogroup issues a statement - pleased that The Greeks will suffer some more for the cash they get...The Eurogroup welcomes the adoption by the Greek Parliament of all the commitments specified in the Euro Summit statement of 12 July. On the basis of a positive assessment by the institutions, which concluded that the authorities have implemented the first set of four measures in a timely and overall satisfactory manner and which confirmed that the Euro Summit statement has been included in the preamble to the implementing law adopted by the Greek parliament, we reached today a decision to grant in principle a 3-year ESM stability support to Greece, subject to the completion of relevant national procedures.

EMU brutality in Greece has destroyed the trust of Europe's Left - 'The Left let itself become the enforcer of reactionary policies and mass unemployment because of the euro.' Greece has broken the spell. The EU establishment henceforth faces what it has always feared: a political war on two fronts at once.  It is long been fighting an expanding coaltion of free marketeers, parliamentary "souverainistes", anti-immigrant populists on the Right.  Its has now lost its remaining emotional hold on the Left after the scorched-earth treatment of Greece over the past five months - culminating in the vindictive decision to impose yet harsher terms on this crushed nation just days after its cri de coeur in a landslide referendum.  This has been coming for a long time. We Conservatives have watched in disbelief as one Socialist party after another immolates itself on the altar of monetary union, defending a project that favours the elites - a "bankers' ramp", as the old Left used to call it. We have watched our friends on the Left apologise for 1930s policies. We have seen them defend a regime of pro-cyclical fiscal cuts imposed on the whole eurozone by a handful of "Ordoliberal" reactionaries in the German finance minstry. To the extent that these gentlemen know what they are doing - and most Nobel economists would dispute that - they have certainly not risen to the challenge of pan-EMU leadership. As ex-official Philippe Legrain writes in Foreign Policy, Germany is proving to be a "calamitous hegemon". By a twist of fate, the Left has let itself become the enforcer of an economic structure that has led to levels of unemployment once unthinkable for a post-war social democratic government with its own currency and sovereign instruments. It has somehow found ways to justify a youth jobless rate still running at 42pc in Italy, 49pc in Spain and 50pc in Greece, despite mass emigration.

Quick Update on Greece, Germany, and the IMF -- Yves Smith -- We’d posted earlier this week that odds favored a Grexit. With the Greek bridge loan deal having passed the key hurdle of securing passage in the German Parliament, and Lagarde making it clear that the IMF will support an eventual bailout deal with “restructured” loans (ie, no haircuts), the odds have shifted. It is now more probable that this pillage-of-Greece program stays on track near term, meaning the so-called “third bailout” gets completed.  The events of this week should also serve as a reminder of the need to consume news reports with care, and we were initially thrown off by the leak of the IMF sustainabilty report. It said as clearly as you can in IMF-speak that its loans were not likely to be money good even in the event of very aggressive maturity extensions and interest rate reductions. Translation: if you don’t make haircuts, you’ll get a default down the road. The lenders are hitting the end of the line as far as achieving reduction in the economic value of the debt providing enough relief is concerned. And IMF rules require that its loans need to be “sustainable”. The only reason that the clearly unworkable previous IMF loans to Greece were approved were due to the board issuing a systemic risk exception. There’s no systemic risk to a Greek default now, so it’s much harder for the board to engage in porcine maquillage this time. Remember that Germany has ruled out haircuts but also regards IMF participation as essential, not just as a money source but even more important as a monitor and enforcer. Thus the IMF looked like a potentially fatal impasse, particularly since the powerfully placed German finance minister Wolfgang Schauble was already pumping for a Grexit, and all but three of the other Eurozone members ex Greece and Germany were opposed to yet another rescue.

Greece and the Missing Banking Union - The Greek Crisis is a crisis rather than a problem due to the vulnerability of Greek banks. While the banks have deep problems, this column argues that these would have been mitigated if a fully operational banking union were in place. A full banking union requires joint banking supervision, joint bank resolution, and joint deposit insurance. The EZ only has the first so far. Completing the banking union must be part of any long-term solution. Greek banks are at the centre of the current crisis. They have been surviving only with the help of emergency liquidity from the ECB, and they might soon be forced into another restructuring, or worse. And yet, it is not the banks’ own problems that have led to the massive capital flight over the past few weeks. Rather, it is the political uncertainty surrounding the country and its policymakers. That’s what induces people to queue to withdraw their money. This problem would have been mitigated had EU policymakers been able to put in place a fully operational banking union by now. A full banking union normally comprises three pillars: joint banking supervision, joint bank resolution, and joint deposit insurance. Not in Europe, though. The current EU setup resembles, at best, a one-legged stool. A Single Supervisory Mechanism (SSM) was eventually agreed, and has been running for a few months now. The second pillar, called Single Resolution Mechanism (SRM), will not be operational before January 2016. The third pillar, an EU-level deposit insurance, will not be forthcoming at all, at least not in the near future.

Bernanke Isn't Serious - Paul Krugman --By which I mean that he isn’t Serious. His latest on Greece and the euro suggests that the deeper problems lie not in Greek fecklessness but in the refusal of the core — basically Germany — to allow either monetary or fiscal policies that would offset the downdraft from austerity in the periphery. He even questions the sacred status of “structural reform”: The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of “fiscal space” and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking “stress tests” in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put “structural rigidities” very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can’t explain recent declines in performance.  Does all this sound sort of … familiar? Kind of like what other bearded Anglo-Saxon economists have been saying? As I’ve tried to point out for a long time, in this policy debate the supposedly radical types are the ones doing standard, more or less textbook economics, while the respectable voices have subscribed to fantasies ungrounded in either history or theory

Wall Street's Role in Greece's Debt Crisis - One of the first lessons I was taught on Wall Street was, “Know who the fool is.” That was the gist of it. The more detailed description, yelled at me repeatedly was, “Know who the fucking idiot with the money is and cram as much toxic shit down their throat as they can take. But be nice to them first.” When I joined in Salomon Brothers in ‘93, Japanese customers (mostly smaller banks and large industrial companies) were considered the fool. My first five years were spent constructing complex financial products, ones with huge profit margins for us—“toxic waste” in Wall Street lingo—to sell to them. By the turn of the century many of those customers had collapsed, partly from the toxic waste we sold them, partly from all the other crazy things they were buying. The launch of the common European currency, the euro, ushered in a period of European financial confidence, and we on Wall Street started to take advantage of another willing fool: European banks. More precisely northern European banks. From ‘02 until the financial crisis in ‘08, Wall Street shoved as much toxic waste down those banks’ throats as they could handle. It wasn’t hard. They were so willing, and had such an appetite, that Wall Street helped hedge funds construct specially engineered products to sell to them, made of the most broken and risky subprime mortgages. These products—the banks called them “monstrosities” and later the media dubbed them as “rigged to fail”—only would have been created if they had reckless buyers, and the European banks were often those buyers. In 2008, when the U.S. housing market collapsed, the European banks lost big. They mostly absorbed those losses and focused their attention on Europe, where they kept lending to governments—meaning buying those countries’ debt—even though that was looking like an increasingly foolish thing to do: Many of the southern countries were starting to show worrying signs.

Bailout Fallout: Juncker Lies to Cameron in Revival of ESM; British Taxpayers Protected in Final Deal - In 2010, Jean-Claude Juncker, current European Commissioner president, made a pledge to UK Prime minister David Cameron, to never again use the ESM to bail out another eurozone country. Cameron's concern was that he did not want to put British taxpayers at risk for eurozone sponsored bailouts. To the shock of Cameron, the ESM came back into play in the latest Greek bailout deal. Did Cameron not know that Juncker was a confirmed and self-proclaimed liar? I think not, so any shock display must be fake, for political show only. To smooth over UK concerns, Chancellor of the Exchequer, George Osborne, worked out an ESM Arrangement to Protect UK Taxpayers, but political damage and mistrust lingers.  British taxpayers will not be left exposed for another Greek bailout, George Osborne hopes, under a compromise struck with Jean-Claude Juncker. The Chancellor is prepared to back the European Commission president’s controversial plan to revive a mothballed bailout programme that draws in the entire EU, in exchange for guarantees that British liabilities will be underwritten to protect UK taxpayers. Mr Juncker’s decision to tear up a binding written agreement given to Britain in 2010 that the European Financial Stability Mechanism would never again be used to rescue the Eurozone has further soured relations with David Cameron, who now doubts whether he is able to trust him.

Jobless rate rises for first time in two years, average earnings increase - Britain's unemployment rate rose for the first time in more than two years, data showed on Wednesday, but faster growth in earnings means the Bank of England is likely to keep signalling an interest rate hike is approaching. The Office for National Statistics said the unemployment rate edged up to 5.6 percent in the three months to May as the number of people in employment fell by 67,000, primarily because of fewer part-time workers. Economists had expected the rate to remain stable at 5.5 percent. Sterling initially fell by about half a cent against the dollar and British government bond prices rose. It was the first time the jobless rate had risen since early 2013, shortly before Britain's economy started to recover from the effects of the financial crisis. Wednesday's data also suggested the labour market remained weaker in June when the number of people claiming unemployment benefit rose by 7,000, the first increase since October 2012.

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