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

Saturday, July 4, 2015

week ending July 4

Fed’s Dudley: September rate rise ‘very much in play’ - FT.com: A Federal Reserve interest-rate hike will be “very much in play” at the central bank’s September meeting if the recent strengthening of the US economy continues, according to one of America’s top central bankers. William Dudley, the president of the Federal Reserve Bank of New York, said recent evidence of accelerating wage gains, improving incomes, and growing household spending had alleviated some of his concerns about the sustainability of momentum in America’s jobs market. Mounting evidence of recoveries in Europe and Japan had also reduced the economic divergence between the advanced economies – even if Greece remained a “huge wild card”, Mr Dudley said in an interview with the Financial Times. US growth stalled in the first quarter of the year, in part because of bad weather and a port strike, derailing arguments for a rate hike as soon as this month. Janet Yellen, the Fed chair, said in June the Fed wants to see more “decisive” evidence of strong growth before embarking on the first hike in nearly a decade. The New York Fed chief is a key voice in the central bank’s interest rate “lift-off” discussions and is perceived by some analysts to be at the cautious end of the spectrum of decision makers. He gave a muted assessment of the labour market just before the Fed’s June meeting, expressing worries about whether US employers could continue their rapid hiring amid weak output data. Speaking on Friday, Mr Dudley said the data since then have made him “less worried about the labour market piece”. He declined to reveal his personal forecast for when the Fed will first lift rates, indicating it was perfectly possible the central bank will wait until December before moving. “If we hit 2.5 per cent growth in the second quarter and it looks like the third quarter is shaping up for something similar, then I think you are on a firm enough track that you would imagine you would have made sufficient progress in our two tests [for a rate hike], certainly by the end of the year,” he said.

Fed’s Bullard Shrugs Off Greek Events, Points to Chance of Sept Rate Increase - Federal Reserve Bank of St. Louis President James Bullard said Tuesday Greek economic problems are unlikely to affect the U.S., leaving the Fed on track for rate rises later this year. What’s happening in Europe “would not change the timing of any rate hike. I would say September is still very much in play” for raising rates, Mr. Bullard told reporters after a speech in St. Louis. More broadly, he said “every meeting is in play depending on the data,” which he said had been “stronger” recently. He also described recent inflation data as being “more lively” and set to rise further over time. Mr. Bullard added that against crisis events in Europe, he’s actually grown more bullish on the U.S. outlook. Alluding to weak data at the start of the year, he said “the idea there was some major slowing in the U.S. economy has been dismissed at this point, therefore I do feel more confident” about what lies ahead. Mr. Bullard spoke with reporters as Greece defaulted on required payments to the International Monetary Fund, amid political brinksmanship over the terms of a deal that would work to keep the troubled nation in the European Union. Some have worried trouble there could roil the world economy and wound the U.S. as collateral damage, affecting the Fed’s desire to raise rates this year. Mr. Bullard said he wasn’t that worried about Greece, either for the U.S. or Europe. “I think that the risk of contagion to the rest of Europe from Greece is low” because the European Central Bank can address any trouble with its ongoing bond buying stimulus program, he said

Fed Should Keep Rates at Zero Until Mid-2016 to Avoid ‘Dark Corners,’ IMF Paper Says - The Federal Reserve should wait until the middle of 2016 to start raising short-term interest rates from near zero to ensure the economy is on a firmer footing and inflation is returning to the central bank’s 2% target after undershooting it for more than three years. That’s the message from a new working paper from the International Monetary Fund that lends some technical chops to the argument the fund’s Managing Director Christine Lagarde has been making to both U.S. and European officials: The world economy is still fragile and inflation very low, so don’t rush to tighten monetary policy just yet.“Such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation,” says the paper by a group of eight authors. The charts below show the divergent predicted paths of various economic indicators under the IMF’s proposed approach versus the Fed’s existing “flexible inflation targeting” system: Fed officials have said they expect to raise their benchmark short-term rate this year if the economy strengthens. Many of them started 2015 talking about a possible midyear rate increase. But they dropped that idea after the economy contracted in the first quarter and some have spoken recently about making their first move in September or December. The IMF approach would encourage officials to wait even longer, perhaps until mid-2016. That’s because of the argument, made by some top Fed officials, that the risks of moving rates higher too soon outweigh the costs of keeping them low for too long. The Fed has kept the benchmark federal funds rate in a zero to 0.25% range since December 2008.

Fed’s Bullard: Over Time, Tighter Policy May Be Needed To Ward Off Bubbles -- Federal Reserve Bank of St. Louis President James Bullard warned Tuesday that very low interest rates could create problems in the financial system, and suggested that in the future the U.S. central bank may need to set short-term rates at higher levels than would normally be the case to mitigate those risks. Mr. Bullard’s comments came from slides that were to accompany a presentation the official was to make before a local group in St. Louis. Mr. Bullard, who does not currently hold a voting role on the monetary-policy setting Federal Open Market Committee, did not say anything about the economy’s near-term prospects for growth and monetary policy. In his slides, the official noted that “the Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise” would be the case based on historical norms. “The benefit would be a longer, more stable economic expansion.” Mr. Bullard warned “my view is that low interest rates tend to feed the bubble process.” He did not point to any major imbalances right now even as he flagged high stock market levels as something to watch, acknowledging the role of technology could be changing how the economy interacts with financial markets. Mr. Bullard also noted that start-up firms, who when successful generate outsized job creation, are now being formed at a slower pace. Mr. Bullard’s suggesting that rates may need to be lifted more aggressively in the future puts him at odds with some of his central bank colleagues. Many key Fed officials are now gravitating to the view that changes in labor market demographics and other forces may mean the Fed could keep rates at a lower level relative to historic benchmarks. Most officials now expect that the long-term fed funds rate target, now at near zero levels, will likely stand at around 3.75%.

Hilsenrath Analysis: Jobs Report Keeps Fed on Track for 2015 Rate Increase - The Labor Department‘s June employment report, released Thursday, broadly confirmed the Federal Reserve‘s narrative about how the U.S. economic expansion is unfolding in 2015, keeping the central bank on track to raise short-term interest rates later this year, barring some new setback.The economy stumbled in the first quarter due to one-time shocks including bad weather, port shutdowns on the West Coast, statistical mismeasurement, a sharp drop in the price of oil, and increases in the value of the dollar. As Fed officials see it, the economy regained its footing in the second quarter, setting the stage for more robust growth in the second half of the year, continued improvement in the labor market, firming of U.S. consumer prices and at least one increase in the central bank’s short-term interest rate before year-end, possibly as early as September. Still, there were enough soft undercurrents in the report to keep Fed officials comfortable that they don’t need to hurry to raise rates and that once they start they can proceed gradually. Fed officials are split on whether to move once or twice in 2015, and the latest report appears unlikely to resolve that debate. A steady stream of Fed officials have said since their June policy meeting that a September rate increase is on the table.. Still, after Thursday’s jobs report, traders in futures markets lowered the odds on a move by then. June marked the 57th consecutive month of U.S. job gains, the longest stretch on record. However, the pace of payroll expansion has slowed. Employers have added an average 208,000 jobs a month, down from last year’s monthly average of 260,000. Moreover, wage growth is tepid. Average hourly earnings of private sector workers in June were $24.95, unchanged from the previous month and up 2% from a year earlier. While some other metrics of wage growth and unit labor costs have shown signs of picking up, the hourly earnings measure hasn’t.

The Fed shouldn't reason from a quantity change -- I often see Fed officials claiming that the fall in unemployment means that they need to raise interest rates. Sometimes this is based on "Phillips Curve" thinking---the (false) idea that inflation is caused by a booming economy. In fact, the relationship between economic growth and inflation depends on the nature of the shock hitting the economy. A positive supply shock causes growth and lower inflation, while a positive demand shock causes growth and higher inflation. Only in the latter case does growth require the Fed to raise interest rates. Consider the following AS/AD diagram, right out of EC101: Between 2007 and 2009, the AD curve shifted to the left. Output and inflation both fell. Since 2009, the SRAS curve has been gradually shifting to the right, as wage growth moderated from its normal 3.5% to about 2%/year. Notice that this sort of growth is not inflationary. That doesn't mean that the Fed should not raise rates this year, it does have a dual mandate. However it should not pay much attention to the unemployment rate, but rather should focus on variables like NGDP growth and wage growth. Early in the year there was some indication that wage growth was accelerating. But that no longer seems to be the case, and the latest figures show exactly 2.0% hourly wage growth over the past 12 months. That's the same rate as we've been seeing for the past 6 years, and is too low for the Fed to hit its 2% inflation target. There is no justification for raising interest rates when hourly nominal wage growth is below 2.3% on a 12-month basis. None.

Fed Watch: Events Continue to Conspire Against the Fed --Federal Reserve policymakers just can't catch a break lately. Riding on the back of strong data in the second half of last year, they were positioning themselves to declare victory and begin the process of policy normalization, AKA "raising interest rates." Then the bottom fell out. Data in the first half of the year turned sloppy. Although policymakers on average - and Federal Reserve Chair Janet Yellen in particular - could reasonably believe the underlying momentum of the economy had not changed, that the data reflected largely temporary factors, the case for a rate hike by mid-year evaporated all the same. The risk of being wrong was simply more than they were willing to bear in the absence of clear inflation pressures. The story was clearly shifting by the end of June. Key data on jobs and the consumer firmed as expected, raising the possibility that September was in play. Salvation from ZIRP, finally. Federal Reserve Governor Jerome Powell called it a coin toss. Via Bloomberg: Powell said he forecast stronger growth than in the first half of 2015, growth in the labor market and a “greater basis for confidence” in inflation returning to 2 percent.“If those things are realized, I feel that it is time, it will be time, potentially as soon as September,” Earlier, San Francisco Federal Reserve President John Williams said he expected two rate hikes this year. Via Reuters:"Definitely my own forecast would be having us raise rates two times this year, but that would depend on the data," Over the weekend, New York Federal Reserve President William Dudley also raised the possibility of September in an interview with the Financial Times.   No, September was not a sure bet, but you could see how the data evolved to get you there. But then came Greece. Greece - will it never end? the bailout proposal. Most of you know the story - run on Greek banks, the ECB ends further ELA extensions, a bank holiday is declared, likely missing a payment to the IMF etc., etc. At this juncture, everything in Greece is now in flux. Greece will be holding a referendum on a deal that apparently no longer exists, so it is not clear what negotiations would happen even if it passes. Moreover, it seems likely that the economic damage that will occur in the next week or longer will almost certainly require an even bigger give on the part of Greece's creditors. Is that going to happen? There is no exit plan to force Greece out of the Euro. What if Greece refuses to leave? How does Europe respond to a growing humanitarian crisis Greece as the economy collapsed? This could drag on and on and on.

Will The Turmoil In Greece Delay The First US Rate Hike? -- The escalating Greek crisis has raised new questions about the timing of the Federal Reserve’s plans for the first US rate hike since 2006. But by some accounts, it’s still mostly noise on this side the Atlantic. “This isn’t a ‘watch Greece’ situation,”says Roberto Perli, a former Fed staffer who’s now at Cornerstone Macro. “While we have chaos in Greece, there are no signs of dramatic contagion yet, and that’s why it doesn’t change the Fed’s tone.” Maybe so, but investors rushed into Treasuries yesterday as a precautionary move, sending the benchmark 10-year yield down a hefty 16 basis points to 2.33%–the lowest since June 19. The 2-year yield—considered the most sensitive spot on the yield curve for rate expectations–also retreated substantially, dipping to 0.64%, which marks the return to the lowest level of the month, based on Treasury.gov data. The market’s implied inflation forecast eased as well, based on the yield spread on the nominal 10-year Note less its inflation-indexed counterpart. The crowd’s prediction by this yardstick ticked down to 1.87%, the lowest since June 15. But this is all about the Greek drama rather than any reversal of macro fortunes in the US. Indeed, yesterday’s numbers on pending home sales—seen as a leading indicator of housing activity—rose to a nine-year high in May. “The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring,” said Lawrence Yun, chief economist at the National Association of Realtors. The upbeat figures follow last week’s buoyant reports on sales of existing and newly built houses and a revival in consumer spending in May. Nonetheless, optimism remains subject to stress testing with each new data point in the current climate,

Far Away Yet Close to Home: Discussing the Global Economy's Effects -  Atlanta Fed's macroblog - In case you needed any motivation to take interest in the outcome of ongoing negotiations between the Greek government and its international creditors, this excerpt from the Wall Street Journal ought to do it: Global growth is really important. We are all connected through the financial markets, through foreign-exchange markets," Fed governor Jerome Powell said last week in an interview with The Wall Street Journal. "If global growth weakens, or remains weak, and we get into a trend of that, then yes, that will be a big headwind for the United States economy." Last week, I participated in the latest edition of our webcast, ECONversations, devoted to the theme "what to make of the first quarter?" (The webcast can be found here). The conversation revolved around the Atlanta Fed staff's view of why 2015 began with such a whimper and ideas on prospects for improvement through the balance of the year. Not surprisingly, the international context loomed large. Between June 2014 and March 2015, the U.S. dollar appreciated by about 14 percent against a broad basket of currencies, and by about 20 percent against major currencies. The dollar has roughly remained in those neighborhoods since. As to the gross domestic product (GDP) side of the story, arithmetically net exports subtracted almost 2 percentage points off first quarter growth. A key assumption of our current outlook is that the international environment (including the exchange rate) will stabilize, and smoother sailing without the "big headwind" referenced by Governor Powell is ahead.

Never mind Greece, look at China -- While all eyes are focused on Greece, there is a potentially far more important crash going on. Via Sober Look comes this pair of charts:  China's stock market is crashing. It's very evidently a bubble bursting. The question is, what will be the knock-on effect to the Chinese economy, and indeed to the whole of South East Asia, Brutal sell-offs of this kind are rarely without economic cost, especially when the bubble is debt financed (as this one is). I can't see this ending well.

Fed Examines Wealth Redistribution Program; Decides It's Not Worth It --For seven long years the Fed has aggressively defended a monetary policy regime explicitly designed to inflate the type of assets most likely to be concentrated in the hands of the wealthy.  Despite the protestations of the man under whom these policies were implemented, the gap between the rich and everyone else has grown in post-crisis America. For evidence of this look no further than latest data on US household income, which shows that while the 0.001%, the 0.01%, the 0.1%, and the 1% have all nearly recovered their pre-crisis share of the national income, the bottom 50% of US filers' share is not only lower than it was in 2007, but is in fact lower than it was in the depths of the crisis. For further evidence of the ballooning wealth divide, simply consult the St. Louis Fed, where researchers recently opined that the American Middle Class “is under more pressure than [anyone] thinks.” The related study shows the fate of Middle Income America diverging sharply from that of the country’s “thrivers” (the name the Fed gives to society’s upper echelon).  And while those who, like Janet Yellen, understand how important it is to accumulate assets are doing quite well thanks to multiple iterations of unbridled money printing, the “wealth effect” — which was supposed to be the transmission mechanism whereby trillions in central bank liquidity would find its way to Main Street — simply never materialized. So, with housing becoming more unaffordable by the day and wage growth stagnant for 83% of workers, the San Francisco Fed apparently decided it was time to think about redistributing some of the hundreds of billions the FOMC has generated for America’s ultra rich in order to help out the have-nots and jump start consumer spending. Spoiler alert: after careful consideration, the bank decided redistribution probably isn’t worth the trouble.

Systemic Turmoil, Structural Reform -- Kunstler - All this trouble with money comes from one meta problem: aggregate industrial growth has ended. It has stopped more in some parts of the world than others, while in the USA it has actually been contracting. The cause is simple: the end of cheap energy, oil in particular. At over $70-a-barrel the price kills economies; under $70-a-barrel the price kills oil production. The bottom line is that, in the broadest sense, the world can no longer count on getting more stuff, except waste, garbage, political unrest, and the other various effects of entropy. From now on, there is only less of everything for a global population that has not stopped growing. The folks on-board are still having sex, of course, which has a certain byproduct.This dynamic was plain to see a decade ago, but the people who run finance and governments thought it would be a good idea to maintain the appearance of growth via the usufruct mechanisms of central banking: ZIRP, QE, market intervention, and universal accounting fraud. It’s not working so well. Debt was generated in place of the missing growth, and now there is too much of it that can’t be repaid on a coherent schedule. Many nations, parties, and entities are in trouble with debt and the prospective defaults are starting to pile up like SUVs on a fog-bound highway. Greece is just the first one fishtailing into a guard-rail. The magic moment will come when it becomes obvious that these systemic quandaries have no solution. The system itself is programmed for implosion, in particular and most immediately the banking sector, where most of the untruth and illusion is lodged these days. As it stands exposed, the people are compelled to shake off their faith in what it represents: order, authority, trust. Institutions fail and each failure acts as a black hole, sucking air, light, and even time out of the system.

Why There Is No Growth: The Entire S&P 500 Free Cash Flow Is Going Back To Shareholders -- In perhaps the best example of just how massive the impact of returns to shareholders have become, Deutsche Bank shows a snapshot the S&P's consolidated income statement as of 1995 and 2015. While there are some clearly material changes transformations: the rise of financials' revenues above energy companies for one, the drop in net interest expense margin courtesy of ZIRP, the record high net income margin as a result of massive, if double seasonally-adjusted layoffs, one thing stick outs: virtually all of the corporate Free Cash flow in 2015 will go back to shareholders, as dividends and buybacks represent 94% of total S&P FCF uses. Contrast this with "only" 60% of FCF in 1995 going back to shareholders and one can see why the US economy is caught in secular contraction in which virtually nobody wants to invest for the future and instead is forced to distribute all unretained earnings here and now.

Macroeconomic Effects of High-Frequency Uncertainty - Macroeconomic and financial uncertainty is often considered as one of the key drivers of the collapse in global economic activity in 2008-2009 as well as one of the factors hampering the ensuing economic recovery (see, e.g., Stock and Watson (2012)). While it has long been acknowledged that uncertainty has an adverse impact on economic activity (Bernanke (1983)), it is only recently that the interest in measuring uncertainty and its effects on economic activity has flourished (see, e.g., the literature review in Bloom (2014)).  A key issue relates to the measurement of uncertainty. Despite a large number of uncertainty measures available in the literature, there is a fairly general consensus on the macroeconomic effects of uncertainty, in that uncertainty shocks are typically associated with a broad-based decline in economic activity. In particular, private investment is often estimated to exhibit a strong adverse reaction to uncertainty shocks. In a recent paper, we evaluate the effects of uncertainty shocks on the U.S. macroeconomic environment. In particular, we concentrate our analysis on the effects of high-frequency (i.e., daily or weekly) uncertainty shocks on low-frequency (i.e., monthly or quarterly) variables. In fact, it is natural to think that there could be insights to gain from the use of high-frequency data in that daily uncertainty measures are often characterized by temporary spikes that are not necessarily reflected in lower-frequency measures of uncertainty (see Figure 1). As a result, aggregating high-frequency uncertainty measures at a lower frequency could lead to a loss in information that may be detrimental for statistical inference. Likewise, if economic agents make their decisions at a high-frequency unit (say weekly frequency) but that the econometric model is estimated at a lower frequency (say monthly or quarterly), this could well lead to erroneous statistical analysis (see, e.g., Foroni and Marcellino (2014)). In the econometric jargon, this is dubbed as a temporal aggregation bias.

The Economy’s Missing Metrics - Nearly every day, a few hundred federal workers, carefully spread around the United States by a rigorous statistical model, carry out a peculiar task on a special, secure tablet computer. Throughout the day, they are directed to visit specific stores in search of specific items — say, organic romaine lettuce hearts; or a 2015 Hyundai Sonata Sport with the premium package; or a men’s long-sleeve button-down shirt, blue, size XL and made of 80 percent cotton and 20 percent polyester. Over the course of the month, 80,000 prices are entered into tablets throughout the country, and the data flow to Washington for processing. Parsed and analyzed by economists, that information determines the official United States government inflation rate: arguably the most influential bit of data in the world, determining whether new factories are built, new employees hired.Inflation is just one of the many economic statistics that the federal government creates. There’s unemployment, trade in goods and services, personal income, consumer spending, rental vacancy, new home construction and thousands more. These statistics are not objective facts of the world, like the standard boiling point of water or the mass of a stone; instead, their very measurement creates them. Slight shifts in the design of surveys or the assumptions about the answers can lead to quite different results. Because they rely on fixed definitions — created decades ago — of the phenomena they’re charged with measuring, they do a poor job of capturing the ways in which people’s economic lives are changing. The statistics are all but useless at measuring the change in general welfare created by new technologies, like Google Search, that make once tiresome tasks far easier to complete (at the cost of adding a whole universe of time-wasting distractions). In measuring employment, the stats are built around a model of full-time, fixed jobs in fixed locations; they struggle to keep track of Uber-like companies that employ people for brief gigs with no central workplace. Entrepreneurship, too, is measured quite crudely: It’s impossible, just looking at the new-firm stats, to distinguish the creation of Facebook from the opening of a small deli in Dubuque.

Answers to Questions About Dynamic Analysis - CBO - In May, the Congress adopted a concurrent resolution on the budget for fiscal year 2016. That resolution requires CBO, to the greatest extent practicable, to incorporate macroeconomic effects into its 10-year cost estimates for major legislation that Congressional committees approve. Such estimates must also include, when practicable, a qualitative assessment of the budgetary effects for the following 20 years. Incorporating such macroeconomic feedback into cost estimates is often called dynamic scoring.  Last month I gave a presentation at the Heritage Foundation to describe how CBO will implement dynamic scoring in response to that new requirement. Since the Congressional budget process was established in the 1970s, CBO’s cost estimates have typically not included dynamic analysis. (Among the few exceptions was our cost estimate in 2013 for immigration legislation that would have substantially increased the U.S. labor force.) Apart from cost estimates, CBO has produced estimates of how some proposals that would significantly change federal spending and tax policies would affect the overall economy, as well as how such effects would affect the federal budget. Most recently, in June, CBO published an estimate of the budgetary effects of repealing the Affordable Care Act, which analyzed the main budgetary and economic effects of repealing that law. That report, in particular, serves as a good example of how CBO intends to present such dynamic estimates under the new requirement. (You can see these reports and other work in this area on our Dynamic Analysis web page.)

SS Overpayments only 0.13% of Budget -   Sensational media known as HEADLINE NEWS is sometimes just "yellow journalism" (like tabloid news magazines) to get readers, to sell advertising. The Daily Signal's recent headline was: Report: Nearly Half of Social Security Disability Beneficiaries Were Overpaid By Government — and the Chicago Tribune's headline was: Report: Social Security overpaid disability recipients $17 billion. (Which was concluded over a ten year study.) But if you read the Chicago Tribune's article, they acknowledge that "approximately 99.8 percent of all Social Security payments were free of overpayment, and nearly 99.9 percent were free of underpayment." FYI: Divided over 10 years, $17 billion is $1.7 billion a year — which is still a lot of money — unless you put that in context. According to The Center on Budget and Policy Priorities, in fiscal year 2014, the federal government spent $3.5 trillion, amounting to 20 percent of the nation's $17.5 trillion Gross Domestic Product (GDP). That year 24 percent of the budget, or $851 billion, was paid for all Social Security benefits (which provided monthly retirement benefits averaging $1,329 to 39.0 million retired workers, benefits to 2.3 million spouses and children of retired workers, 6.1 million surviving children and spouses of deceased workers, and 10.9 million disabled workers and their eligible dependents.)  So $1.7 billion is less that 0.2% of the money spent on Social Security --- or --- we can say $1.7 billion a year is only a mere 0.13% of the $1.3 trillion annual budget ($1,700,000,000 divided by $1,300,000,000,000). According to a recent report by the Office of the Inspector General of the Social Security Administration (which even the article at The Daily Signal acknowledges), HALF OF THAT MONEY WAS RECOVERED! So even my headline is wrong. It's not 0.13% of the total annual budget that is lost to over-payments in disability benefits, but only a mere 0.065%!

Cost Of "War" With ISIS Hits $9.2 Million Per Day -- While the US waits patiently for just the right time and/or excuse to “intervene” in Syria’s bloody civil war (which continues to claim lives even as the conflict’s outcome is preordained) the American taxpayer is paying a hefty price to support the “battle” against the CIA’s “strategic asset” gone rogue.  And while the cost will only grow once Washington determines boots on the ground forwardspotters are necessary to increase the accuracy and efficiency of the “coalition” air campaign, the DoD was kind enough to produce a few handy infographics which detail the current cost associated with countering ISIS’ decision to abandon its Assad usurpation directive in favor of establishing a medieval Islamic caliphate. The damage: about $9.2 million per day or around $3 billion in total, meaning the US could have created around 67,000 average jobs with the money it's spent fighting the group.

Russia v. China – Washington Debates Who Should Be Public Enemy Number One - Michael Klare - America’s grand strategy, its long-term blueprint for advancing national interests and countering major adversaries, is in total disarray. Top officials lurch from crisis to crisis, improvising strategies as they go, but rarely pursuing a consistent set of policies. Some blame this indecisiveness on a lack of resolve at the White House, but the real reason lies deeper. It lurks in a disagreement among foreign policy elites over whether Russia or China constitutes America’s principal great-power adversary. Knowing one’s enemy is usually considered the essence of strategic planning.  When the USSR imploded and disappeared, all that was left to challenge U.S. dominance were a few “rogue states.” In the wake of 9/11, however, President Bush declared a “global war on terror,” envisioning a decades-long campaign against Islamic extremists and their allies everywhere on the planet. From then on, with every country said to be either with us or against us, the chaos set in. Invasions, occupations, raids, drone wars ensued — all of it, in the end, disastrous — while China used its economic clout to gain new influence abroad and Russia began to menace its neighbors. Among Obama administration policymakers and their Republican opponents, the disarray in strategic thinking is striking. There is general agreement on the need to crush the Islamic State (ISIS), deny Iran the bomb, and give Israel all the weapons it wants, but not much else. There is certainly no agreement on how to allocate America’s strategic resources, including its military ones, even in relation to ISIS and Iran. Most crucially, there is no agreement on the question of whether a resurgent Russia or an ever more self-assured China should head Washington’s enemies list.

Leaked dogfight test reveals that F-35 jet is in 'very big trouble' -  It's the most expensive weapon ever built in human history. But after decades of internationally-funded research and development at an estimated cost of a trillion dollars, a leaked report from a mock combat test reveals that the F-35 is terrible at air-to-air combat.  "[The report found that] the F-35 cannot turn or accelerate fast enough to maneuver into an advantageous position to shoot at an F-16," says David Axe, a military journalist and blogger. "Nor can it escape an F-16 that's attacking it.""The F-16 is not a new airplane," he continues telling As It Happens guest host Susan Bonner. "This is a 40-year-old design. The actual F-16 that the F-35 test pilot was battling against in this mock combat was probably more than 20 years old. It rolled off the factory line in the 1980s and also is one of the more sluggish F-16 versions. This particular airplane happened to be lugging two extra under-wing fuel tanks, which made it even slower." A page from the leaked F-35 test with the pilot’s own account from mock air battles in January.Currently, Canada's purchase of F-35s is on hold, but not out of the question.Axe says that if the United States and Canada rely on F-35s as their only planes, that they will be outmatched by other countries' jet technology for the first time since the Cold War.

Conservatives Conquer the Export-Import Bank - Wednesday, the charter of the U.S. Export-Import Bank expired for the first time in its 81-year history. Little-known to most Americans outside Washington or the business community, the Export-Import Bank is a federal lending agency that helps U.S. firms connect with markets overseas. Its backers assert that the bank supports hundreds of thousands of American jobs. But for the last several years, the bank has become enmeshed in a proxy battle between Tea Party-aligned conservatives who want to kill the bank and establishment Republicans (and most Democrats) who have supported it for decades. Led by Representative Jeb Hensarling, a Texas conservative who chairs the House Financial Services Committee, critics of the bank say it exemplifies a kind of “crony capitalism” in which government assistance goes disproportionately to large corporations like Boeing and General Electric that don’t need federal help.The conservative victory came as a result of Congress doing what it does best: Nothing. Despite an aggressive push from Democrats, the White House, and powerful industry groups like the U.S. Chamber of Commerce, neither the House nor Senate held binding votes on its reauthorization as the deadline approached. Conservatives rejoiced. “We did it!”exclaimed Heritage Action in a statement tweeted at midnight.

US trade vote puts TTIP on faster track – Following Congress’ hard-fought approval of “fast-track” trade authority last week, U.S. Trade Representative Michael Froman vowed not only to complete the 12-nation Trans-Pacific Partnership but an even bigger pact with the European Union and three other major trade deals — all in the 18 months remaining in President Barack Obama’s term. It could add up to the biggest trade blitz in history, transforming the rules under which the world does business. “We’ve got a lot of pots on the stove,” Froman told POLITICO while watching senators cast their final votes to send the legislation to the president. “We want to get TPP done and through Congress. We want to get TTIP negotiated. We’re going to finish ITA. I’m hoping to finish EGA and TISA.” Those would be, in order: the Transatlantic Trade and Investment Partnership agreement with the European Union, an even bigger pact than the TPP in terms of economic size; the World Trade Organization’s Information Technology Agreement, which covers about 97 percent of world IT trade; the Environmental Goods Agreement, accounting for 86 percent international commerce in green goods; and the 24-party Trade in International Services Agreement, which involves three-quarters of the United States’ gross domestic product and two-thirds of the world’s services, such as banking and communications. Obama signed the fast-track law on Monday. Now, Froman aims to wrap up the talks on the trans-Pacific deal, covering nearly 40 percent of world economic output, this summer, setting the stage for another intense trade debate in Congress and vote on the pact before winter begins. He could finish the equally ambitious agreement with the European Union and the slew of other potential trade deals before leaving office, including an investment pact with China, and work to ensure that World Trade Organization members actually implement an agreement to facilitate cross-border trade.

Leaked: What’s in Obama’s trade deal: A recent draft of the Trans-Pacific Partnership free-trade deal would give U.S. pharmaceutical firms unprecedented protections against competition from cheaper generic drugs, possibly transcending the patent protections in U.S. law. POLITICO has obtained a draft copy of TPP’s intellectual property chapter as it stood on May 11, at the start of the latest negotiating round in Guam. While U.S. trade officials would not confirm the authenticity of the document, they downplayed its importance, emphasizing that the terms of the deal are likely to change significantly as the talks enter their final stages. Those terms are still secret, but the public will get to see them once the twelve TPP nations reach a final agreement and President Obama seeks congressional approval. Still, the draft chapter will provide ammunition for critics who have warned that TPP’s protections for pharmaceutical companies could dump trillions of dollars of additional health care costs on patients, businesses and governments around the Pacific Rim. The highly technical 90-page document, cluttered with objections from other TPP nations, shows that U.S. negotiators have fought aggressively and, at least until Guam, successfully on behalf of Big Pharma.

Trans-Pacific Partnership: Leaked Trade Deal Draft Shows Big Pharma's Sway:  The Obama administration has lauded the 12-nation Trans-Pacific Partnership (TPP) as the most progressive trade deal in history. But a recently leaked chapter of the draft deal, obtained by Politico, reportedly shows a U.S. negotiating team devoted to protecting pharmaceutical industry profits at the expense of cheaper generic drugs in the 12 countries affected. The provisions pushed by American trade representatives in the May version of the TPP's intellectual property chapter included measures that would strengthen patent protections across borders, Politico reports. Known as patent linkage, these rules prevent a country from approving cheaper generic drugs if a patent-holder has filed a legal challenge in a member state. Consumer advocates argue that patent linkage makes it harder for generic drug companies to operate abroad, meaning steeper health costs for the 800 million inhabitants of TPP countries. “It would create higher drug prices around the world," Doctors Without Borders director of policy Rohat Malpini told Politico. "And in the U.S. too." The Generic Pharmaceutical Association, a trade group, has estimated that using generic drugs in lieu of their brand-name competitors has saved Americans $1.5 trillion over the last decade. The TPP has stirred heated political debate over the past several months. President Obama waged an ultimately successful battle to lay the legislative groundwork for the deal's passage, raising the hackles of progressive politicians like Sen. Elizabeth Warren, D.-Mass. Like most trade deals, the draft text of the TPP is not publicly available, though a steady stream of leaks has trickled out of the negotiationg room.

TiSA WikiLeaked: Winners & losers of multinational trade deal - WikiLeaks has published secret “core text” related to the controversial trade agreement currently being negotiated behind closed doors between the US, EU and 23 other countries. Big corporations look to be the biggest winners in the deal. Leaked documents of TiSA (Trade in Services Agreement) negotiations reveal that the treaty is looking to undermine “governments involved in the treaty” by supporting multinational companies instead of local businesses, according to a WikiLeaks press release.  The revelations come just one week before TiSA talks resume on July 6. Negotiations have been taking place in secret since early 2013.   The economies of the member countries now comprise two-thirds of global GDP. To make matters even more concerning, all the BRICS countries – Brazil, Russia, India, China, and South Africa – have been excluded from the TiSA negotiations.  Even after the deal is finalized, WikiLeaks said that the TiSA documents are meant to remain secret for five years.  The agreement is part of the strategic “T-treaty trinity”: the Trans-Pacific Partnership (TPP), TiSA, and the Transatlantic Trade and Investment Partnership (TTIP). It complements the other two global trade agreements dealing with goods and investments, which are all currently being negotiated in secret. TiSA is believed to be the largest component of the three.   WikiLeaks’ analysis of the core text, compiled by University of Auckland law professor Jane Kelsey, stresses that the trade treaty aims to limit governments’ ability to regulate national services and gives unprecedented freedom to foreign corporations. The idea seems to be to privatize services on a global scale.

WikiLeaks: EU Diplomat Interpreted US TPP as Hostile to China  — A European Union (EU) trade expert secretly told a French economics minister that America's Trans-Pacific Partnership (TPP) seemed designed to provoke a confrontation with China, according to a US intelligence intercept published on WikiLeaks. “[The EU Trade Section head Hiddo] Houben stated [to French Minister-Counselor Jean-Francois Boittin] that the TPP… seems devised as a confrontation with China,” the document, one of seven published by WikiLeaks on Monday, said. The TPP is an ambitious trade pact negotiated between the United States and 12 Asian and Pacific Rim nations covering 40 percent of the world economy. The pact excludes China. Houben pointed out that Washington was “negotiating with every nation that borders China, asking for commitments that exceed those countries' administrative capacities, so as to ‘confront’ Beijing.” Houben then expressed skepticism if the TPP agreement takes ten years to negotiate, “the world — and China — will have changed so much that that country likely will have become disinterested in the process,” making the entire initiative a wasted effort.

Will the US keep winning indefinitely? ISDS, that is  -- Now that Congress has given the President fast-track Trade Promotion Authority, the first agreement to be considered under these rules (no amendments allowed, up or down vote in 90 days) will be the Trans-Pacific Partnership (TPP). As you know from previous columns, one of the most worrying aspects of the TPP is its expansion of investor-state dispute settlement (ISDS), wherein private firms can bring their disputes with governments not to courts, but to international arbitration (usually through units of the World Bank or the United Nations), where legal precedent doesn’t matter and appeal is all but non-existent. Moreover, as the Consumers Union has long argued (recent example here), arbitration has a well-known pro-business bias. That’s why so many of your agreements with cable TV providers, financial services companies, and many more have fine print requiring mandatory arbitration, keeping you from getting your day in court if something goes wrong.  The response from the U.S. Trade Representative’s (USTR) office has been, “Not to worry! The United States has never lost an ISDS case.” The linked document goes on to claim that worldwide, only 1/4 of corporate plaintiffs have won cases against governments. But a new analysis by the International Institute for Sustainable Development (IISD),* using the same data source the USTR cites, comes to a very different conclusion based on its most recent update, the 2015 World Investment Report from the United Nations Conference on Trade and Development (UNCTAD). Moreover, we can see that countries with even more trustworthy court systems than that in the U.S. have lost ISDS cases. The Rule of Law Project, an initiative of the American Bar Association, has ranked 102 countries on the administration of justice and freedom from corruption, and puts the United States at #19 with a score of 0.73. Yet #14 Canada (0.78) has already lost ISDS cases, and both Canada and #10 Australia (0.80) are currently on the hook for major new cases (Eli Lilly and Philip Morris, respectively), that would overrule decisions by the countries’ respective Supreme Courts.

SF Fed: Robin Hood Economic Policies May Not Boost Economy That Much -  Taking money from the rich and giving it to those less well-off may not generate the stimulative boost to the economy many economists and policy makers currently believe. New research from the San Francisco Fed, released Monday, takes stock of so-called redistributive economic policies. Simply put, these strategies take money from those that have the most of it, generally by way of taxation, and give it to those who have the least. Long-standing economic thinking holds that lower-income households, many of which are already operating beyond their respective means, are likely to spend more of this windfall. As a result, the redistribution can have a more powerful stimulative impact on the economy as a whole, making it an attractive strategy for elected leaders to pursue. But the San Francisco Fed paper warns this may not be so based on a better understanding of how families in different income brackets spend, save and borrow. Authors write “there is evidence that differences in propensities to consume this additional income across households are smaller than commonly assumed.” What’s more, the ability to borrow is important, and can “provide the opportunity for lower-income households to smooth their consumption and maintain it at an acceptable level even when their incomes decline, thereby providing an alternative source of economic stimulus,” they said. According to the 2013 Consumer Expenditures Survey compiled by the Bureau of Labor Statistics, households at the bottom on the income distribution operate deep in the hole: For every dollar one of those households takes in, it spends two, riding on a sea of credit. Meanwhile, the survey shows top end incomes spend about two-thirds of every dollar that comes in, suggesting a sizable ability to save.

SEC Hits Private Equity Kingpin KKR for $29 Million, Including $10 Million in Fines -- Yves Smith - The SEC has taken action against a major private equity firm, KKR, slapping it with close to $30 million in charges, consisting of $10 million in penalties and nearly $19 million in disgorgement and interest. We’ve embedded the SEC order at the end of the post. The agency had described widespread lawbreaking in the industry over a year ago, in a surprisingly forceful speech by its now former head of examinations, Andrew Bowden. Critics had pointed to the disconnect between the fact that Bowden said that more than half the firms examined had engaged in what amounted to stealing or other serious compliance violations, yet the agency was entering into only penny ante settlements and orders against small players. The settlement with KKR is not as much of a departure from this practice as it might appear. While it’s a step in the right direction to see the agency take on one most powerful firms in this industry, these fines are nuisance level to a player as large and profitable as KKR. The scam is straightforward: KKR incurred what are called “broken deal expenses” for transactions that were not completed. For the funds in question, totaled $338 million over from 2006 to 2011. KKR had so-called “flagship” funds, which were marquee funds, and co-investments in these funds, where preferred parties invested in particular companies in these funds without paying the same fees the limited partners pay. Co-investors are in a preferred position, effectively investing alongside the general partner. The co-investo here included KKR executives and consultants (almost certainly from its captive consulting firm, KKR Capstone).

NYSE Margin Debt: A 1.6% Decline from Last Month's Record High -- The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let's examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.The first chart shows the two series in real terms — adjusted for inflation to today's dollar using the Consumer Price Index as the deflator. At 1995 start date is we were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak. Debt hit a trough in February 2009, a month before the March market bottom. It then began another major cycle of increase. The NYSE margin debt data is about a month old when it is published. The latest debt level is down 1.6% month-over-month from April's record high. Real (inflation-adjusted) debt declined 2.08% month-over-month.

Panicked Hedge Funds Now Praying for a Miracle in Greece  - Wolf Richter - On Monday, the US-listed Greek ETF (GREK), a substitute measure for the closed Athens stock market, plunged nearly 20%, an indication of where the already battered Greek stocks might be headed. The ETF was started in crisis-year 2012, as part of the early hype to invest in Greece. It’s down 61% from its peak in March 2014. Greek bonds too plunged in value, with the 10-year yield shooting up over four percentage points to 15.1%, the highest since 2012. Hedge funds were already betting on, not against, Greece. With ceaseless hype during 2013 and 2014, they inundated the media with their buy-Greece meme, how Greek markets would rally as the reforms would push the economy forward, how banks, stuffed to the gills with more bailout money, would get back on their feet, and how Greeks would somehow become confident that their banks were solid. This hype about Greek stocks, bonds, and a myriad other “opportunities” become so deafening that the ultimate smart money started believing it themselves. Now, as the New York Times reported, they’re panicking…. I just can’t believe these guys are willing to torch their own country,” one investor with a large holding of Greek bonds lamented in an email. “They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don’t get paid because banks shut — what are they going to do?” During peak hype a year ago, there were perhaps 100 hedge funds plowing what they thought was fertile financial soil. But when things began to curdle again in late 2014 and in 2015, many of them bailed out, selling what they could.

Fed’s Brainard Sees Little Evidence of Strains in Market Liquidity - Federal Reserve governor Lael Brainard on Wednesday pushed back against industry complaints that post-crisis reforms to financial regulation are reducing market liquidity–the ability to buy and sell securities quickly–and potentially laying the groundwork for another bout of turmoil. A rising chorus of Wall Street analysts and other big investors have been making the case that financial reforms undertaken as part of the Dodd-Frank legislation might be inadvertently fueling the prospect of liquidity shortages in key markets, such as was seen during the credit crunch of 2007 and the financial meltdown of 2008. However, Ms. Brainard dismissed the notion that new financial rules designed to make the system safer might be doing the opposite by, for instance, forcing financial institutions to hold more assets viewed as safe and liquid, such as Treasury bonds and equity capital. “Although anecdotes of diminished liquidity abound, statistical evidence is harder to come by,” Ms. Brainard told the Salzburg Global Seminar at an event in the Austrian city. “Indeed, there is relatively little evidence of any deterioration in day-to-day liquidity. Traditional measures of liquidity, such as bid-asked spreads, are generally no higher than they were pre-crisis,” the official added. Ms. Brainard said the Fed will continue to monitor key markets for signs of strain, but that recent efforts had not turned up any flaring risks. In that vein, in the Fed’s latest round of bank “stress tests,” she said, “the severely adverse scenario featured a large decrease in the prices of corporate bonds.” For now, Ms. Brainard doesn’t see major cause for concern.

CFPB Publishes More Than 7,700 Detailed Financial Grievances To Public-Facing Database - Sharing your nightmare experience with a financial institution, product or service could help another consumer avoid such dastardly situations. And from the looks of the Consumer Financial Protection Bureau’s new public-facing Consumer Complaint Database, people have a lot to share.  Just three months after the CFPB finalized a policy giving consumers the opportunity to share details about their issues with financial companies for public consumption, the Bureau announced it has posted more than 7,700 complaints for others to peruse. The CFPB accepts complaints on many consumer financial products, including credit cards, mortgages, bank accounts, private student loans, vehicle and other consumer loans, credit reporting, money transfers, debt collection and payday loans. The newly added first-hand consumer narratives are searchable and contain company responses, if available.“Publishing these consumer stories today is a historic milestone that we believe will lead to better outcomes for everyone,” Richard Cordray, director of the CFPB, said in a statement. While the CFPB’s previous complaint process allowed consumers to fill out a detailed description of their complaint, that information is kept private. Now, however, those grievances are posted for the whole world to see, as long as the complainant opts to make it public.

Rating Agencies and “Too-Big-to-Fail” Since Dodd-Frank - NY Fed - Did the Dodd-Frank Act end ‘‘too-big-to-fail’’ (TBTF)? In this series of two posts, we look at this question through the lens of rating agencies and financial markets. Today we begin by discussing rating agencies’ views on this topic.  To address TBTF, the Dodd-Frank Act requires the Federal Reserve to impose enhanced prudential standards for the largest bank holding companies, and introduces new resolution mechanisms to deal with large financial institutions in distress. Large, systemically important financial institutions must now submit to the Fed and the Federal Deposit Insurance Corporation (FDIC) resolution plans (“living wills”) that detail their plan for rapid and orderly resolution under the U.S. Bankruptcy Code in the event of failure. In addition, Title II of the Dodd-Frank Act authorizes the FDIC to wind down financial companies whose resolution under ordinary bankruptcy law might destabilize the financial system. The FDIC has developed a “single point of entry” (SPOE) strategy (discussed below) for implementing its Orderly Liquidation Authority (OLA) for resolving large financial companies.

What Do Bond Markets Think about “Too-Big-to-Fail” Since Dodd-Frank? - NY Fed - Second in a two-part series --In our previous post, we concluded that, in rating agencies’ views, there is no clear consensus on whether the Dodd-Frank Act has eliminated “too-big-to-fail” in the United States. Today, we discuss whether bond market participants share these views. As we discussed in our post on Monday, the Dodd-Frank Act includes provisions to address whether banks remain “too big to fail.” Title II of the Act creates an orderly liquidation mechanism for the Federal Deposit Insurance Corporation (FDIC) to resolve failed systemically important financial institutions (SIFIs). In December 2013, the FDIC outlined a “single point of entry” (SPOE) strategy for resolving failing SIFIs that, in principle, should obviate bailouts. Under the SPOE, the FDIC will be appointed receiver of the top-tier parent holding company, and losses of a subsidiary bank will be assigned to shareholders and unsecured creditors of the holding company (in a “bail-in” arrangement). The company may be restructured by shrinking businesses, breaking it into smaller entities, liquidating assets, or closing operations to ensure that the resulting entities can be resolved in bankruptcy. Crucially, during this process, the healthy subsidiaries of the company, including any banks, will maintain normal operation, thus avoiding the need for bailouts to prevent systemic instability.

June 2015: Unofficial Problem Bank list declines to 309 Institutions, Q2 2015 Transition Matrix --This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for June 2015. Update on the Unofficial Problem Bank List for June 2015. During the month, the list fell from 324 institutions to 309 after 16 removals and one addition. Assets dropped by $1.4 billion to an aggregate $89.8 billion. A year ago, the list held 468 institutions with assets of $149.2 billion. The addition this month was Harvard Savings Bank, Harvard, IL ($161 million). With it being the end of the second quarter, we bring an update on the transition matrix. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, a total of 1,694 institutions have appeared on the list at some point. There have been 1,385 institutions have come and gone on the list. Departure methods include 760 action terminations, 392 failures, 219 mergers, and 14 voluntary liquidations. The second quarter of 2015 started with 349 institutions on the list, so the 36 action terminations during the quarter reduced the list by 10.3 percent. Although it is easier to achieve a high removal percentage given the smaller overall list count, the 10.3 percent quarterly removal rate is the third fastest since the list has been published. Of the 389 institutions on the first published list, 40 still remain nearly six years later. The 392 failures are 23.1 percent of the 1,694 institutions that have appeared on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

We Must Fight Economic Apartheid in America - Robert Reich - Almost lost by the wave of responses to the Supreme Court’s decisions last week upholding the Affordable Care Act and allowing gays and lesbians to marry was the significance of the Court’s third decision – on housing discrimination.  In a 5-4 ruling, the Court found that the Fair Housing Act of 1968 requires plaintiffs to show only that the effect of a policy is discriminatory, not that defendants intended to discriminate. The decision is important in the fight against economic apartheid in America – racial segregation on a much larger geographic scale than ever before.  The decision is likely to affect everything from bank lending practices whose effect is to harm low-income non-white borrowers, to zoning laws that favor higher-income white homebuyers. Thirty years ago most cities contained a broad spectrum of residents from wealthy to poor. Today, entire cities are mostly rich  (San Francisco, San Diego, Seattle) or mostly impoverished  (Detroit, Baltimore, Philadelphia). Because a disproportionate number of the nation’s poor are black or Latino, we’re experiencing far more segregation geographically.  According to a new study by Stanford researchers, even many middle-income black families remain in poor neighborhoods with low-quality schools, fewer parks and playgrounds, more crime, and inadequate public transportation. Blacks and Hispanics typically need higher incomes than whites in order to live in affluent neighborhoods. The income gap between poor minority and middle-class white communities continues to widen. While the recovery has boosted housing prices overall, it hasn’t boosted them in poor communities. That’s partly because bank loan officers are now more reluctant to issue mortgages on homes in poor neighborhoods – not because lenders intend to discriminate but because they see greater risks of falling housing values and foreclosures. But this reluctance is a self-fulfilling prophecy. It has reduced demand for homes in such areas – resulting in more foreclosures and higher rates of vacant and deteriorating homes. The result: further declines in home prices. 

Maine lawmakers tighten foreclosure rules in win for consumers —Homeowners in Maine gained stronger protection against bank foreclosures under legislation approved late on Tuesday over the objections of some of the United States’ largest lenders in what consumer advocates called a win for homeowners. The new law makes Maine one of few U.S. states to legislate over accusations nationwide that banks used suspect mortgage documentation in home foreclosures after the 2008 credit crisis. The focus of the dispute is Mortgage Electronic Registration Systems, set up by U.S. banks before the housing bubble of the 2000s. MERS was meant to streamline the packaging of loans into mortgage-backed bonds. After the bubble burst, MERS was besieged by litigation. MERS lists itself as holder of millions of U.S. mortgages, allowing lenders to bypass public records when mortgage loans are bought and sold. During the housing crisis, critics said, MERS helped lenders push out poorly documented mortgages, confused homeowners about the true owner of their loans, and contributed to wrongful foreclosures. Gov. Paul LePage vetoed the Maine legislation, but the state Legislature overrode the veto Tuesday night. The law effectively affirms a 2014 Maine Supreme Judicial Court ruling that challenged a MERS-related foreclosure, though limiting its impact to future cases. “This isn’t just technical nonsense. This is a really powerful step in restoring the integrity of the real estate title system,” said Thomas Cox, a Maine attorney who argued the case before Maine’s highest court.

Fannie Mae: Mortgage Serious Delinquency rate declined in May, Lowest since August 2008 -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in May to 1.70% from 1.73% in April. The serious delinquency rate is down from 2.08% in May 2014, and this is the lowest level since August 2008.   The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.  Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in May to 1.58%. Freddie's rate is down from 2.10% in May 2014, and is at the lowest level since November 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.   These are mortgage loans that are "three monthly payments or more past due or in foreclosure". The Fannie Mae serious delinquency rate has only fallen 0.38 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will be below 1% in 2017. The "normal" serious delinquency rate is under 1%, so maybe serious delinquencies will be close to normal in 2017. This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Index up 14% YoY --From the MBA: Mortgage Applications Drop in Latest MBA Weekly Survey as Rates Increase Mortgage applications decreased 4.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 26, 2015. ...m The Refinance Index decreased 5 percent from the previous week to its lowest level since December 2014. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 14 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.26 percent, its highest level since October 2014, from 4.19 percent, with points decreasing to 0.33 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. With higher rates, refinance activity is at the lowest level since December 2014. 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 14% higher than a year ago.

Black Knight: House Price Index up 1.0% in April, 4.9% year-over-year - Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From Black Knight: April Transactions U.S. Home Prices Up 1.0 Percent for the Month; Up 4.9 Percent Year-Over-Year. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales. For a more in-depth review of this month’s home price trends, including detailed looks at the 20 largest states and 40 largest metros, please download the full Black Knight HPI Report.   The Black Knight HPI increased 1.0% percent in April, and is off 7.6% from the peak in June 2006 (not adjusted for inflation).  The year-over-year increase in the index has been about the same for the last seven months.  The press release has data for the 20 largest states, and 40 MSAs.  Black Knight shows prices off 39.5% from the peak in Las Vegas, off 33.4% in Orlando, and 29.1% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado, New York, Tennessee and Texas, and several other cities around the country.

Black Knight: Home prices rise 1% in April from March - U.S. home prices were up 1% for the month, rising 4.9% on a year-over-year basis, according to Black Knight's latest Home Price Index report, based on April 2015 residential real estate transactions. This puts national home prices up nearly 3% since the start of the year and up just under 24% since the bottom of the market at the start of 2012. At $248,000, the national level HPI is now just 7.6% off its June 2006 peak of $268,000. Washington led gains among the states, seeing 2.0% month-over-month appreciation, while Seattle led metro areas with 2.2% growth from March. Detroit, Michigan; San Jose, California, and Ft Collins, Colorado all saw home prices rise 2.0% for the month, making them three of the nation’s best performing metro areas. Among the nation's 20 largest states, four hit new peaks in April: Colorado ($294K) New York ($345K) Tennessee ($174K) Texas ($208K) Of the nation’s 40 largest metros, 10 hit new peaks: •Austin, TX ($277K) •Columbus, OH ($181K) •Dallas, TX ($209K) •Denver, CO ($314K) •Honolulu, HI ($526K) •Houston, TX ($214K) •Nashville, TN ($213K) •San Antonio, TX ($189K) •San Francisco, CA ($701K) •San Jose, CA ($847K) Both Boston, MA and Portland, OR are within 0.75% of reaching new peaks.

Case-Shiller: National House Price Index increased 4.2% year-over-year in April -- S&P/Case-Shiller released the monthly Home Price Indices for April ("April" is a 3 month average of February, March and April prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.  From S&P: Home Price Gains Ease in April According to the S&P/Case-Shiller Home Price Indices  Both Composites and the National index showed slightly lower year-over-year gains compared to last month. The 10-City Composite gained 4.6% year-over-year, while the 20-City Composite gained 4.9% year-over-year. The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.2% annual gain in April 2015 versus a 4.3% increase in March 2015....Before seasonal adjustment, the National index increased 1.1% in April and the 10-City and 20-City Composites posted gains of 1.0% and 1.1% month-over-month. After seasonal adjustment, the National index was unchanged; the 10- and 20-city composites were up 0.3% and 0.4%. All 20 cities reported increases in April before seasonal adjustment; after seasonal adjustment, 12 were up and eight were down.  The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 14.1% from the peak, and up 0.4% in April (SA). The Composite 20 index is off 12.9% from the peak, and up 0.3% (SA) in April. The National index is off 7.6% from the peak, and unchanged (SA) in April. The National index is up 24.8% from the post-bubble low set in December 2011 (SA). The second graph shows the Year over year change in all three indices.The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

Home-Price Growth Continues to Moderate - WSJ: Home-price growth slowed in April, but economists said that a down month is a positive sign the market isn’t overheating. The S&P/Case Shiller Home Price Index, covering the entire nation, rose 4.2% in the 12 months ended in April, weaker than a 4.3% increase in March. The 10-city and 20-city indexes saw weaker increases in April than in March. The 10-city index gained 4.6% from a year earlier, basically unchanged from 4.7% in March. The 20-city index gained 4.9% year-over-year, compared to a 5% increase in both March and February. In 2013, home prices were rising in the low double digits, raising fears that many buyers would be priced out of the market because incomes were growing much more slowly. “We’ve moved from something we couldn’t sustain to something that’s a lot more reasonable,” said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. Month-over-month home prices were tepid, according to the report. Not seasonally adjusted, the U.S. Index rose 1.1% from March to April. The 10-city index saw a 1% month-over-month change and the 20-city index saw a 1.1% change over the month. After seasonal adjustment, the national index was unchanged and the 10- and 20-city composites were up 0.4% and 0.3%.

Case-Shiller Index Shows Home Prices Continue to Rise - The April 2015 S&P Case Shiller home price index shows a seasonally adjusted 4.9% price increase from a year ago for the 20 metropolitan housing markets and a 4.6% yearly price increase in the top 10 housing markets. Congratulations America, once again homes are not affordable. There is a slowdown in the overall rate of the increases, yet home prices are climbing over double the rate of inflation, triple if one takes recent annual inflation figures. There are now no city areas where home prices have declined annually. Since March 2012, the 10-City composite index has increased 31% and the 20-City composite index has increased 32%. From the housing bubble 2006 peaks, prices are now only down about 14-16%. Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data. San Francisco home prices increased 9.9% from a year ago and Denver Colorado increased by 10.3%. Silicon valley is clearly not affordable even for people making six figures. The west prices are higher than in other parts of the country, yet we can see increases everywhere way above the rate of inflation. Clearly prices are not affordable as they return to housing bubble levels. S&P reports the not seasonally adjusted data for their headlines. Housing is highly cyclical. Spring and early Summer are when most sales occur. For the month, the not seasonally adjusted composite-20 percentage change was 1.1% whereas the seasonally adjusted change for the composite-20 was 0.3%. The not seasonally adjusted composite-10 saw a 1.0% increased from last month, whereas the seasonally adjusted composite-10 showed a 0.4% increase. Spring is when the not seasonally adjusted should be around the seasonally adjusted monthly values. The below graph shows the seasonally adjusted monthly percentage change.  We think this is much more valid and notice the (finally), a few monthly declines in prices when using the seasonally adjusted housing data.

Home Price Rise at a Slightly Slower Pace --With this morning's release of the April S&P/Case-Shiller Home Price we learned that home prices continued their rise across the country over the last 12 months but at a slightly lower pace. The adjacent column chart illustrates the month-over-month change in the seasonally adjusted 20-city index, which tends to be the most closely watched of the Case-Shiller series. It was up 0.3% over the previous month, down from 1.0% and 1.1% the two previous months. Here is an excerpt of the analysis from today's Standard & Poor's press release. “Home prices continue to rise across the country, but the pace is not accelerating,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Moreover, consumer expectations are consistent with the current pace of price increases. A recent national survey published by the New York Fed showed the average expected price increase among both owners and renters is 4.1%. Both the current rate of home price increases and the consumers’ expectations are a bit lower than the long term annual price change of 4.9% since 1975. These figures, however, do not adjust for inflation. The real, or inflation adjusted, price change since 1975 is one percent per year. Given the current inflation rate of under two percent, real home prices today are rising more quickly than is typical. The three out of five consumers in the survey who see home ownership as a good or somewhat good investment may be thinking in real terms. [Link to source]

Case-Shiller US Home Price Index Drops Most In A Year -- While the 20-City index rose 4.9% YoY (but missed expectations by the most since July 2014),Case-Shiller's US Home Price Index dropped 0.02% in April - the first MoM drop since May 2014. Ofg course, all real estate is local and we note Denver and San Francisco reported the highest year-over-year gains with price increases of 10.3% and 10.0%, respectively, over the last 12 months.  As S&P's David M. Blitzer warns, "home prices continue to rise across the country, but the pace is not accelerating." The US Home Price Index dropped MoM for the first time since May 2014. and The Case-Shiller 20-City Index missed expectations by the most since July 2014... This is the weakest price appreciation since the middle of the weather worries in January. Charts: Bloomberg

Case-Shiller Home Price Index April 2015 Shows Home Prices Rising But Pace Not Accelerating: The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was 4.9% - down insignificantly from last month's 5.0%. The authors of the index say: "The real, or inflation adjusted, price change since 1975 is one percent per year". 20 city unadjusted home price rate of growth accelerated 0.0% month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth] CoreLogic currently shows the highest year-over-year growth of 6.8%. Comparing all the home price indices, it needs to be understood each of the indices uses a unique methodology in compiling their index - and no index is perfect. The National Association of Realtors normally shows exaggerated movements which likely is due to inclusion of more higher value homes. The way to understand the dynamics of home prices is to watch the direction of the rate of change. Here home price growth generally appears to be stabilizing (rate of growth not rising or falling).

Real Prices and Price-to-Rent Ratio in April -- The expected slowdown in year-over-year price increases has occurred. In October 2013, the National index was up 10.9% year-over-year (YoY). In April 2015, the index was up 4.2% YoY.  However the YoY change has only declined slightly recently. Here is the YoY change for the last 12 months for the National Index:As I've noted before, I think most of the slowdown on a YoY basis is now behind us (I don't expect price to go negative this year). This slowdown in price increases was expected by several key analysts, and I think it was good news for housing and the economy.  In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $274,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).  It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 7.6% below the bubble peak.   However, in real terms, the National index is still about 21% below the bubble peak. The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through March) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to June 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to February 2005 levels, and the CoreLogic index (NSA) is back to April 2005. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices. In real terms, the National index is back to June 2003 levels, the Composite 20 index is back to May 2003, and the CoreLogic index back to October 2003. In real terms, house prices are back to 2003 levels.

"When People Jump In Even Though It's Overpriced, That's A Bubble" Shiller Warns --Bob Shiller moves beyond his normal fence-sitting perspective and goes full Marc Faber in this brief clip. Noting that his CAPE indicator of equity market valuation is flashing red (highest since 1929, 2000, and 2007), Shiller warns it is "when people jump into stocks even though they know valuations are high... that's a bubble," slamming CNBC's rosy perspective reflecting that this is the same as the dotcom rise. Notably he warns specifically "The US equity market is one of the highest in the world," and now is a good time to diversify away from it. Additionally Shiller warns of the slowing momentum in the housing market... warning that mean-reversion is likely with risk for further decline. Shiller also slams the bull$hit addage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly...

US housing stages ‘lopsided’ recovery: The lasting legacy of the US housing crash has ranked at the top of the so-called "headwinds" that Federal Reserve policy makers such as Janet Yellen cite when discussing America's economic prospects.A host of indicators are suggesting now that, even if the property market remains well below its boom-time highs, it is firmly in recovery mode. The Case-Shiller index of home values in 20 cities rose 4.9 per cent from a year earlier in April, according to data released Tuesday, with values in Denver and San Francisco rising around 10 per cent from a year earlier. That came after the National Association of Realtors index of pending home sales hit its highest level since April 2006.  The problem with the recovery is that it is, in the words of Sam Khater, deputy chief economist at CoreLogic, a lopsided one. An acute lack of construction at the lower end of the market is creating a tight supply of housing, driving up rents and pushing up prices of affordable homes to levels reached in 2006. With access to credit far more constricted than it was before the financial crisis and income growth depressed, home ownership rates have fallen to 20-year lows, as many younger Americans are locked out of property ownership.

Rising Mortgage Rates Will Begin To Impact Home Sales By Mid-2016: For more than 30 years, consistently falling mortgage interest rates have helped spur more home sales. But in about a year's time, that decades-long tailwind will likely shift to a housing headwind. By all expectations, as the Federal Open Market Committee (FOMC) prepares its retreat from recent, extraordinarily accommodative polices, we are approaching the beginning of the end of the era of falling mortgage rates, and entering a period in which rates are likely to rise over the next several years. Higher mortgage rates, particularly long-term changes in mortgage rates, make it harder for some households to move, in turn reducing housing turnover and sales. As they rise, mortgage rates will increasingly drag on home sales, a phenomenon known as "mortgage rate lock-in" that Zillow first explored last year. To estimate the size of this drag, we use the five-year change in mortgage rates in a model of existing home sales. Based on an updated estimate of that model and new assumptions about the path of interest rates and household formation [1], we estimate that rising mortgage rates could subtract almost 350,000 units at a seasonally adjusted annual rate (SAAR) from the total annual number of existing home sales by 2018 (figure 1). The current annual pace of existing sales has averaged about 5.1 million units (SAAR) during the first five months of 2015, meaning rising interest rates alone could dent sales by almost 7 percent if sales volumes remain at that pace.

Affordable Housing Crisis Grows Across the Country as Apartment Rents Skyrocket -- According to a new study by Harvard University’s Joint Center for Housing Studies, vast stretches of the county are facing a rental housing crisis marked by big rent spikes. “The number of cost-burdened renters [paying more than 30 percent of incomes]… set a new high in 2013 of 20.8 million, totaling just under half of all renter households,” Harvard researchers found. “Although the number of severely burdened renters edged down slightly, the number of moderately burdened renters climbed by a larger amount.” Most low to moderate income households are feeling a very big pinch. The researchers said that 80 percent of households with annual incomes under $15,000, three-quarters of renters with incomes up between $15,000 and $29,999, and 45 percent of households earning up to $44,999, are all “severely burdened,” with non-whites and single mothers facing the greatest financial stress.  “Minorities and certain types of households are especially likely to have severe housing cost burdens,” the report said. “Indeed, 26 percent of black households, 23 percent of Hispanic households, and 20 percent of Asian and other minority households were severely burdened in 2013, compared with just 14 percent of white households. Nearly a third of single-parent families also had severe burdens, compared with a tenth of married couples with children. Finally, more than half of households headed by an unemployed individual in 2013 were severely housing cost burdened.”Cities where these pressures are prevalent include Los Angeles, New York, Honolulu, Miami, Las Vegas and Orlando, they said. “Moreover, affordability pressures in the 10 most expensive markets reach further up the income scale. In fact, nearly half (48 percent) of households with incomes of $45,000–74,999 were housing cost burdened in these metros—more than twice the share (22 percent) nationally. As a result, the nearly 20 million households living in the 10 highest-cost metros must earn well above the national median income of $51,900 to live in housing they can afford.”

Here’s Why WSJ New Home Sales Headline Is Technically Correct But Still Misleading- It’s Still A Depression: The Wall Street Journal is Rupert Murdoch’s PR organ for his Move Inc. subsidiary, which provides marketing services Realtors. The Journal put out a PR release yesterday that,” U.S. New-Home Sales Rise to 7-Year High.” While technically correct, it is nevertheless misleading, tainted by the paper’s tilt toward bullish pronouncements on housing, thanks to Move Inc.'s main client being the mammoth NAR housing cartel.  It is misleading because 2008 was near the bottom of the housing crash. Nowhere in the piece did the flak who wrote it mention that fact. The PR staff did post a chart though. It was buried near the bottom of the post and they mashed the scale down to about a half inch high. I guess that’s what you call fair and balanced reporting. In the interest of showing the facts, I constructed a chart showing new home sales back to 2005, along with prices, to give you a clear picture of what’s really going on here. Just in case the graphs don’t speak for themselves, I included my impressions of what they show. I also increased the height of the chart just a little to give you better perspective. New Home Sales and Prices - Click to enlarge At the end of the WSJ piece, the writer talked about regional differences. He must be a wild and crazy guy, because there was no basis in fact for his observations.

Pending home sales rise just 0.9% in May: A sharp jump in interest rates may have deterred some home buyers in May. Signed contracts to buy existing homes, so-called pending home sales, rose just 0.9 percent in May from April, according to the National Association of Realtors, after a downward revision to April's reading. That is slightly lower than analysts predicted, but is still the highest level on the association's index since April of 2006. Pending sales are now 10.4 percent higher than one year ago. "The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring," said Lawrence Yun, chief economist for the Realtors. "It's very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive."  Pending home sales rose 6.3 percent in the Northeast, and are 10.6 percent above a year ago. In the Midwest, sales declined 0.6 percent for the month, but are 7.8 percent above May 2014. In the South they fell 0.8 percent and are 10.6 percent above last May, and in the West sales rose 2.2 percent and are 13.0 percent above a year ago.This as the average contract interest rate for 30-year fixed loans with conforming balances went from around 3.6 percent to over 4 percent from mid-April to June. While that might not seem like a huge jump, coupled with higher home prices, it does hurt affordability.

May 2015 Pending Home Sales Index At Highest Level In Nine Years - But NAR Warns of Housing Price Bubble: The National Association of Realtors (NAR) seasonally adjusted pending home sales index again improved and is now at their highest level in over nine years. Our analysis of pending home sales is significantly less rosey - and projects disappointing June home sales data. The quote of the day from this NAR release: This year's stronger sales amidst similar housing supply levels from a year ago have caused home prices to rise to an unhealthy and unsustainable pace. Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing). The NAR reported: Pending home sales index was up 0.9% month-over-month and up 10.4% year-over-year (last month 14.0% year-over-year).  The NAR reported:

  • Pending home sales index was up 0.9% month-over-month and up 10.4% year-over-year (last month 14.0% year-over-year).
  • The market was expecting month-over-month growth of 0.0 % to 3.0 % (consensus 0.6%) versus the growth of 0.9% reported.
Econintersect's evaluation using unadjusted data:
  • the index growth was down 0.9% month-over-month and up 8.3% year-over-year.
  • The current trends (using 3 month rolling averages) declined but remains in expansion.
  • Extrapolating the pending home sales unadjusted data to project June 2015 existing home sales, this would be a meager 3.8 % gain year-over-year for existing home sales.

Pending Home Sales Rise At Slowest Pace Since 2014, April Revised Lower -  While May Pending Home Sales are the highest in 9 years, the pace of growth is slowing as April's rise was revised lower to +2.7% (from 3.4%) and May prints +0.9% (slightly less than the 1.0% jump expected). The 0.9% rise is the slowest MoM rise since Dec 2014.  Bloomberg Charts

Reis: Apartment Vacancy Rate unchanged in Q2 at 4.2% --Reis reported that the apartment vacancy rate was unchanged in Q2 2015, compared to Q1, at 4.2% - and also the same as in Q2 2014. The vacancy rate peaked at 8.0% at the end of 2009. A few comments from Reis Senior Economist and Director of Research Ryan Severino:  Vacancy was unchanged at 4.2% during the quarter with construction and net absorption effectively in balance. Vacancy is cyclical and moves in long phases. For most of the last five years, the market has been in a vacancy compression phase, falling from 8% at the start of 2010 before bottoming out at 4.2% during the first quarter of last year. However, since that time vacancy has been stuck at the 4.2% range for the sixth consecutive quarter. Asking and effective rents both grew by 1.0% during the second quarter. This was a rebound versus the first quarter when they both grew by about 0.6%. Although the apartment market typically exhibits some seasonality, which appears to be the case here, the longer vacancy remains at such low levels, the greater the probability that rent growth will remain this strong. Year‐over‐year rent growth for asking and effective rents have inched up around 3.5% and annualized rent growth during the quarter is around 4%. Both of these are well in excess of core inflation and ahead of any other property type. Although construction continues to increase, we have yet to see the big surge in completions that we have been anticipating. That is not to downplay the relatively large amount of supply that continues to come online so much as it is to highlight the daunting situation yet to come. Even without construction volume leaping, vacancy compression has stalled. At 4.2% the national vacancy rate is unchanged over the last year and appears to have bottomed out. This intimates that once construction activity does increase demand is going to be unable to keep pace and vacancy will rise.

Reis: Office Vacancy Rate unchanged in Q2 to 16.6% - Reis released their Q2 2015 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged compared to Q1 at 16.6%. This is down from 16.9% in Q2 2014, and down from the cycle peak of 17.6%. From Reis: The national vacancy rate remained unchanged at 16.6% during the second quarter. Vacancy compression stalled this quarter because net absorption was slightly outpaced by new construction. This appears to be just a pause as vacancy compression has been more consistent in recent quarters. With the economy and labor market continuing to improve, demand should outpace new construction by a wider margin over time, resulting in more rapid vacancy compression than has occurred up to this point. Occupied stock increased by 8.154 million square feet during the second quarter. This was an increase versus last quarter. However, more heartening data can be found in the year‐to‐date net absorption figure of 15.607 million SF. This is a 22% increase over 2014’s year‐to‐date absorption and the best midyear performance since before the recession. This provides the strongest evidence yet that greater demand is returning to the office market. Although the pace of improvement has been slower than in previous recoveries, it appears that this recovery is finally gaining momentum. We expect this to continue going forward as ongoing increases in hiring translate into greater space needs for office users. New construction of 8.303 million SF is a bounce back from the first quarter. Most of the new inventory coming online is preleased. Although it is slowly increasing, there remains little new purely speculative development in the market. ...Asking and effective rents both grew by 0.7% during the second quarter, marking the nineteenth consecutive quarter of asking and effective rent growth. These growth rates are a decrease from last quarter when both grew by roughly 1.0%. As we mentioned last quarter, annualized rent growth of closer to 4%, which was observed during the two previous quarters, was going to be difficult to maintain in such a high‐vacancy environment. This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).Reis reported the vacancy rate was at 16.6% in Q2.

US Construction Spending Rises 0.8 Percent in May - U.S. construction spending posted a solid gain in May, pushing total activity to the highest point since the fall of 2008, with the strength led by a big jump in non-residential projects. Total construction spending increased 0.8 percent in May, following an even bigger 2.1 percent advance in April, the Commerce Department reported Wednesday. The gains pushed totaled activity to a seasonally adjusted annual rate of $1.04 trillion, the highest level since October 2008. All major categories showed increases in May, led by a 1.5 percent rise in non-residential building, which reflected increases in spending on hotels, manufacturing facilities and amusement parks. Residential construction was up a more modest 0.3 percent. Spending on government projects rose 0.7 percent. Construction activity is expected to be a source of strength this year, helping the economy to accelerate after a soft patch at the beginning of the year. The 0.3 percent rise in residential building matched the April gain and was led by a 0.9 percent rise in spending on renovation projects. Spending on single-family homes was flat, while spending on apartment projects edged up 0.2 percent in May. The 1.5 percent rise in non-residential construction followed sizable gains of 4 percent in April and 3.3 percent in March. The 0.7 percent advance in spending on government projects was led by a 6.3 percent surge at the federal level and a smaller 0.2 percent increase in spending on state and local building projects.

Construction Spending increased 0.8% in May -- Earlier today, the Census Bureau reported that overall construction spending increased in May: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2015 was estimated at a seasonally adjusted annual rate of $1,035.8 billion, 0.8 percent above the revised April estimate of $1,027.0 billion. The May figure is 8.2 percent above the May 2014 estimate of $957.6 billion. Both Private and public spending increased: Spending on private construction was at a seasonally adjusted annual rate of $752.4 billion, 0.9 percent above the revised April estimate of $745.6 billion. ... In May, the estimated seasonally adjusted annual rate of public construction spending was $283.4 billion, 0.7 percent above the revised April estimate of $281.5 billion.  Note: Non-residential for offices and hotels is generally increasing, but spending for oil and gas has been declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending. This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending has been increasing recently, and is 47% below the bubble peak. Non-residential spending is only 5% below the peak in January 2008 (nominal dollars). Public construction spending is now 13% below the peak in March 2009 and about 7% above the post-recession low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is up 8%. Non-residential spending is up 13% year-over-year. Public spending is up 3% year-over-year. Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity. This was above the consensus forecast of a 0.5% increase, and spending for January through April was revised up. A solid report.

U.S. construction spending rises to 6-1/2-year-high | Reuters: U.S. construction spending rose in May to its highest level in just over 6-1/2-years as outlays increased across the board, the latest sign of momentum in the economy. Construction spending increased 0.8 percent to an annual rate of $1.04 trillion, the highest level since October 2008, the Commerce Department said on Wednesday. April's outlays were revised slightly to show a 2.1 percent gain instead of the previously reported 2.2 percent rise. Economists polled by Reuters had forecast construction spending rising 0.5 percent in May. The government revised construction spending data going back to January 2013. The construction spending report added to robust data on employment, consumer spending, consumer confidence and housing, in suggesting that growth was gaining steam after gross domestic product shrank at a 0.2 percent annual rate in the first quarter. The economy was hit by bad weather, port disruptions, a strong dollar and spending cuts in the energy sector at the start of the year. In May, construction spending was lifted by a 0.9 percent increase in private construction spending to the highest level since July 2008. Outlays on private residential construction rose 0.3 percent, reflecting gains in home building and a slight increase in renovations. Spending on private non-residential construction projects increased 1.5 percent to the highest level since December 2008. Public construction outlays rose 0.7 percent to a seven-month high. Spending on state and local government projects - the largest portion of the public sector segment -gained 0.2 percent, also touching a seven-month high. Federal government outlays jumped 6.3 percent after two straight months of declines.

Construction Spending Growth Stronger in May 2015. Backward Revisions Were Upward.: The headlines say construction spending grew above expectations. The backward revision this month was significant enough to distort the month-over-month readings - and the rollling averages did improve. Econintersect analysis:

  • Growth decelerated 1.0 % month-over-month and Up 6.5% year-over-year. The deceleration was due to additional growth in the previous month (backward revision)
  • Inflation adjusted construction spending up 4.7% year-over-year.
  • 3 month rolling average is 7.1% above the rolling average one year ago, and up 0.1% month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.

This month's headline statement from US Census: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2015 was estimated at a seasonally adjusted annual rate of $1,035.8 billion, 0.8 percent (±1.5%)* above the revised April estimate of $1,027.0 billion. The May figure is 8.2 percent (±2.0%) above the May 2014 estimate of $957.6 billion. During the first 5 months of this year, construction spending amounted to $382.1 billion, 5.9 percent (±1.5%) above the $360.8 billion for the same period in 2014.

U.S. Construction Spending Hits New Postrecession High - U.S. construction spending hit a new postrecession peak in May, a likely boost for the economy in the second quarter of the year. U.S. construction spending advanced 0.8% to a seasonally adjusted annual rate of $1.036 trillion in May, the highest level since October 2008, the Commerce Department said Wednesday. The measure has been climbing steadily since December and in March broke $1 trillion for the first time since 2008. In May, spending on private nonresidential building led the way, climbing 1.5% to $393 billion, the highest figure since December 2008. Manufacturing spending has been especially robust over the past year. Overall, spending on all private construction–residential and nonresidential–was the highest since July 2008.

Hotels: On Pace for Record Occupancy in 2015, RevPAR up almost 50% from 2009 -- From HotelNewsNow.com: STR: US hotel results for week ending 27 June The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 21-27 June 2015, according to data from STR, Inc.  In year-over-year measurements, the industry’s occupancy increased 1.1 percent to 76.9 percent. Average daily rate for the week was up 4.6 percent to US$122.15. Revenue per available room increased 5.7 percent to finish the week at US$93.96. For the same week in 2009, ADR (average daily rate) was $97.49 and RevPAR (Revenue per available room) was $63.74. ADR is up over 25% since June 2009, and RevPAR is up almost 50%! The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate will be high during the summer travel season.

May Consumer Spending and Personal Income Surge -- The May personal income and outlays report shows a massive increase of 0.9% in consumer spending, which is great news for economic growth. Adjusted for inflation consumer spending rose 0.6%. Personal income also increased 0.5% Real disposable income increased 0.2% for the month. Consumer spending is another term for personal consumption expenditures or PCE. Real personal consumption expenditures were $11,276.9 billion for May. Consumer spending is roughly about 68% of GDP. Real means adjusted for inflation and is called in chained 2009 dollars Disposable income is what is left over after taxes and increased 0.2% when adjusted for prices. Graphed below are the monthly percentage changes for real personal income (bright red), real disposable income (maroon) and real consumer spending (blue). Below are the real dollar amounts for real personal income (bright red), real disposable income (maroon) and real consumer spending (blue) for the last year. Consumer spending encompasses things like housing, health care, food and gas in addition to cars and smartphones. In other words, most of PCE is most about paying for basic living necessities. Graphed below is the overall real PCE monthly percentage change.The reason for the increase in spending was durable goods.   Cars are a durable good sand motor vehicles and parts were identified as half of the durable goods increase.  Nondurable goods are things like gasoline and food.  Services are things like health care.   When people are cutting back on their spending, durable goods are usually the first things to go, especially large ticket items.  Below are the real monthly percentage changes in 2009 chained dollars:

  • Durable goods: 2.3%
  • Nondurable goods: 0.9%
  • Services: 0.2%

Price indexes are used as divisors to adjust for inflation and price changes.   The indexes are used to compute spending and income for an apples to apples, real dollar comparison to previous months and years.   Economic statisticians use real dollars so one does not erroneously assume economic growth when the increase is really just inflation.  The PCE price index is also a Federal Reserve inflation watch number.  The PCE price index is used to remove inflation from consumer spending and income, reported above as real, or in chained 2009 dollars

Another Gain in Consumer Confidence - The latest Conference Board Consumer Confidence Index was released this morning based on data collected through June 18. The headline number of 101.4 was a significant increase from the May final reading of 94.6, a downward revision from May's 95.4. Today's number was above the Investing.com forecast of 97.3. Here is an excerpt from the Conference Board press release. "Consumer confidence improved further in June, following a modest gain in May,” said  “Over the past two months, consumers have grown more confident about the current state of business and employment conditions. In addition, they are now more optimistic about the near-term future, although sentiment regarding income prospects is little changed. Overall, consumers are in considerably better spirits and their renewed optimism could lead to a greater willingness to spend in the near-term.” The chart below is another attempt to evaluate the historical context for this index as a coincident indicator of the economy. Toward this end we have highlighted recessions and included GDP. The regression through the index data shows the long-term trend and highlights the extreme volatility of this indicator. Statisticians may assign little significance to a regression through this sort of data. But the slope resembles the regression trend for real GDP shown below, and it is a more revealing gauge of relative confidence than the 1985 level of 100 that the Conference Board cites as a point of reference.

U.S. consumer confidence jumps past forecast in June - -- U.S. consumer confidence jumped in June, according to an index released by The Conference Board on Tuesday. Its index rose to 101.4 in June from a downwardly revised 94.6 in May, topping the MarketWatch-compiled economist forecast of 97.5. Both the present situation and expectations indexes advanced. "Over the past two months, consumers have grown more confident about the current state of business and employment conditions. In addition, they are now more optimistic about the near-term future, although sentiment regarding income prospects is little changed," said Lynn Franco, director of economic indicators at The Conference Board.

Consumer Confidence Soars In June On Spike In Hope -- As Gallup's Consumer Confidence plunges, The Conference Board's Consumer Confidence explodes higher from 94.6 to 101.4 (smashing expectations of 97.4). After missing by the most in 5 years in April, higher gas prices, market instability, and growing social unrest appear to be the perfect recipe for improved consumer confidence as The Conference Board data nears the highest since 2007. The biggest driver of the headline spike is the surge in "expectations" - in other words, hope - which jumped from 86.2 to 94.6, although expectations for higher incomes finally began to drop back to reality. June's 101.4 print is near the highest since 2007... Hope had fallen to its lowest level since June 2014 in May, but June 2015's spike to 94.6 nears the highest of the cycle. From hopeless to hopeful.  Charts: Bloomberg

These Six States Just Raised Their Gasoline Tax -- With the Fed slowly losing the war of attrition with Saudi Arabia, leading to the recent fade in the dead cat bounce of oil prices witnessed earlier today when oil dropped to the lowest level in 10 weeks, some states have decided that since the shale crisis will continue indefinitely and that gas prices will remain "lower for longer", there is no point in letting yet another crisis go to waste and have decided to promptly take advantage of what may have been a brief boon to consumers by minimizing the "oil crash" windfall and imposing additional gas taxes. According to the Citizens for Tax Justice and the Institute on Taxation and Economic Policy (ITEP), starting today, six states will increase their gas taxes to help pay for transportation projects. Beginning July 1, drivers in Idaho, Georgia, Maryland, Rhode Island, Nebraska and Vermont will be charged more at the pump as a result of laws taking effect at the start states' new fiscal year. There is some good news: a seventh state, California, is decreasing its gas tax by 6 cents, according to the group.  Then again, after putting the California gas price in context with the rest of the US even after the recent gas price drop...

U.S. Light Vehicle Sales decreased to 17.1 million annual rate in June --Based on an AutoData estimate, light vehicle sales were at a 17.1 million SAAR in June. That is up 1.5% from June 2014, and down 3.5% from the 17.7 million annual sales rate last month. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for June (red, light vehicle sales of 17.1 million SAAR from WardsAuto).  This was close to the consensus forecast of 17.2 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967.  This was below the consensus forecast, but another strong month. It appears 2015 will be the best year for light vehicle sales since 2001.

Domestic Auto Sales Tumble, Miss For 6th Of Last 7 Months (Don't Tell Phil LeBeau) -- Judging by the smiling Phil LeBeau who earlier opined of an 8.9% plunge in For F-Series sales that "I don't know if I'd Call that a slowdown," you would think the US Auto industry was killing it. Apart from the fact that all but the most luxurious brands missed expectations, we sum up the month of June's results by nothing the credit-spewed spike in May is now over and domestic car sales are continuing to trend lower. This is the biggest MoM drop since Sept 2014. As Ward's notes, they have now missed expectations for 6 of the last 7 months... Auto Sales SAAR dropped from 17.71mm to 17.11mm - the biggest percentage drop MoM since Sept 2014. Charts: Bloomberg

New Safety Feature: A Smart Car Programmed To Let You Die? - The first auto safety device probably was the padded dashboard, unless you count such basics as roofs and windshields. Whatever the case, such features have proliferated to seat belts, air bags, rear cameras and the like. Now researchers at the University of Alabama, Birmingham (UAB), are studying what may be the ultimate in safety features, one that's also counter-intuitive: The self-driving car that would allow its own occupants to die if its computer determines that their number would be fewer than the people whose lives are threatened in a looming auto accident. “Ultimately this problem devolves into a choice between utilitarianism and deontology,” – the ethical principal that “some values are simply categorically always true,” Classically it's known as the Trolley Problem: An employee in charge of a switch on a trolley track knows a train is due to pass by soon, but suddenly notices that a school bus full of children is stalled on that track. A look at the alternate route shows the employee's young child has somehow crawled onto that track. His choice is either to save his child, or save the many children on the bus. Which is right?

Aging Truck Driver Work Force - A Major Issue in Filling Demand & Empty Seats- With a combination of retirements and people exiting the industry, carriers need to recruit in roughly 100,000 drivers per year over the next decade to simply keep pace with projected United States freight needs. The American Transportation Research Institute (ATRI) released a fascinating white paper analyzing the age demographics of truck drivers.  The bottom line is that the U.S. truck driver population is aging and there are not enough young drivers in the labor force to fill the empty seats that will be opened by the upcoming retirement of drivers.  As I think about how to attack the driver shortage problem, I believe the answer is more than higher pay.The primary shortage is for over-the-road TL drivers who spend weeks at a time away from home, sleeping in their trucks, showering and eating in truck stops, and enduring unnecessary hassles in getting unloaded in a timely fashion.  Increasingly, we also hear about shortages in LTL and drayage capacity. Higher pay is the simplistic answer, but manufacturers and retailers can ill afford higher transportation rates so higher pay has to be associated with greater productivity.  Getting 18-year olds into the industry is critical, but is limited by the CDL 21-year old age requirements. Immigration can be part of the solution to the driver shortage, just as it is for high tech workers.

Factory Orders July 2, 2015 - The factory sector, hit by weak exports, continues to stumble with factory orders down 1.0 percent in May. This compares with Econoday expectations for minus 0.3 percent and is near the low-end estimate for minus 1.2 percent. The durables component of the report, initially released last week, is now revised lower, to minus 2.2 percent from minus 1.8 percent. Durables in April have also been revised lower to minus 1.7 percent from minus 1.5 percent. The nondurables component, released with today's report, helped limit the damage but not by much, up 0.2 percent on gains for petroleum and coal following a 0.3 percent gain for April. But aircraft orders, always volatile, are to blame for much of the durables weakness, falling 49.4 percent in the month. Excluding transportation equipment, which is where aircraft orders are tracked, factory orders were unchanged in May which isn't great but is much better than the minus 0.6 percent print for April. Weakness in energy equipment is also a negative factor of the factory sector, down 22.2 percent in May following a 2.1 percent decline in April. Motor vehicle orders are also surprisingly weak, down 1.3 percent in May despite very strong sales. Orders for defense aircraft were also weak, down 6.4 percent. Capital goods data had been showing some life but not much anymore with nondefense orders excluding aircraft down 0.4 percent following a 0.7 percent decline in April. These are especially disappointing readings. And core shipments of capital goods are dead flat, at minus 0.1 percent following only a 0.2 percent gain in April. These readings will likely pull down second-quarter GDP estimates. Other disappointments include a steep 0.5 percent decline in total unfilled orders following April's 0.2 percent decline. Declines in unfilled orders are not a good omen for employment. Total shipments fell 0.1 percent in the month. Inventories at least are stable, unchanged in the month as is the inventory-to-shipments ratio at 1.35.

US factory orders fell 1% in May: New orders for U.S. factory goods fell more than expected in May on weak demand for transportation and electrical equipment, a sign that manufacturing remained mired in a soft patch. (Tweet this) The Commerce Department said on Thursday new orders for manufactured goods dropped 1.0 percent after a revised 0.7 percent decline in April. Factory orders have dropped in nine of the last 10 months. Economists had forecast orders falling 0.5 percent in May after April's previously reported 0.4 percent drop. Excluding the volatile transport component, orders nudged up 0.1 percent in May, reversing April's 0.1 percent decline.  Manufacturing, which accounts for about 12 percent of the U.S. economy, is struggling with the lingering effects of a strong dollar and lower crude oil prices, which has squeezed profits of multinational corporations and oil-field firms. There are signs, however, the sector is starting to stabilize. A report on Wednesday showed the Institute for Supply Management's national factory activity index rose to a five-month high in June. A sub-index of new orders increased for a third straight month. In addition, the rout in the energy sector looks close to running it course as crude oil prices recover after falling nearly 60 percent from June last year to March. Energy firms pulled only three rigs from U.S. oil fields last week, the smallest number in five weeks. The Commerce Department report showed orders for transportation equipment tumbled 6.5 percent in May. Orders for electrical equipment, appliances and components fell 2.8 percent. The department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans- fell 0.4 percent instead of the 0.4 percent gain reported last month.

May 2015 Manufacturing Continues Looking Ugly.: US Census says manufacturing new orders declined. Our analysis agrees. Unfilled orders' growth continues shrinking year-over-year - and is contracting year-over-year. Overall, the data is soft - but the big drag was civilian aircraft. US Census Headline:

  • The seasonally adjusted manufacturing new orders is down 1.0% (after last month's downwardly revised decline of 0.7%) month-over-month, and down 3.8% year-to-date.
  • Market expected month-over-month growth of -1.2% to +0.7% (consensus -0.3%) versus the reported 1.0%.
  • Manufacturing unfilled orders down 0.5% month-over-month, and up 5.6% year-over-year.

Econintersect Analysis:

  • Unadjusted manufacturing new orders growth decelerated 1.5 % month-over-month, and down 8.0 % year-over-year
  • Unadjusted manufacturing new orders (but inflation adjusted) down 3.2% year-over-year - there is deflation in this sector.
  • Unadjusted manufacturing unfilled orders growth declined 1.3% month-over-month, and up 5.6% year-over-year
  • As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production was growth decelerated 10.2% month-over-month, and up 2.1% year-over-year.

Factory Orders Scream Recession: Annual Drop Biggest Since 2008 00This has never happened outside of recession... Year-over-year, factory orders dropped 6.3% (adjusted) but 8% non-adjusted, the most since the financial crisis. Against expectations of a 0.5% drop MoM, manufacturers saw new orders tumble 1.0% and previous months were revised dramatically lower. Factory orders has now missed 10 of the last 11 months.  Factory Orders have fallen for 9 of the last 10 months.. Seasonally adjusted things look terrible... Non-seasonally adjusted they look even worse..

Dallas Fed: Texas Manufacturing Activity Still Contracting -- From the Dallas Fed: Texas Manufacturing Activity Still Contracting Texas factory activity declined again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose to -6.5 but remained in negative territory, suggesting a fourth consecutive month of contracting output...Perceptions of broader business conditions worsened further, although not as sharply in June as in prior months. The general business activity index jumped nearly 14 points to -7, its highest reading since January.Labor market indicators reflected slight employment declines and shorter workweeks. The June employment index was negative for a second month in a row but pushed up 7 points to -1.2. Fourteen percent of firms reported net hiring, compared with 15 percent reporting net layoffs. The hours worked index inched up from -11.6 to -10.7. This was the last of the regional Fed surveys for June. Three of the five surveys indicated contraction in June, mostly due to weakness in oil producing areas. However there was less contraction in those areas in June.

Dallas Fed Manufacturing Outlook Rose but Remains in Negative Territory - We have added the Dallas Fed Texas Manufacturing Outlook Survey (TMOS) focusing on the General Business Conditions Index to our series of regional Fed updates. This indicator measures manufacturing activity in Texas. Here is an excerpt from the latest report:Texas factory activity declined again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose to -6.5 but remained in negative territory, suggesting a fourth consecutive month of contracting output. Perceptions of broader business conditions worsened further, although not as sharply in June as in prior months. The general business activity index jumped nearly 14 points to -7, its highest reading since January. The company outlook index moved to -7.4, up from -10.5 last month. Monthly data for this indicator only dates back to 2004, so it is difficult to see the full potential of this indicator without several business cycles of data. Nevertheless, it is an interesting and important regional manufactuing indicator. The Dallas Fed on the TMOS importance: Texas is important to the nation’s manufacturing output. The state produced $159 billion in manufactured goods in 2008, roughly 9.5 percent of the country’s manufacturing output. Texas ranks second behind California in factory production and first as an exporter of manufactured goods.Texas turns out a large share of the country’s production of petroleum and coal products, reflecting the significance of the region’s refining industry. Texas also produces over 10 percent of the nation’s computer and electronics products and nonmetallic mineral products, such as brick, glass and cement. Here is a snapshot of the complete TMOS.

June 2015 Texas Manufacturing Survey Manufacturing Activity Continues to Contract for Fourth Month: Of the five Federal Reserve districts which have released their June manufacturing surveys - two forecast weak growth and three are in contraction. A complete summary follows. The market expected -16.0 to -11.0 (consensus -13.5) versus the actual -6.5. From the Dallas Fed: Texas factory activity declined again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose to -6.5 but remained in negative territory, suggesting a fourth consecutive month of contracting output. A similar pattern was seen among other measures of current manufacturing activity in June. The capacity utilization index increased to -6.1 and the shipments index increased to -8.8. These negative index levels indicate continued contraction, but the upward movement this month suggests the pace of decline slowed. The new orders index moved up to -10.3, while the growth rate of orders index edged down to -16.5.  Perceptions of broader business conditions worsened further, although not as sharply in June as in prior months. The general business activity index jumped nearly 14 points to -7, its highest reading since January. The company outlook index moved to -7.4, up from -10.5 last month.  Labor market indicators reflected slight employment declines and shorter workweeks. The June employment index was negative for a second month in a row but pushed up 7 points to -1.2. Fourteen percent of firms reported net hiring, compared with 15 percent reporting net layoffs. The hours worked inched up from -11.6 to -10.7.

Dallas Fed Surges Back, Beats By Most Since Jan 2012 But Hope Tumbles - After breaking to 6 year lows in May, expectations were for a bounce in Dallas Fed's Manufacturing Outlook from -20.8 to -16. After missing expectations for six straight months, June's bounce to a -7.0 print is the biggest best since January 2012. This surge was all due to the current conditions shift as future hope for new orders and production tumbled. While most subindices rose, we note that CapEx fall once again to 3-month lows. This is the 6th consecutive negative (contractionary) print in a row for Dallas Fed - something not seen outside of a recession.

Regional Fed Manufacturing Overview --Five out of the twelve Federal Reserve Regional Districts currently publish monthly data on regional manufacturing: Dallas, Kansas City, New York, Richmond, and Philadelphia. Regional manufacturing surveys are a measure of local economic health and are used as a representative for the larger national manufacturing health. They have been used as a signal for business uncertainty and economic activity as a whole. Manufacturing makes up 12% of the country's GDP. The other 6 Federal Reserve Districts do not publish manufacturing data. For these, the Federal Reserve’s Beige Book offers a short summary of each districts’ manufacturing health. The Chicago Fed published their Midwest Manufacturing Index from July 1996 through December of 2013. According to their website, they suspended publication “…pending the release of updated benchmark data from the U.S. Census Bureau and a period of model verification.” They anticipate the next release to be fall of 2015. Here is a three-month moving average overlay of each of the five indicators since 2001 (for those with data). Here is the same chart including the average of the five. Readers will notice the range in expansion and contraction between all regions - this averages out to approximately zero for the average, which is flat and neither expanding nor contracting. Here are links to the five monthly manufacturing indicators that we track:

June 2015 Chicago Purchasing Managers Barometer Remains in Contraction: The Chicago Business Barometer remains in contraction - even though new orders did improve. Authors of this index now suspect the bounceback in economic growth in Q2 may be weaker than expected. The market expected the index between 48.5 to 55.0 (consensus 50.6) versus the actual at 49.4. A number below 50 indicates contraction. From ISM Chicago: The Chicago Business Barometer recovered half of May's loss in June but stayed in contraction for the second consecutive month, with activity weakening further in Q2 from an already depressed Q1. The Barometer increased 3.2 points to 49.4 in June from 46.2 in May, up from February's 5½-year low but spending the fourth month below 50 since the start of the year. Despite the modest improvement in June, the Barometer declined to 49.3 in Q2 from 50.5 in the previous quarter, the lowest since Q3 2009, a signal that the bounceback in economic growth in Q2 may be weaker than expected. The increase in the Barometer between May and June was led by an 8.8% expansion in New Orders to 51.7 in June, pulling the indicator out of contraction. Production contracted at a slower pace, rising 8.7% in June but failing to jump above 50. Despite the rises, both measures remain at relatively low levels.

Chicago PMI Prints Worst June Since 2008 As Employment Tumbles -- Chicago PMI has now missed 4 of the last 5 months and printed sub-50 contractionary indications for 4 of the last 5 months. June's data improved from May (rising from 46.2 to 49.4) but missed expectations and is the weakest June print since 2008. Notably, away from 2015, June's print is the weakest since September 2009. Under the covers it was ugly - employment plunged to the weakest since Nov 2009, order backlogs plunges to the lowest since September 2009, and prices paid rose again (pressuring margins).  June's print is the weakest June since 2008!

ISM Manufacturing index increased to 53.5 in June --The ISM manufacturing index suggested expansion in June. The PMI was at 53.5% in June, up from 52.8% in May. The employment index was at 55.5%, up from 51.7% in May, and the new orders index was at 56.0%, up from 55.8%.  From the Institute for Supply Management: June 2015 Manufacturing ISM® Report On Business® Economic activity in the manufacturing sector expanded in June for the 30th consecutive month, and the overall economy grew for the 73rd consecutive month,  "The June PMI® registered 53.5 percent, an increase of 0.7 percentage point over the May reading of 52.8 percent. The New Orders Index registered 56 percent, an increase of 0.2 percentage point from the reading of 55.8 percent in May. The Production Index registered 54 percent, 0.5 percentage point below the May reading of 54.5 percent. The Employment Index registered 55.5 percent, 3.8 percentage points above the May reading of 51.7 percent, reflecting growing employment levels from May at a faster rate. Inventories of raw materials registered 53 percent, an increase of 1.5 percentage points from the May reading of 51.5 percent. The Prices Index registered 49.5 percent, the same reading as in May, indicating lower raw materials prices for the eighth consecutive month. Comments from the panel indicate mostly stable to improving business conditions, with the notable exception relating to the oil and gas markets. Also noted is the negative effect on egg prices and availability due to the avian flu outbreak."  Here is a long term graph of the ISM manufacturing index.This was above expectations of 53.2%, and indicates slightly faster expansion in June. Solid internals.

ISM Manufacturing PMI Increases to 53.5% for June - The May ISM Manufacturing Survey shows a slight improvement from last month, yet nothing to write home about.  The composite PMI increased by 0.7 percentage points to 53.5%.  Manufacturing employment accelerated and order backlogs dropped.  Prices for manufacturers didn't change for the month.  Overall the report is a more steady as she goes versus suddenly manufacturing is on fire as reported by some in the press.   The ISM Manufacturing survey is a direct survey of manufacturers.  Generally speaking indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments, which are part of their survey.  Strong and steady are mentioned to describe demand.  Manufacturers also complain of a strong dollar hurting their products New orders barely changed with a 0.2 percentage point increase to 56.0%.  This represents moderate growth in new orders.  The Census reported May durable goods new orders increased 1.8%, where factory orders, or all of manufacturing data, will be out later this month.  Note the Census one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark:  A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.  Below is the ISM table data, reprinted, for a quick view.

ISM Manufacturing Index: 30th Consecutive Month of Expansion - Today the Institute for Supply Management published its monthly Manufacturing Report for June. The latest headline PMI was 53.5 percent, an increase of 0.7% from the previous month and slightly above the Investing.com forecast of 53.1. This was the 30th consecutive month of expansion. Here is the key analysis from the report: "The June PMI® registered 53.5 percent, an increase of 0.7 percentage point over the May reading of 52.8 percent. The New Orders Index registered 56 percent, an increase of 0.2 percentage point from the reading of 55.8 percent in May. The Production Index registered 54 percent, 0.5 percentage point below the May reading of 54.5 percent. The Employment Index registered 55.5 percent, 3.8 percentage points above the May reading of 51.7 percent, reflecting growing employment levels from May at a faster rate. Inventories of raw materials registered 53 percent, an increase of 1.5 percentage points from the May reading of 51.5 percent. The Prices Index registered 49.5 percent, the same reading as in May, indicating lower raw materials prices for the eighth consecutive month. Comments from the panel indicate mostly stable to improving business conditions, with the notable exception relating to the oil and gas markets. Also noted is the negative effect on egg prices and availability due to the avian flu outbreak." Here is the table of PMI components.

June 2015 ISM Manufacturing Survey Again Marginally Improved and Remains in Expansion: The ISM Manufacturing survey continues to indicate manufacturing growth expansion - it again marginally improved this month. The key internal new orders modestly improved and remains in expansion. Backlog of orders returned to contraction. The ISM Manufacturing survey index (PMI) was marginally improved from 52.8 to 53.5 (50 separates manufacturing contraction and expansion). This was slightly above expectations which were 52.8 to 54.0 (consensus 53.2). This ISM Manufacturing index had been in a general uptrend since mid 2013, the three month trend is now improving. This is the 30th month of expansion. The regional Fed manufacturing surveys indicated little growth or contraction in June, and now the ISM indicates manufacturing shows weak expansion. The noisy Backlog of Orders returned to contraction. Backlog growth should be an indicator of improving conditions; a number below 50 indicates contraction. Backlog accuracy does not have a high correlation against actual data.

PMI Manufacturing Index July 1, 2015: The PMI manufacturing sample reports slowing growth in June, to an index of 53.6 vs 54.0 in May and vs the mid-month flash of 53.4. Subdued export demand remains a key negative for the sector, the result of weakness in foreign economies and also the negative effects of the strong dollar especially on European demand. Export orders have fallen for three straight months for the longest negative streak in nearly three years. Declining capital investment in the energy sector is another negative for the sector. Growth in new orders did accelerate in June but only slightly while output softened. Backlogs are up, which is a positive, but is due in part to difficulties filling skilled positions. But the PMI sample is hiring with employment at its strongest level since September 2014. Inflation readings are showing pressure for input prices, as have many other reports, but no pressure for finished goods, again in line with other surveys. This report had been running hot compared to other manufacturing reports but has been moderating of late with June proving to be the softest month since October 2013.

"Strong Fundamentals" Meme Destroyed As US Manufacturing PMI Slows To Its Weakest Since October 2013 -- US Manufacturing PMI's final print for June at 53.6 (slightly above its preliminary 53.4 print) is its lowest since October 2013. The survey has fallen almost non-stop since the end of QE3. Under the covers, data was mixed, softer output growth was offset by a slight pick-up in the pace of new business gains and job creation, but Manufacturers indicated aslowdown in production growth for the third month running during June. As Markit's echief economist notes, “Policymakers will be concerned about the unbalanced nature of growth, and in particular the loss of export and investment drivers, and will want to see growth pick up again in coming months before committing to higher interest rates.”

"There Are Obvious Signs Of Distress" In The Manufacturing Industry - In April, we noted the NACM's comments that "there are big, big problems" underlying the economy as a surge in unfavorable factors suggested credit conditions were tightening dramatically (only to see that data revised away suddenly). June's data has confirmed this weakness with credit rejections soaring to their highest since 2009 with the biggest spike in 9 years, with NACM CEO Kuehl exclaiming, "There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest... companies that have been awaiting it are getting in trouble with their creditors." As NACM reports, “This has been a tale of two directions,” Kuehl noted. “On the one hand, there is some hope for better numbers in the future as the favorables look better than in a long while. However, the present is not so positive, as the unfavorables are worsening, which signals that many companies are not in the shape they would like to be and are falling behind in their obligations.” 5 of the 6 unfavorable factors for Credit Managers weakened dramatically...

Is That Giant Sucking Sound Productivity?: In the last few quarters, the USA has seen a fairly significant decline in headline productivity growth. Some have suggested there is a correlation to GDP - and of course there is as headline productivity is measured by economists using monetary means - and this methodology would correlate to GDP growth. This is not the way an industrial engineer measures productivity.  The reason productivity is measured is to understand if the effort required to produce products or services is improving or declining. In the private sector, these metrics are used to monitor our continuous improvement changes which in turn effect profitability. Productivity improvements should improve profitability and/or allow the product to be sold at a lower price point. Here is the productivity chart for non-farm business - and my interpretation of the trend lines in green.Headline productivity does not properly measure what is going on under the hood of the economy. Consider the following examples:

  • If I were building a car, let's imagine I decide that the engine could be built at a lower cost by outsourcing (say overseas).  Headline productivity methodology is that the engine is simple removed from the calculation. In theory, there was no change to productivity.  But by outsourcing, usually the least productive growth elements are usually removed - and are left with the more productive growth elements which will now show this business has a higher productivity growth.
  • At a certain point outsourcing slows. Headline productivity growth would begin to slow and productivity growth returns to historical norms.
  • There is a quantitative analysis to determine where production facilities should be located, and what components should be directly produced or what should be outsourced. A simple change like energy prices or tax laws or worker costs or robotics changes this point of production.
  • If the car manufacturer decides it is now better now to produce the engine internally (and say this product is now produced by 2,000 robots with 10 humans). Even though the previous engine was produced by 1,000 humans - there is no productivity improvement in headline productivity even though real labor productivity improved 10,000%
  • If a business builds a state-of-the-art facility - there is no gain in productivity to headline productivity. Under most circumstances, only when an existing facility is upgraded is it counted in headline productivity.

Weekly Initial Unemployment Claims increased to 281,000 - A quick graph of unemployment claims ... Note: Starting with this release, the DOL is including a table of unadjusted State-level "advance"claims. The DOL reported: In the week ending June 27, the advance figure for seasonally adjusted initial claims was 281,000, an increase of 10,000 from the previous week's unrevised level of 271,000. The 4-week moving average was 274,750, an increase of 1,000 from the previous week's unrevised average of 273,750.  There were no special factors impacting this week's initial claims.   The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Challenger Job-Cut Report July 1, 2015: Layoff announcements rose in June, to 44,842 from 41,034 in May and well up from an unusually low 31,434 in June last year. The trend is also moving up, at 147,458 for the second quarter vs 140,214 in the first quarter and against 124,693 in second quarter last year. For the first half, announcements totaled 287,672 for a 17 percent increase from a year ago. Retail produced the most layoff announcements in June followed by the chemical industry. The rise in Challenger's count has yet to inflate jobless claims which remain near historic lows. Announcements sometimes take months before jobs are actually cut so today's results, though a negative for the outlook, are not likely to affect expectations for tomorrow's employment report.

Gallup US Payroll to Population July 1, 2015: Full-time employment for an employer continued to increase through the first month of summer, after a slow start in 2015. It is now at its highest measurement since 2012. Underemployment remained at the lowest rate Gallup has measured in the five-year history of the trend, after reaching this level in May. One component of that measure -- unemployment -- is now as low as Gallup has measured it with the exception of one lower reading in December 2014. The U.S. Payroll to Population employment rate (P2P) was 45.5 percent in June. This is up one full percentage point from the previous month, and 0.5 points higher than the rate measured in June 2014. This development represents the strongest month-to-month change for P2P since May 2014, and continues the rise seen last month. P2P is now at the highest it has been since October 2012, which in turn was the highest point in Gallup's five-year trend on this measure. This increase in the summer months is in line with an expected seasonal rise in full-time employment. The percentage of U.S. adults participating in the workforce in June was 67.1 percent. This is up from May, and is the highest rate since September 2014 by .0.1 points. Since May 2010, the workforce participation rate has remained in a range encompassing a low of 65.8 percent and a high of 68.5 percent, although in the past two years it has most often remained below 67.0 percent. Gallup's unadjusted U.S. unemployment rate is at 6.0 percent in June, down slightly from May (6.1 percent), and except for one reading of 5.8 percent in December 2014, is the lowest in Gallup's  Gallup's five-year trend. Gallup's U.S. unemployment rate represents the percentage of adults in the workforce who did not have any paid work in the past seven days, for an employer or themselves, and who were actively looking for and available to work. Gallup's measure of underemployment in June is 14.7 percent, unchanged from May, and both months' readings represent the lowest level recorded since Gallup began tracking it daily in 2010.

Private Sector Adds 237,000 Jobs in June - WSJ: U.S. businesses were busy adding workers last month, according to an employment survey released Wednesday, and small businesses accounted for about half of the hiring. Private payrolls in the U.S. increased by 237,000 jobs in June, according to the national employment report compiled by payroll processor Automatic Data Processing ADP 0.84 % and forecasting firm Moody’s Analytics. Economists surveyed by The Wall Street Journal expected ADP would report a gain of 220,000 jobs last month. The May ADP increase was revised to 203,000 from 201,000. The ADP report is released ahead of the Labor Department’s monthly employment report, which will be released Thursday instead of the usual Friday because U.S. financial markets will be closed Friday for the Independence Day holiday. Economists expect the Labor Department to report June nonfarm payrolls (which include government positions) increased by 233,000 jobs, fewer than the 280,000 slots created in May. The June unemployment rate is projected to slip to 5.4% from 5.5%. Given how close the ADP change was to expectations, economists are unlikely to change their forecasts for Thursday’s indicator. According to ADP, small businesses are still powering job growth. Firms employing between 1-49 workers added 120,000 new workers last month. Medium-size businesses with payrolls of 50-499 workers added 86,000 employees. Large firms with 500 or more employees hired a more modest 32,000 workers. Manufacturing added 7,000 jobs last month, said ADP. The service sector hired 225,000 new employees. Construction payrolls increased by 19,000 slots.

U.S. private payrolls rise solidly; factory activity picks up -- U.S. private employers hired the most workers in six months in June and factory activity accelerated, providing fresh evidence the economy was gathering solid momentum after contracting at the start of the year. The brightening growth outlook was also bolstered by other data on Wednesday showing auto sales remained strong in June and construction spending rose in May to its highest level in just over 6-1/2-years. The recent raft of upbeat data supports views of a September interest rate hike from the Federal Reserve, although market-based forecasting tools suggest lift-off may not occur until late in the year or even in 2016. The ADP National Employment Report showed 237,000 private-sector jobs were created in June, handily exceeding the median expectation among economists surveyed by Reuters for a gain of 218,000 jobs. That followed May's job gains of 203,000, and June's gain marked the third straight month of improvement since the pace of hiring had slumped to a 14-month low back in March as the economy stalled in the first quarter. "The U.S. job machine remains in high gear," Mark Zandi, chief economist for Moody's Analytics, said in a statement. "The current robust pace of job growth is double that needed to absorb the growth in the working age population."

ADP: Private Employment increased 237,000 in June - From ADP: Private sector employment increased by 237,000 jobs from May to June according to the June ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Goods-producing employment rose by12,000 jobs in June, after adding 11,000 in May. The construction industry had another solid month in June adding 19,000 jobs, down from 28,000 last month. Meanwhile, manufacturing added 7,000 jobs in June, after losing 2,000 in May. Service-providing employment rose by 225,000 jobs in June, a strong rise from 192,000 in May. The ADP National Employment Report indicates that professional/business services contributed 61,000 jobs in June, almost double May’s 32,000. Trade/transportation/utilities grew by 50,000, the same as the previous month. The 19,000 new jobs added in financial activities was an increase from last month’s 12,000. ... Mark Zandi, chief economist of Moody’s Analytics, said, “The U.S. job machine remains in high gear. The current robust pace of job growth is double that needed to absorb the growth in the working age population. The only blemish in the job market is the loss of jobs in the energy sector. Most encouraging is the healthy rate of job growth among the nation’s smallest companies.”  This was above the consensus forecast for 220,000 private sector jobs added in the ADP report. 

June 2015 ADP Job Growth at 237,000 - Above Expectations --ADP reported non-farm private jobs growth at 237,000. The rolling averages of year-over-year jobs growth rate for the last year has been has been marginally declining for the last 5 months suggesting there is seasonality issues.

  • The market expected 200K to 245K (consensus 220K) versus the 237K reported. These numbers are all seasonally adjusted;
  • In Econintersect's June 2015 economic forecast released in late May, we estimated non-farm private payroll growth at 185,000 (unadjusted based on economic potential) and 255,000 (fudged based on current overrun of economic potential);
  • This month, ADP's analysis is that small and medium sized business created 90% of all jobs;
  • Manufacturing jobs grew by 7,000;
  • 95% of the jobs growth came from the service sector;
  • May report (last month), which reported job gains of 201,000 was revised up to 203,000;
  • The three month rolling average of job growth rate has been statistically unchanged for the 11 months(dancing around growth of 2.4% year-over-year) - is currently 2.4% - however it has been marginally declining from 2.51% (February) to 2.49% (March) to 2.44% (April) to 2.39% (May) to 2.35% (June).

ADP Rises To Highest Since 2014 Despite Challenger Job Cuts' Surge To Highest Since 2010 - As the shortened week continues ahead of tomorrow's payrolls print, and amid chaotic Greek headline-hockey, ADP and Challenger jobs data gives us a glimpse of what volatility lies ahead. After jumping a little last month, but remaining in weak territory, ADP printed 237k for June (beating expectations of +217.5k) in line with estimates for nonfarm payrolls. This is the best print since Dec 2014 but is dominated by small businesses with large companies lagging.  Job gains were dominated by Services (+225k) with goods-producing fiorms gaining a mere 12k jobs. This comes after Challenger-Gray showed job cuts increasing 42.7% YoY in June and are at the highest level for June since 2009.

June Employment Report: 223,000 Jobs, 5.3% Unemployment Rate --From the BLS: Total nonfarm payroll employment increased by 223,000 in June, and the unemployment rate declined to 5.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, retail trade, financial activities, and in transportation and warehousing. ... The change in total nonfarm payroll employment for April was revised from +221,000 to +187,000, and the change for May was revised from +280,000 to +254,000. With these revisions, employment gains in April and May combined were 60,000 lower than previously reported. ...In June, average hourly earnings for all employees on private nonfarm payrolls were unchanged at $24.95. Over the year, average hourly earnings have risen by 2.0 percent. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 223 thousand in June (private payrolls also increased 223 thousand). Payrolls for April and May were revised down by a combined 60 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In June, the year-over-year change was over 2.9 million jobs. That is a solid year-over-year gain. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate decreased in June to 62.6%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio decreased to 59.3% (black line).

Establishment Survey +233K Jobs, Household Employment Survey -56K, Part-Time Employment +372K, Labor Force -432K -- Today's job report (for June) once again showed a huge divergence between the household survey and the establishment survey. Household survey employment fell by 56,000 while the establishment survey shows a gain of 233,000 jobs. The labor force declined by 432,000 and that explains the drop in the unemployment rate to 5.3% from 5.5%.  The report was weaker than it looks due to significant downward revisions in April and May totaling 60,000. May was revised to 254,000 from 280,000 and April to 187,000 from 221,000.  Of note in the Household Survey, voluntary part-time employment rose by 519,000 while part-time for economic reasons declined by 147,000. That means there is a net increase in part-time employment of 372,000. BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +233,000 - Establishment Survey
  • Employment: -56,000 - Household Survey
  • Unemployment: -375,000 - Household Survey
  • Involuntary Part-Time Work: -147,000 - Household Survey
  • Voluntary Part-Time Work: 519,000 - Household Survey
  • Baseline Unemployment Rate: -0.2 to 5.3% - Household Survey
  • U-6 unemployment: -0.3 to 10.5% - Household Survey
  • Civilian Non-institutional Population: +208,000
  • Civilian Labor Force: -432,000 - Household Survey
  • Not in Labor Force: +640,000 - Household Survey
  • Participation Rate: -0.3 to 62.6 - Household Survey

BLS Jobs Situation Mixed in June 2015. Growth Rate of Employment Slowing.: The BLS jobs report headlines from the establishment survey was at expectations. The unadjusted data shows growth is lower than last year - and the growth would have been lower had the previous month's data not been revised downward.

  • The rate of growth for employment continued to decelerate this month (red line on graph below).
  • The unadjusted jobs added month-over-month was normal for times of economic expansion..
  • Economic intuitive sectors of employment were showing some growth.
  • This month's report internals (comparing household to establishment data sets) was extremely inconsistent with the household survey showing seasonally adjusted employment declining 56,000 vs the headline establishment number of growing 223,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
  • The household survey added 432,000 people to the workforce.
  • The NFIB statement is included below.

Job Growth Slows in June -- Dean Baker - There is still little evidence of any acceleration of wage growth. The Labor Department reported that the economy added 223,000 jobs in June. While this was in line with most economists' predictions, there were downward revisions of 60,000 to the data for the prior two months. This brings the average over the last three months to 221,000, compared to a monthly average of 245,000 over the last year. The job growth was almost entirely in the service sector...  This report gives little hope for an uptick in wage growth. The average hourly wage over the last three months has risen at a 2.2 percent annual rate compared to the average over the prior three months. This is little different from the 2.0 percent rate of wage growth over the last year. Among major industry groups, the only one that shows much evidence of an acceleration in wage growth is restaurants. This is likely to due to the effect of minimum wage hikes in many states and cities.The household survey also showed a mixed picture. The unemployment rate fell by 0.2 percentage points to 5.3 percent, the lowest rate for the recovery. However, this was entirely due to people dropping out of the labor force as the employment-to-population ratio (EPOP) slipped back by 0.1 percentage points to 59.3 percent. The one notable positive is that employment rates for African Americans seem to have risen, with the EPOP more than a full percentage point above the year ago level for the first half of 2015.The overall drop in EPOPs is consistent with the sharp drop in the number of long-term unemployed reported in June, from 28.6 percent to 25.8 percent of the unemployed, as many of these workers likely dropped out of the labor market. ... This report together with the prior two suggests the rate of job growth may be slowing somewhat. While a monthly pace of 221,000 would be strong for an economy near full employment, with the EPOP for prime age workers still about 3 percentage points below pre-recession levels, it will take several years at this rate to eliminate labor market slack.

June jobs report: good progress on underemployment, no progress on wages --HEADLINES:

  • 223,000 jobs added to the economy
  • U3 unemployment rate down -0.2% to 5.3%
  • Not in Labor Force, but Want a Job Now: up  18,000 from 6.058 million to 6.076 million
  • Part time for economic reasons: down  -147,000 from 6.652 million to 6.505 million
  • Employment/population ratio ages 25-54: unchanged at 77.2% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +0.1% from $20.97 to $20.99,  up +1.9%YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

April was revised down by -34,000.  May was also revised down by -26,000, for a net change of -60,000. The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.

  • the average manufacturing workweek declined from 41.8 hours to 41.7 hours.  This is one of the 10 components of the LEI and so will affect it negatively.
  • construction jobs were unchanged. YoY construction jobs are up 259,000.  
    manufacturing jobs rose by 4,000, and are up 161,000 YoY.
  • Professional and business employment (generally higher-paying jobs) rose by 64,000 and are up  642,000 YoY.
  • temporary jobs - a leading indicator for jobs overall - rose by 19,100.
    the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - fell by -63,000 to  2,355,000, compared with December 2013's low of 2,255,000.

June Jobs Report – The Numbers - U.S. employers added 223,000 jobs in June, while the unemployment rate fell to 5.3% from May’s 5.5%, the Labor Department said Thursday. Economists surveyed by The Wall Street Journal had forecast a gain of 233,000 jobs and an unemployment rate of 5.4%. U.S. employers have added 12.2 million jobs since employment touched a recent low in February 2010. June marks the 57th consecutive month of job gains, the longest stretch on record. So far this year, employers have added an average 208,000 jobs a month, down from last year’s monthly average of 260,000, the highest level since 1999. Hiring slowed in the early months of the year, and though job growth bounced back, updated figures show it was weaker in April and May than previously estimated. $24.95 Average hourly earnings of private-sector workers were unchanged in June, at $24.95. Over the past year, wages have risen 2%, in line with the average during much of the expansion. Wage growth has been tepid throughout much of the recovery and stagnant wages have been a mystery, given the sharp decline in unemployment. Economists are watching closely for a sustained pickup in wages, which would suggest the U.S. economy is nearing “full” employment nearly six years after the recession. 62.6% The labor-force participation rate—or the share of working-age Americans with jobs or searching—fell to 62.6% from May’s 62.9%. That’s the lowest level since October 1977, in part reflecting the numbers of discouraged workers who have given up on finding permanent employment. The labor force declined by 432,000 workers last month, after increasing by 397,000 in May. 5.3% The headline unemployment rate checked in at 5.3% in June, down from 5.5% in May. It was the lowest rate since April 2008, but it was for the wrong reasons–more people stopped looking for work last month. A broader measure of unemployment that includes Americans stuck in part-time jobs or too discouraged to look for work fell to 10.5%. That’s still higher than it typically would be during this phase of an expansion. 71,000 Private employers added 223,000 jobs in June, while government employment was unchanged. The mining sector, which includes many oil industry jobs, lost 4,000 jobs last month, and has shed 71,000 jobs this year. Health-care employment increased by 40,000 in June, while retailers added 33,000 workers and financial services jobs grew by 20,000. Jobs in construction were unchanged.

Another 640,000 Drop Out of the Labor Force Causing Unemployment Rate Decline -- The June employment report brings some OMG, jaw dropping, are you kidding me numbers.  Over 640,000 dropped out of the labor force.  As a result, the unemployment rate drops two tenths of a percentage point to 5.3%.  The labor participation rate dropped by -0.3 percentage points to 62.6%.  This new low of a labor participation rate has not seen since October 1977 when women and minorities were still were not in the workforce extensively.  While the United States does have baby boomers entering retirement, these figures are horrific. This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS, or current population survey.  The CPS survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of sampling error.  This part of the employment report is not about actual jobs gained.  Those employed dropped by -56,000 this month, below the margin of error yet with the other statistics, more news where one shakes their head in disbelief.  From a year ago, the employed has increased by 2.5 million.  Those unemployed decreased by -375,000 to stand at 8,299,000.  From a year ago the unemployed has decreased by -1.154 million.  Below is the month change in unemployed and as we can see, this number normally swings wildly on a month to month basis.   Those not in the labor force increased by 640,000 to 93,626,000.  The below graph is the monthly change of the not in the labor force ranks. Those not in the labor force has increased by 1,512,000 in the past year.  We are going to dig deeper into the labor participation rate for it seems absurd to think this is just baby boomer retirees.  The labor participation rate is at 62.6%, a -0.3 change from last month and as noted, a rate not this low since October 1977.  In the 1970's equal opportunity and pay were still being debated as women and minorities were still only allowed on the lowest rungs of the workplace hierarchy.

The June Jobs Report in 10 Charts --- U.S. economy added 223,000 jobs in June, which together with a drop in the number of Americans in the labor force reduced the official unemployment rate to 5.3%. The solid hiring gains follow a mild deceleration in growth earlier this year, underscored by downward revisions to hiring numbers for April and May. Here’s a look at what the latest release from the Labor Department on Thursday tells us about the state of the U.S. economy, in 10 charts. The slight pullback in hiring during the first quarter from its exceedingly strong pace late last year dropped the 12-month pace of job gains to 2.94 million, a solid number but nevertheless the lowest annual figure since November. The share of Americans in the labor force fell to a new low in June, reflecting a combination of an aging population that is retiring and slack that remains in the economy. Meanwhile, the share of Americans with a job also ticked down after gradually increasing over the past few months. The drop in labor-force participation is one reason the unemployment rate fell to its lowest level in nearly seven years in June, at 5.3%. Other measures of unemployment and underemployment, while historically high, have been trending down steadily. The report offered few signs of wage acceleration. Average hourly and weekly earnings are up 2% on the year in June. Nearly all of the increase in employment since the recession officially ended six years ago has been in full-time jobs, which are up by more than eight million. But there are still around 750,000 fewer full-time jobs than there were when the recession began in December 2007. The share of workers who have been out of work for six months or longer remains elevated but continues to decline, either as more of these workers find jobs or as they give up and leave the workforce altogether. Here’s another snapshot of the same dynamic. The median spell of unemployment has also declined considerably in recent months from its extremely high level from earlier in the economic recovery. Last, but not least, the report underscores the wide discrepancy between employment for those who have more education and those who don’t.

Labor-force participation drops to lowest level since 1977 - — The last time there was such a small percentage of Americans in the work force, “Star Wars” was in the theaters and Reggie Jackson was breaking home-run records in the World Series. The labor force participation rate declined by 0.3 percentage point in June to 62.6%, the lowest rate since October 1977.What accounts for June’s downturn is likely to be the timing of school graduations — the seasonally adjusted participation rate of 16-to-19 year olds dropped sharply, to 36.7% from 37.4%. That’s even though the raw numbers showed, quite logically as some schools ended, a big upturn in participation to 43.4% from 36.7%. The Labor Department calculates participation based on the week that includes the 12th of the month — in June, that was on a Friday, points out Betsey Stevenson, a White House economist. The earlier timing means that fewer graduates would be included in this month’s report. But the bigger story in participation, the drop from Clinton-era participation in the 67% range, is a combination of baby boomers hitting retirement (the bigger factor) and other people who have given up trying to get a job. The resident working-age population, those between 18 and 64, is growing at a rate of about 0.5% per year, according to Census data. That’s down from 1% in 2007, and 1.5% in 1999. So even though today’s 65-plus segment is more likely to have a job than previously, the sheer numbers of those who are choosing to retire offset that impact. Meanwhile, the percentage of those who aren’t in the labor force and who want a job, at 7.1% in June, is only slightly higher than the 6.8% rate in June 2007, before the onset of the Great Recession.

Americans Not In The Labor Force Soar By 640,000 To Record 93.6 Million; Participation Rate Drops To 1977 Levels --The devastation of the US labor force continues.   In what was an "unambiguously" unpleasant June jobs payrolls report, with both April and May jobs revised lower, the fact that the number of Americans not in the labor force soared once again, this time by a whopping 640,000 or the most since April 2014 to a record 93.6 million, with the result being a participation rate of 62.6 or where itt was in September 1977, will merely catalyze even more upside to the so called "market" which continues to reflect nothing but central bank liquidity, and thus - the accelerating deterioration of the broader economy. End result: with the civilian employment to population ratio dropping from last month to 59.3%, one can easily on the chart below why there will be no broad wage growth any time soon, which will merely allow the Fed to engage in its failed policies for a long, long time.

Part-Time Jobs Surge By 161,000; Full-Time Jobs Tumble By 349,000 -- While the kneejerk reaction algos were focusing on the +223K jobs number reported by the Establishment Survey, few if anyone notched that the Household survey reported a decline of 56,000 workers in June. But what's worse, is that according to this survey which according to some is far more reliable than its peer, the composition of the US labor force once again deteriorated rapidly with part-time jobs added in June surging by 161,000 while the number of full time jobs tumbled by 349,000. Putting this number in context, while the total number of US workers has long since surpassed its previous crisis high, the number of full time US workers has yet to overtake its November 2007 lever of 121.9 million, and in June dropped to 121.1 million. Why is this a problem: because while the US still has 800k full-time jobs to go to at least regain the prior peak, during the same time period the US civilian, non-institutional population has risen from 232.9 million to 250.7 million: an increase of 17.724 million!

June Employment Report Comments and Graphs - Earlier: June Employment Report: 223,000 Jobs, 5.3% Unemployment Rate -- This was a decent employment report with 223,000 jobs added, although April and May were revised down by a combined 60,000 jobs.  Unfortunately wage growth is still weak, from the BLS: "In June, average hourly earnings for all employees on private nonfarm payrolls were unchanged at $24.95. Over the year, average hourly earnings have risen by 2.0 percent." Weekly hours were unchanged for the fourth month in a row. A few more numbers:  Total employment increased 223,000 from May to June and is now 3.5 million above the previous peak.  Total employment is up 12.2 million from the employment recession low. Private payroll employment also increased 223,000 from May to June, and private employment is now 4.0 million above the previous peak. Private employment is up 12.8 million from the recession low. In June, the year-over-year change was just over 2.9 million jobs. Note: The unemployment rate falling to 5.3%, and still little real wage growth - and still a large number of people working part time for economic reasons - indicates slack in the labor market.  My view, partially based on demographics, is that the unemployment rate can fall below 5% without a significant pickup in inflation. Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle. The 25 to 54 participation rate was declined in June to 80.8%, and the 25 to 54 employment population ratio was unchanged at 77.2%. As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s. Average Hourly Earnings This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report.The number of persons working part time for economic reasons decreased in June to 6.51 million from 6.65 million in May.  This is the lowest level since Sept 2008 and suggests slack still in the labor market. These workers are included in the alternate measure of labor underutilization (U-6) that declined to 10.5% in June (lowest level since July 2008). This graph shows the number of workers unemployed for 27 weeks or more.

Since 2007 The US Has Lost 1.4 Million Manufacturers, Gained 1.4 Million Waiters And Bartenders -- Presented without comment. (graph)

June jobs report: 6 years into economic recovery, is this the best we can do? -  Nothing in the June jobs report to suggest any approaching US economic acceleration or surging inflation — or reason for the Fed to raise interest rates. The top line numbers were decent: 223,000 net new jobs, the unemployment rate fell to 5.3% from 5.5%. Also a big drop in the U-6 unemployment-underemployment rate. The internals were less decent: The participation rate fell, the employment rate fell, the labor force fell by 432,000, April and May jobs were revised lower by 60,000, nominal wage growth was flat. What’s more, 2015 job growth of 208,000 a month is markedly lower than the 260,000 monthly average for all of last year. And if the participation rate had merely held steady from last month, that big jobless rate drop would have turned into a jump to 5.7%. Maybe this chart best sums up where we are six years into economic recovery (June was the anniversary month): The employment rate for Americans in what should be the prime of their working life looks stalled at a depressed level. Sure looks like there is plenty of slack in the US labor market. As economist Justin Wolfers tweeted, “Every month that we learn that we can get more people back to work without stoking inflation, is fantastic.”

The Drop in the Unemployment Rate Is Not a Sign the Tides are Turning -  While job growth was decent in June (though the downward revisions to April and May were disappointing), the news on unemployment was actually less welcome. This might seem odd to say given that the unemployment rate dropped from 5.5 to 5.3 percent. But this drop in unemployment was not primarily driven by a rise in employment; instead it was mostly due to a drop in the labor force. Here’s a breakdown of the data. In June, the number of unemployed workers fell by 375,000. Good news, right? Not so much. The labor force dropped by more than that amount, a fall of 432,000. The White House suggests the weaker numbers may be driven by the earlier-than-normal reference period, which might not be picking up as much as the usual June increase in summer employment, which is largely driven by youth employment. So, let’s turn to the prime-age workforce to get rid of those trends, which primarily affect younger workers and which also get rid of any declines driven by baby boomer retirement. The prime-age employment-to-population (EPOP) ratio has been flat for the last four months at 77.2 percent. One would expect an improving economy to drive the prime-age EPOP upwards, and between October 2013 and February 2015 there was steady and decent progress on this front. But the recent stagnation has left prime-age EPOPs still far from fully recovered.

Paltry Wage Growth in June Is Another Sign the Economy Is Only Sputtering Along --Average hourly earnings held steady between May and June at $24.95 per hour, a paltry increase of 2.0 percent over June 2014. Annual growth of 2.0 percent is slow by any measure, but is certainly far below any reasonable wage target. In previous months, there had been some indication that wages might show signs of improvement, but this month’s disappointing report clearly illustrates that the economy has not tightened enough for strong wage growth. Wage growth needs to be both stronger and consistently strong for a solid spell before we call this a strong economy. As shown in the figure below, nominal wage growth since the recovery officially began in mid-2009 has been low and flat. This isn’t surprising–the weak labor market of the last seven years has put enormous downward pressure on wages. Employers don’t have to offer big wage increases to get and keep the workers they need. And this remains true even as a jobs recovery has consistently forged ahead in recent years. Given the continued slack in the economy, it’s unfortunate that the most effective policy lever at our disposal for generating a faster recovery–fiscal policy–has been pulled in the wrong direction for years now, with austerity dragging on growth over the recovery. The lack of prospects for any additional fiscal stimulus has only left us with monetary policy levers. Pressure is building on the Fed to reverse its monetary stimulus by raising short-term interest rates to slow the recovery in the name of stopping wage-fueled inflation. Today’s data provide further evidence that these rate hikes should not happen any time soon.

CEO Pay Has Grown 90 Times Faster than Typical Worker Pay Since 1978 - Over the last several decades, inflation-adjusted CEO compensation increased from $1.5 million in 1978 to $16.3 million in 2014, or 997 percent, a rise almost double stock market growth. Over the same time period, a typical worker’s wages grew very little: the annual compensation, adjusted for inflation, of the average private-sector production and nonsupervisory worker (comprising 82 percent of total payroll employment) rose from $48,000 in 1978 to just $53,200 in 2014, an increase of only 10.9 percent. Due to this unequal growth, average top CEOs now make over 300 times what typical workers earn. Our measure of CEO pay covers chief executives of the top 350 U.S. firms and includes the value of stock options exercised in a given year plus salary, bonuses, restricted stock grants, and long-term incentive payouts. Full methodological details can be found in Methodology for Measuring CEO Compensation and the Ratio of CEO-to-Worker Compensation, 2012 Update.

As Summer Jobs Season Begins, Teens Make Headway for the First Time Since 2012 - Summer is typically the time of year when we see the highest rates of employment for teens — young people between the ages of 16 and 19.  This group includes new high school graduates along with others in search of an opportunity to earn a few extra dollars while out of school for the summer.  Based on this month’s jobs report, the 2015 summer job market for teens is off to a better start than last year.  According to seasonally unadjusted teen employment-to-population (EPOP) ratios, 32.1 percent of all teens found employment in June 2015, compared to 30.9 percent in June 2014 (Figure A).  However, this may actually be an understatement of the June 2015 increase.  The White House suggests that an earlier-than-normal reference week for this year’s survey is capturing a smaller share of the usual June gains.  June teen employment rates were essentially flat between June 2012 and June 2014.

Why is the US labor force participation rate so low — even lower than Germany, Japan, and UK? -- The US labor force participation rate has fallen by about three percentage points since the Great Recession. Of that decline, Barclays thinks two points are due to population aging. The rest it blames on less participation within various age groups. Now overall, the US still has participation rates higher than Germany, Japan, and UK — the other large, advanced economies Barclays examines in a new report. But US participation dropped a lot more than those nations between 2005 and 2014. And it has particularly dropped a lot for working-age Americans versus that age group in other nations. Barclays: The most striking aspect of the first question is the decline in US participation by men and women in their prime working years. In Japan, Germany, and the UK, changes in participation within these population groups added at least a percentage point to the overall rate of participation from 2005 to 2014 (Figure 2), led mainly by a trend increase in female labor force participation. But in the US, participation of prime working men and women fell over this period, dragging the overall rate of participation down by a full percentage point. The movement of female participation is particularly striking; in the US, this peaked in the mid-1990s and has been drifting downward since. In the other three countries, female labor force participation has continued to climb. The uniquely American decline in the participation by working-age men and women puts the US in a long-standing contrast to Japan, Germany, and the UK, and is hard to explain on cyclical grounds, because it long predates the 2008-09 recession to which, anyway, the other countries were also exposed. And it leaves the US with a 2014 participation rate that is quite low by international comparison.

The dark side of America’s reluctant part-time workers - Nearly half of the 26.5 million Americans (46%) who work part-time are desperate to work full-time, according to a new report — “A Tale of Two Workforces: The Benefits and Burdens of Working Part Time” — by Rutgers University. The vast majority of the nation’s 26 million part-time workers — from college students working in coffee shops between classes to freelance computer software designers working for multinationals — receive no benefits beyond their paychecks and almost one-third say their financial condition is flat out poor. Nearly one-in-five American workers is employed in a part-time job, logging fewer than 35 hours a week. Some 20 million people, known as voluntary part-time workers, do so to supplement their income, pursue an education, or care for children, but another 6.5 million Americans, so-called involuntary part-time employees, want a full-time job but can’t find one. The persistence of such large numbers of involuntary part-time workers is an indicator of underlying weaknesses in the U.S. labor market six years since the beginning of the economic recovery, the study found. These part-time workers are also divided along ethnic lines. Voluntary part-time workers are disproportionately white, while involuntary part-time workers are disproportionately from a minority, especially Hispanic. Hispanics account for 23% of involuntary part-time workers, and African-Americans account for another 15%, for a total of 38%.  Perhaps not surprisingly, involuntary part-time workers earn less than their voluntary part-time counterparts. Approximately 40% of involuntary part-time workers report a total family income of less than $30,000, compared with just 18% of the latter and 29% of the population as a whole, the study concluded. What’s more, involuntary part-time workers are twice as likely as voluntary part-time workers to be forced to work on weekends and holidays, and to be given unfavorable work schedules and job assignments.

The Hard Work of Taking Apart Post-Work Fantasy - Mike Konczal --Derek Thompson has a 10,000 word cover story for The Atlantic, “A World Without Work,” about the possibilities of “post-work” in an economy where technology and capital has largely displaced labor. Though Thompson is clear to argue that this isn’t certain, as the “signs so far are murky and suggestive,” he takes the opportunity to describe how a post-work future might look.  There’s been a consistent trend of these stories going back decades, with a huge wave of them coming after the Great Recession. Thompson’s piece is likely to be the best of the bunch. It’s empathetic, well reported, and imaginative. I also hope it’s the last of these end-of-work stories for the time being.  At this point, the preponderance of stories about work ending is itself doing a certain kind of labor, one that distracts us and leads us away from questions we need to answer. These stories, beyond being untethered to the current economy, distract from current problems in the workforce, push laborers to identify with capitalists while ignoring deeper transitional matters, and don’t even challenge what a serious, radical story of ownership this would bring into question.  Before we begin, I think it’s important to note how unlikely this scenario remains. We can imagine the Atlantic of the 1850s running a “The Post-Agriculture, Post-Work World” cover story, correctly predicting farming would go from 70 percent of the workforce to 20 percent over the next 100 years, yet incorrectly predicting this would end work. We don’t think of what happened afterward as “post-work.” The economy managed to continue on, finding new work and workers in the process. There are other minor problems. Globalization and technological advancement are treated as the same thing, when they are not. There’s also a slippage common in the critical discussion of these articles (you can see it from this tweet from Thompson here) of substituting in the argument that technology has weakened wages and excluded some workers in recent decades for an argument about the long-run trajectory of technology itself. These are two different, distinct stories, with the first just as much about institutions as actual technology, and evidence for the first certainly doesn’t prove the second.

New Atlanta Fed Series Shows Wage Growth Held Steady in May --  Atlanta Fed's macroblog -- According to the Atlanta Fed's Wage Growth Tracker, a new series constructed using data from the Current Population Survey, the median increase in wages for individuals working in May 2014 and May 2015 was 3.3 percent (reported as a three-month average).  Wage growth by this measure was essentially unchanged from April and 1 percentage point higher than the year-ago reading. The current pace of nominal hourly wage growth is similar to that seen during the labor market recovery of 2003–04 and about a percentage point below the pace experienced during 2006–07, which was the peak of the last business cycle. You can download the data going back to March 1997 from our website by clicking "export," shown in the upper right of the chart below. Wage growth differs by job and worker characteristics. For prime-age individuals and full-time employees, for example, the Wage Growth Tracker recorded slightly higher readings than the group overall. The median wage growth of these individuals was 3.5 percent compared to 3.3 percent for all individuals. To see more cuts of the data, check out our website.

Professor Hubbard’s Claim about Wage and Compensation Stagnation Is Not True -- A New York Times editorial points out ... that Glenn Hubbard, a leading conservative economist and key adviser to GOP candidate Jeb Bush, does not seem to believe there is a wage stagnation problem. As an earlier New York Times article pointed out: “Mr. Hubbard argued that ‘compensation didn’t stagnate,’ citing large increases that employers have paid out in health and pension benefits.” Hubbard is definitely mistaken, as the New York Times indicates and as I demonstrate below by examining actual wage and benefit trends. Shifting the discussion from wages to compensation (wages and benefits) does not alter any of the salient facts about stagnant pay in recent years, especially for the typical worker or for low-wage workers, and not even for the ‘average’ worker (including high wage as well as low and middle-wage workers). In fact, there has been an even greater growth of inequality in total compensation than there has been in wages alone. The intuition behind Hubbard’s claim is that the costs of benefits provided by employers–especially those for health care insurance–have risen rapidly, suggesting that compensation has risen far more quickly than wages. What this ignores, of course, is that many workers in the bottom half receive very few health or pension benefits and employers provide fewer and fewer workers with health insurance and pension benefits each year. Hubbard’s intuition also ignores that employers have actually cut back on some benefits, particularly pensions, with a concomitant decline in the quality of those benefits (such as by providing defined contribution rather than defined benefit plans). ...

In Some Metro Areas, Jobs Recovery Still Out of Reach - The Labor Department is expected to report Thursday that the country posted another strong month of job growth in June. But a report Wednesday serves as a reminder that the strength has hardly been uniform across the country, with some patches of the U.S. remaining in recessionlike conditions. The Labor Department said that of the 51 major metro areas—those with at least 1 million inhabitants—49 saw jobless rates fall in the year through May, and one had no change. The metro region of New Orleans and Metairie, La., was the only one to post an increase in the jobless rate, to 6.3% in May from 5.9% a year earlier. But the picture was bleaker among some smaller regions.The jobless rate in Yuma, Ariz., stood at 23.1%, highest among any metro in the country. In El Centro, Calif., joblessness was 21.3%. There were 191 metro regions with jobless rates above the national average, outnumbering the 183 with rates below it. (Metro-area jobless rates are not seasonally adjusted. In May, the U.S. average was 5.3%, non-seasonally adjusted, and 5.5% seasonally adjusted.) The regions with the lowest rates? Lincoln, Neb., at 2.2%, and Ames, Iowa, at 2.3%.

Obama proposes broader overtime pay cover - FT.com: President Barack Obama has unveiled a long-awaited change to US rules on overtime pay, potentially raising the wages of as many as 5m workers as part of his plan to boost struggling middle-class families. The proposed change will allow salaried workers who earn up to $50,440 a year to qualify for time-and-a-half pay when working more than 40 hours a week from next year. Under current rules, only those earning less than $23,660 are automatically eligible for overtime pay. Mr Obama has made reducing income inequality and strengthening the middle class one of the primary focuses of his domestic agenda during his final 18 months in office, as he seeks to craft a lasting economic legacy. Coming off what is widely considered to have been one of the best weeks of his presidency — securing the “fast-track” authority he needs to close the biggest trade deal in a generation, and with the Supreme Court upholding a crucial component of his healthcare law — advisers say he remains on the offensive. The change to the overtime rule, months in the making, is seen as one of the most significant steps the administration can take to boost the earnings of low- and middle-income workers. While Mr Obama continues to push Congress to raise the national minimum wage, currently at $7.25, expanding eligibility for overtime pay would have an immediate, tangible effect once adopted. But it is likely to meet fierce resistance from Republicans and business interests, which contend that extending overtime pay to millions more workers will batter small businesses and force employers to cut jobs and employee hours to contain costs.

Yeah, baby–new OT rule is out and it’s strong! -- I’ve got a longer piece up on PostEverything, but here are the key ‘grafs from the POTUS’s announcement on this tonight (my bold):  We’ve got to keep making sure hard work is rewarded. Right now, too many Americans are working long days for less pay than they deserve. That’s partly because we’ve failed to update overtime regulations for years — and an exemption meant for highly paid, white collar employees now leaves out workers making as little as $23,660 a year — no matter how many hours they work.  This week, I’ll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren’t. That’s how America should do business. In this country, a hard day’s work deserves a fair day’s pay. That’s at the heart of what it means to be middle class in America.  That’s the threshold Ross Eisenbrey and I thought made the most sense, as we explain here. The WH says they expect the change to reach as many as 5 million middle-wage workers. Believe me, you’d be very hard pressed to come up with a rule change or executive order—i.e., non-legislation—to lift the pay of this many folks. That’s important, because we live in a time when the bargaining power of many who depend on their paychecks is much diminished relative to the clout and power of those whose income derives from their wealth portfolios.

Obama Making Millions More Americans Eligible for Overtime --President Obama announced Monday night a rule change that would make millions more Americans eligible for overtime pay. The rule would raise the salary threshold below which workers automatically qualify for time-and-a-half overtime wages to $50,440 a year from $23,660, according to an op-ed article by the president in The Huffington Post.  “Right now, too many Americans are working long days for less pay than they deserve,” the president wrote. The administration has the power to issue the regulation, which would restore the overtime salary threshold to roughly where it stood in 1975 in terms of purchasing power, without congressional approval.Advocates for the change immediately hailed the decision.“The president said he wanted to go big here and he did,” said Jared Bernstein, a former White House economist who co-wrote an influential report on the benefits of expanding overtime pay after leaving the administration in 2011. “I can’t think of any other rule change or executive order that would lift more middle-class workers."Conservatives and business groups have bitterly opposed the idea, warning that it will cost jobs. The National Retail Federation, a trade group, has argued that expanded overtime will “add to employers’ costs, undermine customer service, hinder productivity, generate more litigation opportunities for trial lawyers and ultimately harm job creation.”

What the New Proposed Overtime Rules Mean for Workers  -- In 2014, President Obama directed the Department of Labor to update the threshold under which all workers are eligible for overtime pay. Today, the Department of Labor announced that it will raise the overtime salary threshold from $23,660 to $50,440 by 2016. The threshold will also be indexed, guaranteeing that the law’s important protections will not be diminished by inflation. We applaud President Obama and Secretary Perez for this bold action. The new threshold will protect more workers from being taken advantage of by their employers, giving some higher pay for working overtime and others reduced hours without any reduction in pay. This is a significant victory for American workers and will ensure that they get paid for the work they do. This higher threshold will guarantee 15 million more workers overtime pay on the basis of their salary alone, in addition to the 3.4 million workers who are already guaranteed overtime pay. It will boost wages, which have been largely stagnant for the past 35 years, create hundreds of thousands of jobs, and give more family time to millions of working parents. Overall, 3.1 million mothers and 3.2 million fathers will be guaranteed overtime pay under the new threshold, and 12.1 million children will benefit from their parents’ overtime coverage.  With today’s announcement, the DOL is opening a comment period that will give workers an opportunity to express their support of the proposed rule change. FixOvertime.org allows workers to use their voice and submit their comment for consideration as the Department of Labor decides whether or not to actually boost overtime in accordance with the proposed rule changes. It also lets workers calculate how much extra they can earn per week under the new overtime rules.

Majority of Workers Who Will Benefit from Updated Overtime Rules are Women -  The Department of Labor is announcing a significant increase in the threshold – from $23,660 to approximately double that amount. What that means is that workers earning up to the new level, even if they are not called “hourly,” will get overtime pay for their hours worked over 40 in a work week. In 1975, the salary basis test captured 60 percent of salaried workers; in 2015, only 8 percent of salaried workers fall below this level and earn overtime. While writing my book, Under The Bus: How Working Women Are Being Run Over, I discovered (with help from EPI’s economists) just how much this change will help workers, particularly women of color.  The Fair Labor Standards Act (FLSA) established the requirement of minimum wage and overtime, but in a provision known as the “salary test,” the law provides that employers need not pay either the minimum wage or overtime to workers they designate as “bona fide executive, administrative, professional and outside sales employees,” so long as their daily tasks meet the DOL definition and they make more than $455 per week – which is how $23,660 breaks down as a weekly wage. Clearly, outdated level has given unscrupulous employers a way to avoid paying low-paid staff overtime by calling them “salaried.” Workers have had to challenge their denial of overtime when their employers tried to get out of the requirement by adding “manager” or “leader” to their title when their actual work consisted of serving fast food, shelving merchandise, or ringing up customers’ purchases.

Massachusetts home care workers win $15/hr starting wage - (Reuters) - Massachusetts home care workers have won the nation's first state-level $15-an-hour starting salary, after months of negotiations with state officials in an ongoing national campaign. The pay hike will take effect in July 2018, bringing the starting hourly pay up from $13.38, the Service Employees International Union Local 1199, which represents about 35,000 home care workers in the state, said on Friday. The federal minimum wage has been $7.25 since 2009. The union said the deal, inked late Thursday, had led it to cancel a planned protest in front of the state house. The union last year linked up with the national Fight for $15 movement, which has been organizing rallies across the country calling for higher wages for America's lowest paid workers. A spokesman for Governor Charlie Baker's office said the administration was "pleased" that personal care attendants will be "appropriately compensated for the highly specialized care they provide."

Political profiteers push Ohio's pot vote - Center for Public Integrity: — Thousands of hastily scribbled signatures fill boxes in the basement of Ian James’ 7,800-square-foot restored Victorian home in the historic Franklin Park neighborhood. James needs these names to win a place on Ohio’s November ballot for a measure to legalize medical and recreational marijuana. But the political consultant isn’t just gathering the signatures. He came up with the idea for the measure. And he recruited a lawyer to draft a constitutional amendment that would put Ohio’s future marijuana market in the hands of only 10 growers — an arrangement that critics are calling a monopoly. Meanwhile, he plans to pay his own firm nearly $6 million to run the campaign. Though James is an extreme example, he’s a member of a much larger and little-known class of professionals that form what could be called Ballot Measure Inc.:  a powerful electoral-industrial complex funded by moneyed interests that belies the quaint notion of “citizen democracy” that such efforts are assumed to represent. Active in the 26 states that have citizen-initiated ballot measures, the network of pollsters, direct mail specialists, lawyers, consultants, signature gatherers and voting data whizzes were paid at least $400 million for 85 statewide measures across the country in 2014, according to a Center for Public Integrity analysis of state records.  In presidential election years, state and local measures are a billion-dollar industry, said ballot initiative expert David McCuan.

Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’ - Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.The governor, Alejandro García Padilla, and senior members of his staff said in an interview last week that they would probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment.“The debt is not payable,” Mr. García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”It is a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state.A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals. That market has already been shaken by municipal bankruptcies in Detroit; Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt. Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds. Its call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending.

Puerto Rico Bonds Tumble After Governor's Warning - Prices on Puerto Rico’s newest general obligations sank to record lows after Governor Alejandro Garcia Padilla said investors should be prepared to sacrifice if they want the cash-strapped island’s economy to grow. … With two days left in Puerto Rico’s fiscal year, the commonwealth is struggling to pass a budget that would allow it to make payments on a $72 billion debt load. Investors should work with the commonwealth to reduce its obligations, Garcia Padilla told the New York Times in an interview. … “The debt is not payable,” the governor said. “There is no other option.” The U.S. territory of 3.5 million people is grappling with a jobless rate double the national average and a debt load bigger than every U.S. state except California and New York. The governor’s remarks land in a jittery global debt market, as investors weigh the possibility of a Greek default and exit from the euro zone.

Puerto Rico poses bigger threat to U.S. investors than Greece - Puerto Rico is hurtling toward default and U.S. investors are set to face the losses.   As U.S. investors have been panicking over a potential Greek collapse, Puerto Rico’s governor Sunday announced that the small U.S. territory cannot pay its roughly $72 billion in debt.  Less than 24 hours later, Gov. Alejandro Garcia Padilla proposed a plan to seek a restructuring of the island’s debt, suggesting that the island is virtually insolvent. A long-awaited report compiled by former International Monetary Fund staffers brought the Puerto Rican debt crisis back into the spotlight. The report concluded that the U.S. commonwealth has lost the ability to fund itself through public debt markets, while pointing to what the authors described as “a decade of stagnation, outmigration and debt.”Although the Puerto Rican debt crisis is no secret to residents of the island, the governor’s statement essentially was the first official opening for a renegotiation of the debt, said economist Carlos Soto-Santoni, president of Nexos Económicos, a Puerto Rico-based consulting firm, and deputy adviser for former Governor Rafael Hernández Colón’s administration.  But the problem is that, as per the U.S. constitution, Puerto Rico cannot file for Chapter 9 bankruptcy, like Detroit did, and neither can its public corporations and local agencies, Soto-Santoni added.So the governor is basically seeking a negotiated agreement with bondholders for a postponement of payments on the debt for a number of years.

White House: No federal bailout for Puerto Rico - — The White House threw cold water Monday on the notion of bailing out Puerto Rico from its financial crisis, instead urging Congress to consider changing the law so the island can declare bankruptcy. On the heels of a dismal economic report, Puerto Rico’s governor has warned that the commonwealth can’t pay its $72 billion public debt, delivering a serious blow to Puerto Rico’s recession-addled economy. But White House spokesman Josh Earnest said the federal government would provide financial expertise and access to existing resources — but not a bailout. “There’s no one in the administration or in D.C. that’s contemplating a federal bailout of Puerto Rico,” Earnest said. “But we do remain committed to working with Puerto Rico and their leaders as they address the serious challenges.” Earnest said the Treasury Department is working with Puerto Rican officials to offer advice, and that an interagency task force would help the island identify federal programs and funds it might be able to tap into. He described that assistance as similar to what the federal government offered Detroit during its crisis. The Obama administration declined to offer Detroit a bailout, and the city declared bankruptcy under Chapter 9 of the Bankruptcy Code in 2013. As a U.S. territory, Puerto Rico can’t file for bankruptcy under that chapter, which is limited to municipalities such as Detroit. But Puerto Rican Gov. Alejandro Garcia Padilla has said he’s considering asking Congress to change the law so that Puerto Rico’s public agencies could declare bankruptcy under Chapter 9 — an idea that seemed to gain traction at the White House.

Is the Governor of Maine Mentally Ill? -- According to the necn news station, calls for Maine Governor Paul LePage to be impeached are increasing. More than 100 people rallied outside the Statehouse in Augusta, Maine on Tuesday, following allegations that the bombastic governor blackmailed a school, threatening to withdraw funding if it did not fire a political opponent:Last week, Democrat Speaker of the House Mark Eves announced he lost his job as President at Good Will-Hinckley School. He said Governor LePage threatened to withdraw state funding from the school if it did not fire Eves. LePage admits making the threat, but said he was looking out for the school’s best interest. Several legislators have requested the government oversight committee launch an ethics investigation into LePage.  As the governor becomes increasingly isolated, with his speech in public becoming more and more out of control, inappropriate and hateful, perhaps impeachment would actually benefit him- so that he can get some help. His vile comments include remarks about blowing things up (see video) and shooting people: Bangor Daily News reports that LePage also said that some lawmakers should be “rounded up and executed” in public:

Why Chicago Won’t Go Bankrupt—And Detroit Didn’t Have To - When Detroit became the largest city in the history of the United States to file bankruptcy in 2013, a question quickly emerged: Which city would be next?  Because conventional wisdom held that bloated pensions had bankrupted Detroit, the conversation revolved around other cities with large pension shortfalls, such as New York, Philadelphia and Jacksonville, Florida. Anti-union politicians used the opportunity to hold up Detroit as a boogeyman. All of this uproar rested on a basic falsehood in the dominant public narrative around Detroit: that pensions played a key role in driving the city bankrupt. But those who studied the bankruptcy closely know that the reverse is true: The city filed bankruptcy so that it could cut pensions. Detroit’s bankruptcy was not borne out of financial necessity and was not a foregone conclusion. It was a political decision made by state officials. Gov. Rick Snyder and the Michigan Legislature chose to push the distressed city over the edge in order to accomplish two otherwise difficult political goals: slashing pensions and regionalizing the Detroit Water and Sewerage Department. It was disaster capitalism at its finest.  Austerity hawks are now hoping to use the Detroit playbook in other cities to force the public to accept extreme measures to fix budget crises. And the bond markets seem to have finally settled on an answer to that question about which city will be the next Detroit: Chicago. Moody’s Investor Service, one of the three major credit rating agencies, just downgraded Chicago’s credit rating to junk level—the municipal equivalent of a subprime credit score, cautioning potential lenders that the city may not be able to pay them back—making it the lowest-rated major city in the country after Detroit.

House won't vote on Chicago schools pension relief bill - The sponsor of a bill to give Chicago Public Schools a 40-day reprieve for making a $634 million pension payment says she won't call it for a vote. Democratic Rep. Barbara Flynn Currie said Tuesday she doesn't "have the votes" to pass the legislation. CPS is required to make the contribution Tuesday. But district officials have said they don't have the money to do so without taking critical resources from classrooms. It was unclear Tuesday what the impact would be or how CPS would proceed. Spokeswomen for CPS and Mayor Rahm Emanuel didn't immediately respond to requests for comment. The measure to delay the payment failed in the Illinois House last week but House Speaker Michael Madigan said it would be called again. He left a meeting Tuesday without commenting.

Chicago makes massive teachers pension fund payment, Emanuel warns of cuts  -- Chicago Public Schools to meet Tuesday's deadline for a $634 million contribution to Chicago's teachers retirement fund but warned making the state-mandated payment would lead the cash-strapped district to make classroom cuts ahead of the new school year. In the days leading up to Tuesday's deadline, Emanuel had sought to delay the payment until August while calling for broader changes to how Chicago teacher pensions are funded. But with Springfield mired in a wide-ranging struggle between Republican Gov. Bruce Rauner and ruling Democratic lawmakers, there was little momentum to grant Chicago relief. That left Emanuel with a choice: Skip the required pension payment and risk being sued by teachers and having the school district's woeful credit rating sink further or make the payment and face a cash crunch that could lead to deep classroom cuts. By late Tuesday, the Chicago Teachers' Pension Fund announced Emanuel had decided to do the latter, confirming it received a $619 million payment that, combined with an earlier $15 million contribution, covered the full requirement. Both Emanuel's administration and CPS did not respond to questions on what funds, what borrowing or what combination of the two the district tapped to fulfill the payment. In a brief statement, interim schools CEO Jesse Ruiz would only say that borrowing was involved.

S&P downgrades Chicago Board of Education's GO debt rating to 'BBB' - Standard & Poor's Ratings Service lowered its rating on the Chicago Board of Education's general obligation bonds to 'BBB' from 'A minus', citing the board's "structural imbalance". The rating agency said the downgrade reflects its view of the challenges facing the board to maintain sufficient liquidity.(bit.ly/1KvTSZq) S&P also placed the Board on CreditWatch with negative implications, to reflect its view that the board's credit quality could deteriorate if the fiscal 2016 budget does not improve the board's fiscal imbalance.

Colorado Court Rules Use of Public Funds for Private Schools Is Unconstitutional - The New York Times#:  Colorado’s highest court on Monday struck down a voucher program that allowed parents in a conservative suburban school district to use taxpayer dollars to send their children to private schools. The split decision to throw out the voucher program in Douglas County, Colorado’s third-largest school district, was a blow to conservative education advocates and those who want to redefine public education to funnel tax dollars directly to families who then choose the type of schooling they want for their children.  The state’s Supreme Court ruled against the district’s voucher program, which was passed in 2011, saying it violated a plank of the State Constitution that explicitly prevents public money from going to schools “controlled by any church or sectarian denomination whatsoever.” “This stark constitutional provision makes one thing clear,” Colorado’s chief justice, Nancy E. Rice, wrote in the court’s opinion. “A school district may not aid religious schools.”The ruling’s immediate effect will be to prevent the district from giving vouchers to families to send their children to any private school, including secular ones. The court’s decision will also stop other school districts around Colorado from pursuing similar voucher programs.  School officials in Douglas County, just south of Denver, signaled that the district would appeal the case directly to the United States Supreme Court, with the hopes of weakening laws here and in other states that block public money from flowing to religious schools. More than a decade ago, the federal Supreme Court ruled that the Constitution could not prohibit the use of public vouchers to pay for religious schools in Cleveland.

Gov. Brown Signs Law Ending Personal, Religious Exemptions to School Vaccine Requirements - Gov. Jerry Brown on Tuesday signed into law one of the nation’s strictest childhood vaccination requirements, approving a bill that generated multiple protests and controversy as it moved through the Legislature. Senate Bill 277, authored by Sacramento pediatrician state Sen. Richard Pan and former Santa Monica-Malibu school board president state Sen. Ben Allen, eliminates parents’ ability to claim “personal belief” exemptions to schoolchildren’s vaccine requirements at both private and public schools in California. Only medical exemptions, approved by a doctor, will be allowed under the law. A licensed physician will have to write a letter explaining the child’s medical circumstances that make immunization unsafe for that child. Children who are not vaccinated must be home-schooled or participate in public school independent study. The law goes into effect July 1, 2016. The bill was approved by the Assembly on a 46-31 vote Thursday; the amended version was approved by the state Senate, 24-14, Monday.

Texas Board of Education to be headed by a homeschooler --The Texas Board of Education creates "policies and standards for Texas public schools." Gov. Greg Abbott's choice to head this body setting policies and standards for Texas public schools is a woman whose own children never attended those public schools—they were homeschooled and then sent to a private high school. But hey, she's a former aide to the state's Republican lieutenant governor.  The problem here seems obvious. Even Republican State Board member Thomas Ratliff called the move a mistake. “Public school isn’t for everybody, but when 94 percent of our students in Texas attend public schools I think it ought to be a baseline requirement that the chair of the State Board of Education have at least some experience in that realm, as a parent, teacher, something,” Ratliff argued.  Bahorich's relevant experience, as listed on her LinkedIn profile, includes "founder/director/board member" of Home Ed Plus, which "provides the opportunity for homeschool families and Christian teachers to come together in support of a high quality academic education for homeschooled students." Naturally she's also a huge supporter of charter schools. Basically any way of getting students out of public schools ... the public schools for which she'll play a major role in setting policy.

No Child Left Un-Mined? Student Privacy at Risk in the Age of Big Data -- On Facebook, it’s the season where parents are posting pictures of K-12 graduations, including moppets in tiny mortarboards. But unlike a generation ago, today’s smallest graduates are amassing a big data trail. Just as medical and government files have been digitized — some to be anonymized and sold; all susceptible to breaches — student data has entered the realm of the valuable and the vulnerable. Parents are paying attention. A recent study by the company The Learning Curve found that while 71 percent of parents believe technology has improved their child’s education, 79 percent were concerned about the privacy and security of their child’s data, and 75 percent worried about advertiser access to that data.The fear is that the multi-billion-dollar education technology (or “ed-tech”) industry that seeks to individualize learning and reduce drop-out rates could also pose a threat to privacy, as a rush to commercialize student data could leave children tagged for life with indicators based on their childhood performance.“What if potential employers can buy the data about you growing up and in school?” asks mathematician Cathy O’Neil, who’s finishing a book on big data and blogs at mathbabe.org. In some of the educational tracking systems, which literally log a child’s progress on software keystroke by keystroke, “We’re giving a persistence score as young as age 7 — that is, how easily do you give up or do you keep trying? Once you track this and attach this to [a child’s] name, the persistence score will be there somewhere.” O’Neil worries that just as credit scores are now being used in hiring decisions, predictive analytics based on educational metrics may be applied in unintended ways. Such worries came to the fore last week when educational services giant Pearson announced that it was selling the company PowerSchool, which tracks student performance, to a private equity firm for $350 million. The company was started independently; sold to Apple; then to Pearson; and now to Vista Equity Partners.  The company did not sign an initiative called the Student Privacy Pledge, whose signatories promise not to sell student information or behaviorally target advertising (151 other companies including Google have signed the non-binding pledge).

Academic publishers reap huge profits as libraries go broke - Think it's hard to make money in publishing in the digital age? Well, huge profits are still to be had – if you're a publisher of academic research journals. While traditional book and magazine publishers struggle to stay afloat, research publishing houses have typical profit margins of nearly 40 per cent, says Vincent Larivière, a researcher at the University of Montreal's School of Library and Information Science.  Researchers rely on journals to keep up with the developments in their field. Most of the time, they access the journals online through subscriptions purchased by university libraries. But universities are having a hard time affording the soaring subscriptions, which are bundled so that universities effectively must pay for hundreds of journals they don't want in order to get the ones they do. Larivière says the cost of the University of Montreal's journal subscriptions is now more than $7 million a year – ultimately paid for by the taxpayers and students who fund most of the university's budget. Unable to afford the annual increases, the university has started cutting subscriptions, angering researchers. "The big problem is that libraries or institutions that produce knowledge don't have the budget anymore to pay for [access to] what they produce," Larivière said.  What he and his collaborators found was that the five largest, for-profit academic publishers now publish 53 per cent of scientific papers in the natural and medical sciences – up from 20 per cent in 1973. In the social sciences, the top five publishers publish 70 per cent of papers.  Essentially, they've become an oligarchy, Larivière and co-authors Stefanie Haustein and Philippe Mongeon say in a paper published last week in the open access, non-profit journal PLOS ONE.

The student experience: How competency-based education providers serve students - Key Points

  • Competency-based education (CBE) programs tend to serve students with previous professional or academic experience. This audience affects how the programs are structured and designed.
  • CBE inverts the structure and choice of traditional higher education. The most clearly defined components of traditional higher education programs are much less structured in CBE programs, and the components of traditional higher education programs that are typically the most flexible and able to be personalized are often fixed in CBE programs.
  • Striking differences exist between CBE and traditional higher education programs in how students are recruited, admissions and credit transfer policies, how credits are earned, and interactions with peers and faculty.
  • The differences between CBE programs and more traditional higher education have important implications for student success and scalability. We need more information about how students experience these programs.

Read the PDF. (embedded)

Supreme Court to Weigh Race in College Admissions - The Supreme Court agreed on Monday to take a second look at the use of race in admissions decisions by the University of Texas at Austin, reviving a potent challenge to affirmative action in higher education.The move, which supporters of race-conscious admissions programs called baffling and ominous, signaled that the court may limit or even end such affirmative action. The advocates speculated that the court’s most conservative members had cast the four votes needed to grant review of the case in the hope that Justice Anthony M. Kennedy would supply the fifth vote to strike down the Texas admissions plan.Justice Kennedy has never voted to uphold an affirmative action program.  The consequences would be striking if the court sided with the plaintiff in the case, a white woman named Abigail Fisher, and did away with racial preferences in higher education. It would, all sides agree, reduce the number of black and Latino students at nearly every selective college and graduate school, with more Asian-American and white students gaining entrance instead.

No End In Sight For Higher-Education Malinvestment -- “Any college that is thinking about capital expansion, now is a very good time,” Robert Murray, an economist at Dodge Data told the Wall Street Journal. Now being a good time because stock market gains have pumped up endowments, “and low interest rates have created a favorable environment for colleges to build,” writes Constance Mitchell Ford. The campus building boom marches on. In 2014 colleges and universities commenced construction on $11.4 billion worth of projects, a 13 percent increase from the previous year. It’s the largest dollar value of construction starts since the heady days of 2008. Ms. Ford’s piece highlights a $2 billion project at Cornell and sixteen new buildings at Columbia worth $6 billion. But here in Auburn, Alabama the campus has been a construction zone since 2008 when I arrived. Multiple new dorms, a basketball arena, a fancy student center, and various new classroom buildings have been constructed at a time when funding from the state has been cut back. What’s now underway is the largest scoreboard in college football, with a plan to expand the stadium next. Back in the 1985–86 school year, full time tuition at Auburn for a non-resident was $2,585. Thirty years later it is now $28,040. That’s a compounded annual growth rate of 8.27 percent. According to Bloomberg, college tuition and fees have increased 1,120 percent since records began in 1978, and the rate of increase in college costs has been “four times faster than the increase in the consumer price index.”

Improving Higher Education Through Professor Specialization -- Every economist will tell you about the benefits from specialization. We have known about that since Adam Smith wrote The Wealth of Nations. But for some reason, this knowledge is thrown out when it comes to specialization in academia. I am talking about the requirement for tenure-track professors to engage in research. There is little evidence that good teachers are good researchers, or vice versa. Nor should we expect there to be any necessary connection between the two. And yet, we hear such claims all the time. The fact of the matter is that each—being a good researcher and being a good teacher—requires a completely different skill set. And each has different goals. This is something we understand for high school teachers—we don’t require them to do research—but not for undergraduate professors. Researchers are interested in the discovery of new knowledge. Teachers are interested in the communication of what is known and well-established. Researchers need to spend a lot of time working alone or in small research teams—but even in the latter case, the work tends to be solitary in nature, while you’re doing it. Teachers need to be social and gregarious. And while the ability to communicate is important for researchers, it is central to the task of teaching. In many ways, then, teaching and doing research require opposite skills and each is most attractive to people with almost opposing personalities. Good teachers are extroverts; good researchers tend to be introverts. In the rest of the economy, we expect specialization. Why do we expect professors to do multiple jobs and to be good at them all?

Foreign Grad-School Applications Rise, Driven by Indian Candidates - WSJ: International applications to U.S. graduate schools rose 2% this year, driven by double-digit growth from Indian candidates and interest in science and engineering programs but tempered by declining demand from Chinese prospects. This marks the 10th straight year of gains in applications from foreign candidates, according to a preliminary tally by the Council of Graduate Schools, based on reports from 377 schools that educate the bulk of international graduate students. U.S. graduate schools overall received 676,484 applications, including more than 192,000 from Indian students—a 12% increase for that country, according to the early count. India provides the second-largest pool of international applicants to U.S. graduate schools, behind China, and two-thirds of all international applications come from those two countries. “Students from India have a reputation for being very savvy shoppers when it comes to higher education,” . “Right now, the U.S. is a very strong market and a very good value for them.” The U.S. is also a much larger market. While India has increased capacity in its universities for undergraduate students, particularly in engineering programs, it has been slower to add seats for graduate study.

Elizabeth Warren Reams Private Accreditor Who Certified Corinthian College Up to Its End --Yves Smith - This video speaks for itself. But I have to say separately that the refusal of organizations and their leaders to take responsibility for their actions is a pathology that is treated as a virtue in our society (Jamie Dimon is a prime example). This entire industry of accreditors needs to be put out of existence. The exchange makes clear that their processes are a complete sham.

Moody's, Fitch Fret Over Billions In Student Loan ABS As Defaults Loom  --Back in April we asked if the student loan bubble was about to witness its 2007 moment.  The reference, of course, was to a wave of MBS downgrades in July of 2007 which sent a series of tremors through global financial markets and triggered an asset backed commercial paper crisis in Canada which, although no one knew it at the time, presaged the crisis that would wreak havoc in the US a year later. As a reminder, on July 10, 2007 Moody’s downgraded 399 bonds backed by subprime mortgages which together totaled some $5.2 billion. On July 12, Fitch Ratings placed 19 structured collateralized debt obligations on Ratings Watch Negative due to a significant deterioration in the underlying portfolios of residential mortgage-backed securities. That same day, S&P cut its ratings on 498 subprime mortgage related bonds worth some $6.39 billion.  We’re starting to see a similar situation unfolding in the market for student loan backed paper.  In April, Moody’s put some $3 billion in student loan backed ABS on review for downgrade citing an increased likelihood of default. Now, Moody’s has placed more than 100 tranches across 57 student loan-backed deals totaling some $34 billion on review. The rationale? “Low” payment rates, deferment, forebearance, and IBR. From Moody’s:Moody's Investors Service has placed on review for downgrade the ratings of 106 tranches in 57 securitizations backed by student loans originated under the Federal Family Education Loan Program (FFELP). The loans are guaranteed by the US government for a minimum of 97% of defaulted principal and accrued interest. The reviews for downgrade are a result of the increased risk that the tranches will not fully pay down by their respective final maturity dates. Failure to repay a note on the final maturity date represents an event of default under the trust documents.

Sugar Daddies Are Paying Their Share Of The $1.3 Trillion Student Loan Balance -- As noted previously, we are in a new dark age where college does not pay. At $1.3 trillion, the student debt balance is not getting any smaller. Facing a lifetime of debt slavery, the millennial generation is doing whatever they can to avoid homelessness. Whether it's stripping or working at Rent A Gent, all options are on the table. Now, they are flocking to Seeking Arrangement to prostitute themselves so they can pay for school. Since 2009, the number of student sugar babies has increased by 1,200%! The labor force participation rate for college graduates has been on a relentless downtrend. It is getting even more expensive to go to school. Even after adjusting for inflation, college costs have gone up more than 400% in the last 30 years. The student loan balance has nearly tripled in the last decade. Many young people don't see any good alternatives to going to school, so they jump in head first. Facing enormous bills, they turn to sites like Seeking Arrangement for help. These aren't just women either. 15% of student sugar babies are men, and plenty of sugar mommas are on the site too. Here are the numbers. And here are the sugar babies by major.

Americans Are Delaying Major Life Events Because of Money Worries - ABOUT half of American adults have postponed a major life decision in the past year for financial reasons, mainly because they lack sufficient savings or are worried about the economy, or both, a new survey finds.The survey, conducted for the American Institute of Certified Public Accountants, found that the proportion of people delaying big decisions like buying a home or getting married had risen to 51 percent, from 31 percent in a similar survey in 2007, before the start of the financial downturn.(The telephone survey of 1,010 adults, age 18 and older, was conducted in March by Harris Poll. The margin of sampling error is plus or minus 3 percentage points.)The change was striking, and the percentages more than doubled in some areas. Nearly a quarter said they had delayed higher education, up from 11 percent in 2007, and 18 percent said they had put off retiring, compared with 9 percent in the earlier survey. Twenty-two percent said they delayed buying a home in 2015, compared with 14 percent in 2007.The change was also evident in life decisions that weren’t solely financial in nature: 13 percent said they had delayed having children, compared with 5 percent in 2007, and 12 percent said they had postponed marriage, up from 5 percent in 2007.

Top Private Equity Reporter: CalPERS is Either Lying or Has “a Massive Breakdown in Financial Controls” -- Yves Smith - CalPERS is suffering a richly deserved hit to its reputation by virtue being too chummy with private equity general partners and thus neglecting its duties as a fiduciary.  As we pointed out at the beginning of June, CalPERS board member JJ Jelincic elicited this stunning admission from Chief Operating Investment Officer Wylie Tollette: Profit sharing in the private equity market, in fact the whole private equity industry, it’s embedded in the return. It’s not explicitly disclosed or accounted for. We can’t track it today “Profit sharing” is another way to describe the private equity carry fee. That’s the “20” in the prototypical “2 and 20″ for the private equity general partner’s 2% annual management and 20% share of profits, typically after a hurdle rate of 8% has been met*. Needless to say, these are really large fees if a fund is doing well. As we observed: Here, CalPERS, supposedly the most seasoned and savvy investor in private equity, is flying blind on how much it pays in carry, while going through the empty exercise of meticulously tracking its woefully incomplete tally of visible charges. This is a garbage in, garbage out exercise as far as private equity is concerned. Moreover PE real (as opposed to visible) fees and costs are so high that it means that CalPERS’ claims about its fees and costs across its entire portfolio are rubbish. This example of the dereliction of duty of private equity limited partners like CalPERS is so striking that it caught the attention of the finance-friendly New York Times Dealbook. Ironically, the Dealbook piece effectively contradicted a New York Times editorial less than ten days earlier that praised CalPERS for its efforts at fee reduction, and erroneously tied those to its plans to reduce the number of private equity managers drastically.** As Jelincic pointed out in the board meeting, you can’t manage what you don’t track.

CalPERS Scrambles to Get Private Equity Carry Fee Info After We Break Story That They Had No Clue What They Were Paying -- Yves Smith - Our June 4 post CalPERS Admits It Has No Idea What it is Paying in Private Equity Carry Fees, described how its Chief Operating Investment Officer, Wylie Tollette, made an eye-popping claim in a CalPERS board session: that CalPERS “couldn’t” track private equity carry fees. These fees are the biggest that CalPERS pays. As we pointed out then: Here, CalPERS, supposedly the most seasoned and savvy investor in private equity, is flying blind on how much it pays in carry, while going through the empty exercise of meticulously tracking its woefully incomplete tally of visible charges. This is a garbage in, garbage out exercise as far as private equity is concerned. Moreover PE real (as opposed to visible) fees and costs are so high that it means that CalPERS’ claims about its fees and costs across its entire portfolio are rubbish. New York Times’ Dealbook picked up on this stunning lapse in, Calpers’s Disclosure on Fees Brings Surprise, and Scrutiny, on June 26. The pressure on CalPERS became intense when the top private equity reporter, Dan Primack at Fortune, excoriated CalPERS over what he correctly depicted as either lying or a “massive breakdown in financial controls.” As he wrote on June 29:Whichever way you slice it, the result should be pissed off pensioners. CalPERS receives annual audited financial statements from all of its private equity fund managers. These documents do indeed include information on carried interest. Yes, you may need a calculator to break out your pro rata piece of the fund, or to work out the amount of carry paid since a fund’s inception, but it most certainly can be done. I’ve spoken to a variety of senior LPs at other institutions (including public pensions) over the past day, and each of them is dumbfounded by the CalPERS claim…

Why Your 401(k) Is Such an Attractive Target for Hackers -Many Americans assume their money is relatively safe regardless of where the account is located. As hackers have moved from retailers to banks, the likelihood of retirement accounts being the next target is increasing.  While having access to financial accounts, including banking and retirement portfolios, has increased accessibility to consumers, it has also increased the risk of fraud “significantly,” said Paul Martini, CEO of iboss Network Security, a San Diego network security provider. “Retirement accounts are squarely in their crosshairs,” he added.IRA and 401(k) accounts are even more attractive targets for hackers, because most people do not track them the way they do their credit cards or checking accounts. The thefts could wind up being undetected for months.  Even cyber criminals who are “semi-skilled” can access a victim’s 401(k) or IRA account easily using stolen personal information and social engineering tactics, Johnson said.“Once they have access to the account, it can be emptied in a matter of minutes, but the victim may not realize it until they do their annual review of their retirement accounts months later,” he said.Although retirement accounts are insured by the FDIC for up to $250,000,FDIC insurance only “comes into play if a bank fails,” said David Barr, a FDIC spokesperson. “Banks carry separate insurance to cover losses or other liabilities.”

Lifting the ban on total dietary fat? -- I write about nutrition far more now than I used to. Part of that is because – as with health policy – as I’ve learned how little of what we say is based on data and evidence, the more irritated I become. I recently came across a Viewpoint in JAMA that is illustrative of how things are changing in nutrition. It’s by Dariush Mozaffarian and David Ludwig, and it talks about the Dietary Guidelines Advisory Committee report. Here’s something I already wrote about at The UpshotIn the new DGAC report, one widely noticed revision was the elimination of dietary cholesterol as a “nutrient of concern.” This surprised the public, but is concordant with more recent scientific evidence reporting no appreciable relationship between dietary cholesterol and serum cholesterol1 or clinical cardiovascular events in general populations.  But they want to focus on something else:  A less noticed, but more important, change was the absence of an upper limit on total fat consumption. The DGAC report neither listed total fat as a nutrient of concern nor proposed restricting its consumption. Rather, it concluded, “Reducing total fat (replacing total fat with overall carbohydrates) does not lower CVD [cardiovascular disease] risk.… Dietary advice should put the emphasis on optimizing types of dietary fat and not reducing total fat.” Limiting total fat was also not recommended for obesity prevention; instead, the focus was placed on healthful food-based diet patterns that include more vegetables, fruits, whole grains, seafood, legumes, and dairy products and include less meats, sugar-sweetened foods and drinks, and refined grains.

Fluoridation may not prevent cavities, scientific review shows -- If you’re like two-thirds of Americans, fluoride is added to your tap water for the purpose of reducing cavities. But the scientific rationale for putting it there may be outdated, and no longer as clear-cut as was once thought.   Water fluoridation, which first began in 1945 in Grand Rapids, Michigan, and expanded nationwide over the years, has always been controversial. Those opposed to the process have argued—and a growing number of studies have suggested—that the chemical may present a number of health risks, for example interfering with the endocrine system and increasing the risk of impaired brain function; two studies in the last few months, for example, have linked fluoridation to ADHD and underactive thyroid. Others argue against water fluoridation on ethical grounds, saying the process forces people to consume a substance they may not know is there—or that they’d rather avoid. Despite concerns about safety and ethics, many are content to continue fluoridation because of its purported benefit: that it reduces tooth decay. The Centers for Disease Control and Prevention’s Division of Oral Health, the main government body responsible for the process, says it’s “safe and effective.” You might think, then, that fluoridated water's efficacy as a cavity preventer would be proven beyond a reasonable doubt. But new research suggests that assumption is dramatically misguided; while using fluoridated toothpaste has been proven to be good for oral health, consuming fluoridated water appears to have no positive impact.

Commonly prescribed drugs affect decisions to harm oneself and others: Healthy people given the serotonin-enhancing antidepressant citalopram were willing to pay almost twice as much to prevent harm to themselves or others than those given placebo drugs in a moral decision-making experiment at UCL. In contrast, the dopamine-boosting Parkinson's drug levodopa made healthy people more selfish, eliminating an altruistic tendency to prefer harming themselves over others. The study was a double-blind randomised controlled trial and the results are published in Current Biology. .The research provides insight into the neural basis of clinical disorders characterized by a lack of concern for others, such as psychopathy. Serotonin and dopamine levels have both been linked to aggressive and antisocial behavior, and this study helps explain why. "Our findings have implications for potential lines of treatment for antisocial behavior, as they help us to understand how serotonin and dopamine affect people's willingness to harm others for personal gain," says lead author Dr Molly Crockett, who conducted the study at UCL and is now at Oxford University. "We have shown that commonly-prescribed psychiatric drugs influence moral decisions in healthy people, raising important ethical questions about the use of such drugs.

Supreme Court Allows Use of Execution Drug -  The Supreme Court ruled on Monday against three death row inmates who had sought to bar the use of an execution drug they said risked causing excruciating pain.In the process, two dissenting members of the court — Justices Stephen G. Breyer and Ruth Bader Ginsburg — came very close to announcing that they were ready to rule the death penalty unconstitutional. This gave rise to slashing debate with Justices Antonin Scalia and Clarence Thomas about the reliability and effectiveness of the punishment, a dispute that overshadowed the core issue in the case.The 5-to-4 decision on the execution drug broke along familiar lines, with Justice Anthony M. Kennedy joining the court’s more conservative members to allow its use.Justice Samuel A. Alito Jr., writing for the majority, said the inmates had failed to identify an available and preferable method of execution and failed to make the case that the challenged drug entailed a substantial risk of severe pain.

PTSD: The War Disorder That Goes Far Beyond the Battlefield - I was in a subway station in New York City, where I live. It was almost a year before the attacks of 9/11, and I’d just come back from two months in Afghanistan with Ahmad Shah Massoud, the leader of the Northern Alliance. I was on assignment to write a profile of Massoud, who fought a desperate resistance against the Taliban until they assassinated him two days before 9/11. At one point during my trip we were on a frontline position that his forces had just taken over from the Taliban, and the inevitable counterattack started with an hour-long rocket barrage. All we could do was curl up in the trenches and hope. I felt deranged for days afterward, as if I’d lived through the end of the world. By the time I got home, though, I wasn’t thinking about that or any of the other horrific things we’d seen; I mentally buried all of it until one day, a few months later, when I went into the subway at rush hour to catch the C train downtown. Suddenly I found myself backed up against a metal support column, absolutely convinced I was going to die. There were too many people on the platform, the trains were coming into the station too fast, the lights were too bright, the world was too loud. I couldn’t quite explain what was wrong, but I was far more scared than I’d ever been in Afghanistan. I stood there with my back to the column until I couldn’t take it anymore, and then I sprinted for the exit and walked home. I had no idea that what I’d just experienced had anything to do with combat; I just thought I was going crazy. For the next several months I kept having panic attacks whenever I was in a small place with too many people—airplanes, ski gondolas, crowded bars. Gradually the incidents stopped, and I didn’t think about them again until I found myself talking to a woman at a picnic who worked as a psychotherapist. She asked whether I’d been affected by my war experiences, and I said no, I didn’t think so. But for some reason I described my puzzling panic attack in the subway. “That’s called post-traumatic stress disorder,” she said. “You’ll be hearing a lot more about that in the next few years.”

Whole Foods Is Sorry It Systematically Lied About Some of Its Prices - Whole Foods, you might recall, is in the middle of a drastic rebranding. It’s working to transition from “whole paycheck” to “values matter,” and just last month announced a new line of stores designed specifically for millennials. So while it’s turning around and all, Whole Foods would also like to apologize for some things it did wrong—specifically, for systematically overcharging customers. Yes, that’s right. Last week, the New York City Department of Consumer Affairs said it was conducting an ongoing investigation into local Whole Foods stores after finding that the chain had “routinely overstated the weights of of its pre-packaged products.” That was true of meats, of seafood, of dairy, and of baked goods. Basically, nothing prepackaged was safe. In all, the Department of Consumer Affairs tested 80 different types of prepackaged products and found that each had some items with mislabeled weights. On top of that, “89 percent of the packages tested did not meet the federal standard for the maximum amount that an individual package can deviate from the actual weight,” the department reported. Hence “systematic problem.” Needless to say, the Department of Consumer Affairs wasn’t too pleased with this, nor can we imagine customers were once they found out. It also wasn’t the first time Whole Foods had been accused of iffy pricing practices. Last summer, Whole Foods agreed to pay $800,000 in California to settle an investigation of “statewide pricing inaccuracy.” In that case, investigators said Whole Foods had routinely failed to deduct the weight of self-serve food containers at checkout, labeled prepackaged items as heavier than they actually were, and sold items per piece that it was legally required to sell by the pound. In New York City, Whole Foods faces fines of between $950 and $1,700 per mislabeling violation, and the Department of Consumer Affairs says there could be thousands of them.

Changes large and small causing recyclers to struggle - This year, we did a feature on how various factors had combined to make recycling an economic winner for major metropolitan areas in the US. The story argued that it was no single factor that drove this change; rather, a combination of automation and improved sensor technology, more effective use of recycled materials, and the economics of landfilling all contributed. But recently, The Washington Post described how a similarly diverse set of changes has caused recycling companies to struggle. First and foremost has been the plunge in energy prices, which have dropped the cost of extracting raw materials or producing plastics. Another problem comes from the fact that companies are working hard to reduce the amount of packaging material they use, which means less raw material for recycling in the waste stream overall. On top of those issues, one major consumer of recyclables—China—has implemented recent changes that add to recycling woes. These include new regulations on importing materials as well as a new emphasis on the use of domestic sources. A general slowdown of manufacturing in the country hasn't helped, either. At the same time, recycling has become a bit of a victim of its own success. With an increase in the number of materials that can be recycled and the strong encouragements for consumers to participate, said consumers are now throwing lots of materials that can't be recycled into the bins. That means greater impurities in the sorted material, which makes the output less valuable. Clearly, some of these factors will be cyclical. In the meantime, cities face an awkward decision. They can pay recycling facilities to take material, making it less economical than simply landfilling it. Or they can simply landfill everything and run the risk that recycling centers will have closed down by the time the economics flip again.

Land of 1,000 Landfills - Since early June, excavators and trucks have been buzzing around Changdian Village in northern Beijing, clearing away a landfill that sits 20 meters from a major river. Some 45,000 cubic meters of garbage accumulated over the years, reaching 5 meters into the ground and mixing with groundwater. The Changdian dump is one of the more than 1,000 unregulated landfills scattered around the capital. Environmental experts blame these sites for severe pollution of the soil, air, and groundwater because garbage is dumped without any treatment. Advertisement Governments throughout China started to build landfills with standard designs and pollution prevention measures in the 1990s, but the official facilities cannot meet rising demand for waste disposal from growing urban populations. More and more garbage is being dumped randomly by residents in the unregulated landfills—many of them exceeding 200 tons of trash—and experts say these ticking time bombs are poised to damage the environment.Experts say the country has more than 10,000 of the sites in urban areas, many of them in use for decades. China’s environmental regulators require a standard landfill to have a lining made of special materials to prevent pollutants from penetrating into the soil. In addition, facilities should be in place to gather harmful gas emissions and isolate garbage from groundwater.But a large number of dumps that are beyond regulators’ control have cropped up around cities. An environmental expert said that without any supervision, the unregulated landfills pose threats to the air, could cause fires, and may even result in explosions. Meanwhile, harmful liquid produced by fermenting garbage pollutes soil and groundwater.

Drought Conditions Cause Central Valley Homes To Sink Into the Ground -- Homes in a Central Valley neighborhood are the latest casualty of California’s historic drought. The parched, dry weather is causing them to literally sink into the ground.Homeowner Scott Hall was puzzled when he first noticed a small crack in his living room wall. “My wife and I were watching TV and we noticed a fine crack — you could see the white starting to show up,” said Hall.That small crack was part of a much bigger problem going on underground. His home was dropping.“You could literally stand out by the sidewalk and look clear underneath the house to the back yard,” said contractor Gary Wake. “That’s how much the soil had shrunk under this house.”More and more homes have begun to tilt, sink and crack in the neighborhood, and it has become clear that the reason lies underground. Drought conditions have made the earth beneath them so parched, it is affecting the aquifer, the underground layer of permeable, clay soil where water normally flows.“We honestly believe that it has a lot to do with the drought, and the aquifer just being sucked out,” says Hall.As the aquifer begins to gradually cave in, subsidence occurs. Wake explains. “When that clay soil starts shrinking and going away, the foundation follows, especially on the older homes. We’re seeing subsidence right now at about one foot per year.”

California Drought Taking Serious Toll On Aging Sewer System In San Francisco - California’s severe drought is taking a serious toll on San Francisco’s aging sewer system.Some of the city’s 1,000 miles of sewer pipes are more than 100 years old, among the first installed after the Gold Rush.The waste was getting dumped into the streets, the streets were getting all muddy, and they thought, let’s do something about that. So, they built these pipes Few things in America have lasted 150 years. San Francisco’s sewer system is a working relic but one that works.  You might think that the drought would give the sewer system a break, with not as much water going through it. But, while San Franciscans are sending less water down the drain because of conservation, the same, or more sewage is being sent through the system that isn’t being drained as well as before.“It’s an organic material. It breaks down. It creates hydrogen sulfide. That eats up the concrete in the pipes if it sits there long enough,” Moala said.  With thousands of people moving into San Francisco, the city’s infrastructure continues to be taxed, no more so than the sewer system.

9 sobering facts about California’s groundwater problem - With an alarmingly dry winter and California reservoirs dropping fast, groundwater increasingly is keeping the state hydrated. It now accounts for about 60 percent of California’s water supply. But unlike its rivers, lakes and reservoirs, the state does not regulate groundwater like it does surface water. Landowners can pump as much water as they want. It is not sustainable. The water has not returned. The result is a sinking state. Here are some startling facts about California’s groundwater depletion:

  • 1. Californians drained about 125 million acre-feet of groundwater (about 41 trillion gallons) from the Central Valley between 1920 and 2013, according to the U.S. Geological Survey.
  • 2. California is sinking at a record pace – one farmer in the Central Valley reported his land sank more than 18 inches last year. As the below-ground aquifers are drained, the land sinks to partially fill the space left by the removed water.
  • 3. It will take at least 50 years for the Central Valley’s aquifers to naturally refill, according to the U.S. Geological Survey. But that’s only if everyone stopped pumping groundwater immediately. 
  • 4. California has permanently lost about 18 million acre-feet (6 trillion gallons) of water during the past century, according to the U.S. Geological Survey. Aquifers partially collapsed as they were drained and forever reduced the state’s capacity to store water underground.
  • 5. California now is pumping water that is 20,000 years old.  People are drilling so deep to find water – sometimes thousands of feet – that the water being pumped to the surface seeped underground when California still was home to mastodons,
  • 6. A great swath of the Central Valley is desert. Some of the bright-green farmland in the San Joaquin Valley gets only about 5 inches of rain a year – that’s just an inch more than Riyadh, the capital of Saudi Arabia.
  • 7. No one knows how much groundwater California has left.
  • 8. Every time California drains its aquifers during a drought, it makes the next drought even worse.
  • 9. The electricity needed to pump groundwater now is about 5 percent of the state’s total energy use.

King Cotton and Deadweight Loss -- In our textbook, Tyler and I write: Farmers use the subsidized water to transform desert into prime agricultural land. But turning a California desert into cropland makes about as much sense as building greenhouses in Alaska! America already has plenty of land on which cotton can be grown cheaply.  Spending billions of dollars to dam rivers and transport water hundreds of miles to grow a crop which can be grown more cheaply in Georgia is a waste of resources, a deadweight loss. In Holy Crop, part of Pro-Publica’s excellent, in-depth series on the water crisis the authors concur: Getting plants to grow in the Sonoran Desert is made possible by importing billions of gallons of water each year. Cotton is one of the thirstiest crops in existence, and each acre cultivated here demands six times as much water as lettuce, 60 percent more than wheat. That precious liquid is pulled from a nearby federal reservoir, siphoned from beleaguered underground aquifers and pumped in from the Colorado River hundreds of miles away.…Over the last 20 years, Arizona’s farmers have collected more than $1.1 billion in cotton subsidies, nine times more than the amount paid out for the next highest subsidized crop. In California, where cotton also gets more support than most other crops, farmers received more than $3 billion in cotton aid. …If Arizona’s cotton farmers switched to wheat but didn’t fallow a single field, it would save some 207,000 acre-feet of water — enough to supply as many as 1.4 million people for a year.

The U.S. Is Producing a Record Amount of Milk and Dumping the Leftovers -  There’s so much milk flowing out of U.S. cows these days that some is ending up in dirt pits because dairies can’t find buyers. Domestic output is set to be the highest ever for a fifth straight year. Farmers are still making money as prices tumble because of cheaper and more abundant feed for their herds. Supplies of raw milk are topping capacity at processing plants in parts of the U.S. and compounding a global surplus even with demand improving. Milk Dumping Increases Agri-Mark, a 1,200-dairy cooperative in New England that had $1.1 billion of sales last year, started pouring skim milk last month into holes used for livestock manure. It was the first time in five decades, and farmers so far have unloaded 12 truckloads, or 600,000 pounds (272 metric tons). While having small amounts of milk spoil or go unsold isn’t unusual, Northeast dairies dumped 31 percent more this year through May than the same period of 2014, government data show. “Usually we’d find someone to buy it at a reduced price, or ship it to the Midwest,” . “But those plants are full. There’s no way to process it in the time needed for a perishable product.” Global Glut Domestic output in May reached 18.4 billion pounds, the most in any month, and is on pace to reach a record 208.7 billion pounds this year, the U.S. Department of Agriculture said June 18. Globally, production will rise 2.1 percent to a record 582.52 million tons as top exporter New Zealand sells the most ever and the European Union ends limits on dairies that had been in place since 1984, the USDA said. U.S. farmers expanded after futures on the Chicago Mercantile Exchange surged to a record in September, fueled partly by rising cheese demand and a jump in purchases by China. Since then, warmer weather has brought a seasonal increase in supply, demand slowed from importers, and a stronger dollar eroded exports.

Engineered Drought Catastrophe Continues, Target California » Most of the “the golden state” is now parched, baked and dried far beyond any historical precedent. Reservoirs are nearly empty, streams are drying up, and forests are dying by the day. Catastrophic fires will also continue to decimate California due to the ongoing engineered drought. Much of the “golden” state went through all of 2013 with no significant rain and 2014 is so far looking even worse. Why? What will it take to wake people up to the “weather warfare” being waged on them? Geoengineering reduces overall global rainfall totals (though it can also trigger regions of torrential flooding). Intentionally caused drought is weather warfare, period. There is a great deal of disinformation out there already and its getting worse by the day. Even some of the biggest “alternative news sites” are helping to “tow the line” for the global elite and the geoengneers by putting out articles on drought and “global cooling” which make no mention of the climate engineering at all. Yet, on the other hand, these same “news sites” claim to be aware of climate engineering and they say they are against it. Which is it? How can they be aware of the geoengineering programs and yet put out climate article after climate article without so much as mentioning the elephant in the room that is climate engineering? The articles from these “alternative media sites are even claiming all the chaotic weather is just “normal cycles”. This is exactly what corporate media does, so who’s side are these alternative media sites on? How is it possible that any weather in a completely engineered climate system is “normal”?

Texas leads multistate suit against EPA over water rule - — Texas, Louisiana and Mississippi have sued the U.S. Environmental Protection Agency and Army Corps of Engineers in Houston federal court over a rule that they say strips them of jurisdiction over water. In a separate case filed Monday, 13 states are also seeking to have the rule overturned. The May rule would greatly expand federal authority under the Clean Air Act over the bodies of water the EPA can legally regulate, restoring protections to tributaries and wetlands. In a Monday statement, Texas Attorney General Ken Paxton said the rule is overly broad and potentially could include “everything from ditches and dry creek beds, to gullies, to isolated ponds formed after a big rain.” The rule was published in the Federal Register on Monday and takes effect Aug. 28.

Rising water price hits Yemenis, shortage may become bigger problem than war, experts say | Reuters: - The price of water is rising steeply in Yemen, which may run out of water for its 25 million people, experts say, adding to the misery caused by Arab air strikes and the civil war ravaging one of the world's poorest and driest countries. An Arab military coalition has since late March been bombing the Iran-backed Houthi militia that has taken over much of the country. The bombing is aimed at restoring Yemen's exiled president to power, and the alliance's virtual blockade of Yemen's airspace and ports has cut off supplies of food and fuel to the impoverished country. Most of the gas-powered pumps providing water are now inoperable, and water from those that still work doesn't come cheap. "Ordinary Yemenis now pay more than 30 percent of their income just to get water in their houses, the highest rate in the world," said Abdulkhaleq Alwan, a senior expert at Yemen's water and environment ministry. Prices have more than tripled since March, reaching 10,000 Yemen rials ($47) for a four cubic metre tank of water, Alwan told the Thomson Reuters Foundation from Sanaa. The price of water has risen so steeply because the price of diesel used to pump water from the wells, and that of petrol to run the trucks, has gone through the roof, Alwan said. "The well owners can barely afford to buy diesel on the black market because of the crazy prices, sometimes around $100 for 20 litres of diesel," while petrol costs around $40 for 20 litres on the black market, he said.

Megacity drought: Sao Paulo withers after dry 'wet season' - The Ecologist: After four years of low rainfall Brazil's commercial capital, Sao Paulo, is suffering from a grim combination of high temperatures and water shortages, writes Leila Carvalho. And now the drought has given rise to a lethal plague of dengue fever. Citizens of one of the most densely populated areas in South America - the Sao Paulo metropolitan area (SPMA) in southeastern Brazil - are struggling with one of the nastiest water crises in decades. With over 20 million people and the main financial and economic center of Brazil, this region is under the influence of the South American monsoon system and receives the largest fraction of its precipitation during the Austral summer, from October to March. Yet in the last four years, rain gauge stations near the most important reservoirs supplying water to the city have been reporting growing deficits in precipitation. Last year saw the worst since at least 1961, which has been followed by another dry year. To aggravate these conditions, daily records of high temperatures during these summers have increased evapotranspiration, accelerating drought conditions, similar to what has been observed in California. A planet with over seven billion people and limited freshwater resources is already showing environmental exhaustion and signaling humans have crossed the line of sustainability. Our capacity to mitigate the negative effects of environmental changes and how fast we can adapt is limited by multiple factors. But as a megacity - a complex and often disorganized human conglomerate - the population of Sao Paulo, Brazil is particularly exposed to the effects of extreme weather events.

Worries grow as serious drought hits São Paulo, Brazil: The financial hub of one of the world's biggest economies is experiencing a water crisis so bad that experts say it could affect investors globally.   São Paulo, Brazil, is in the grips of the city's worst drought in the last half-century. The city's main water supply—called the Cantareira system—is running on emergency reserves. Normally this time of year, the city's main supply would hold more than 155 billion gallons of water. But that water is all gone, and the government has been forced to tap into emergency reserves. (Tweet This) "São Paulo's current drought emergency is both unprecedented and unpredicted," said World Bank Senior Water and Sanitation Specialist Juliana Garrido. Before the 2014 drought, the system was supplying about 8,700 gallons of water a second, according to the World Bank. Today, it's operating at 3,563 gallons per second, according to data from Brazil's National Water Agency. "The women don't sleep because the water comes in the early hours of the morning, at around four a.m. They don't have water storage, so they have to stay awake because they don't know when the water is coming again."

Western Heat Wave Enters History Books; At Least 16 June Record Highs Already Broken -- A torrid heat wave has shifted into high gear and has already broken June record highs in at least 16 cities in the Northwest, two of which appear to have tied their all-time record highs. The extreme heat is likely to last well into early July and may end up breaking records for longevity as well. According to the National Weather Service, at least six locations in Washington state appear to have topped their all-time June record highs on Sunday. An unofficial weather station located in Hell's Canyon along the Oregon/Idaho border (Pittsburg Landing) recorded an incredible 116 degrees for a high Sunday. Here is a rundown of the June record highs tied or broken Sunday:

  • Walla Walla, Washington, hit 113 degrees. According to Weather Underground weather historian Christopher Burt, if validated this reading will establish a new June record high not just for Walla Walla, but the entire state of Washington. That record is 112 degrees at John Day Dam on June 18, 1961. Of course, Sunday's high also crushed the June record of 109 set just a day earlier, which in turn beat the record of 107 set June 23, 1992.
  • Lewiston, Idaho, reached 111 degrees. This broke the previous June high of 109 set on June 22, 1936. Burt says this too may be a new June record for the state of Idaho, surpassing the 110 degrees recorded at six different locations.
  • Boise, Idaho, topped out at 110 degrees. This replaced the previous June high of 109 set June 19, 1940.
  • Ephrata, Washington, hit 110 degrees to break the record of 107 set Saturday. Previously 106 was the June record from June 30, 1998.
  • Pendleton, Oregon, topped out at 109 degrees both Saturday and Sunday. Those readings broke the city's all-time June record high of 108 set June 30, 1924, and June 17, 1961. June records in Pendleton go back to 1893.
  • Yakima, Washington, reached 108 degrees both Saturday and Sunday. Those broke the previous June high of 105 set June 23, 1992, and just tied earlier in June. Official National Weather Service records for Yakima go as far back as 1946.

The West Is Literally On Fire, And The Impacts Could Be Widespread -- As expected, the 2015 wildfire season has meant more bad news for drought-stricken Western states. As of June 30, 45 wildfires large active wildfires burned from Alaska down to Arizona and as far west as Colorado. Wildfires in Southern California had driven thousands from their homes, while fires in Alaska have burned more than one million acres this year.  Separate from human interference, wildfires are a completely natural occurrence that help a forest ecosystem with regeneration and growth. But decades of fire suppression tactics combined with climate change have provided wildfires with an abundance of dry, dead fuel, leading to more fires and a longer fire season. Fighting wildfires also comes with a large price tag, with an average of $1.13 billion spent on wildfire suppression each year. With climate change, that price could increase to $62.5 billion annually by 2050. But wildfires impact more than just forests and the economy — they can have far-reaching impacts on public health, water quality, and climate change. “These cascading impacts are the things that keep me up at night,” Jason Funk, a senior climate scientist for the Climate and Energy Program at the Union of Concerned Scientists, told ThinkProgress. “We haven’t been looking at them so much.” Wildfires come with smoke — and as residential developments continue to blur the boundaries between forest and urban, communities are increasingly facing health risks associated with smoke pollution.“In the West, we have a lot of development and people living in the wildland-urban interface, and they’re in a position to be exposed to smoke and wildfire risk when it happens,” Funk said. “It’s rather difficult to predict where these smoke plumes are going to end up.”

Nearly 300 wildfires are burning in Alaska right now. That’s an even bigger problem than it sounds -- Following on a record hot May in which much snow cover melted off early, Alaska saw no less than 152 fires erupt over the weekend of June 21-22. The numbers have only grown further since then, and stood at 319 active fires Sunday, according to the Alaska Interagency Coordination Center, with more than a million acres burned in June alone.  “Given the high number of fires and the personnel assigned to those fires, the state’s firefighting resources are becoming very limited, forcing fire managers to prioritize resources,” noted the state’s Department of Natural Resources Tuesday. The preparedness level at the moment for the state is 5, meaning that “resistance to control is high to extreme and resistance to extinguishment is high.This stunning tweet from the Alaska Division of Forestry sort of says it all:  pic.twitter.com/gQx8g2wkNs  All of which is troubling for multiple reasons: (1) Recent research suggests that more Alaskan wildfires, and more large Alaskan fires in particular, are a trend; (2) In some cases, wildfires in Alaska don’t just consume trees, grasses or tundra. They can burn away soils as well and threaten permafrost, frozen soil beneath the ground, and so potentially help to trigger additional release of carbon to the atmosphere. “One major concern about wildfires becoming more frequent in permafrost areas is the potential to put the vast amounts of carbon stored there at increased risk of being emitted and further amplify warming,” said Todd Sanford, a climate scientist at Climate Central and lead author of the group’s newly released report on Alaskan wildfires, by e-mail.

"We're f'd!" No. 2: Robert Schribbler on the 314 Alaskan forest fires, burning more than 2 million acres  -- All throughout the mainstream media last week we heard the same myopic litany — ‘a massive wildfire outbreak ongoing in Alaska is not abnormal.’ Well, today, all pretense that there was anything normal about the 314 wildfires still raging throughout the state has gone up in a cloud of boreal forest, tundra, and thawed permafrost emitted smoke.  As of 6:28 a.m. Alaska time today, 1,912,000 acres had burned in Alaska since the start of the year. That’s roughly 1,800,000 more acres burned than just before the current wildfire outbreak started on June 18th, and 497,000 more acres burned over just the last 24-hour period alone. By comparison, the previous worst ever June fire outbreak for Alaska during 2004 burned less than 1,200,000 acres of the Arctic state.   With 42 hours left in June and with more than 300 fires still active, it’s pretty clear that the current fire season is a historic, unprecedented, record-shattering event. One that will almost certainly break the 2 million acre mark and may show double the over-all previous record burning during June of 2004. An excessive new record that is occurring in the ominous context of the hottest year in the global climate record and a vastly irresponsible dumping of 50 billion tons of heat-trapping, CO2 equivalent (of which 32 billion tons is CO2) gasses into the atmosphere through fossil fuel burning and related industry each and every year. As Alaska burned through half a million acres of forest in just one day, a massive heatwave was also setting off extreme wildfires throughout northwest Canada. It was the same heatwave that broke new temperature records all across Washington, and the mountain west. Temperatures in places like Walla, Walla Washington, hit 113 degrees Fahrenheit (45 Celsius) on Sunday — breaking the previous all time June temperature record for the day by 4 degrees (2.2 C). A pulse of heat rising off the back of a strengthening El Nino in the Pacific, running all the way up the western seaboard and mountains of the US and driving deep into northwestern Canada.

Australia's largest woodlands 'will not be protected if it prevents mining' - Environmental recognition of the Great Western Woodlands, the largest remaining temperate woodlands in the world, will not be supported if it impinges on mining, the Western Australia mining minister, Bill Marmion, has said. The woodlands cover 16m hectares (39m acres) from Kalgoorlie, 600km east of Perth, to Esperance and the Nullarbor Plain. They’re home to 3,000 species of flowering plants – about 20% of all those identified in Australia – and 25% of all known eucalypt species. But despite its ecological significance only about 12% is protected, with most falling on unallocated crown land. At a business forum hosted by the local chamber of commerce and industry in Kalgoorlie on Monday, Marmion said: “The Great Western Woodlands is a vast area, a vast area and any sort of recognition which would put constraints on mining in the area would be absolutely devastating for Western Australia. “Of course there is the danger that when you give something greater recognition, that recognition gets bigger and bigger and bigger. So I can’t see any government, of any persuasion, ever supporting that sort of approach. “Admittedly I’m sure there are some green groups that would. Hopefully they’ll never get into government.”

Pakistan Heat Wave Kills More Than 1,200; More Dangerous Heat Expected - More than 1,200 people are dead in Pakistan's deadliest heat wave on record with even more extreme heat on the way. Some 1,233 people have been killed since the heat wave began more than a week ago, and more than 1,900 are still being treated at hospitals for heat-related issues. The area saw some temporary relief Thursday and Friday, with temperatures dropping into the 90s, slowing the catastrophic human impact extreme heat and humidity can cause in areas with power grid issues and a lack of potable water.  At its peak, the heat wave sent temperatures as high as 113 degrees Fahrenheit, combining with high humidity to make for absolutely brutal conditions. Unfortunately, those brutal conditions returned Saturday and will stick around in the days to come, once again raising fears that the death toll could climb. "It appears the heat is intensifying again this weekend over the south, and also expanding back into the heavily populated Punjab and northern Pakistan," said weather.com senior meteorologist Nick Wiltgen. "An even hotter period is expected in those northern areas during the first few days of July.Where the heat and humidity intersect over the middle and lower Indus River valley, heat index values will continue to reach the 130s over the next week or more, and may exceed 140 degrees at times."

Western Europe Shatters Temperature Records During Multi-Day Heat Wave -- Temperatures sailed across Western Europe Wednesday, as Britain recorded its hottest July day ever — 98.1 degrees Fahrenheit at Heathrow Airport. Across the English Channel, Paris saw its second-hottest day on record, with a high of 103.4 degrees Fahrenheit. The high temperatures are part of a multi-day heat wave that broke records across Spain earlier this week, with Madrid setting a new June record high Monday with a temperature of 103.5 degrees Fahrenheit.  Thousands lost power in western France Tuesday, as high temperatures caused power equipment to malfunction in Brittany and the Pays de la Loire. According to the Guardian, state authorities called the situation “exceptional,” noting that its unique for high temperatures to have such an impact on power equipment. Early Wednesday morning, high temperatures caused another power cut in western France that left 120,000 homes in the town of Vannes without electricity. Governments across the continent urged residents to take precautions, warning that the heat could pose serious health risks to young children, the elderly, and those with preexisting health conditions. In August of 2003, a heat wave killed more than 71,000 across Europe, according to statistics from the International Disaster Database, making it the deadliest heat wave in history. Europe isn’t the only continent to see record high temperatures in recent weeks. Last month, a heat wave in India led to more than 2,300 deaths, making it the fifth deadliest in world history. Last week, a heat wave in Pakistan killed more than 1,200, with temperatures reaching 113 degrees Fahrenheit. Morgues in the country literally overflowed as officials struggled to deal with the crisis, which was the eighth deadliest heat wave ever recorded.

Unprecedented June Heat on Four Continents; Wimbledon Roasts in Record Heat  -- Unprecedented June heat scorched portions of four continents during the past week, and many all-time heat records are likely to fall across multiple continents this July as the peak heat of summer arrives for what has been the hottest year in recorded human history. Already on July 1, in Wimbledon, England--site of the classic Wimbledon tennis tournament--players are enduring the city's hottest day in tournament history. The mercury hit 96.3°F (35.7°C) at Kew Gardens, the nearest recording site, topping the previous record of 94.3°F (34.6°C) on June 26, 1976. London's Heathrow Airport has risen to 98.1°F (36.7°C) so far on July 1. This is not only a new all-time July record at that location, but also a July heat record for the UK, topping the previous record of 97.7°F (36.5°C) in Wisley on July 19, 2006.  We've already seen two of the planet's top ten deadliest heat waves in history over the past two months; the Pakistani government announced on Wednesday that the death toll from the brutal June heat wave in Pakistan's largest city, Karachi, had hit 1,250. According to statistics from EM-DAT, the International Disaster Database, this makes the 2015 heat wave in Pakistan the 8th deadliest in world history. The heat wave that hit India in May, claiming approximately 2,500 lives, ranks as the 5th deadliest:  Portions of four continents--Asia, Europe, North America, and South America--broke all-time June heat records during the past week, with some locations surpassing their all-time heat records for any date:  In addition to the record deadly heat wave that hit Pakistan over the past few weeks, other portions of Asia also saw extreme June heat. According to weather records researcher Maximiliano Herrera, Ashkabad, the capital of Turkmenistan, set a new all-time record (for any month) with 117°F (47.2°C) on June 30, 2015, smashing the old record of 46.7°C from June 30, 1995. The national all-time heat record of June for Kazakhstan of 45.0°C came within 0.5°C of being matched, as well.

June 2015 Smashes Heat and Rainfall Records in U.S. --June has been a crazy weather month. Then again, so were the first five months of the year. Globally, it’s shaping up to be the hottest year on record by far. It’s not just heat either. Some parts of the U.S. have recently seen record rainfall. May was the wettest month ever recorded in the U.S., and many places had record rainfall for the month of June. Mashable’s Andrew Freedman reports there’s a “heat dome parked over the West,” which is shattering temperature records and sparking wildfires. “During the past seven days alone, 465 warm temperature records have been set or tied across the country, mainly in the West, with 49 monthly warm temperature records set or tied, according to the National [Centers] for Environmental Information,” says Freedman. This heat wave is “noteworthy for its severity, extent and duration.”  Seattle close to record high Wednesday. 88°F forecast. Redding California at 114°F is scorching. pic.twitter.com/STuZBRLLjF While current weather should not be conflated with long term climate trends, this weather does matche the long term trends. Recent reports confirm that global warming increases the likelihood and frequency of extreme weather events, including heat waves, drought, flooding and fires. And the U.S. and the rest of the world have experienced all of those in recent months.

Thousands of people killed by extreme weather in 2015 as El Nino arrives to bring more chaos - Thousands of people have been killed by extreme weather so far this year and now scientists fear a weather event will cause droughts, wildfires, flooding, landslides and food shortages. Australian scientists have warned of a “substantial” El Nino effect that started in May. The phenomenon,which only happens every few years, is still in its early stages but has the potential to cause extreme weather around the world, according to the Bureau of Meteorology. El Nino is the name given to above-normal temperatures in the Pacific Ocean that have the potential to cause devastating conditions around the world. Australia, Indonesia, the Philippines and India are likely to face drought, whereas parts of South America and the US get face flooding and torrential rain. It could create stronger typhoons in the Pacific, the BBC reported, but drive freezing winter weather in Europe like it did in 2012, which was the UK's coldest in decades and led to several deaths. El Nino's effect on harvests around the world also has the potential to drive up food prices for basics like rice, coffee and sugar. There are also fears that climate change is leading to more deadly heatwaves, floods, hurricanes and tornadoes around the world. More than 1,200 people have died in Pakistan of heatstroke and dehydration as temperatures soared far above 40C and power cuts crippled Karachi over the past week.

A Southern Hemisphere Booster of Super El Niño: Key Points:

El Nino may spell higher prices at pump, grocery store: The El Niño event increasing storm potential in the Pacific Ocean is likely to disrupt oil shipments around the globe, spelling higher gas prices at the pump and rising costs at the grocery store. Commodities traders are already factoring in a rise in oil prices, according to the Financial Times. That's because any interruption in shipping routes is a major cost on transportation. And when the cargo being shipped is oil, food and consumer goods are also likely to see inflated prices. U.S. oil imports ship largely from the Middle East around the Cape of Good Hope in Africa and across the Atlantic. The Atlantic hurricane season this year is expected to be calmer than normal, so imports won't likely be constrained. Middle East to Asia shipping routes, however, are transPacific, making them vulnerable to storms. U.S. exports also travel largely via the Pacific. (U.S. laws mostly ban exporting crude, however petroleum liquid exports are on the rise to Central and South America, as well as Asia.) Just because U.S. oil imports aren't likely to be affected doesn't mean prices in America won't be impacted. Global oil supply and demand affect prices the most. No matter where the disruption is there are ripples. Oil prices are currently in a holding pattern as are gasoline prices. Even though prices tend to spike in summer months during the U.S.'s high domestic driving season, there is an over supply of fuel on the market right now. The U.S. has record inventories and OPEC countries are pumping without constraint. Still, a flurry of storms could change that — and quickly. Forecasts call for the northwest Pacific typhoon season this year to be above normal and the most active in more than a decade. Twenty-seven different tropical storms are expected with 17 reaching typhoon status, 11 of which are likely to be intense, according to Tropicalstormrisk.com

ADB: Climate Change Makes Poor Poorer in Asia-Pacific - ABC News: Climate change has been making the poor in the Asia-Pacific region even poorer and is also setting back efforts to haul them out of poverty, the Asian Development Bank said in a report Wednesday. Combined with rising inequality, the two forces could make the more equal distribution of the fruits of economic growth a "distant goal" for the world's most populous region, where 700 million people — two thirds of the world's poor — still wallow in poverty. "In one country after another, climate change frequently threatens to offset decades of gains in poverty reduction," the report said. The report by the Manila-based lender says 1.5 million Filipinos have been pushed deeper into poverty and about 6 million lost their jobs in 2013, as a result of Typhoon Haiyan, one of the world's most powerful storms. Rising inequality exacerbated by climate change risks from extreme weather also slowed poverty reduction efforts in Indonesia. If inequality and environmental factors had remained constant, the poverty rate would not have risen from 3.6 percent in 2010 to 11.3 percent in 2014, said ADB evaluation specialist Hyun Son.Haiyan, which devastated the central Philippines, drove more Filipinos into extreme hardship of living on less than $1.25 a day. Those who lost their jobs were mostly retailers, service crew, coconut farmers and fishermen. They  For a country like Indonesia, whose urban population is expected to rise to 65 percent of the entire nation by 2025 from 50 percent currently, there likely will be a rise in "urban deprivation" that will cause overcrowding and reduction in resources. This will strain public services, resulting in job and income losses as well as environmental shocks for the poor, the report said.

Severe weather linked more strongly to global warming -- Attempts to attribute extreme weather events to global warming have often failed because they have looked at the wrong thing, leading climatologists claim. By focusing on rising temperatures, tides and atmospheric moisture instead of chaotic and highly variable shifts in atmospheric circulation, they say, scientists may be able to better identify the human fingerprint in destructive events such as Hurricane Sandy, which devastated the US Atlantic coast in 2012. “A small change can make a big difference,” says Kevin Trenberth, a climatologist at the National Center for Atmospheric Research in Boulder, Colorado, and lead author of a perspective paper published on 22 June in Nature Climate Change. “That’s the thing that breaks the record and pushes you beyond previous thresholds, and that’s when the damage goes up enormously.” Trenberth and his colleagues begin with the observation that global warming is boosting both atmospheric and sea-surface temperatures across the globe, which has increased the amount of water vapour in the atmosphere by roughly 5% since the 1950s. This has fuelled larger storms, and in the case of hurricanes and typhoons, ones that ride atop oceans that are 19 centimetres higher than they were in the early 1900s. That sea-level rise increases the height of waves and tidal surges as storms make landfall.

Why warmer storms could lead to more flooding than expected --As the climate changes, we can expect more frequent and more extreme weather events, which will put pressure on our current infrastructure. It has been suggested that increasing temperatures will intensify rainfall, indicating that we are likely to endure bigger storms and more dangerous flooding in a future warmer climate.Our study, published in the journal Nature Geoscience, shows that this intensification in flooding may be even greater than expected. This is because of changes to the distribution of rainfall within storms – something known as the “temporal pattern”. This study is the first to show that temperature changes are disrupting temporal rainfall patterns within storms themselves. When it comes to flash flooding, this is just as important, if not more so, than the total volume of rainfall that a given storm delivers. If this trend continues with future climate warming, more destructive flooding across Australia’s major urban centres is likely. Because our findings were true across every Australian climate zone, ranging from tropical and arid to temperate, we can expect similar risks throughout the country, and conceivably elsewhere in the world too.

Unprecedented ocean temperature rises off the Atlantic and Pacific coasts of the US may be linked to sea level rise or the recent pattern of “weird” weather -- Oceanographers are puzzled by an accelerated burst of warming sea that threatens the fisheries of the American Atlantic coast. [The sea-surface temperature anomaly even persisted at 12 °C for several months, although it is now about 6 °C.] Meanwhile, off the US West coast, scientists report that they have been baffled by a mysterious “blob” of water up to 4 °C warmer than the surrounding Pacific, linked to weird weather across the entire country. Jacob Forsyth and research colleagues from the Woods Hole Oceanographic Institution (WHOI) in Massachusetts report in the Journal of Geophysical Research: Oceans that the ocean off the US northeast continental shelf has been warming at unprecedented levels for 13 years. Their findings came after analysis of data from sensors − called bathythermographs − dropped 14 times a year from the container ship Oleander, which for 37 years has travelled between New Jersey and Bermuda. Each detector takes the temperature of the water column as it sinks up to 700 metres. Startling discovery What they were startled to discover was an unexplained, and unprecedented, rise in the water temperatures that may be linked with an equally mysterious sea level anomaly: sea levels are going up, but they are going up faster off the northeast coast of the US than almost anywhere else. “The warming rate since 2002 is 15 times faster than from the previous 100 years,”

Alaska's Glaciers Seen as Major Source of Sea Level Rise - The ice that tumbles into the ocean along Alaska’s coastline often makes for dramatic images that show one of the ravages of climate change – melting tidewater glaciers that contribute to sea level rise. But a new study finds that far more meltwater is flowing into the sea from a similar, if less frequently photographed source – inland glaciers. Compared to their coastal counterparts, inland glaciers account for 95 percent of glacial mass loss due to climate-driven melting, a study published this month in Geophysical Research Letters shows. In fact, researchers found that Alaska’s glaciers are melting so fast that they would cover the state with a 1-foot thick layer of water every seven years.“This is the first time that we’ve assessed all of the glaciers and been able to say how much of the total is coming from tidewater glaciers, and here’s how much of the total is from lake and land glaciers,” Shad O’Neel, a University of Alaska Fairbanks researcher and co-author of the study, said. Alaska is an anomaly, with temperatures rising an average of 3 degrees in the last 60 years, twice as fast as the continental U.S. Scientists predict that temperatures will rise another two to four degrees by 2050. The world’s oceans have already risen 7.5 inches since 1901, and if warming continues unabated, they’re projected to rise as much as 2 feet by the end of the century.

New study warns of dangerous climate change risks to the Earth’s oceans: A new paper just published in Science summarizes the projected impacts of climate change on the world’s oceans, and consequently on humans and our economy. The study concludes that global warming beyond the international limit of 2°C above pre-industrial temperatures would pose serious threats to marine ecosystems and their millions of human dependents. It builds on the consensus science published by the Intergovernmental Panel on Climate Change last year. The study concludes,Ocean changes associated with a 2°C warming of global surface temperature carries high risks of impacts and should not be exceeded. The oceans have absorbed over 90% of the excess heat and 28% of the carbon pollution generated by human consumption of fossil fuels. As the authors of the paper note, in many regions, the ocean plays an important role in the livelihood and food supply of human populations. The ocean represents more than 90% of the Earth’s habitable space, hosts 25% of eukaryotic species, provides 11% of global animal protein consumed by humans, protects coastlines, and more. The study considers human impacts on the world’s oceans under two different scenarios. The first is a business-as-usual high fossil fuel consumption scenario (called RCP8.5 in the latest IPCC report), and the second is a scenario in which humans take immediate serious steps to curb fossil fuel consumption (called RCP2.6).. In the business-as-usual scenario, by 2100 the oceans would be about 30 cm higher, oxygen content nearly 2% lower, ocean acidity 70% higher, and sea surface temperatures about 2°C hotter than in RCP2.6.

Future Oceans? Nobody Gives A Shit -- The Nereus Program, a joint venture of the Nippon Foundation and the University of British Columbia, issued a report yesterday called Predicting Future Oceans (pdf). I will re-print the press release which accompanied the release. A report entitled “Predicting Future Oceans: Climate Change, Oceans & Fisheries” newly released by the Nereus program, an international interdisciplinary research program aimed at predicting future oceans, suggests that future seafood supply in the world will be substantially altered by climate change, overfishing and habitat destruction if we do not take actions...   A Google news search for "predicting future oceans" (quoted) found 3 results. A Google news search for "Greek default" (quoted) found 580,000 results. Nobody gives a shit about the future oceans. In 2015, at least that much is clear. This short silent video was included in the press release. The silence seems entirely appropriate to me.

Irreversible loss of world's ice cover should spur leaders into action, say scientists: We need only look to the world's ice cover to see the urgency with which emissions need to come down, scientists told delegates at this week's climate talks in Bonn, Germany. At a press conference today, US and German scientists updated negotiators and journalists with the latest science on the state of Arctic sea ice, the Antarctic continent and thawing permafrost. New observations gathered since the Intergovernmental Panel on Climate Change (IPCC) report show the cryosphere in serious and irreversible decline, they warned. Pam Pearson, director of the International Cryosphere Climate Initiative, the network : "This is not like air pollution or water pollution, where if you clean it up it will go back to the way it was before." Arctic sea ice has been retreating rapidly in recent years as a result of greenhouse gases building up in the atmosphere, explained Dr Dirk Notz, sea ice expert at the Max Planck Institute in Germany. The biggest losses are happening in summer, he said: "Over the past 10 years or so, we've roughly seen a 50% loss of Arctic sea ice area. So, the ice in the Arctic is currently retreating very, very rapidly." In March, Arctic sea ice reached its lowest maximum extent in the satellite record. Last week, the US National Snow and Ice Data Centre confirmed Arctic sea ice extent for May was the third lowest on record.

Nature Rebounds | John Mauldin - The common meme in today’s world is that we are slowly (or perhaps even rapidly in some instances) destroying our global environment. Not just by way of global warming, but pollution, over-farming, water usage, and increasing use of all sorts of resources taken from the ground. Post-apocalyptic movies and books are the rage, showing us living in a world where man has ravaged his environment and our lives have been degraded if not destroyed. Our failure to deal with global warming and the destruction of the environment are key components of the mantra repeated by the mainstream media, pundits, and politicians. Technology is supposed to somehow save us from our dystopian future by creating new ways to clean the environment, feed us, and help us become more thrifty and less wasteful. But when?   A few years ago I met Jesse Ausubel, who ran a two-week-long think tank for the US Department of Defense at the Naval War College, tasked with thinking about the challenges of the next 20 years.   Jesse is Director and Senior Research Associate of the Program for the Human Environment at Rockefeller University, a pure-research institution with more Nobel laureates than any other university. The work they do is astounding in its breadth. I recently spent an afternoon with Jesse talking over a number of topics and especially a paper he recently published which lays out serious research in an accessible way on the subject of how things in our beleaguered world might actually be getting better. . And what Jesse tells us is that for much of the world, in many ways, things are getting better. Nature is winning. Not everywhere, of course, and he documents the downside as well, notably the serious devastation of our oceans and fishing. There is still a lot to do, but the trends are positive (except, notably, for the oceans). He shows us that the effort to clean up the environment and expand the areas that are allowed to return to a more natural state has been worth it. This is a great summer read. The entire paper is included in today’s OTB, but if you would like to read it in its original format, you can download a PDF here.

How Life on Earth Recovers after a Devastating Mass Extinction: Life on Earth is entering the greatest mass extinction since the death of the dinosaurs, according to a major new study – and humans may be among the casualties. Such a catastrophic loss of species would leave a huge hole in the world’s ecosystems, and all sorts of weird and wonderful life would evolve into the vacancies left behind. To consider what life after a mass extinction might involve, we can look to the past. There have been five major mass extinctions in Earth’s history – though colleagues and I recently proposed a sixth – and comparing current rates of change to the geological record of the “Big Five” extinctions suggests that this time the warning signs are real. So let’s be pessimistic, and assume the apocalypse is going to happen. What does Earth look like afterwards? The greatest crisis in history The Permian-Triassic boundary (251m years ago) saw the greatest crisis in Earth’s history, when at least 90% of species died off. Even insects suffered huge losses – the only mass extinction in their long history. The event is widely attributed to the effects of the Siberian Traps – huge volcanic outpourings of lava and associated greenhouse gases, in what is now northern Russia. This lead to global warming, ocean acidification and acid rain, marine oxygen depletion and poisoning by toxic metals such as mercury. Imagine today’s gloomiest climate predictions, but cranked up a few notches. The few species that survived gave rise to all life thereafter and there has not been such a profound restructuring of ecosystems since, perhaps because this “survival of the fittest” rendered their descendants more tolerant to global change.

Solar minimum could bring cold winters to Europe and US, but would not hold off climate change - Over the past few decades, our Sun has been relatively active, giving off high levels of the solar radiation that warms the Earth. However, in recent years this peak activity has tailed off, prompting scientists to wonder if the Sun is heading into a period of lower output. A new study says even if the Sun's activity did drop off for a while, it wouldn't have much impact on rising global temperatures. But it could mean a higher chance of a chilly winter in Europe and the US, the researchers say. The Sun's activity rises and falls on an approximately 11-year cycle, but it can experience longer variations from one century to another. Over the past 10,000 years, the Sun has hit around 30 periods of very high or very low activity - called 'grand maxima' and 'grand minima'. One of these occurred between 1645 and 1715, when the Sun went through a prolonged spell of low solar activity, known as the Maunder Minimum. This didn't have much of an effect on global climate, but it was linked to a number of very cold winters in Europe.In 2010, scientists predicted an 8% chance that we could return to Maunder Minimum conditions within the next 40 years.But since that study was published, solar activity has declined further, and this likelihood has increased to 15 or 20%, says new research published today in open-access journal Nature Communications. In fact, the Sun's output has declined faster than any time in our 9,300-year record, say the researchers. And so they set out to analyse what this could mean for global and regional climate.

Climate change threatens 50 years of progress in global health, study says  - Climate change threatens to undermine half a century of progress in global health, according to a major new report. But the analysis also concludes that the benefits to health resulting from slashing fossil fuel use are so large that tackling global warming also presents the greatest global opportunity to improve people’s health in the 21st century. The report was produced by the Lancet/UCL commission on health and climate change, a collaboration of dozens of experts from around the world, and is backed by Margaret Chan, head of the UN World Health Organisation.“We see climate change as a major health issue and that it is often neglected in the policy debates,” said Professor Anthony Costello, director of the UCL Institute of Global Health and co-chair of the commission. “On our current trajectory, going to 4C [of warming] is somewhere we don’t want to go and that has very serious and potentially catastrophic effects for human health and human survival and could undermine all of the last half-century’s gains. We see that as a medical emergency because the action we ned to do to stop that in its tracks and get us back onto a 2C trajectory or less requires action now – and action in the next ten years – otherwise the game could be over.” The comprehensive analysis sets out the direct risks to health, including heatwaves, floods and droughts, and indirect – but no less deadly – risks, including air pollution, spreading diseases, famines and mental ill-health.

Pope Francis recruits Naomi Klein in climate change battle - She is one of the world’s most high-profile social activists and a ferocious critic of 21st-century capitalism. He is one of the pope’s most senior aides and a professor of climate change economics. But this week the secular radical will join forces with the Catholic cardinal in the latest move by Pope Francis to shift the debate on global warming. Naomi Klein and Cardinal Peter Turkson are to lead a high-level conference on the environment, bringing together churchmen, scientists and activists to debate climate change action. Klein, who campaigns for an overhaul of the global financial system to tackle climate change, told the Observer she was surprised but delighted to receive the invitation from Turkson’s office. “The fact that they invited me indicates they’re not backing down from the fight. A lot of people have patted the pope on the head, but said he’s wrong on the economics. I think he’s right on the economics,” she said, referring to Pope Francis’s recent publication of an encyclical on the environment. Release of the document earlier this month thrust the pontiff to the centre of the global debate on climate change, as he berated politicians for creating a system that serves wealthy countries at the expense of the poorest. Activists and religious leaders will gather in Rome on Sunday, marching through the Eternal City before the Vatican welcomes campaigners to the conference, which will focus on the UN’s impending climate change summit. Protesters have chosen the French embassy as their starting point – a Renaissance palace famed for its beautiful frescoes, but more significantly a symbol of the United Nations climate change conference, which will be hosted by Paris this December.

Invited by Vatican, Naomi Klein Makes Moral Case for World Beyond Fossil Fuels -- Naomi Klein—activist, author, and self-described "secular Jewish feminist"—spoke at the Vatican on Wednesday where she championed the Pope's message for global action on climate change and made the case for "the beautiful world" beyond fossil fuel addiction.   Klein, who was invited to speak by the Vatican, gave her speech ahead of a two-day conference to discuss the Pope's recent encyclical, Laudato Si', on the environment and the threat of the global economic system—subjects that the author of This Changes Everything: Capitalism vs. the Climate knows well.  The encyclical has garnered praise from environmental campaigners like Greenpeace International's Kumi Naidoo, who called it a "clarion call for bold, urgent action." "Pope Francis writes early on that Laudato Si’ is not only a teaching for the Catholic world but for 'every person living on this planet.' And I can say that as a secular Jewish feminist who was rather surprised to be invited to the Vatican, it certainly spoke to me," Klein told reporters ahead of the conference, which is called People and Planet First: the Imperative to Change Course.  She praised what she described as "the core message of interconnection at the heart of the encyclical."  Klein also expanded on what may appear to be an unlikely alliance with the leader of the Catholic Church.

Naomi Klein: People and Planet First --Naomi Klein spoke at the Vatican yesterday introducing People and Planet First: the Imperative to Change Course at a high-level meeting to explore Pope Francis’ encyclical, which was released on June 18.  Here’s the video of the full press conference. Other speakers included Prof. Ottmar Edenhofer, co-chair of Working Group III of the Intergovernmental Panel on Climate Change and Bernd Nilles, secretary general of the International Alliance of Catholic Development Organisations. Here are the prepared remarks by Naomi Klein: (transcript)

Coal-state lawmakers attack climate rule no matter what pope says  - Pope Francis’ call for urgent action to combat climate change isn’t having much influence on members of Congress from the coal state of Kentucky, who are working this week to block the centerpiece of the president’s agenda to limit the greenhouse gases that are warming the planet. The House of Representatives is expected as soon as Wednesday to pass a bill by Rep. Ed Whitfield, R-Ky., which would allow states to reject the Environmental Protection Agency’s proposed rule for carbon emissions from power plants. Whitfield’s bill also would ban the EPA from enforcing the rule until all the legal challenges are decided, which could take years. There’s a similar effort in the Senate. Senate Majority Leader Mitch McConnell, R-Ky., is calling on states to defy the Obama administration’s climate rule. He put language in the interior and environment spending bill that would allow them to do so without consequences, saying the Obama administration is at war “against Kentucky coal jobs, miners and their families.”

Pakistan to set up carbon markets to cut emissions, lure investment: Pakistan will set up a carbon market with technical assistance from China to cut greenhouse gas emissions and lure foreign investment. The ‘Carbon Neutral Pakistan’ project will receive 7.752 million rupees (US$76,205) in state funding out of its total cost of 313.96 million rupees (US$3.85m) in next year’s Public Sector Development Programme. Pakistan’s parliament gave final approval to the project in next year’s budget on June 23 along with 39.752 million rupees ($390,779) in the programme to combat climate change. The developing country is vulnerable floods, droughts and extreme weather and needs up to US$15 billion a year to climate-proof its economy and cut emissions. Pakistan pumped out nearly 150m tonnes of CO2 in 2008, which are rising at 6% a year, according to its climate change ministry. Chinese advice Arif Ahmed Khan, Secretary at the Ministry of Climate Change, told RTCC in an exclusive interview that local carbon markets would be set up with technical assistance from China for internal adjustment of carbon emissions and carbon credits. “The carbon markets would help industrialists and other sectors to sell and buy carbon credits locally besides initiating a competition for greener technology,” he said. The secretary said the project is being designed to meet future requirements that international community may impose on developing countries if an international deal on climate change is reached in COP-21, Paris summit in December of this year.

India Says It Won’t Set Date For Reducing Total Carbon Emissions -- In disappointing news for watchers of global warming, an Indian government official has said the country won’t announce a target date for reducing the total amount of carbon it emits. India is the world’s third-largest emitter of carbon dioxide, which causes climate change.  First reported by the BBC, the comments came from Indian environment minister Prakash Javadekar, who said that the country will submit a plan to cut emissions to the U.N., which is hosting international climate talks at the end of the year. But India will not give a target date for when it expects to peak its total carbon emissions. “The world is not expecting… India to announce its peaking year,” Javadekar told the BBC. “Countries know where India stands and what its requirements [development needs] are and therefore nobody has asked us for [the] peaking year.” The comments are not exactly new ground for Javadekar, who has said before that India will need to keep emitting carbon in order to combat its poverty problem. Last year, in an interview with the New York Times, Javadekar said “that his government’s first priority was to alleviate poverty and improve the nation’s economy, which he said would necessarily involve an increase in emissions through new coal-powered electricity and transportation.”

U.S. Leaves Markets Out of Fight Against Carbon Emissions - In 1990, by an overwhelming majority, Congress amended the Clean Air Act to establish a market for electric utilities to trade the right to emit sulfur dioxide, one of the main contributors to acid rain. The law was based on a simple economic insight. If utilities facing high costs to cut emissions could, instead, buy allowances to pollute from those who could cut emissions for less, reducing overall pollution would be much cheaper. The idea had been successfully used before, during the Reagan administration, to reduce lead in gasoline. It worked again. By 1996, sulfur dioxide emissions had declined by a fifth. A study published a few years later concluded that trading of pollution permits cut the cost almost by half, saving utilities and their customers billions of dollars. Here’s the not-so-funny punch line: A decade and a half later, when President Obama proposed using “cap and trade” to cut emissions of greenhouse gases — the biggest environmental threat of our time — lawmakers looked back upon this unquestionable success and said “no.” Members of Congress have changed, of course. Many Republicans who say that climate change is a myth or believe that the Obama administration is engaged in an unnecessary “war on coal” may have been hoping to block any environmental program. What they achieved, however, was to direct the nation’s efforts to combat climate change in a much more expensive direction. A standards-based policy, which is what we have now, is generally much more inefficient, delivering only one-fourth the emissions reductions of cap and trade for the same cost.

Nobel Prize Winner Tirole Says Carbon Price Needed for Climate --  Putting a price on carbon is the only effective way to curb emissions to combat climate change, according to a Nobel prize-winning economist. “People continue to buy polluting cars and live polluting lives and this will continue until their pockets are hit,” said Jean Tirole, who works at the University of Toulouse and won the 2014 Nobel Prize in economic sciences. “The problem is on such a scale that we have to hit pockets.” Tirole was speaking in Paris as negotiators from almost 200 nations are aiming for a deal at the end of the year to reduce heat-trapping greenhouse gases. Last month, business leaders met in Paris to call for a price on carbon as an incentive for industry to move toward cleaner transport and energy production. Economists are divided over whether the best method for pricing carbon is through a tax or a market mechanism such as a cap-and-trade program, said Tirole, who favors the latter. The debate is “relatively minor” compared with the risks for the climate. Countries’ carbon emissions can be monitored using satellite imagery so each nation can then be charged with putting in place rules to curb them, he said. Tirole won the Nobel last year for his work on how governments can better regulate industries. He was the first Frenchman since 1988 to win the award and the first to be specifically recognized for work on regulation since 1982. On the chances of getting a deal at the end of the year, Tirole said he is “worried.” “Simply making promises isn’t enough,” he said. “They will have to be carried out.”

Oil companies played hardball in bid to defeat climate outsiders - – Petty legal filings. Diversionary ballot measures. Counting abstentions as no votes. These are just some of the tactics U.S. oil companies used this spring to quash efforts by investors to win the right to nominate climate experts for board seats. Led by New York City Comptroller Scott Stringer and proposed at 75 U.S. companies in various industries this year, the so-called proxy access measure would give investor groups who own 3 percent of a company for more than three years the right to nominate directors. At the 19 oil and gas companies targeted, the aim was to demand more accountability on global warming. While the non-binding measure passed at two-thirds of all the companies targeted, and at 15 of the 19 energy companies, some took unusual steps to block it. Oilfield services provider Nabors Industries Ltd, for example, counted non-votes from brokers as votes against the proposal. Still, the measure passed at Nabors, which didn’t respond to requests for comment. Shale oil company Pioneer Natural Resources Co filed a last-minute counterproposal calling for a higher ownership threshold of 5 percent, which institutional investors say is much harder to obtain. Pioneer said it gave shareholders extra time to vote. Stringer’s proposal failed. Exxon Mobil Corp and Chevron Corp tried to block the proposal by arguing the New York City pension funds behind it had not shown proof of owning their shares for a full year. The proposal passed at Chevron and narrowly failed at Exxon.

New report estimates enough natural gas is leaking to negate climate benefits --Natural gas has been touted as an environmentally friendly substitute to coal and oil production, but a new report estimates enough gas is leaking to negate most of the climate benefits of process. The report, commissioned by the Environmental Defense Fund and carried out by environmental consulting group ICF International, estimated the amount of leaks from natural gas and oil production on federal and tribal land in the US. It also looked at venting and flaring, processes in which drilling sites purposefully let gas go into the atmosphere for a variety of reasons – usually for safety. The claim that natural gas is environmentally friendly hinges on how much methane leaks into the atmosphere during the production process. But the EDF report adds weight to those who say methane leaks at natural gas sites can make the process nearly or as carbon-intensive as coal. The EDF found that 65bn cubic feet of natural gas was released into the air on federal and tribal lands in 2013 – amounting to about $360m of lost gas. That, the EDF says, is not only an economic loss, but an environmental problem. Methane, the main ingredient in natural gas, is 84 times more potent than carbon dioxide over short periods of time and 30 times more potent over the long term. The leaks are the equivalent to the greenhouse gases produced by 5.6m cars.

BREAKING: The Supreme Court Will Allow Coal Plants To Emit Unlimited Mercury --Power plants will continue to able to emit unlimited mercury, arsenic, and other pollutants thanks to the Supreme Court, which on Monday invalidated the first-ever U.S. regulations to limit toxic heavy metal pollution from coal and oil-fired plants. In a 5-4 ruling, the Supreme Court struck down the Environmental Protection Agency’s Mercury and Air Toxic Standards, commonly referred to as MATS.  The EPA had been trying to implement a rule that cut down on toxic mercury pollution for more than two decades. But the Supreme Court majority opinion, written by Justice Antonin Scalia, said the EPA acted unlawfully when it failed to consider how much the regulation would cost the power industry before deciding to craft the rule. “EPA must consider cost — including cost of compliance — before deciding whether regulation is appropriate and necessary,” the opinion reads. “It will be up to the [EPA] to decide (as always, within the limits of reasonable interpretation) how to account for cost.” The decision doesn’t mean power plants will never be subject to regulations on toxic air pollutants. Instead, it means the EPA will have to go back to the drawing board, and find some mechanism to consider how much it will cost the power industry. Until another version of MATS is approved — a process that often takes years — power plants will have no limits on their emissions of mercury, arsenic, chromium, and other toxins.

Supreme Court Blocks Obama’s Limits on Power Plants - — The Supreme Court on Monday blocked one of the Obama administration’s most ambitious environmental initiatives, an Environmental Protection Agency regulation meant to limit emissions of mercury and other toxic pollutants from coal-fired power plants.Industry groups and some 20 states had challenged the E.P.A.’s decision to regulate the emissions, saying the agency had failed to take into account the punishing costs its rule would impose.The Clean Air Act required the regulation to be “appropriate and necessary.” The challengers said the agency had run afoul of that law by deciding to regulate the emissions without first undertaking a cost-benefit analysis.Writing for the majority, Justice Antonin Scalia wrote: “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits. Statutory context supports this reading.”The E.P.A. had argued that it was not required to take costs into account when it made the initial determination to regulate. But the agency added that it had done so later in setting emissions standards and that, in any event, the benefits far outweighed the costs.The two sides had very different understandings of the costs and benefits involved. Industry groups said the government had imposed annual costs of $9.6 billion to achieve about $6 million in benefits. The agency said the costs yielded tens of billions of dollars in benefits.

Supreme Court rejects EPA’s process for regulating power plant pollution - Yesterday, the US Supreme Court declared that the Environmental Protection Agency had followed an unlawful process when determining that it was appropriate to regulate mercury emissions from power plants. The court's decision will put the rules on hold while the process is restarted. But the work the EPA did while formulating the regulations the first time around mean that revisiting them will be a much quicker process. The case hinges on a revision to the Clean Air Act passed in 1990, which mandates that the EPA determine whether it was “appropriate and necessary” to regulate mercury emissions from power plants. The EPA made such a determination, and proceeded to formulate emissions rules. Mining and energy interest groups, along with several states, sued.The issue before the court was whether the “appropriate and necessary” determination should include an economic analysis. Most of the provisions of the Clean Air Act specifically call for this; the one relating to mercury does not, so the EPA performed the economic analysis later in the rule making process. Scalia, Roberts, Kennedy, Thomas, And Alito determined that this was an invalid approach. In their opinion, it's impossible to determine whether something is "appropriate" without considering its economic costs.(Thomas wrote a separate concurring opinion, in which he questioned whether the court should allow federal agencies to interpret laws at all.)

US Supreme Court Backs Coal Profits Over Public Health -- Placing the interests of Big Coal over public health, the U.S. Supreme Court on Monday refused to back the Environmental Protection Agency's new power plant emissions standards. In a 5-4 ruling (pdf), the court argued that the Obama administration "unreasonably" interpreted its authority under the Clean Air Act by failing to account for the cost of compliance for polluting coal-fired power plants to meet the new Mercury and Air Toxics Standards (MATS), which were finalized in 2012. According to the opinion, penned by Justice Antonin Scalia and backed by Chief Justice John Roberts, as well as Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito, "The Agency may regulate power plants under this program only if it concludes that 'regulation is appropriate and necessary' after studying hazards to public health posed by power-plant emissions." While the court did not deny that such emissions pose grave public health risks, the opinion argues that the financial impact to the coal industry must be considered.

EPA should have considered costs of air rule sooner, court says - A sharply divided U.S. Supreme Court said today that the federal Environmental Protection Agency should have considered costs before it decided to regulate hazardous air pollutant emissions from coal-fired power plants, not just when determining exactly what regulatory limits for mercury and other air toxics should apply. In a 5-4 decision, the court ruled against EPA in a closely watched Clean Air Act case over one of the Obama administration’s most significant regulatory efforts and a rule that has been cited as a factor in speeding up the closure of coal-fired power plants in West Virginia and other energy-producing states. Justice Antonin Scalia wrote that the law’s test for deciding what classes of pollution sources should be regulated — whether such rules are “appropriate and necessary” — clearly should include an examination of costs. “There are undoubtedly settings in which the phrase ‘appropriate and necessary’ does not encompass cost,” Scalia wrote. “But this is not one of them.” National Mining Association President Hal Quinn said the court’s decision “is a vindication of common sense.” West Virginia Attorney General Patrick Morrisey, who was among those who challenged the EPA regulation, said the ruling “will have far-reaching consequences for the agency’s many other overly expensive rules, including those it plans to enact as part of its effort to cripple West Virginia coal.”

Where Electric Vehicles Actually Cause More Pollution Than Gas Cars -- The idea that gasoline cars might cause less environmental harm than electric vehicles seems impossibly backwards. But consider the following thought experiment before you dismiss it out of hand. A view from the tailpipe gives EVs a clear edge: no emissions, no pollution, no problem. Shift the view to that of a smokestack, though, and we get a much different picture. The EV that caused no environmental damage on the road during the day still needs to be charged at night. This requires a great deal of electricity generated by a power plant somewhere, and if that power plant runs on coal, it’s not hard to imagine it spewing more emissions from a smokestack than a comparable gas car coughed up from a tailpipe. So the truth of the matter hinges on perspective—and, it turns out, geography. That’s the sobering lesson from an incredibly sophisticated new working study by a group of economists. Using a fine-grained, county-level measure of U.S. vehicle emissions traced to tailpipes and electricity grids, the researchers mapped where gas cars and EVs cause more respective pollution. In some places electrics do so much relative harm that instead of being subsidized, as is currently the case, they should actually be taxed. In oversimplified terms, the researchers determined the emissions produced by gasoline car tailpipes and the emissions produced by electricity grids that power EVs for every U.S. county.“What we find is that the benefits are substantially different depending on where you are in the country,” study co-author Stephen Holland of the University of North Carolina, Greensboro, tells CityLab. “The real big take-home message is: location, location, location.”

Ohio judge dismisses Broadview Heights lawsuit by residents - Yesterday – in time for the July 4th celebration of American Independence and democracy – the Cuyahoga County Court dismissed a class action lawsuit filed by residents of Broadview Heights to protect their inalienable right to local self-government. The suit was filed against the state of Ohio and the oil and gas industry, as fracking is being forced into communities without their consent. In November 2012, Broadview Heights residents, with 67% of the vote, adopted a Community Bill of Rights codifying their right to local, democratic self-governance, and rights to water and a healthy environment – banning fracking as a violation of those rights.  In June 2014, two oil and gas corporations sued the City to overturn the bill of rights, claiming it violated their corporate “right” to frack. When City residents attempted to intervene, they were denied by the judge, who indicated residents had no legal interest in the case. In deciding the outcome of the case this spring, the judge agreed with the corporate frackers: that their claimed right to frack claimed “right” to frack was superior to the rights of the people of Broadview Heights. The will of the people, as expressed through their democratically adopted bill of rights, was nullified by the judiciary.  Yesterday’s decision in the class action lawsuit further reveals what more and more people are coming to realize: our existing structure of law denies local, democratic self-governance, it denies communities the authority to protect themselves from fracking, and it denies communities the authority to protect their water and the natural environment. The judge, refusing to hear oral arguments and refusing to speak to the democratic rights of human beings, focused solely on the authority of the state and corporations to disregard the will of the people. He ignored arguments the citizens made that were based on the Ohio Constitution's guarantee that empowers the people to terminate unjust laws. It appears as if the people of Broadview Heights do not exist under the law.

Charter amendment in Columbus sought to ban fracking -- A group of environmentalists wants to change the Columbus City Charter to ban fracking or any other oil and gas drilling in the city. But if the city’s petition process doesn’t stop them, recent court rulings likely will. Carolyn Harding and other organizers seeking what they call the “Columbus Community Bill of Rights” turned in their petition for a charter change on Thursday with 13,587 signatures. If 8,956 of them are from registered Columbus voters, and the group followed the city’s petition rules correctly, the measure would be on the November ballot. “This is what democracy looks like!” Harding and the other activists shouted as they turned in the petition. However, the Ohio Supreme Court has ruled in similar cases that cities do not have the right to regulate oil and gas drilling because a state agency, the Ohio Department of Natural Resources, already regulates it. “There’s a good chance court will side with the industry,” Harding said, comparing her fight to the push for same-sex marriage. “We’re not naive.” Though she helped organized the petition drive, Harding lives in Bexley and cannot vote on the measure or sign the petition. Community Bills Of Rights have passed in several other cities in Ohio, including Broadview Heights, where on Thursday a Cuyahoga County judge, citing the state’s “sole exclusive authority” to regulate drilling and the Ohio Supreme Court ruling, dismissed a class-action lawsuit that sought to keep fracking out of that city.

County board agrees to seek moratorium on injection wells - The Athens County Commissioners agreed Tuesday to request a moratorium on new oil-and-gas fracking waste injection wells in Ohio. The move expresses the frustration by the Commissioners that with each new injection well approved in Athens County by the Ohio Department of Natural Resources, the board has requested a public hearing and been ignored. The moratorium request was proposed by members of the anti-fracking group, the Athens County Fracking Action Network (ACFAN), who cited other counties in the state impacted by fracking waste injection taking the same step, including Trumbull County in Northeast Ohio. The political thinking behind the move is that if enough counties join with similar resolutions, lawmakers in the Ohio General Assembly might be pressured into paying attention to this issue. Through the first quarter of 2015, Athens and Trumbull counties were No. 1 and No. 3, respectively, for having fracking waste injected. Athens County sits at the top, with nearly 1.1 million barrels of waste injected this year, more than 1 million of which came from out-of-state. The ODNR Division of Mineral Resource Management, which enjoys sole oil-and-gas regulatory authority in Ohio, is unlikely to pay any mind to the resolution if and when a new injection well permit application is submitted.

Tax the fracks - Toledo Blade --As Gov. John Kasich prepares to sign the new state budget, he should not be quick to let off the hook those feckless lawmakers — mostly of his own party — who have rejected one of his most important budget proposals: a reasonable and necessary increase in state severance taxes on oil and natural-gas production.Oil and gas drilling has continued to increase substantially in northeast Ohio shales in recent years, because of increased reliance on the extraction method known as hydraulic fracturing, or fracking. Yet producers still pay ancient, absurdly low tax rates to remove the state’s nonrenewable natural resources. State taxpayers — and especially the residents of affected communities — must endure the detrimental effects of fracking without receiving an adequate economic benefit. For nearly three years, Governor Kasich has called for increases in state severance taxes on oil and gas that would do no more than place Ohio in the middle of the pack among states that are major producers. But lawmakers in thrall to Columbus’ politically powerful fossil-fuel lobby — and its generous campaign contributions — have disdained the governor’s proposals in favor of inadequate measures, or none at all.The oil and gas industry warns of huge losses of jobs and economic activity if the state were to tax them fairly. Such threats are ludicrous: If producers want to exploit Ohio’s resources for big private profit — and they do — they won’t achieve that goal by packing up and moving to Pennsylvania or Michigan. Under Governor Kasich’s proposal, severance taxes would be pegged to market conditions, up or down, rather than mere volume. Leaders of the Republican-controlled state House and Senate say they want to place the issue of the severance tax before a tax policy “study” committee that will negotiate with oil and gas producers and report to lawmakers by Oct. 1. There is nothing left to study or negotiate.The committee dodge is a transparent effort by these leaders to evade accountability for their refusal to act. Their delay should fool no one.

Using bad tank cars? Then pay a fee, Brown proposes - Sen. Sherrod Brown wants shippers using tank cars that have been linked to fiery train derailments to pay fees that would be used to reroute train tracks, train first responders and clean up spills. Brown has proposed fees that start at $175 per car for those using the DOT-111, a tank car that federal regulators have warned hazardous-material shippers against using. The fees would pay to clean up hazardous-material spills, to move tracks that handle large volumes of hazardous material and to hire more railroad inspectors. Brown’s bill earmarks about $45 million over three years to train first responders near rail lines that carry large quantities of hazardous material. Earlier this year, federal regulators tightened rules on newly manufactured tank cars but did not require shippers to immediately remove the old cars. “(The rule) probably didn’t go far enough,” Brown said on Tuesday at the site of a 2012 derailment and explosion near the state fairgrounds. “If it’s a threat to public safety, they probably need to be off the rails.” The federal rule will phase out or require retrofitting of thousands of the oldest tank cars that carry crude oil by 2018. Another wave of the oil-carrying tankers would have to change by 2020. Some of the tank cars that aren’t carrying crude oil would not be replaced or retrofitted until 2025. Brown’s proposal calls for a tax credit for companies that upgrade their tank cars to the new federal standard in the next three years.

Fracking and water: Quantity, not just quality, a concern -- Even in a water-rich state like Ohio, growing water use for fracking could strain water reserves, according to new research from the FracTracker Alliance, a non-profit organization that compiles data, maps and analyses about the impacts of the oil and gas industry. FrackTracker compared the oil and gas industry’s water use within southeastern Ohio’s Muskingum Watershed Conservancy District (MWCD) to residential use in that area, which covers roughly 20 percent of Ohio. Residential water use includes families’ home use, but excludes water for agricultural, industrial and other purposes. FracTracker found that the oil and gas industry’s use ranged from 11 to 18 percent of the residential amount. If current trends continue, the industry’s water use could rise to 25 percent of the residential amount within just a year or two, reported Ted Auch, Great Lakes program coordinator for FracTracker. Although much of the area is rural, Auch said the growing water demands are cause for concern, because those demands might ultimately limit the region’s ability to respond to periods of drought, climate change or other events.  Industry sources dismissed concerns about southeastern Ohio’s water supplies. Local authorities are not worried now, although they note that ongoing management is needed.  The combination of fracking and horizontal drilling has made drilling in Ohio’s deep shale profitable, particularly in the eastern and southastern parts of the state, which sit over the Marcellus and Utica shale plays. Horizontal drilling bores down to and then outward from a “kick-off point” under a well pad through shale layers thousands of feet beneath the surface.

USGS fracking report says up to 9.7 million gallons of water used in eastern Ohio's Utica shale wells - Water use in oil and gas wells in eastern Ohio's Utica shale region is among the highest in the nation, according to new research from the U.S. Geological Survey. The study provides what the agency says is the first comprehensive nationwide data on water used during hydraulic fracturing. The general consensus: Fracking "uses large amounts of water, though not as much as many have suspected in some areas," says the study, which is set to be published in the Water Resources Research academic journal.Not surprisingly, water usage is highest in the country's seven main shale plays, which include the Utica and Marcellus plays of Appalachia and areas of Texas, Oklahoma, Arkansas, Louisiana and Mississippi. Perhaps surprisingly to some, North Dakota's Bakken oil formation, which has seen some of the most activity in the country during the study's January 2011 to August 2014 timeframe, is not among the highest users of water. That's because the Bakken's geology often calls for the use of gel-based fracking fluids, the USGS says, which use less water.

USGS says the Utica uses A LOT of water --New research says Ohio’s Utica Shale in the eastern part of the state is one of the top water consuming areas in the nation. According to the U.S. Geological Survey (USGS), its new study provides the first comprehensive nationwide data on water used during fracking. As reported by the Columbus Business First, “The general consensus: Fracking ‘uses large amounts of water, though not as much as many have suspected in some areas,’ says the study, which is set to be published in the Water Resources Research academic journal.” It’s no shocker that the data shows the nations seven major shale plays are the regions that use the most water. The shales included in the U.S.’s top seven include the Utica and Marcellus located in the Appalachian region, along with plays found in Texas, Oklahoma, Arkansas, Louisiana and Mississippi. However, it is surprising that North Dakota’s Bakken oil formation does not fall into the high water usage category. While the region has seen large amounts of activity, especially during January 2011 and August 2014 when the USGS conducted its study, its water usage is low. The reasoning for this is due to the Bakken’s geology. It often calls for gel-based fracking fluids rather than water, said the USGS. According to the Columbus Business First, “Most of the wells in the Utica and other shale formations that recorded high uses of water are horizontally drilled, a process that uses more water than wells that are vertically or directionally drilled and tracked. And although horizontal drilling and fracking make most of the headlines, last year 42 percent of wells were drilled vertically or directionally. Those wells require less than 2,600 gallons of water per well. The Utica and other shale plays, by contrast, require from 2.64 million to 9.67 million gallons of water per well.”

'Zero chance' fracking caused Michigan earthquake, scientist says -   A 3.3 magnitude earthquake that occurred in rural Calhoun County on Tuesday, June 30, was not related to fracking, according to a Western Michigan University geoscientist. "No, no, no," said Christopher Schmidt, WMU professor emeritus of geosciences. "There is no chance in the world of that. There is no fracking in that area and no deep disposal wells. There's zero chance it's related to fracking."  Class II wells are those associated with oil and gas development. Here is a key to the well types: BDW: Brine Disposal Well, for disposal of waste fluids associated with oil and gas drilling and production, including hydraulic fracturing flowback water; WIW: Water Injection Well, for injection of water for enhanced oil recovery (i.e., flooding of an oil field to push unrecovered oil toward production wells); GBD: Gas & Brine Disposal (for disposal of waste fluids and unusable gas); OTI : Other Injection.Michigan Department of Environmental Quality.  Scientists, including those at the U.S. Geological Survey, recently have connected an increase in seismic activity to high-pressure injection wells used to dispose of wastewater that is the byproduct of fracking. The link has been seen in Colorado, Texas, Arkansas, Oklahoma and Ohio.Don Blakeman, a geophysicist with the USGS also said Tuesday the latest quake is unlikely related to fracking."I wouldn't jump to that conclusion," he said.Tuesday's quake occurred around 11:42 a.m. near Tekonsha and about seven miles northeast of Union City, near Tekonsha, according to the U.S. Geological Survey. It occurred less than two months after a 4.2 magnitude earthquake on May 2 near Galesburg, in neighboring Kalamazoo County. That quake also was unrelated to fracking, scientists say.

'I don't think you can say never' — The debate continues; Did fracking cause quake — On Tuesday several geologists told FOX 17 the quake centered north of Union City had no chance of being related to fracking. "This is not related to fracking, as far as I know, and my colleagues that know better about where the wells are have assured me that there is no underground storage of waste water in this region,” said Chris Schmidt, a professor with Western Michigan University’s geology department.  Schmidt said the quakes follow a pattern, believed to be a fault line. What he doesn’t know is why the sudden flare in seismic activity.Ted Auch, a biogeochemist and great lakes program coordinator with the national non-profit environmental group Frac Tracker Alliance, says it’s impossible to completely rule out fracking as a probable cause. “I don’t think you can say never, I don’t think you can say always,” Auch said. “I would not side with those who say this is absolutely not associated with it.”Frak Tracker Alliance has been compiling data and case studies for several years in states like Ohio and Pennsylvania where fracking and recent abnormal quake activity has become common, according to Auch.  Auch said the location of the most recent quake epicenter in relation to nearby horizontal oil and gas wells and high volume hydraulic fracking wells is close enough to lead him to believe the notion can’t be ruled out.

Ahead of Possible Oil and Gas Fracking in Kentucky, Seismic Monitoring Begins -- As natural gas speculation increases in the Rogersville Shale in eastern Kentucky, scientists are beginning research into the region’s existing seismic activity.  Right now, several test wells have been drilled into the Rogersville, which is thought to cover 4 million acres in Kentucky and West Virginia. The results of those test wells are confidential, but if the reserves prove profitable, companies could begin drilling large-scale oil and natural gas wells in the formation.Tapping the Rogersville will also involve hydraulic fracturing, or fracking. Fracking is used to extract oil and gas from deep below the earth; the practice includes injecting water and chemicals miles underground. The dirty water is eventually discarded in deep disposal wells. In some oil and gas drilling areas, numerous earthquakes have been recorded, and scientists are becoming more confident that these quakes are linked to the industry.  That’s why Kentucky seismologist Seth Carpenter said it’s important to establish a baseline for Kentucky’s seismic activity. The Kentucky Geological Survey has begun a project to measure small earthquakes—the kind that are usually undetected by people living nearby. “As these oil and gas activities happen using unconventional methods—if they start to produce earthquakes for example—we would be able to see a change between how things were before these activities started and after the oil and gas activities started,” he said.

Rogersville Shale drilling may bring economic boost - A dollar and 24 cents. That's the amount the price of 1,000 cubic feet of natural gas will have to increase before industry experts expect West Virginia's natural gas industry to explode. As of press time, the price of 1,000 cubic feet of natural gas was at $2.76. Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, said when the price per 1,000 cubic feet reaches $4 or more, gas companies currently drilling in the area - including Lawrence County, Kentucky, across the Big Sandy River from Wayne County - will likely make the trip over the border. "The price of gas today is probably the limiting factor," DeMarco said about why, as of now, only one test well is operating in the area, in Putnam County near Hometown, West Virginia. "The reason everyone is concentrated on the western part of the Marcellus and Utica shales is because in addition to the price of gas, they can sell off other hydrocarbons produced from drilling such as ethane, butane, propane, isobutane. The gas stream has more value than just the price of gas. At its current price, unless we create more supply in the United States, it is not conducive to major exploration. We got so much of the commodity in this country that we don't have enough outlets."

Drilling Begins in Long-Term WVU Study on Natural Gas | West Virginia PBS (podcast)  Drilling is set to begin in West Virginia in what is being billed as the first long-term field study of shale drilling for natural gas. The drilling is part of the Marcellus Shale Energy and Environmental Laboratory, which was launched in 2014 by West Virginia University. Its partners in the five-year, $11 million project include Ohio State University and the U.S. Department of Energy. WVU says scientists will study the process from beginning to end. Concerned residents and environmental groups worry because the Northeast well pad is at the Morgantown Industrial Park-- located just up the hill from the Monongahela River, and just 1500 feet upstream from the city’s drinking water intake. But researchers and industry professionals alike say risks are low at this drilling pad because of the expected oversight. “This is actually probably going to be the safest well in the world,”   Since the project began, scientists have been monitoring baseline air, noise, light and water at the site. Those assessments will continue through the life cycle of the project. The much-criticized drilling process called fracking has opened vast reserves of natural gas. WVU scientists say since originally drilled in 2011, the site in Morgantown provides the majority of the natural gas consumed by local residents.

At New Vrindaban In West Virginia, Hare Krishnas Abandon Religion, Environment In Favor Of Fracking Profits - In the years following the 1966 creation of the International Society for Krishna Consciousness (ISKCON) by Swami Prabhupada it seemed the Hindu based religious movement must be based in Southern California. That’s an understandable assumption with enough orange-robed Krishna’s selling religious tracts and recruiting members at LAX alone by the 1970s to warrant references in both movies Airplane I and II. But those SoCal Krishna’s were only there to collect the money needed by leaders to build their home temple, and a palace for Prabhupada, outside the remote West Virginia town of Moundsville, WV called New Vrindiban. The Hare Krishna fund drive approached so many hundreds of millions of travelers passing through LAX during the ’70s, ’80s and the ’90s that California passed a 1997 law targeting the Hare Krishna’s, that banned cash donations from the airport completely. The sums of money the Krishna’s were pulling in from LAX over the years was apparently large enough for them to fund a 13 year legal battle against the ordnance, where the California Supreme Court ruled finally against them in 2010.  By the time of the verdict ISKCON likely didn’t care nearly as much as it had; not with millions in tax-free cash from the sale of gas rights and royalty payments pouring in.  At that point Chevron was well underway fracking on Krishna land, pouring chemicals and water deep into the ground to reach billions of gallons of natural gas from the Marcellus Shale formation below. That seemed like an interesting enough contradiction for a group dedicated to providing unspoiled land for protected cows and strict principles of purity. We visited New Vrindiban in April where we were the only non-Indian guests filling the visitors lodge during their visits to the compound with families and friends.

State issues $95,000 penalty against Sunoco Logistics for wastewater spills - Sunoco Logistics is facing a $95,366 civil penalty related to a series of wastewater spills during construction of a portion of the company’s Mariner East pipeline in southwestern Pennsylvania. The civil penalty, outlined in a consent decree issued by the state Department of Environmental Protection on June 12, said the spills occurred between June and November 2014 in Westmoreland, Allegheny and Washington counties. According to the consent decree, Sunoco failed to stabilize areas “at various locations along the Mariner East pipeline” and “allowed sediment laden runoff from locations along the Mariner East pipeline to discharge into waters of the Commonwealth.” Sunoco must also pay $1,012 to the Washington County Conservation District and $894 to the Allegheny County Conservation District. Sunoco Logistics, which is headquartered in Philadelphia, operates pipeline networks throughout the country.

Drillers to submit electronic records on fracking chemicals to Pa. DEP -- Pennsylvania will require shale gas companies to disclose electronically the chemicals they use in hydraulic fracturing in a new state-run database by next summer.  Department of Environmental Protection Secretary John Quigley said the department will end its partnership with FracFocus, an independent online catalog of fracking records, and develop what he considers a more comprehensive and user-friendly online database.  “Our goal is to have a reporting tool that will provide ... much more downloadable and searchable information than FracFocus,” Quigley said. The state will require operators to submit fracturing records electronically by March 2016. The database will start around June 2016, he said.  “We're not quite there yet, but we're well down the path,” Quigley said.  He plans to eventually integrate the records into a mapping system. Computer users would be able to click on a dot on a map and see all of the information for that well, including fracking chemicals used, inspection records and production reports submitted to DEP, Quigley said.  “It's going to be a comprehensive data set on oil and gas data in Pennsylvania,” he said.

Bill would prohibit drillers from paying smaller royalties --  Sponsors of a Pennsylvania bill that would prohibit natural gas producers from paying landowners a smaller royalty fraction than the minimum share required by a 1979 law are hoping that this time simple will mean success. During the last legislative session, a more wide-ranging royalty owner protection proposal collapsed. But Rep. Garth Everett, a Lycoming County Republican, believes the bill he introduced last week with 38 co-sponsors from both parties, will have a better second act — if his party’s leaders give it a chance. “I removed some of the things that they found very difficult to live with,” Mr. Everett said. “Hopefully this time I will be able to get enough support in my caucus to go to our leadership and say, ‘I know you might not love this bill but I think we should have an opportunity to run it.'” House Bill 1391 establishes that the one-eighth — or 12.5 percent — minimum royalty defined by the 1979 Guaranteed Minimum Royalty Act is the true floor for what landowners can be paid for their share of natural gas extracted from their property. Companies frequently deduct from royalty checks expenses for things like compression, transportation and marketing that add up after gas is produced from a well head. Many leases require landowners with a royalty stake in the well to share those post-production costs, while other leases are silent on the matter or forbid it. The issue inflames leaseholders who have seen royalty checks already diminished by low commodity prices shrink even further with the deductions for post-production costs. Lawsuits have been filed to fight deductions that royalty owners claim violate their lease terms or amount to fraud.

Editorial: Public deserves more information on drilling-related health complaints- The Pennsylvania Department of Health’s own documents show the agency is falling down on the job when it comes to fracking-related health complaints. Department officials should take this seriously, since it’s their duty to protect the public health. A recent Associated Press report shows the department gave little attention to some 87 separate complaints from residents and workers who feared they had been exposed to chemicals used in hydraulic fracturing, or “fracking,” a technique used to remove natural gas from deep underground. Documents the AP obtained through a right-to-know request showed that when these citizens, mostly from drilling areas in southwestern or northeastern parts of the state, sought advice from the department, agency workers collected scant information, sometimes failed to follow up, and in at least one case got the information wrong. Among those seeking the department’s help were physicians. One case involved a woman and her 6-year-old son who were picking berries near a well site and ended up in the path of a moist spray waste from the well’s condensate path. The two began coughing and felt shaky. Neither the DOH nor the Department of Environmental Protection offered testing or advice, though the DOH suggested the mother see a doctor. She had no insurance and did not seek treatment. The AP quoted a toxicologist with the Centers for Disease Control and Prevention, who treats patients exposed to fracking chemicals in southwestern Pennsylvania, as “appalled” at the departments’ response. “They should have called 911,” Dr. David Brown said. The documents also include records of calls from workers concerned about OSHA violations at well sites and toxic chemicals melting their boots.

It’s Official: New York Bans Fracking --New York State officially banned fracking today by issuing its formal Findings Statement, which completed the state’s seven-year review of fracking. “After years of exhaustive research and examination of the science and facts, prohibiting high-volume hydraulic fracturing is the only reasonable alternative,” said New York’s Department of Environmental Conservation Commissioner Joe Martens in a statement. “High-volume hydraulic fracturing poses significant adverse impacts to land, air, water, natural resources and potential significant public health impacts that cannot be adequately mitigated. This decision is consistent with DEC’s mission to conserve, improve and protect our state’s natural resources, and to enhance the health, safety and welfare of the people of the state.”The Findings Statement concludes that “there are no feasible or prudent alternatives that adequately avoid or minimize adverse environmental impacts and address risks to public health from this activity.” Two groups heavily involved in the campaign, New Yorkers Against Fracking and Americans Against Fracking, praised the decision.

New York makes fracking ban official -- New York state regulators put the finishing touches Monday on the state’s highly controversial ban on hydraulic fracturing. The administration of Gov. Andrew Cuomo (D) filed its 43-page findings statement for the ban Monday, saying fracking is too harmful to the environment and public health to be allowed.  “After years of exhaustive research and examination of the science and facts, prohibiting high-volume hydraulic fracturing is the only reasonable alternative,” Joe Martens, head of the Department of Environmental Conservation, said in a statement. “High-volume hydraulic fracturing poses significant adverse impacts to land, air, water, natural resources and potential significant public health impacts that cannot be adequately mitigated.” Cuomo approved the ban in December, seven years after the state first put a moratorium on the practice. The natural gas industry has long pressured New York to allow fracking, since it sits atop the gas-rich Marcellus Shale that has turned neighboring Pennsylvania into the second-largest gas producer in the country. But Cuomo didn’t budge, even after a report earlier this month from the federal Environmental Protection Agency failed to find “widespread, systemic” harm to drinking water from fracking. New York is the only state with significant gas resources to ban fracking.

New York State officially bans use of fracking, cites environmental concerns - New York State has officially banned the use of hydraulic fracturing to extract natural gas, citing its potential impact on health and the environment. The state has long had a de facto ban on the practice, known as fracking, which has unlocked vast quantities of natural gas and natural gas liquids from the Marcellus and Utica shale fields in neighbouring Pennsylvania and Ohio. In a statement released Monday, the state’s Department of Environmental Conservation spelled out a number of concerns associated with shale gas development – including the impact on ground water and surface water from leaks and spills, and air pollution from increased truck traffic. It concluded there are “unavoidable adverse environmental impacts” and “significant uncertainty” remaining regarding the level of risk to public health that would result from permitting high-volume hydraulic fracturing in New York. And hence, Governor Andrew Cuomo officially prohibited the practice.New York’s decision comes less than a month after the U.S. Environmental Protection Agency released a long-awaited study that found no evidence of widespread adverse effects on drinking water from fracking. While the oil and gas industry embraced the study’s results, the federal agency hedged its findings, saying the lack of evidence did not necessarily mean an absence of risk.

New York bans fracking, ending 7-year review - New York formalised its ban on high-volume hydraulic fracturing for natural gas on Monday, concluding a seven-year environmental and health review that drew a record number of public comments. "After years of exhaustive research and examination of the science and facts, prohibiting high-volume hydraulic fracturing is the only reasonable alternative," Department of Environmental Conservation Commissioner Joe Martens said in announcing the decision. "High-volume hydraulic fracturing poses significant adverse impacts to land, air, water, natural resources and potential significant public health impacts that cannot be adequately mitigated." In its decision, the DEC noted that more than 260 000 public comments were submitted on its environmental impact study and proposed regulations, an unprecedented number. The agency said most of the comments urged it to severely restrict or prohibit fracking. New York is the only state with significant natural gas resources to ban fracking, which has allowed other states to tap huge volumes of gas trapped in shale formations deep underground. The technology has produced new jobs, created economic growth and reduced energy prices but has triggered concern that it could pollute air and water, cause earthquakes and pose long-term health effects that aren't yet known. While environmental groups praised the ban, drilling proponents have said the decision was based on politics rather than on science.

State finalizes natural gas fracking ban, starts clock for legal challenges - A state ban on natural gas hydrofracking announced last December was made official Monday by the Department of Environmental Conservation in a step that now opens up the decision to legal challenges by pro-fracking forces. In a 43-page statement, DEC Commissioner Joe Martens wrote that potential risk to public health, the environment and wildlife from opening up the state's Southern Tier to fracking — which relies on a high-pressure blend of water, chemicals and sand injected deep underground to break up gas-bearing rock formations — was too uncertain to control safely. DEC's statement finalizes a ban announced in December by Martens and acting Health Commissioner Howard Zucker, with the backing of Gov. Andrew Cuomo. Fracking opponents welcomed the state's final word, while a lawyer with the drilling industry criticized it for ignoring state law that calls for safe development of energy resources. "The findings statement is an exercise in contradictions," said industry lawyer Tom West. He said it ignored earlier DEC reports that fracking can be safe "if properly regulated" and the decision "runs roughshod" over private property rights and legal obligations to promote energy development. "Once again, the landowners of the Southern Tier are the true losers, since they no longer can develop their correlative rights and they cannot trust this administration," West said. He said potential legal challenges remain "uncertain at this time." The state head of the American Petroleum Institute pointed to a U.S. Environmental Protection Agency study of hydrofracking issued. Pro-fracking advocates said EPA found fracking to be safe, but opponents said it was not clear-cut and ignored New York studies.   API Regional Director Karen Moreau called the state ban a "moratorium on New York's economic opportunity ... New York remains idle while thousands of families in New York's Southern Tier have their hopes for economic opportunity dashed by the governor's decision."

17 We Are Seneca Lake Defenders Read Pope's Encyclical While Being Arrested --In an act of civil disobedience, 17 gas storage protesters led by former Reading Center resident Reverend Jane Winters, formed a human blockade shortly after sunrise this morning at the north entrance of Crestwood Midstream on Route 14. The participants, from ten counties across New York State, included members of Jewish, Catholic, Protestant and Islamic faiths.All 17 were arrested shortly before 8 a.m. by Schuyler County deputies, taken into custody, charged with trespassing, and released.The blockaders held banners that said “People of Faith Against Crestwood: Because Creation,” and “The Climate is a Common Good,” which references Pope Francis’ recent encyclical letter on climate change.  Protesters were reading aloud from the Pope’s encyclical at the time of their arrest. When the arresting officer ordered them to drop the document, they sang and prayed.None of the protesters this morning had been previously arrested as part of the We Are Seneca Lake movement, which opposes Crestwood’s plans for methane storage expansion in lakeside salt caverns and which has been ongoing since October 2014. The total number of arrests now stands at 296 in the eight-month-old civil disobedience campaign.Crestwood’s methane gas storage expansion project was approved by the Federal Energy Regulatory Commission last October in the face of broad public opposition and unresolved questions about geological instabilities, fault lines, and possible salinization of Seneca Lake, which serves as a source of drinking water for 100,000 people.

Before Gas Cavern Explodes Crestwood Implodes --  If Crestwood’s Ginormous Gas Bomb is not approved soon, the hedge funds that own most of Crestwood may have to foreclose on their secured debt. If Crestwood used it’s proposed Thermobaric Bomb at Watkins Glen as collateral to secure its bonds (why wouldn’t it ?), the bond holders (a Conn HF etc) will end up owning the leaky salt cavern in a reorganization.  The DEC is wise to tread cautiously, since Crestwood is an increasingly iffy financial proposition = and would be a poor counter-party/ no show in the event of a major accident: the DEC would have to clean up the mess/staunch the leaks, and pick the body parts out of the conifers. But as opponents nervously wait for the judge, Crestwood was hit Sunday with a double-barreled whammy. First, the powerful storm system that swept the region caused serious flooding in Reading, raising the specter of how such a storm would affect the site of the 88-million gallon LPG storage project. Reading’s overwhelmed drainage system made it obvious the additional brine ponds to store many millions of gallons of ultra-salty water would have probably overflowed, creating a fast-moving mélange of brine and rainwater cascading downhill into an already too-salty Seneca Lake. The second whammy came in a well-documented column on Crestwood’s finances by Watkins Glen journalist Peter Mantius. Mantius revealed that the value of two of Crestwood’s financial arms have been sliding downward as fast as brine on a steep slope, losing half a billion dollars in stock market value in a free-fall since September. This fiscal revelation is particularly important because lack of financial resources and inadequate disaster insurance are key elements in getting governments to sign on to urge the DEC to deny a permit. In the event of brine running down the hill, a propane truck rollover and spill, or a railroad car derailment off the trestle spanning Watkins Glen gorge, Crestwood doesn’t have the money to restore what it has destroyed.

Train Carrying Toxic Gas Derails In Tennessee, Catches Fire; Thousands Evacuated -- Remember when oil pipelines were at risk of spilling and as a result the progressive movement decided it would be far safer to transport US oil by train, because supposedly trains are so much safer for the environment (not to mention profitable for Warren Buffett), only to lead to a record surge in oil-carrying train accidents and derailments? Well, not even the most hardline of environment-friendlies could have anticipated what happened overnight in Blount County, Tennessee after a freight train derailed carrying flammable and poisonous material caught on fire on Wednesday night, leading to the evacuation of as many as 5000 residents from their homes.  Unlike most crude incidents in the recent past, however, this time it was not a Buffett train. According to the Blount County Sheriff’s Office, a CSX train carrying liquid petroleum, a highly flammable and toxic gas, derailed and caught on fire at Mt. Tabor Road at Old Mt. Tabor Road around midnight.  As WATE reports, hundreds of people relocated to the Foothills Mall until they are able to go home. The Red Cross also set up shelter at Heritage High School for residents. Officials told WATE 6 On Your Side a shelter will be open at 233 Curry Avenue for displaced pets. Evacuations could last between 24 and 48 hours, according to deputies. Seven law enforcement officers from the Blount County Sheriff’s Office and surrounding were treated due exposure to the fumes. CSX representative Lee Miller apologized to residents in a meeting at Heritage High School. He said environment and hazmat crews are on site “working diligently” to get the situation taken care of. He estimates residents will be able to come home Friday morning.

5,000 evacuated in Tennessee after train crash releases toxic fumes —More than 5,000 people in eastern Tennessee have been evacuated after a freight train carrying “highly flammable and toxic gas” derailed and caught fire on Thursday morning. Seven firefighters have been taken to hospital after breathing in fumes from the blaze, while a 1-mile evacuation zone has been put in place around where the train came off the tracks. “They are receiving treatment in the emergency room at Blount Memorial Hospital. At the time, some of them were pretty close to the scene of the derailment, while others were knocking on doors and evacuating residents,” said a Blount County Sheriff’s spokeswoman, Marian O’Briant who was speaking to NBC News.   Officials have put the number evacuated at 5,000; however, other sources are saying the figure is nearer to 1,200.  “Evacuation time could last anywhere from 24 to 48 hours, but we'll get word out as soon as we can,” O’Briant added.  The train was traveling from Cincinnati to Waycross, Georgia, which is about 80 miles (129km) northeast of Jacksonville.  However, it never reached its final destination after it left the tracks near Maryville, 17 miles (27km) south of Knoxville. Two shelters have been opened in the local area to help those who have temporarily been displaced, a local official said.  The train was carrying liquefied petroleum gas and acrylonitrile – a product used in the manufacture of plastics. The United States Environment Protection Agency says that if the substance is inhaled in large quantities, it can cause membrane irritation, headaches and nausea.  O’Briant added that three cars were currently on fire, but it is unknown whether the blaze is under control. The emergency services have not reported any serious injuries.

The Latest on Train Derailment: 5,000 Evacuated in Tennessee - ABC News: Several law enforcement officers were hospitalized after a CSX train car carrying a flammable substance derailed and caught fire in eastern Tennessee. Blount County Sheriff's Office spokeswoman Marian O'Briant says 10 law enforcement officers had to be taken to the hospital early Thursday because they breathed in fumes. In a statement, CSX says the train car was carrying acrylonitrile, a hazardous material used in a variety of industrial processes including making plastics.  Officials in Maryville, Tennessee, say an evacuation is expected to last at least until Friday, after a CSX train car carrying the flammable and toxic substance derailed and caught fire. They also asked nearby residents not to drink well water for now. At a Thursday news conference, Blount County Mayor Ed Mitchell said CSX will provide bottled water to residents at a local middle school. Maryville City Manager Greg McClain added that there's no indication yet whether well water has been affected by the incident. He also advised evacuees to make plans to be away from home at least for Thursday night. About 5,000 people in the area were evacuated along with several businesses.

Plan for Fracking's Waste Pits Could Save Millions of Birds - In parched Jim Wells County, Texas, the glistening pits brimming with oil and gas waste appear to be an inviting refuge for birds seeking a hospitable place to find water and rest. But the pits offer anything but sanctuary–and safety––for birds. They are filled with oily sludge or liquid contaminated with toxic chemicals used by drillers to frack wells in the booming oil and gas fields of south Texas. County Deputy Hector Zertuche, the local environmental crimes officer, said the pits become deadly traps for birds. "The birds see these pits and come in and before they know it are covered in oil or chemicals," he said. "It's a bad deal." So Zertuche said he applauds a recent proposal by the U.S. Fish and Wildlife Service to strengthen laws that will protect birds from the oil and gas waste pits as well as from flares that burn off unwanted gas from well sites. The federal agency announced last month that it is considering the creation of rules that more strictly protect birds––some of them listed as threatened or endangered––from waste pits, flares and two other hazards: electric transmission lines and cell towers. The nearly century-old Migratory Bird Treaty Act generally affords protections to more than 1,000 species of birds from these hazards, because operators of the facilities are expected to mitigate threats. The goal of the new rules will be to more specifically require operators to employ the best available methods to protect birds.

Water Use for Fracking Has Skyrocketed, Stressing Drought-Ridden States - Fracking operations in the U.S. have gotten thirstier in the last 15 years, consuming more than 28 times the water they did a mere 15 years ago. A new study by the U.S. Geological Survey (USGS), in partnership with the American Geophysical Union, shows that not only has the number of such operations grown as fracking has expanded its reach and improved technology has allowed drilling in harder to reach locations, but individual wells are consuming more water as well. The median amount of water consumed by a single fracked well grew from 177,000 per oil and gas well in 2000 to more than 4 million gallons per oil well and 5.1 gallons per gas well in 2004. That’s far more than the 671,000 gallons a year used by a conventional or vertical well. In the 52 out of 57 watersheds with the highest average water use, more than 90 percent of the wells were involved in horizontal drilling in shale gas areas.  Water consumption within a watershed where fracking takes place varied considerably, depending on the geology of the region and the location of the oil or gas deposit. Some operations in southern Illinois used as little as 2,600 gallons per well, while others in Pennsylvania, Ohio, Montana, Colorado, Arkansas and Texas used as much as 9 million gallons. The shale formations that coincided with watersheds where the most water was used for fracking operations including Eagle Ford and Barnett with watersheds located in Texas, Haynesville-Bossier above watersheds in Texas and Louisiana, Arkansas’ Fayetteville, Oklahoma’s Woodford, Tuscaloosa with watersheds located mainly in Louisiana and Mississippi, and the eastern Marcellus and Utica shale plays with watersheds in parts of Ohio, Pennsylvania, West Virginia and New York.

Injection Well Explodes Near Hammon - - An injection well caught fire Friday and exploded, sending flames and a big column of smoke shooting into the sky. It happened in Hammon in far Western Oklahoma. It's hard to believe from watching the video, but fortunately nobody was hurt. "Just like a can of pork and beans on a stove,” Leedey Fire Chief Tony Morelan said. “Eventually it is going to blow up." It did, and a News 9 camera was rolling. Just moments before fire crews were spraying down the tank with water trying to cool it down and keep it from exploding, but their efforts were just no match for the heated pressure. "It's probably not as dangerous as it was since the well has been shut in,” Corporation Commission oil and gas inspector Kyle Ivey said.  Ivey was staked out across the street. His eyes did not leave the rolling smoke and temperamental flames in front of him. While the biggest threat had just passed, it was still very dangerous, and Ivey was making sure the situation was contained and posed no threat to anyone or to the environment. Inside the tanks is a mixture of oil and water. However, this wasn't the first explosion. Just hours before people who live nearby were shook. "I really thought someone had driven their car into our house,” Kim Brewster said. “That's how loud it was."  "It was just engulfed in flames,” she said. “There was a man in the building and he came running out. I'm assuming he's one of the guys who works there.” He wasn't hurt and neither was anyone else. It's not the first time folks in western Oklahoma have been rattled like this, but it sure packs quite the punch when it happens. "We've got lots of oil and gas activity and that goes along with it,” Ted Thomason said. Early indications were lightning may have sparked the first explosion, but the exact cause is still under investigation.

Oklahoma court rules earthquake victim can sue oil companies - (Reuters) – An Oklahoma woman who was injured when an earthquake rocked her home in 2011 can sue oil companies for damages, the state’s highest court ruled on Tuesday, opening the door to other potential lawsuits against the state’s energy companies. Oklahoma has experienced a dramatic spike in earthquakes in the last five years, and researchers have blamed the oil and gas industry’s practice of injecting massive volumes of saltwater left over from oil and gas drilling. The state saw nearly 600 quakes of magnitude 3.0 or greater in 2014, compared to just one or two per year prior to 2009, according to the Oklahoma Geological Survey. Oil production in Oklahoma has doubled in the last seven years, in part because drillers can dispose of vast amounts of saltwater found in oil and gas formations relatively cheaply by injecting it back into the ground. . That practice is separate from hydraulic fracturing or “fracking,” which has been linked to some smaller quakes but is not believed to be causing Oklahoma’s tremors. Oklahoma, home to major energy companies including Chesapeake Energy Corp., Devon Energy Corp., and Sandridge Energy Inc., has already tightened regulations on injection wells. The state is considering tougher rules , and lawsuits would further boost costs for energy companies. Falling rocks injured Sandra Ladra’s legs when a 5.0-magnitude quake toppled her chimney in 2011. She has sued two Oklahoma oil companies, New Dominion LLC and Spess Oil Company, which operate injection wells near her home in Prague, Oklahoma.

Citizens Can Sue Fracking Companies for Earthquake Damage, Says Oklahoma Supreme Court  - Oklahoma almost never used to have earthquakes. But in the last six years they’ve increased so much that last year the state surged past California as the most seismically active state in the continental U.S. Prior to 2009, the state averaged two quakes of greater than 3.0 magnitude annually. By 2014 that number had soared to 585, up from 109 in 2013.  The culprit? Scientists are convinced it’s the wastewater injection wells that have accompanied the explosion of fracking in that state during the same time period. Now the Oklahoma Supreme Court has cleared the way for citizens to sue the oil and gas companies responsible for the wells. In a 7-0 decision, with two justices not voting, the court said that Sandra Ladra, a resident of Prague, Oklahoma, which was hit by a 5.6 magnitude earthquake on Nov. 5, 2011, could seek injuries for injuries she suffered in that tremor. “On November 5, 2011, Appellant was at home in Prague, Oklahoma watching television in her living room with her family when a 5.0 magnitude earthquake struck nearby,” reads Ladra’s complaint. “Suddenly, Appellant’s home began to shake, causing rock facing on the two-story fireplace and chimney to fall into the living room area. Some of the falling rocks struck Appellant and caused significant injury to her knees and legs, and she was rushed immediately to an emergency room for treatment. She claims personal injury damages in excess of $75,000.” The industry said that the Oklahoma Corporation Commission, which regulates the oil and gas industries and tends to be very friendly toward them, should deal with these cases. The state supreme court disagreed. “The commission, although possessing many of the powers of a court of record, is without the authority to entertain a suit for damages,” the court found. “Private tort actions, therefore, are exclusively within the jurisdiction of district courts.”

In Oklahoma, Fracking Companies Can Now Be Sued Over Earthquakes --If you live in Oklahoma, and you’ve been injured by an earthquake that was possibly triggered by oil and gas operations, you can now sue the oil company for damages. That’s the effect of a ruling by the Oklahoma Supreme Court, which on Tuesday rejected efforts by the oil industry to prevent earthquake injury lawsuits from being heard in court. Instead of being decided by juries and judges, the industry was arguing that cases should be resolved by the Oklahoma Corporation Commission, a state regulatory agency. The state’s high court rejected that argument. “The Commission, although possessing many of the powers of a court of record, is without the authority to entertain a suit for damages,” the opinion reads. “Private tort actions, therefore, are exclusively within the jurisdiction of district courts.” The ruling is a win for Sandra Ladra, the woman at the center of the lawsuit. Ladra claims that on Nov. 5, 2011, she was watching television with her family when a 5.6 magnitude intraplate earthquake struck, causing huge chunks of rock to fall from her fireplace and chimney. Some of the rocks fell onto Ladra’s legs and into her lap, causing what the lawsuit describes as “significant injury.”  Ladra claimed $75,000 in damages against Tulsa-based oil and gas company New Dominion LLC, and Cleveland, Oklahoma-based Spess Oil Co. for allegedly causing the earthquake. According to the lawsuit, the companies directly caused the earthquake through wastewater injection, a common process in which oil companies take the leftover water used to drill wells and inject it deep into the ground. Tuesday’s ruling by the state Supreme Court does not say whether the oil companies are in fact responsible for the earthquake, much less the injuries Ladra sustained. It does, however, give Ladra the opportunity to make her case before a judge and a jury, instead of the Oklahoma Corporation Commission, which is run by three elected Republican commissioners.

Frackquake Madness!: 35 Fracking Earthquakes Rock Oklahoma in a Week - — Historically speaking, Oklahoma used to be a place where almost no palpable earthquakes happened at all — but hydraulic fracturing, a.k.a. “fracking” has changed all that now.Between the dates June 17 and June 24, 2015, Oklahoma was jolted by 35 earthquakes greater than magnitude 3.0 due to fracking and fracking wastewater injection activities the Oklahoma Geological Survey (OGS) has confirmed — this, in a state that experienced less than two such quakes per year before 2009.The sketchy episode comes only two months on the heels of the implementation of new regulations in the state that prevent operators and waste disposers from injecting wastewater “below the state’s deepest rock formation, believed to be one of the main causes of the quakes,” Reuters reported.The Oklahoma Corporation Commission (OCC) regulates all oil and gas activities in the state, and had a strong and vocal response to last weeks unprecedented episode.Matt Skinner, a spokesman for the OCC told Reuters, “There’s been a huge increase. That’s a game-changer,” insinuating that OCC may need to implement even more rules in an effort to deescalate the frequency and force of the tremors — an shaky situation that has many residents in Oklahoma downright concerned.Homes have been rattled and damaged to the tune of tens of thousands of dollars, and worrying regulators is the stark fact that some of last weeks quakes stretched beyond rural oilfield areas and shook homes and businesses along fault-lines in metropolitan, and heavily populated Oklahoma City.

Environmentalists clash with Business Coalition at energy summit - An energy summit organized by the New Mexico Business Coalition drew noisy protests from environmental and clean energy advocates on Wednesday. The summit — sponsored primarily by oil and gas companies active in New Mexico, such as Chevron and Mack Energy Corp. — aimed to inject more “common sense” into a local debate over the future of the coal-fired San Juan Generating Station near Farmington while highlighting the benefits of New Mexico’s energy industry, Business Coalition President and founder Carla Sonntag said in an opening address. The summit, at the Sheraton Hotel in Uptown, also aimed to “balance” public debate in the face of aggressive environmentalist efforts to distort facts, she said. “We need a constructive conversation — a common sense, level-headed approach,” Sonntag said. “The other side is generally not interested in compromise, but rather in an all-or-nothing approach.” Sonntag showed a video of some environmental protests in New Mexico, and said a recent study by the Business Coalition showed more than 120 groups are working to impose an “extremist” environmental and clean energy agenda on the state.. “We want to counter the screaming and the yelling and all the other nonsense that goes on,” she said.

Oil, gas spill reports for June 28 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Encana Oil & Gas (USA) Inc. reported on June 24 a buried load line at the bottom of water tank broke after high groundwater caused the water tank to float, outside of Erie. It is approximated that less than a 100 barrels of produced water released. About 12 barrels of the spill were contained within the berm. Noble Energy Inc., reported on June 19 that a flowline for a well developed a leak, outside of Kersey. The leak surfaced in the landowners field. It is approximated that less than five barrels of condensate were released. Foundation Energy Management LLC reported on June 17 that a leak developed in a flowline, outside of New Raymer. The leak released about four barrels of fluid, both produced water and oil released.  Foundation Energy Management LLC reported on June 17 that during minor contamination clean up, historical contamination was discovered outside of Frederick. The full extent of the release is still being examined.  Kerr McGee Oil & Gas Onshore LP reported on June 16 that water based drilling fluid overflowed from a storage tank, after a storage tank valve was left open, during surface casing drilling operations outside of Fort Lupton. It is estimated that less than 100 barrels of drilling fluid were released.  Great Western Operating Company LLC reported on June 15 that an empty hose filled with fluid and kicked itself out of a half round tank, releasing a spill outside of containment, during a fluid transfer, outside of Brighton. It is estimated that nine barrels of fluid released.  Kerr Mcgee Gathering LLC on June 12 that during the transfer of liquids from a condensate tank, the produced water sump overflowed, outside of Brighton. The spill released about two barrels of produced water and one barrel of condensate onto the ground surface outside of containment. Kerr McGee Oil & Gas Onshore LP reported on June 10 that petroleum hydrocarbon impacts were discovered beneath the produced water sump, following construction activities outside of Milliken. It appeared that there was no indication of a leak in a dumpline or produced water sump. It is unknown the volume of condensate and produced water that released, but it is approximated to have been less than five barrels.

Oil train traffic down on BNSF lines in Minnesota, Wisconsin -- New documents show BNSF Railroad is hauling fewer crude oil trains through Minnesota and Wisconsin than it was last winter. BNSF now averages 25 unit trains per week along its line that follows the Mississippi River from the Twin Cities to Illinois, according to a report released Friday by the Wisconsin Department of Emergency Management. That’s down from an average of 36 reported in September, a drop of about 25 percent. A report filed with the Minnesota Department of Homeland Security shows somewhat smaller reductions on the BNSF east-west line through Minnesota. BNSF reported a slight uptick on its line through Southwest Minnesota. BNSF spokeswoman Amy McBeth said “volumes on routes can change for various reasons, including the market and maintenance activity occurring on the railroad.” The reduction is likely a temporary response to falling oil prices and is happening across networks, according to Oil Change International, a clean energy advocacy group that tracks the petroleum industry.

Fracking in the Bakken comes with a high human cost -- The United States has surpassed even Saudi Arabia in oil and gas production, in part because of fracking technology, which allows energy companies to reach oil and gas deposits they could never access previously. One of those deposits lies in the Bakken oil fields, which stretches 170 square miles from North Dakota to Montana and into Canada . An estimated 7.4 billion barrels of undiscovered oil are sitting under the U.S. portion of the Bakken, and thanks to fracking, the industry now has the technology extract that oil. Workers have flocked to the Bakken for jobs with six-figure salaries that don’t require advanced degrees. But a new investigation from Reveal, a public radio program from the Center for Investigative Reporting, finds that those high-paying jobs come with a high price. In the first comprehensive analysis of its kind, Reveal found that, on average, a worker dies about every six weeks from an accident in the Bakken, with at least 74 deaths in the oil fields since 2006. Jennifer Gollan, a reporter with Reveal, led the investigation. She says that the top energy firms may be championing speed over safety — something that was seen in September 2011 after a well owned by Oasis Petroleum exploded in North Dakota . “The supervisor on this well was congratulated for working quickly and setting a new drilling record” months before the explosion, says Gollan. “She went on to call this record-holding well a ‘pace-setter.'” Oasis offered workers daily bonuses of $150 for drilling quickly — those who drill slower and safer are only offered $40 a day. “Safety is tantamount at Oasis,” spokesman Brian Kennedy told Gollan. “Bonuses should not have been paid, and we regret that they were.” The day before the explosion in 2011, Gollan says a crew of four men were brought on site to get the well to produce more oil. According to documents from the Occupational Safety and Health Administration (OSHA), a supervisor had pumped heavy salt water into the well to prevent volatile gases from escaping before the crew set to work the next day. But the well wound up erupting into a fireball.

Bakken tax trigger saves oil companies $120 million per well - A significant number of wells have been completed while North Dakota’s small oil tax trigger was in effect, says Tax Commissioner Ryan Rauschenberger. According to the Bismarck Tribune, the small tax trigger ends at the end of June and throughout its duration, oil companies completed close to 600 wells. The small trigger, which went into effect February 1 due to low oil prices, reduced the extraction tax from 6.5 percent to 2 percent. For each well completed during this period, oil companies saw an average tax savings of roughly $120 million. However, the tax break only applies to the first 75,000 barrels produced. Although oil companies will benefit from the decreased tax rate, Raschenberger said the state will still be able to collect approximately $1 billion in oil revenue over the next two years. As reported by the Tribune, Raschenberger stated that a variety of factors other than the tax break provided incentive for companies to hydraulically fracture the wells, such as the state’s one-year deadline to complete wells after drilling along with reduced service costs. At the end of April, there were about 950 wells drilled but left uncompleted, according to the North Dakota Department of Mineral Resources. This will be the last time the small tax trigger is implemented. Earlier this year the Legislature discontinued it in favor of a sweeping oil tax reform that will reduce the extraction tax rate from 6.5 percent to 5 percent. The new oil tax rate goes into effect January 1 and will be applied to all wells.

Statoil to test CO2 well stimulation in the Bakken - Utilizing carbon dioxide (CO2) as an energized fracturing fluid is a common practice in Canada. In the United States, however, introducing new methods of enhanced oil recovery and well stimulation usually requires a global oil player to lead the charge.  As reported by Hart Energy’s E&P Magazine, Statoil has a reputation for being open to embracing new and innovative technologies to tackle the big challenges facing the industry. Later this year, Statoil will pursue expanding such innovations and begin stimulation tests on its Bakken acreage using a CO2 enhanced oil recovery method to determine if the process is as promising as its modeling indicates.. According to a Statoil-issued release, the test will be conducted at a well site approximately 15 miles outside of Williston, North Dakota. The trial will evaluate the possible production uplift while reducing the amount of water used in a large, multistage hydraulic fracturing operation. The test will be a step toward the company’s overall goal of increasing the efficiency and sustainability of its unconventional drilling operations in the Bakken, Eagle Ford and Marcellus regions. As a means to increase the chances of success, Statoil has sought out a partner company for its well stimulation program. The CO2 test is one of several projects being pursued under its Powering Collaboration initiative, the technology partnership between Statoil and GE that seeks to accelerate the development of sustainable energy solutions.

California Oil Industry’s Wastewater Saga Adds New Twist --Problems with the oil industry’s disposal of billions of gallons of briny wastewater and the state’s botched permitting process continue to ripple through California, from the industry’s hub in Kern County to the state capital and now to the courtroom. A lawsuit filed on June 3 in the U.S. District Court for the Central District of California alleges that Governor Jerry Brown (D) conspired in 2011 with oil companies operating in the San Joaquin Valley, in Kern County, to oust the state’s oil regulator and replace her with an official who would be more lenient in approving wastewater-disposal permits.  California’s oil industry — the nation’s third largest — produces more water than oil. For every barrel of oil that is pumped out of the ground, roughly 15 barrels of salty, chemical-laden water travel up the borehole.  Most of the water is reinjected underground — some into the oil reserves — to maintain pressure in the field, and a lesser quantity is reinjected into aquifers that are supposed to be too salty or deep to be useful for drinking water.  In the last few years, however, a U.S. Environmental Protection Agency investigation revealed that protected aquifers were being used as waste dumps. The lawsuit alleges more than negligence. Called a RICO lawsuit, the case alleges collusion between state officials and two of the largest oil companies, Chevron and Occidental. The lawsuit is brought by a group of Kern County farmers who claim that salty oilfield wastewater poisoned one of the plaintiff’s cherry orchards.  After Elena Miller — former oil regulator at the Division of Oil, Gas, and Geothermal Resources (DOGGR) — was fired in November 2011, the rate of approvals for new injection wells soared under the new appointee, from the typical 50 permits a year to 1,575 permits in 2012 alone, the lawsuit claims.

'Another 10 years': Guadalupe dunes still recovering from oil spill - As cleanup proceeds in the 101,000-gallon oil spill from a ruptured pipeline near Refugio State Beach in Santa Barbara County, workers in San Luis Obispo County have continued to quietly toil in a two-decade-long effort to clean up millions of gallons of oil that leaked in the Guadalupe oil field. Like the Santa Barbara spill, this one also reached the ocean, although most of the contamination was onshore, saturating a large area of the Guadalupe-Nipomo Dunes in the southwestern corner of San Luis Obispo County. Cleanup and restoration work on what was considered one of the nation’s worst oil spills is expected to continue at the Guadalupe dunes for at least another 10 years — serving as a warning that oil spill remediation is a long and complex process. Two decades into the work, the Guadalupe cleanup continues to present a challenge for regulators and site owner Chevron. They want as much of the toxic oil removed as possible, but massive excavations damage the sensitive ecosystem of the dunes, which are home to several rare and endangered species such as the snowy plover, California red-legged frog and the La Graciosa thistle.  “There are always environmental trade-offs in projects like this.”  The 2,700-acre oil field was an active oil field from 1946 to 1994. During that time, millions of gallons of an oil called diluent leaked from rusty pipes and settled into the sand dunes.  Diluent is similar to kerosene and was used to thin the heavy crude oil produced in the field. The field was originally owned and operated by Union Oil of California, often called Unocal.

State issues toughest-in-the-nation fracking rules - State officials on Wednesday formally adopted new rules governing hydraulic fracturing in California, setting in motion some of the toughest guidelines in the nation for the controversial oil extraction practice. The oil and gas agency also released its environmental impact report that concluded fracking could have “significant and unavoidable impacts” on a number of fronts, including air quality, greenhouse gas emissions and public safety. The regulations, which lawmakers approved in 2013, require oil companies to expand monitoring and reporting of water use and water quality, conduct broad analysis of potential engineering and seismic impacts of their operations, and comprehensively disclose chemicals used during fracking and other operations. The full implementation of the law comes as the Division of Oil, Gas, and Geothermal Resources — the agency charged with enforcing the rules — faces increasing criticism from lawmakers over its failure to adequately oversee oil and gas operations. The fracking regulations are the product of SB 4, authored by Fran Pavley (D-Agoura Hills). The landmark legislation greatly expands the volume of information about oil operations that will be publicly available. Implementation of the new law has also exposed impacts of oil production operations on air and water, drawing the attention of the state agency charged with protecting those resources.

How Corporate Media Whitewashed The EPA’s Fracking Study(ANTIMEDIA) The EPA released findings of its study on the impact of fracking on drinking water resources, but derelict reporting by corporate media has utterly failed the public. Several mitigating factors in the purported “landmark” investigation have been so blatantly and conspicuously ignored by mainstream press that it is arguable the true findings haven’t been disclosed at all.To be fair, some outlets do, indeed, cover the ostensible facts about the EPA’s study in noting that fracking does pose a small, but non-systemic risk to the water supply. This is evidenced in the New York Times: “Fracking Has Not Had Big Effect On Water Supply, EPA Says While Noting Risks,” or the technically correct but misleading headline from NPR: “EPA Finds No Widespread Drinking Water Pollution From Fracking.” Some, however, seem to have altogether eliminated what didn’t suit their agenda, as the Washington Times touts: “EPA: Fracking Doesn’t Harm Drinking Water” or Politico’s: “EPA: Fracking’s No Big Threat To Water.”Indeed, all of these outlets have two major things in common: they’re all correct and yet they all leave out critical information necessary to properly assess the EPA’s findings.There are notable conclusions by the EPA in its “Assessment of the Potential Impacts of Hydraulic Fracturing for Oil and Gas on Drinking Water Resources,” which should not be understated. “From our assessment, we conclude there are above and below ground mechanisms by which hydraulic fracturing activities have the potential to impact drinking water resources,” states the report. However, these mechanisms did not lead to any evidence of “widespread, systemic impacts” on those resources. As many suspected, the contamination found was due to water withdrawals in areas or times of low water availability, fracking chemical and wastewater spills, drilling directly into underground resources, subterranean migration of such fluids and gas (as was discovered recently in a study published in PNAS), and inadequate treatment of wastewater.

Flagging the Lies of Big Oil’s Frackers on the 4th of July -- Big Oil’s frigging frackers are wrapping their shameless profiteering in our flag. In shale fields across the country, you’ll see fracking rigs festooned with Old Glory, and they even paint some of their rigs red, white, and blue. This ostentatious patriotic pose is part and parcel of the industry’s cynical PR campaign to convince you and me that its assault on our health, water, air and economic future should be mindlessly saluted, rather than questioned. ENERGY INDEPENDENCE! is their deafening cry—this shale gas boom, they exclaim, will free America from dependence on foreign producers. “Oh say can you see [through the frackers’ big lie?]” One who has peeked behind their star spangled curtain is investigative digger Joel Dyer, editor of the Boulder, Colorado Weekly. What he uncovered is “one of the biggest scams ever perpetrated on America.” Far from independence, we’re going to get the pollution and other problems, but foreigners will get the energy, for the gas extracted from our fractured land is destined for the export market. How do we know that? First, because the industry and its government enablers admit it in their internal communications. But, secondly, guess who’s paying for the fracking of America? Dyer cites reports by Bloomberg news that China has pumped over $5 billion into the US drilling “boom”—not only so it can export the energy back to their people, but especially so the Chinese can “redeploy the best U.S. practices and technologies” back to China. Other foreign owners fracking us are Japan ($5 billion invested so far), India ($3.5 billion), France ($4.5 billion), as well as multi-billions more from Korea, England and even Norway.

Shale Drillers' Safety Net Is Vanishing - The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue. Now the safety net is going away. The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014. “A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. “Next year it’s really going to come to a head.” The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the “emerging risk” of lending to energy companies.Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

The Coming Financial Apocalypse For U.S. Shale - With the price of both Brent and WTI hovering around $60 per barrel, the short to medium term outlook for oil remains uncertain, owing to the persistent oversupply in the global market. Investment firm Goldman Sachs has even bearishly predicted $55 per barrel in 2020. With OPEC unwilling to reduce its production levels, and a worsening economic crisis in Greece , the near term outlook of oil remains mostly pessimistic despite reduced U.S. domestic crude stockpiles. The World Bank has even predicted that the global economy would grow at 2.8 percent this year, down from the 3 percent predicted back in January. Does this mean that sustained low oil prices will result in financial apocalypse for the oil sector ? The equity market has been one of the biggest saviors for troubled oil companies, almost 25 of whom have reportedly raised capital of more than $8.3 billion in order to repay their rising debt. Big oil companies such as Exxon Mobil, BP, Total, Statoil and Chevron have raised around $31 billion in debt between January and February 2015.However, there are some investment firms and trade pundits that expect a rebound in oil prices thanks to increased global demand and declining U.S. production. It was expected that mergers and acquisitions would be the best bet for oil industry when most companies were shying away from investing in new projects and reducing their drilling costs. However, that hasn’t happened in earnest yet. As a recent PWC report stated, the number of M&A deals in the U.S. oil and gas industry during the first quarter of 2015 was less than the last quarter of 2014. Things are not looking that good for the U.S. shale industry either as several drillers are using a substantial part of their revenues to pay off interest. According to a recent Bloomberg report, Continental Resource Inc, a company that has a large share in North Dakota’s Bakken Shale, is spending a huge part of its revenues on interest payments, spending as much as Exxon Mobil, a company almost 20 times larger.

Shale Drillers About To Be "Zero Hedged" As Loss Protection Expires - In many ways, the US shale industry is emblematic of why failing to normalize monetary policy after seven years of largesse can be extremely dangerous. As discussed at length in these pages and then subsequently everywhere else, access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King’s words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up.  This dynamic has served to create a supply glut in a number of industries and has suppressed commodity prices in a self-feeding deflationary loop. Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don’t bother to read the 10K fine print to believe that the businesses are healthier than they actually are.Furthermore, the next round of revolver raids for the industry isn’t due until October, meaning investors may also believe the industry has easier access to liquidity than it actually does.

FDIC Sounds Alarm On Insolvent, "Zero Hedged" Oil & Gas Producers -- On Thursday, we outlined how America’s heavily indebted E&P companies are about to be “zero hedged” when the downside protection that accounted for some 15% of Q1 revenue for nearly half of North American O&G operations rolls off. In short, the hedges that had, until now anyway, helped to forestall a terminal cash crunch are set to expire, which will have the knock-on effect of making it more difficult for the companies to maintain crucial credit lines with banks.  As discussed yesterday, the payments from the hedges were the last line of defense for a sector that has been kept afloat in part by artificially suppressed borrowing costs and investors’ hunt for yield. These otherwise insolvent companies have tapped wide open equity and credit markets allowing them to keep producing, which in turn has contributed to the very same depressed prices and global deflationary supply glut that bankrupted the sector in the first place. Now, even the regulators (who are, as a rule, always behind the curve when it comes to assessing risk) are “sounding the alarm bells”. WSJ has the story: U.S. regulators are sounding the alarm about banks’ exposure to oil-and-gas producers, a move that could limit their ability to lend to companies battered by a yearlong slump in prices. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are telling banks that a large number of loans they have issued to these companies are substandard, said people familiar with the matter, as they issue preliminary results of a joint national examination of major loan portfolios. The substandard designation indicates regulators doubt a borrower’s ability to repay or question the value of the assets that back a loan. The designation typically limits banks’ ability to extend additional credit to the borrowers. The move could add an extra obstacle to companies struggling with high debt loads amid lower prices for the oil and natural gas they produce. Banks have been flexible with troubled energy companies to avoid triggering a flood of defaults and bankruptcy filings, but regulatory pressure could force them to tighten the purse strings.

U.S. Supreme Court rejects BP, Anadarko over Deepwater Horizon spill penalties - – The U.S. Supreme Court on Monday rejected bids by BP Plc and Anadarko Petroleum Corp to avoid penalties under federal pollution law in connection with the 2010 Gulf of Mexico oil spill. The high court left in place a June 2014 ruling by the New Orleans-based 5th U.S. Circuit Court of Appeals, which said the companies were liable for civil penalties under the federal Clean Water Act. The April 20, 2010, Deepwater Horizon drilling rig explosion and Macondo oil well rupture killed 11 workers and caused the largest offshore environmental disaster in U.S. history, polluting large parts of the Gulf, killing marine wildlife and harming businesses. BP could face a maximum penalty of $13.7 billion under the Clean Water Act. Anadarko says it could be required to pay more than $1 billion. U.S. District Judge Carl Barbier in New Orleans has not yet imposed penalties, but has ruled that BP was grossly negligent and that 3.19 million barrels of oil were spilled.

After Years Of Litigation, BP Agrees To $18.7 Billion In Claims And Penalties For Historic Oil Spill -- In simultaneous press conferences in Alabama, Louisiana, Mississippi, and Florida, the attorneys general of the states most directly impacted by the massive 2010 BP spill announced a “global deal” to settle years of litigation with the oil giant for a total of $18.7 billion.   The settlement, largely split between the five Gulf Coast states, includes $6.8 billion to Louisiana, $3.25 billion to Florida, $2.3 billion to Alabama, $2.2 billion to Mississippi, $750 million to Texas, and $5.5 billion in Clean Water Act penalties. “Today, I am pleased to say that after productive discussions with BP over the previous several weeks, we have reached an agreement in principle that would justly and comprehensively address outstanding federal and state claims, including Clean Water Act civil penalties and natural resource damages,” U.S. Attorney General Loretta Lynch said in a statement. “BP is also resolving significant economic claims with the impacted state and local governments.” Lynch said the agreement in principle would be worked into a consent decree, which would then undergo a public comment period.  “If approved by the court,” she said, “this settlement would be the largest settlement with a single entity in American history.”

BP to pay $18.7 billion in Deepwater Horizon legal settlement - BP, the federal government, and five Gulf of Mexico states announced an $18.7 billion (£12 billion) settlement Thursday that essentially ends much of the legal wrangling over the massive Deepwater Horizon oil spill in 2010. It is the nation's largest legal settlement over an environmental disaster. .The historic accord with Louisiana, Alabama, Mississippi, Texas, and Florida still needs the signature of US District Judge Carl Barbier of New Orleans. The deal comes five years after the Deepwater Horizon spewed some 3.2 million barrels (about 134 million gallons) of oil into the Gulf of Mexico, bringing with it long-lasting environmental consequences. "If approved by the court, this settlement would be the largest settlement with a single entity in American history; it would help repair the damage done to the Gulf economy, fisheries, wetlands and wildlife; and it would bring lasting benefits to the Gulf region for generations to come," said US Attorney General Loretta Lynch in a statement. Under the the plan, BP will pay about $7.1 billion (£4.6 billion) to the US and the five gulf states to compensate for damage to natural resources. Another $5.5 billion (£3.5 billion) will go the federal government as a payout for Clearwater Act violations. Almost $5 billion will go directly to the states as compensation for economic losses, and another $1 billion to local governments in the area. The settlement in the wake of a two-year trial is expected to be paid out over nearly two decades and brings to about $40 billion (£25.6 billion) the costs BP has incurred due to the underwater spill that was shown live on television. The oil conglomerate has paid more than $4 billion in criminal fines and spent about $14 billion in a three-month effort to contain the spill.

"Gulf states reach $18.7 billion settlement with BP over oil spill" -- Officials in Florida, Alabama, Mississippi and Louisiana announced an $18.7 billion settlement with BP on Thursday that resolves years of litigation over the 2010 Gulf of Mexico oil spill.The settlement announcement comes as a federal judge was preparing to rule on how much BP owed in federal Clean Water Act penalties after millions of gallons of oil spewed into the Gulf. Individual states also were pursuing litigation. Most of those penalties were to be distributed among the states for environmental and economic restoration projects along the Gulf Coast. The settlement money will be used to resolve the Clean Water Act penalties; resolve natural resources damage claims; settle economic claims; and resolve economic damage claims of local governments, according to an outline filed in federal court Thursday morning.Update: from the BP website: The principal payments are as follows:

  • BPXP is to pay the United States a civil penalty of $5.5 billion under the Clean Water Act (CWA) – payable over 15 years.
  • BPXP will pay $7.1 billion to the United States and the five Gulf states over 15 years for natural resource damages (NRD). This is in addition to the $1 billion already committed for early restoration. BPXP will also set aside an additional amount of $232 million to be added to the NRD interest payment at the end of the payment period to cover any further natural resource damages that are unknown at the time of the agreement.
  • A total of $4.9 billion will be paid over 18 years to settle economic and other claims made by the five Gulf Coast states.
  • Up to $1 billion will be paid to resolve claims made by more than 400 local government entities.

US has more oil spills than you think -- The US has more oil spills than we thought and the number doubled after production increased six years ago. Richard Stover, PhD, and the Center for Biological Diversity counted nearly 8,000 significant incidents, between 1986 and 2014, in records of the pipeline safety administration. By “significant” they mean causing injury, death, damages exceeding $50,000 in value, a loss of 5 barrels of highly volatile substances, 50 barrels of other liquids or there was an explosion. There have been more than 500 human deaths and 2,300 injuries through-out that period. The number of plant and animal casualties is much higher. Though most pipeline failures occur where there is a long history of development, they occur through-out the Lower 48. Texas is the worst offender, with 1657 incidents. California had 621 and 48 deaths. The leading causes of incidents are excavation damages (24.3%), corrosion (18.2%) and equipment failure (17.1%). Kristen Monsell, from the Center for Biological Diversity said the possibility of a spill “doubles after a pipeline is 20 years old.” In the case of the recent Santa Barbara spill, for example, “the pipeline was 28 years old” and had corroded to the point the wall was only 1/16 of a inch thick.

Obama Administration Deals Blow To Shell’s Arctic Drilling Plans - In what’s been called a “major blow” to Shell’s Arctic drilling plans, the Obama administration released a new permitting decision Tuesday which found that, due to wildlife protections, the company can’t simultaneously bore two wells into the Chukchi Sea.  The oil company appears undeterred, saying it still intends to drill.  The Department of Interior’s Fish and Wildlife Service sent what’s called a Letter of Authorization to Shell, saying the company’s two drilling rigs must maintain a buffer of at least 15 miles between them in order to minimize the number of Pacific walruses and polar bears that could be harmed by exploratory drilling activities. Right now, the rigs are proposed to operate simultaneously only nine miles apart. The new requirement aligns with existing regulations under the Marine Mammal Protection Act to protect marine species from harassment and displacement by industrial noise, but poses a significant restriction to Shell because the well sites identified in the company’s drilling plan lie well within 15 miles of each other. As a result, Shell must reassess its plan for simultaneous operations of its two contracted drilling rigs, since only one of its wells can be drilled at a time.  Shell had planned for simultaneous well drilling this summer because such operations can only proceed before sea ice begins to form during the Arctic autumn. Tuesday’s action by FWS halves the rate at which Shell will be allowed to drill its exploratory wells this summer, should it secure its remaining outstanding federal permit for drilling operations from the Bureau of Safety and Environmental Enforcement.

Polar Bears and Walruses Are Spoiling Shell’s Arctic Drilling Plans - Royal Dutch Shell’s Arctic oil exploration plans have been dealt a major blow after the Obama administration cited wildlife protections that prevent the company from drilling two wells into the Chukchi Sea this summer.The US Fish and Wildlife Service issued a letter spelling out details of a 2013 regulation, highlighting that companies could not place two drilling rigs within 15 miles of each other, Reuters reported. This was put in place to protect animals in the area — walruses, polar bears, and other mammals — that are sensitive to the sound of drilling activity. Walruses, for example, are said to plunge into the sea during drilling, endangering the population.The letter forces Shell to reevaluate its intention of using two drills off Alaska, which are currently about nine miles apart. The company hadplans to invest $1 billion in its Arctic project this year, adding to the $6 billion the company has already spent over the past eight years. Shell told Fuel Fix that the company intends to move ahead with its plan: “We are evaluating the letter of authorization issued today and will continue to pursue the 2015 program,” said Shell spokesman Curtis Smith. “That includes drilling in the Chukchi Sea once open water permits.”

Arctic Drilling Future Now Rests On One Well - Royal Dutch Shell is nearing a start to drilling in the Arctic, but has run into some hiccups. The U.S. government decided that Shell cannot actually drill both of its wells in the Chukchi Sea as planned. The Interior Department said that doing so would run afoul of its rules that protect marine life. According to those regulations, which were issued in 2013, exploration companies cannot drill two wells within 15 miles of each other. Shell had planned to drill two wells in the Burger prospect within a 9 mile range. Environmental groups hoped that the Interior Department would throw out Shell’s drilling plan altogether, owing to the fact that the environmental assessment the agency conducted was based on the two-well drilling plan, according to Jennifer Dlouhy of Fuel Fix. Shell reiterated that it would move forward with drilling the lone well in the Arctic this year, having committed around $1 billion for the program. Shell announced that it expects to be able to begin drilling by the third week in July after sea ice has melted sufficiently. Shell is still awaiting one last federal permit before it can begin drilling, and it is also awaiting the arrival of its second drilling rig in Alaska. Separately, several oil companies recently announced that they were putting their Arctic plans on ice. A joint venture between Imperial Oil, ExxonMobil, and BP decided to shelve plans for exploration in the Canadian Arctic. They had permits that will expire in 2019 and 2020, and the group says that they will not be able to drill before then. More research is needed and since the companies are running out of time, they have decided to suspend work and lobby the Canadian government for an extension. Last year Chevron decided to suspend its plans to drill in the Beaufort Sea after the collapse in oil prices made doing so unattractive. The move by Imperial and its partners likely puts any significant drilling in the Canadian Arctic on hold indefinitely. As such, Arctic drilling in North America will come down to Shell’s one well in the Chukchi Sea.

150,000 oil and gas jobs lost worldwide - Since oil prices began their dramatic decline last summer, over 150,000 jobs in the oil and gas industry have been cut across the globe, according to a recent report from oil and gas job services company Swift Worldwide Resources. As reported by Rigzone, the Swift report states that the United States witnessed the “fastest and steepest decline” of oil and gas jobs and that the North Sea offshore market had been “hit hard” as well. Swift CEO Tobias Read noted that while the job cuts are affecting direct employees, contractors are generally the first to be laid off and aren’t accounted for in typical layoff statistics. In the report, Read said, “The contractor market in the oil and gas sector is a huge silent community which comprises upwards of 100,000 professional-grade workers and similar skills.” The report found that in international markets controlled by state-owned oil companies, there has been a significant slowdown of new projects, and more layoffs can be expected. Of these markets, Southeast Asia has yet to be hit with substantial layoffs, but shipyards in Korea, China and Singapore are expected to be impacted. The Middle East has continued on a sustainable path, though job creation has slowed. The majority of cuts made by major operators has been in the upstream sector, but many of the cuts have been “done sympathetically through accelerated early retirement programs.”According to Petro Global News, the continued volatility of oil prices combined with the slide in rig counts has caused oil and gas companies to play it safe and pause hiring plans. A survey conducted by Rigzone showed that 51 percent of hiring managers around the world said they have slowed hiring efforts over the course of the past three months. Another 13 percent of the survey’s participants reported the implementations of hiring freezes during the current quarter.

Far from over: 11,000 jobs on the chopping block -- Even with the promising signs that the oil slump is subsiding, oil and gas workers in Oklahoma may suffer another wave of job cuts by the year’s end. A News on 6 report on Wednesday stated that 11,000 Oklahomans working in the oil and gas industry could lose their jobs by the end of 2015. The economic research company Region Track stated that petroleum producers In Oklahoma will most likely experience a 38 percent cut in revenue this year compared to the record level profits of 2014. Oklahoma has already seen 5,400 jobs slashed due to the crashed price of oil prior to the 11,000 expected. In addition, the state also suffered a rig reduction from the November high of 172 to 105 last week, according to data from Baker Hughes. Large cuts in the energy industry have made news for the first two quarters of 2015. Halliburton cut 9,000 jobs in six months and reported a loss of $643 million in Q1 of 2015. Schlumberger reported even deeper cuts that tallied around 11,000 in efforts to reduce personnel employment 15 percent when compared to the third quarter of 2014. Worldwide, job cuts from the oil bust reached a staggering 150,000 at the end of May, according to energy recruiting firm Swift Worldwide Resources. However, some analysts believe the worst is over, and by the end of the year, the US could see a stout recovery. Analysts tend to agree that a slowdown in non-OPEC production, led by U.S. shale producers, and unrest in the Middle East and North Africa, particularly Iraq, would support prices this year.

The Response Of Employment To Changes In Oil And Gas Exploration And Drilling- Kansas City Fed - During early summer of 2014, oil prices exceeded $100 per barrel, and many industry analysts expected prices to remain at that level for some time. However, oil prices began to decline in July, and were down more than 50 percent by the beginning of 2015. Although the response was delayed by a few months, exploration and drilling for oil and gas dropped significantly, with rig counts down 49 percent by the end of April 2015. Exploration and drilling may decline further depending on when oil prices settle and for how long.  In energy-producing states, exploration and drilling in the oil and gas sector - and economic activity more broadly - are vulnerable to energy price declines, with smaller and less-diversified states expected to be the most exposed. The net effects of price declines are not obvious. When oil prices fall, consumers likely have more money to spend on other goods and services. However, oil- and gas-producing states have a larger share of employment in the oil and gas sector, and falling oil prices can thus directly decrease employment. For example, when energy prices collapsed in 2008-09, employment in energy-producing states fell, partially reversing the strong performance of those states through the early stages of the Great Recession. In subsequent years of the recovery, growth in the global oil supply - mostly from U.S. production - coupled with declining global demand for oil, led to the price of oil falling by over 50 percent in the second half of 2014, with potential negative effects on oil- and gas-producing states.

OilPrice Intelligence Report: Oil Prices Under Pressure From All Sides: The British government led by Prime Minister David Cameron has embraced fracking and shale gas development in a way that much of the rest of Europe has not. With fracking blocked in France, Scotland, Bulgaria, Romania, the Czech Republic, and Germany, among others, the shale gas revolution has not spread to Europe. That left the U.K. as one of the remaining countries that could spark shale development. The setback for Cuadrilla now throws that into doubt. The negotiations over Iran’s nuclear program are coming down to the wire. With the June 30 deadline a few days away, both the U.S. and Iranian diplomats have signaled their willingness to work into the early days of next month in order to complete the historic agreement. There are conflicting signs emerging from talks, however. A senior U.S. official who spoke on the condition of anonymity said on June 25 that a path exists for a “very good” deal with Iran, although some issues have yet to be overcome. The remarks would seem to suggest that the parties are making progress.  However, earlier this week, the Supreme Leader of Iran, Grand Ayatollah Khamenei, dug in deeper with harsh words on the state of the negotiations. He appeared to take a tougher line, demanding the removal of sanctions on the same day that a deal is signed, something that the U.S. would likely balk at. Khamenei also emphasized his opposition to allowing international nuclear inspectors into the country, and said that the decade-long freeze on Iran’s nuclear program was unacceptable. Khamenei’s comments threw cold water on the state of play, and it is hard to see how those demands can be reconciled with the positions of the P5+1 nations.

Oil Markets Offer Few Easy Answers - Atlanta Fed (video) When it comes to energy markets, easy answers are scarce. Did you think oil prices would plummet nearly 60 percent in late 2014 and early 2015? And why have gasoline prices suddenly shot back up this spring? Pump prices could have risen lately for numerous reasons, but no simple answers exist. As for the first question, few experts foresaw such a dramatic drop in oil prices because "it's almost impossible to predict," Laurel Graefe, Atlanta Fed Regional Economic Information Network (REIN) director, said at a May 18 presentation. Speaking at the Atlanta Fed's first ECONversations event held before a live audience, Graefe discussed oil price swings and their effects on the broader economy. A central theme of her remarks: global oil prices are the product of an endlessly complex mix of economic, geopolitical, psychological, and other forces. History clarifies things History, however, brings some clarity. For instance, Graefe described similarities between conditions today and a major oil price decline in 1986. In both cases, she explained, increases in oil supplies were an important factor in pushing down prices. Thirty years ago, energy companies tapped offshore oil fields in Alaska and the North Sea, and Saudi Arabia also increased output. More recently, technological advances such as hydraulic fracturing, or fracking, allowed drillers to reach pockets of oil deep underground in the United States. U.S. oil production soared. The larger supply, coupled with lower demand because of global economic weakness, helped lower oil prices, Graefe said.

Oil prices settle into new equilibrium: Kemp -- Benchmark crude oil prices have barely moved for more than two months, implying the market has found a temporary equilibrium after the enormous price shock in the second half of 2014 and early 2015. Over the last 30 trading days, the range between the highest and lowest closing prices for front-month Brent futures has been just $4.50 per barrel. The highest close for the front-month futures contract was at $66.54 per barrel (May 21) and the lowest was $62.01 (June 29). The trading range is the smallest since the shock began in June 2014, and down from a peak of almost $40 per barrel in early January 2015. In dollars per barrel, the range has been narrow by the standard of the last decade. Even in percentage terms, which allow for differences in outright prices, the market has been quiet. The trading range has been around 7 percent over the last 30 days, down from almost 40 percent at the start of 2015. The price stabilization implies the market believes $60-65 per barrel will gradually bring supply and demand back into balance, which seems sensible. The low variability in prices is also helping anchor short- and medium-term expectations for producers and consumers at around the current level.

Chart of the day: US oil output increased to a 44-year high in April, just slightly below November 1970 peak -- The Energy Information Administration released monthly oil production today for April and here are some of the highlights of that report:

  • 1. Despite low oil prices that averaged $54.45 per barrel in April, US oil production topped 9.7 million barrels per day (bpd) in April and reached the highest level of domestic crude oil output in 44 years, going back to April 1971 (see chart above).
  • 2. US monthly oil output has been higher than April’s daily average of 9.701 million barrels in only seven other months, all in late 1970 and early 1971, placing April of this year as the 8th highest month of oil production in US history.
  • 3. The all-time peak monthly US oil production took place in November 1970, when output averaged 10.044 million barrels per day. April’s daily production average of slightly more than 9.7 million barrels is just 343,000 barrels (and 3.4%) below US peak oil production.
  • 4. Note in the chart that there was a gradual, four-decade decline in US crude oil that took place between the early 1970s and about 2009, and during that time domestic production fell roughly in half, from 10 million bpd in 1971 to only about  5 million bpd in 2009. Thanks to the shale revolution, America’s oil production is now almost back to the 1970 peak level of 10 million bpd, and it only took a little more than six years for the bonanza of shale oil to almost completely reverse the 40-year decline!

EIA Data Still Doesn’t Add Up -- As initially pointed out by Peakoilbarrel.com in a recent article, discrepancies between actual data for oil production in Texas vs. what the EIA claims are so stark it’s almost scary. How this can be overlooked by the mainstream media as well as by most of the broker community is even more alarming. Further, how the U.S. oil industry fails to catch it and question it given that their livelihood is tied to it is even scarier. Using the data plotted on the Texas RRC website, combined with the knowledge that Bakken production has been flat to declining, makes us wonder how in the world the EIA can not only restate monthly production higher recently, starting in March, but expect over a 700,000 barrels per day (B/D) overall increase for 2015. Using the IEA's own data off their website on page 7 of their June monthly report, in Texas they expect a 2015 increase of 400,000 B/D (3592 vs. 3164 in table below) alone. Historical data through May shows production essentially flat from March to May ( 3675 vs.3609) as well as in 1Q15 to 2Q15 (3614 vs. 3602).  The EIA's data below shows a ramp of 200,000 per day from Dec to April with a slight decline latest month which is even worse.EIA Texas Production (thousands of barrels per day)  Comparing these figures with Texas RRC figures off their website, the differences are startling. First, the chart below clearly shows the trend through 4/1/15 as being flat to down, as production nosedived in April by nearly 15 percent, compared with the previous month, and 15 percent from end of 2014.Yes, these numbers bounce around but, plotting the monthly data below, the trend is clearly down, not up. So the first question is: what prompted the EIA to boost expectations recently, starting in March, when the data is clearly flat in the largest region of EIA growth expectations?

U.S. crude oil stockpiles rise for first time since April - EIA – U.S. crude oil inventories rose last week for the first time since April, while gasoline stocks decreased unexpectedly, data from the Energy Information Administration (EIA) showed on Wednesday. Crude inventories rose 2.4 million barrels to 465.4 million in the week to June 26, compared with analysts’ expectations for a decrease of 2 million barrels. U.S. crude imports rose last week by 748,000 barrels per day to 6.94 million bpd. A rise in imports after Tropical Storm Bill disrupted Houston-area shipping the previous week had been expected by some analysts and EIA data showed crude stockpiles in the Gulf Coast region rose 3.9 million last week. “The crude build was definitely a surprise as was the Cushing build,” “The gasoline draw implies demand has picked up, so it presents a mixed set of numbers.” Crude stocks at the Cushing, Oklahoma, delivery hub rose by 123,000 barrels, EIA said.  Crude futures initially extended losses after the EIA data. U.S. August crude was down $1.62 at $57.85 a barrel at 11:07 a.m. EDT (1507 GMT), having traded from $57.73 to $58.98. Brent August crude was down $1.09 at $62.50, having swung from $62.34 to $63.35. Refinery crude runs fell by 1,000 bpd, EIA data showed. Refinery utilization rates rose 1 percentage point to 95 percent of capacity.

Crude Crashes To $56 Handle - 10-Week Lows -- Following today's record production and renewed inventory build, it appears the $57 to $62 range of the last 3 months is about to be tested ... especially as Kerry et al. assure the world an Iran deal is "very very close" and they are working "very very hard." WTI (Aug) is now trading with a $56 handle - its weakest since mid-April...Charts: Bloomberg

U.S. oil rig count rises for first time since December - U.S. oil drilling this week increased for the first time after 29 weeks of declines, data showed on Thursday, the strongest sign yet that higher crude prices are coaxing producers back to the well pad. The oil rig count rise of 12 to 640 followed a six-month slump in activity that reduced the number of active rigs from a peak of 1,609 in October to a nearly five-year low last week, energy services firm Baker Hughes Inc said in its closely followed report. Baker Hughes issued the report a day early this week due to the U.S. Fourth of July holiday on Friday. Experts had expected the rig count to bottom out soon and then rise later in the year. “We believe about 100 rigs could be added to the U.S. rig count between now and year-end,” analysts at Evercore ISI, a banking advisory firm, said in a report this week, noting “The bottom is passing and the upturn is arriving.”

U.S. oil rig count jumps up by a dozen, the first increase in 2015 -  The amount of U.S. rigs drilling for oil increased for the first time this year after 29 consecutive weeks of declines. The number of actively drilling oil rigs jumped by 12 this week after several weeks of small decreases, which had indicated the streak of rigs being taken offline was nearing its end. The overall rig count, however, only grew by three rigs, because nine rigs drilling mostly for gas were taken out of service, according to data from oil services provider Baker Hughes. That is a switch from last week when three oil rigs were lost, but the gas-focused rigs increased by five. There were no major shifts in certain parts of the country. The rig count increased by three in Texas’ Eagle Ford Shale and grew by just one in the Permian Basin, according to the Baker Hughes count. The first increase in oil rigs this year comes in the same week that oil prices took their biggest single-day dip in two months on Wednesday, in response to increased U.S. inventories and another production hike from members of the Organization of the Petroleum Exporting Countries. The U.S. benchmark for oil had hovered around $60 a barrel since late April, but closed Wednesday at $56.96 per barrel, the contract’s lowest price since April 22 and its largest loss since a rout April 8 removed $3.56 per barrel.As for the rig count, the total U.S. count is at 862 this week, according to Baker Hughes, while the oil rigs count jumped to 640 rigs. The number of active oil rigs has still plummeted by 969 rigs since the peak of 1,609 in October.

The Current Oil Price Slump Is Far From Over -- The oil price collapse of 2014-2015 began one year ago this month (Figure 1).  The world crossed a boundary in which prices are not only lower now but will probably remain lower for some time. It represents a phase change like when water turns into ice: the composition is the same as before but the physical state and governing laws are different.*  For oil prices, the phase change was caused mostly by the growth of a new source of supply from unconventional, expensive oil. Expensive oil made sense only because of the longest period ever of high oil prices in real dollars from late 2010 until mid-2014.  The phase change occurred also because of a profoundly weakened global economy and lower demand growth for oil.  Monetary policies following the 2008 Collapse produced the longest period of sustained low interest rates in recent history. As a result, capital flowed into the development and over-production of marginally profitable unconventional oil because of high coupon yields compared with other investments.  Prolonged high oil prices caused demand destruction. This also allowed the expansion of renewable energy that could compete only at high energy costs. Concerns about global climate change and its relationship to burning oil and other fossil energy threatened the future interests of conventional oil-exporting countries. OPEC hopes to regain market share from expensive unconventional oil and renewable energy, and to renew demand for oil through several years of low oil prices.  Oil prices must inevitably rise as unconventional production peaks over the next decade and oil-exporting countries increasingly consume more of their own oil. Politically driven supply interruptions will inevitably punctuate the emerging new reality with periods of higher prices.For now, however, we have crossed a boundary and notions of normal or business-as-usual should be put aside.

OilPrice Intelligence Report: Bearish Signs For Oil From Europe: Each week we look at the level of crude oil located in U.S. storage tanks around the country, which offers a glimpse into the inner workings of production and consumption levels. After peaking earlier this spring, U.S. crude inventories have undergone successive weeks of drawdowns, indicating slowing production and higher demand from consumers. In Europe, however, the story is different. Crude storage is reaching a multi-year high at the trading hub of Amsterdam-Rotterdam-Antwerp, known as ARA. In fact, storage levels have spiked since the beginning of the year to 60.6 million barrels in June. European storage is growing so rapidly because a lot of oil coming from Africa is having trouble finding interested buyers, forcing it into storage. Growing storage levels in the U.S. pushed down oil prices earlier this year, and the same could hold true for European storage. That points to a persistent glut in global oil markets, with production exceeding demand by around 2 million barrels per day according to IEA estimates. Even if some of that supply can get soaked up by extra demand, there is a lot of oil sitting idle in tanks right now. That means oil prices likely won’t jump in the near term because the markets will need to work through the excess sitting in storage first. While inventories are drawing down in the U.S., a group of companies are proposing increased storage along the U.S. Gulf Coast. Magellan Midstream Partners and LBC Tank Terminals are proposing a $95 million oil storage facility near Houston. The facility would be able to hold around 700,000 barrels of crude and would be connected to existing distribution infrastructure. If it moves forward, the site could be completed by 2017. Magellan’s project would greatly expand storage along the Gulf Coast, helping refiners access and store product.

OilPrice Intelligence Report: Top 4 Reasons Oil Is Headed Back Down -- The big news from the U.S. this week was new data that showed that the weekly rig count…actually increased. That’s right, after 29 consecutive weeks of rig count declines, the industry may have finally hit bottom and could be on its way back. For the first time in seven months the U.S. saw additional rigs added into operations. Baker Hughes reported that an additional 12 oil rigs came into service for the week ending on July 2, although natural gas rigs declined by 9, for a net gain of 3 rigs. The data is evidence of ongoing efficiency gains and resilience on behalf of shale drillers. Despite oil prices still 40 percent lower than they were a year ago, many companies are still drilling.  The positive rig count figures add more softness to the markets, as it signals a possible return of new drilling while the global glut in oil has yet to substantially subside. Then again, there were plenty of other reasons to feel pretty pessimistic this week about oil prices. Astonishingly, the Greek debt crisis has continued to drag on, surprising many that the parties involved were unable to come to terms despite Greece’s default on IMF payment and the government’s decision to call for the closure of banks and the stock market. The past week also saw gyrating fluctuations in the two main stock market exchanges in China. The Shenzhen Composite and the Shanghai Composite have skyrocketed over the past year, perhaps too far and too fast. By June, cracks finally started to form. Over the past week the two exchanges have lost nearly 30 percent and 25 percent of their values, respectively. Moving onto another developing story that could have negative consequences for oil markets – the Iran negotiations. There is still quite a bit of disagreement over how fast Iran can bring oil back online, but the Wall Street Journal reported that Iran has put together an armada of oil supertankers and it is ready to resume trade with the West if a deal is sealed. NITC, a private Iranian shipper, revealed that it has stitched together a fleet of 42 supertankers over the last few years, the largest fleet in the world.

US overtakes Russia as top oil and gas producer, report says -- The United States has overtaken Russia as the biggest oil and natural gas producer in the world, in what one economist has described as “a changing of the guard of global energy suppliers." Bloomberg reported Wednesday that U.S. oil production rose to a record 1.6 million barrels a day last year, according to BP’s Statistical Review of World Energy. Natural gas output also soared, which inched America ahead of Russia as a producer of the two combined. “We are truly witnessing a changing of the guard of global energy suppliers,” BP Chief Economist Spencer Dale said in a presentation on the data Wednesday, Bloomberg reported. “The implications of the shale revolution for the U.S. are profound.” The BP report also shows China’s energy demand is growing at the slowest pace since the Asian Financial Crisis in the 1990s as the communist nation suffers a slowing of its economy and tries to reduce its reliance on heavy industry, Bloomberg reported. In the United States, the report finds that the oil and gas boom has changed the economy, allowing manufacturing to return as the country produced about 90 percent of the energy it consumed last year.

The newest US export may leave Russia with excess gas - Excess shale gas from U.S. fields is poised to flood into Europe and ruin Putin’s day.  Vladimir Putin has been having an iffy year. His not-so-secret military adventure in Ukraine has gotten bogged down in an ugly stalemate. Thanks to Western sanctions and falling oil prices, the Russian economy is tanking. And now there's a new conundrum for the shirtless wonder to tackle — one that's trapped in subterranean rock formations along the Eastern U.S.  What's trapped there is a bunch of natural gas, which, thanks to fracking, has created an unprecedented boom in America's gas supplies. Now some of the excess may for the first time be heading to Europe, where Russia has been a dominant supplier. (Insert GIF of Putin cursing, "Oh, frack.") Experts say cheap U.S. supplies could undercut Russian gas in price by as much as 40 percent, hitting Russia's treasury while also stiffening Europe's backbone should Russia ever threaten to cut off its gas.  Indeed, there's enough gas getting fracked to shift the balance of power, potentially restoring some U.S. clout over global energy prices with geopolitical impact. American influence likely won't be huge, but even the ability to nudge natural-gas markets would be a big step away from decades of learned energy helplessness. Already, with its shale fields doing so strongly, the U.S. has enough gas to supply Canada and Mexico via pipelines. Liquefied natural gas, or LNG, exports from both the U.S. and Australia will produce a gas glut by 2020 if current projections hold — possibly even sooner. Russia, meanwhile, faces erosion of its stealth gas monopoly in Europe, having inadvertently set the stage for its own comeuppance the way monopolists often do. Its state-owned gas behemoth Gazprom has long asked for top dollar in the form of gas contracts linked to oil prices, opening the door for potentially cheaper LNG. And Europe — spooked by the war in Ukraine and its reliance on Russian gas — has been getting ready to handle more LNG imports. "Russia will not want [a price war], but it's inevitable,"

OPEC: Global market share hits 12-year low - Thanks to U.S. shale oil output, the Organization of Petroleum Exporting Countries’ share of the global crude market has hit a low not seen for over a decade, reports Bloomberg News. The organization’s global oil market share in 2014 dropped to 41.8 percent, down from 43.3 percent seen the year prior, according to OPEC’s Annual Statistical Bulletin. The downward slide is the lowest crude market share OPEC has seen since 2003. Of the total output reduction, Libya was responsible for over half. Production growth in U.S. shale oil fields resulted in OPEC ditching its long-held position of balancing world market prices last November. Rather, following Saudi Arabia’s lead, the group opted to maintain output levels, placing pressure on companies with high operating costs  to cut production levels as the global supply glut grew. Last year the group’s 12 member countries combined produced 30.68 million barrels per day. Saxo Bank A/S analyst Ole Sloth Hansen told Bloomberg, “The OPEC policy is probably the only option they have. U.S. shale is now the swing producer.” Last year, OPEC members completed the most wells since 2008, and the increase from 2013 was the largest in 10 years in terms of percentage. But fighting in Libya, between the state government and an Islamist-backed regime, drastically reduced the nation’s output and consequently, overall OPEC output. Due to the persisting conflict Lybia’s production dropped 52 percent, down to 480,000 barrels per day, causing oil revenue to decline 66 percent from the previous year. According to the OPEC bulletin, OPEC members’ combined sales last year tallied in at $964.64 billion, a 13 percent decline. The group’s exports to Asia also declined last year by 541,000 barrels per day and shipments to North America dropped by 312,000 barrels a day. Iranian crude sales to Europe and Asia also declined due to international sanctions, dropping by 8.7 percent. To read OPEC’s Annual Statistical Bulletin, click here.

Have the Saudis miscalculated the impact of lower prices on US production? -- In 2014 the Saudis could no longer accept the loss of crude oil market share as the North American production levels shot up sharply over a three-year period. The Saudi response was quite rational. Rather than cutting production to support crude oil prices, the Saudis announced that production will remain the same. In private they were planning to actually increase production in order to meet rising domestic demand as well as to regain market share. The idea was to put a squeeze on the high-cost North American oil firms, halting production growth and ultimately getting prices back into a more profitable range. Other OPEC nations reluctantly agreed to play along.  CNN (November, 2014): - One motivation is to squeeze higher-cost producers in North America, including the booming U.S. shale industry that has reshaped the global energy landscape.  OPEC is betting lower oil prices will force U.S. producers to throw up the white flag and cut back on production because they won't be able to turn a profit. "The gauntlet has been thrown down for Western Hemisphere producers like Brazil, Canada and the United States,"  So far the results have been less than what the Saudis had hoped for. After a bounce from the lows, crude oil has been trading in a relatively tight range, with WTI futures fluctuating around $60/bbl.  How is this price stability possible when the common wisdom was that oil prices below $70/bbl will force most US producers to close shop and North American production would collapse? After all we've seen a spectacular decline in active oil rig count. The answer has less to do with rigs that have been taken offline and more with the technology that remains. In fact after the inefficient rigs have been shut, US rig count is starting to stabilize.The remaining equipment is achieving record efficiency levels. The charts below show new-well oil production per rig. From multi-well padding (multiple wells in a single location) to superior drill bits, technology is helping to keep production levels high. Well completion costs and the speed of drilling have improved to levels many thought were not possible. With the inefficient rigs mothballed, the remaining capacity it now quite lean. It seems that $60/bbl can now sustain a good portion of current production capacity and even turn a profit.

OPEC oil output hits 3-year high in June on Iraq -Reuters survey - – OPEC oil supply in June has climbed to a three-year high due to record or near-record output from Iraq and Saudi Arabia, a Reuters survey found, underlining the focus of the group’s top exporters on market share. The boost from the Organization of the Petroleum Exporting Countries puts output further above its target of 30 million barrels per day (bpd) and comes despite outages in Libya and Nigeria that curbed supplies. OPEC supply has risen in June to 31.60 million bpd from a revised 31.30 million bpd in May, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. The group has raised output by more than 1.3 million bpd since it decided in November 2014 to defend market share rather than prices. A final deal between world powers and Iran over Tehran’s nuclear work could add to supplies. “If sanctions were to be eased, additional oil from Iran would flood onto the already oversupplied oil market,”

Is Saudi Arabia Leaving The U.S. Behind For Russia? -- The news from the recent St. Petersburg Economic Forum, which took place from June 18 to 20, inspired a torrent of speculation on the future direction of energy prices.   But the real buzz at the conference was the unexpected but much publicized visit of the Saudi Deputy Crown Prince, as an emissary of the King. The Prince, who is also his country’s Defense Minister, carried the royal message of a direct invitation to President Putin to visit the King, which was immediately accepted and reciprocated, with the Prince accepting on behalf of his father.  It would be news enough that the unusually high level delegation from a long-time ally and protectorate of the U.S., like Saudi Arabia, was visiting a Russian sponsored economic conference, in a country sanctioned by the U.S. Some saw this well publicized meeting as the first sign of an emerging partnership between the two greatest global oil producers. If the warmth of the meeting was any evidence, it seems likely that Russia, a non-OPEC producer, might come a lot closer to the fold. That could mean that, at the very least, Russia would have a voice in the cartel’s policy decisions on production. And if so, it would be a voice on the side of stable but rising prices.

As Saudis Keep Pumping, Thirst for Domestic Oil Swells - WSJ: —Saudi Arabia is poised to break records for oil production this summer, analysts said, as domestic-energy needs soar during its scorching summer and the holy month of Ramadan and threaten its ability to ramp up exports. Saudi Arabia has said it produced a near-record 10.3 million barrels a day in May, a mark that industry observers said could increase to 11 million barrels this summer as air-conditioning use increases with temperatures reaching 110 degrees Fahrenheit. The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration. Most of its oil is exported. For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country’s crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom’s population has increased 17% since 2005, faster than most developed countries. At this pace, the kingdom would have to start importing oil by 2030, Citigroup Inc. C -0.56 % has predicted, a once unthinkable prospect for the linchpin of the world’s oil market. Khalid al-Falih, the current chairman and former chief executive of the kingdom’s state-owned oil company, Saudi Arabian Oil Co., known as Saudi Aramco, said in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030. Other analysts are doubtful Saudi Arabia would need to import oil. But in a country where subsidized crude still powers most homes and businesses, and a gallon of gasoline costs less than a bottle of water, Saudi Arabia’s ravenous energy appetite is starting to strain the kingdom’s oil infrastructure and hamper its capability to throttle up exports. In order to tap into reserves, the kingdom will need to extract more heavy crude, which requires large investments to sustain.

POLL-Iran oil exports could jump by 60 pct in a year - Iran will increase its oil exports by up to 60 percent within a year if it can agree a nuclear deal with world powers bringing an end to sanctions, a Reuters survey of analysts said on Wednesday. A poll of 25 oil analysts from leading banks and brokerages forecast Iran would be able to raise crude oil output by between 250,000 and 500,000 barrels per day (bpd) by the end of this year and boost sales abroad by up to 750,000 bpd by mid-2016. That would push the Islamic Republic’s total crude oil output to around 3.6 million bpd, its highest for four years, and would inflate Iranian exports by around 60 percent at a time when world markets are already likely to be oversupplied. But the Reuters survey said it would take time for Tehran to raise output as nuclear inspectors verified Iran’s compliance with the terms of any deal and sanctions were removed slowly. “It will take a few months before Iran can start to export at full blast,” said Swiss energy markets analyst Olivier Jakob.

Oil Faces Steep Downside Risk From China’s Stock Market  -  Oil markets face a lot of downside risk – high crude oil inventories in both the U.S. and Europe, resilient production from U.S. shale, increasing output from OPEC, a nuclear deal with Iran, the turmoil in Greece – but one has not yet percolated through the markets just yet: the possibility of economic cracks in China, the largest oil importer in the world. China’s economic growth has been cooling in recent years, with 2014 marking its slowest GDP growth rate in a quarter century. But that doesn’t signal anything is amiss. It is entirely unsurprising that the world’s second largest economy cannot keep up such a blistering rate of expansion. However, deeper warning signs are starting to emerge. Part of that has to do with the extraordinary run up in China’s stock market over the past year, which is increasingly looking like a bubble starting to pop. The Shanghai Composite, an index of all stocks traded on the Shanghai Stock Exchange, had spiked by 40 percent so far this year and has doubled from mid-2014, and the Shenzhen Composite surged by a jaw dropping 90 percent since the beginning of 2015. But the retreat could be on. China’s Shanghai Composite has plummeted over the past two weeks, falling around 25 percent. Fears that the bubble is popping appear to be spreading. Since June 12, the two exchanges have seen $2 trillion in market capitalization go up in smoke.  What happens next is unclear, but if China leans more towards a “hard” rather than “soft landing,” that would have negative repercussions for energy markets. Dangers from China’s volatile stock market come on top of some warning signs about Chinese energy demand. A new report from the Australian government raises concerns over China’s tepid demand for LNG, of which Australia is one of the world’s top producers. China’s LNG consumption was expected to grow by more than 50 percent between 2014 and 2016, but “downside risks appear to be growing,” the report finds.

China Cuts Interest Rates After Market Plunge - Acting a day after the Shanghai and Shenzhen stock markets plunged more than 7 percent, China’s central bank cut interest rates on Saturday and reduced the reserves that certain banks must hold.The two measures send a signal that the government may not be eager to see an abrupt end to a stock market rally that has seen prices more than double in the last 12 months. The rally has been underpinned by speculative trading heavily financed with borrowed money. Young, often poorly educated investors have been betting on further appreciation even as business managers, with more information on the true health of their companies, have reportedly been selling heavily.“We think today’s move is mainly driven by the government desire to support a bull market,” Lan Shen and Shuang Ding, two economists at Standard Chartered, said in a statement on Saturday evening.Keeping the stock market buoyant, through measures like the interest rate cut, could help the Chinese government sell part of its stakes in government-owned enterprises that have incurred huge debts.Previous sharp drops in the stock markets this year have been quickly countered by optimistic statements in state-controlled media. But Saturday’s moves, which included the fourth reduction in interest rates since last November, were unusual in so closely following a stock market nose-dive.

China's $370 Billion Margin Call - China’s stock markets tumbled on Friday to near bear territory further deepening the sell-off that started two weeks ago.  The Shanghai Composite, down 7.4% on the day, has fallen 19% from its June 12 high wiping out $1.25 trillion in market cap. The smaller Shenzhen and ChiNet indices also has plunged 20% from its recent peak. Even with recent declines, the Shanghai Composite Index has surged nearly 30% year-to-date. Authorities have allowed local investors to borrow tons of money from brokers to speculate in the stock market (i.e., Margin Lending), while the central bank PBOC has cut interest rates three times since November. Beijing also introduced new easing measures in the past couple of days: a proposal to remove a cap on banks’ loan-to-deposit ratio and injecting cash into the financial system. Margin Debt Soared to $370 Billion Investors have poured into the market, opening 33 million new brokerage accounts between the start of January and the end of May. According to Macquarie Research, Chinese margin debt has risen 123% year-to-date, reaching a new record of 2.3 trillion yuan ($370 billion) on June 18. Margin debt in China has reached 8.5% of the value of China’s tradable shares (For comparison purpose, that ratio was only at 4.6% during the peak of the Taiwan Stock Market Bubble back in the late 80's).

China’s Slowdown is of Greater Consequence than Greece’s Debt - Greece’s looming debt default has become the focal point for market angst in the past few days. Perhaps investors should be paying more attention to China, where the People’s Bank of China is trying to tame an increasingly volatile stock market and a deepening economic slowdown with ever-easier monetary policy. Tuesday was another roller-coaster ride for Chinese stocks. The Shanghai Composite Index closed up 5.5%, after falling more than 5%. It is down 17% from a June 12 high but has doubled over the past year. This is like the Dow Jones Industrial average veering between 17,000 and 18,900 in a single day and falling to less than 15000 after shooting up from 9000. Greece – slow growing, uncompetitive in many industries and burdened by unmanageable government debts – is in far worse economic condition than China. But the stakes in China’s economic slowdown are greater for the globe, the unknowns greater and at this point the prospect for market misjudgments potentially wider than in Greece. China is the world’s second largest economy. Its output of goods and services in U.S. dollar terms is projected by the International Monetary Fund to reach $11.2 trillion in 2015, compared to $207 billion for Greece. You could fit 54 Greek economies into one of China’s. A two percentage point slowdown in Chinese growth is equivalent to Greece’s economy coming to a complete stop and producing nothing at all. Investors and European authorities have had half a decade to prepare for Greece’s default, size up the problem, insulate other European economies from it and plan for different scenarios. Along the way, the market’s reservoir of faith in the capacity of Greek officials to manage the nation’s debt overhang has dried up. That means the probability of a downside surprise is diminished.

Double bubble trouble in China - The deleveraging of the Chinese economy has always seemed likely to be a long and troublesome saga, lasting many years or even decades if it is to prove successful. The latest episode involves a sudden collapse in domestic “A” shares, which have dropped by 19 per cent in less than a fortnight, and have triggered what has been widely described as an “emergency” easing in monetary policy this weekend.  The dramatic nature of the setback in share prices in the past two weeks is shown in two red bars (or “candles”) on the right of the first graph. As often occurs during a bubble, volatility has increased sharply as the Bollinger bands have widened, and many recent entrants to the market will have been severely hurt.  The story is far from over: bubbles often last for two or three years, and we cannot rule out the possibility that new highs will be seen in coming months. What we can say, however, is that market volatility is likely to stay dangerously high for quite a while, making this a very speculative market for Chinese residents to enter.  Even after the latest crash, the domestic equity market has still more than doubled in the past 12 months. So far, this has had very little effect on the wider economy, which suggests that the crash could prove to be nothing more than a market event that will not translate into consumer spending or bank lending. However, the fact that the central bank has responded immediately to the crash with a decisive monetary policy shift suggests that the authorities are genuinely concerned. What is more worrying is that China is now faced with the fall-out from three inter-connected problems: an equity bubble, a major top in property markets, and a credit explosion that has weakened the banking sector [1]. New research clearly establishes that this unholy trinity has resulted in a particularly bad outcome for many economies in the past 120 years of global economic history.

China's "E*trade Babies" Wiped Out In Market Crash -- What do you get when a bursting equity bubble meets 5X leverage, structured finance, semi-literate banana vendors, and fund "managers" with less than one year of experience? Harrowing margin calls, panic selling, and, in the end, massive losses.  As WSJ reports, the relentless, limit-down trading in Chinese stocks that unfolded last week and continued into Monday (despite the PBoC's best efforts to arrest the slide with an emergency rate cut) has wreaked havoc on China's rookie money managers and their unsuspecting clients with losses amounting to as much as 80% in some structured funds. In China’s market bust, rookie fund managers and their investors are among the biggest losers. The 10 worst-performing funds the past month are so-called structured funds, which are essentially leverage plays tracking some indexes, according to Howbuy.com, a Chinese fund tracker. The three worst performers fell by an average of 77% during the period. Those funds were all led by professionals with less than a year of fund-management experience, according to details on Howbuy.com.

Panic sets in as Shanghai Composite drops 30pc, $3.7 trillion wiped of China share market despite crackdown - ABC News (Australian Broadcasting Corporation): Panic has set in on China's share markets as traders call in investors' margins loans. The main index, the Shanghai Composite, has plunged by 30 per cent since its peak in the middle of June, the biggest three-week fall in more than 20 years. The value of Chinese stocks has plunged by at least $US2.8 trillion ($3.7 trillion). A new crackdown on market manipulation and mis-selling of investment products by the securities regulator has failed to stop the falls. That has prompted fears of a share market crash in China but analysts in Australia are playing down the risks. The Shanghai Composite Index has dropped by a third since the middle of June after rising around 150 per cent over the past year. It plunged by nearly 6 per cent on Friday in another volatile day of trade.

China factory activity contracts in June but at slower pace: HSBC/Markit PMI -  China’s factory activity contracted for the fourth straight month in June but at a slower pace than in May, offering some signs that the world's second-largest economy may be slowly leveling out but is still in need of more support measures. The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) edged up to 49.4 from 49.2 in May, but it was below a preliminary reading of 49.6, and remained under the 50 mark which separates contraction from expansion. After three months of falls, new orders returned to positive territory, but only just with a reading of 50.3, while new export orders also picked up from May. But factories were forced to discount prices for their products at a faster rate as demand remained sluggish, and firms cut staff levels at the sharpest pace since February 2009. “The final reading of the HSBC China Manufacturing PMI pointed to a further decline in the health of the manufacturing sector in June," said Annabel Fiddes, an economist at Markit. “On the upside, there were some signs of improvement in total new orders and new export business, suggesting demand both at home and abroad is reviving. However, it is likely that more stimulus measures will be required to ensure that the sector can regain growth momentum and to encourage job creation.”

China June factory, services surveys fuel hopes economy leveling out | Reuters: Activity in China's factory sector expanded slightly in June though not as much as expected, while growth in the services sector sped up, official surveys showed, offering some signs that the world's second-largest economy may be starting to slowly level out after a raft of support measures. Beijing has rolled out a flurry of steps since last year, including interest rate cuts and more infrastructure spending, but analysts remain wary about the outlook given the still-weak property market, erratic global demand for China's exports and fears of a collapse in its wild stock market. The government is due to release second-quarter gross domestic product data on July 15 and many economists expect growth to dip below 7 percent, which would be the weakest performance since the global financial crisis. "In general, the softness in the manufacturing sector remains, requiring more policy recalibration", Liu Li-Gang and Zhou Hao at ANZ said in a research note. "Looking ahead, as real interest rates faced by Chinese companies remain elevated, we see that further monetary easing is still highly needed". With demand weak at home and abroad, factory growth remained tepid, with the reading just above the 50 point level that separates contraction from expansion on a monthly basis. The official Purchasing Managers' Index (PMI) stood at 50.2 in June, unchanged from the previous month's reading, the National Bureau of Statistics. Analysts polled by Reuters had predicted it would edge up to 50.3.

Japan industrial output falls more than forecast - --Japanese industrial production fell 2.2% in May from the previous month, the Ministry of Economy, Trade and Industry said Monday, as slowing exports took the wind out of the sails of Japan's manufacturing industry. The fall was larger than a decline of 0.8% expected by economists surveyed by The Wall Street Journal and the Nikkei. The sluggish output figures for May came after data on consumption, inflation and employment showed Friday that the economy is growing in fits and starts after a recession last year. Also raising economists' concerns are the recent deceleration in exports, as economic growth loses momentum right across Asia, including China, Korea, Indonesia and Thailand. The extent of deceleration has been magnified by the fact that exports were strong last year on the back of global demand for Apple's iPhone 6. Many Japanese companies supply key components for the popular smartphone. According to a survey by the ministry, output is expected to rise 1.5% in June and then increase 0.6% in July. METI cut its assessment of domestic production, saying output is see-sawing.

Monetary base up 5.7 % in June - The monetary base at the end of June expanded 5.7 percent from a month before to ¥325.0477 trillion, hitting a record high for the 11th consecutive month, the Bank of Japan said Thursday. The monetary base, or the balance of currency in circulation and commercial financial institutions’ current account deposits at the BOJ, has been on the increase under the central bank’s continued monetary easing. The month-end figure was up 33.5 percent year on year. Of the total, current account deposits rose 7.8 percent from a month before to ¥229.8404 trillion, while bank notes in circulation grew 0.9 percent to ¥90.5832 trillion. For the whole of June, the monetary base averaged ¥313.0770 trillion, up 34.2 percent from a year before.

S.Korea exports fall for 6th month, govt stimulus looms (Reuters) - South Korean exports declined for a sixth straight month in June, keeping policymakers under pressure as they sought to inject billions of dollars of fresh stimulus into an economy reeling from a one-two punch of weak domestic and global demand. Exports fell 1.8 percent in June from a year earlier while imports tumbled 13.6 percent, the trade ministry data showed on Wednesday. As a result, the trade surplus nearly doubled to a record $10.2 billion from $5.4 billion a year before. The export performance was in line with the market's expectations and better than a 10.9 percent fall in May, but the value per working day was down a sharper 12.3 percent in June on-year. A survey by Markit Economics also showed on Wednesday new export orders that South Korean manufacturers received during June fell for a fourth consecutive month. "We'll keep seeing falls in exports throughout the third quarter which will be inevitable due to the debt crisis in Greece and sluggishness in China," said Park Sang-hyun, chief economist at HI Investment & Securities. For the three months to June, exports fell 6.9 percent on-year - the worst decline since the third quarter of 2009. Adding to the gloomy external picture, the outbreak of the deadly Middle East Respirator Syndrome has dented domestic demand and put more strain on a shaky economy.

So-called ‘free trade’ agreements should be strongly opposed | Bill Mitchell – billy blog: One of the more startling attempts to undermine the capacity of elected states to deliver on their mandate to their electorates and hand over almost absolute power over the state to international corporations is the so-called Trans-Pacific Partnership (TPP). The TPP is being pushed under smokescreen of ‘free trade’, which is one of those classic neo-liberal con jobs like deregulation, privatisation, public-private partnerships and other ruses that imply that self-regulating private markets will deliver maximum wealth growth to all. The corollary, of course, is that the state should remove the fetters of regulation on business, minimise its own economic footprint, and allow the corporate world to do what it does best – help us all. The narrative is so obviously bereft that it hardly seems worth criticising any more. If the GFC proved anything it showed categorically that self-regulating private markets do not function efficiently and do not providing lasting benefits to us all. We knew that already – the history of privatisation, outsourcing and the rest of the scams is littered with disasters, which are usually conveniently covered over with some gloss or another. But the GFC brought it home in an undeniable fashion just as Greece – sorry for them – have been the most overt laboratory for the failures of fiscal austerity and the easy sounding but evil in practice ‘growth friendly structural reforms’ (aka hack as many public benefits from ordinary citizens and transfer as much national income to the rich).  The governments involved plead “commercial-in-confidence” as their reason for preventing a full public debate on the proposed TPP. They hide the negotiating details from us and then tell us that it is in our best interests for them to urgently sign of on it without the normal political oversight.

TPP could force Australia to American-style health system: Few Australians would see America's healthcare system as one we'd choose to emulate. But obligations we acquire via the Trans Pacific Partnership Agreement could drive us inexorably towards the US model. And on Wednesday, the US Congress granted President Obama "fast track" negotiating authority – so the conclusion of the TPP is now in sight. In the US, healthcare costs more, per person, than anywhere else in the world. In 2013 it accounted for more than 17 per cent of GDP, close to double Australia's 9.0 per cent. And America spent a staggering $US5,149 more per person than Australia – more than twice our per capita expenditure. Spending a lot doesn't always deliver results. In the US, many health dollars are wasted on the administrative overheads that come with multiple for-profit insurance providers, or on unnecessary high tech diagnostics and treatments. They bolster the bottom lines of manufacturers, insurers, physicians and hospitals. And with virtually no constraints on prices, high out-of-pocket costs for patients are the norm. Paying a lot of money doesn't mean better access to care, either. Despite the tremendous expenditure, there are massive inequalities in access to health care services in the US. While the number of Americans without health insurance has significantly declined with the advent of 'Obamacare', as many as 31 million people remain underinsured. In fact, the values driving US healthcare seem the very antithesis of those that underpin ours. Australians see universal access to health services as being fundamentally important, regardless of a person's ability to pay.

Fight against TPP not over - Bangkok Post opinion: President Barack Obama has won one of the most important legislative battles of his nearly seven years in office. By a single vote, the US Senate awarded the president the power to negotiate trade treaties without oversight. It was a long, hard fight. His own Democratic Party senators abandoned him. The opposition Republican senators, almost unanimously, provided the victory. The president's victory is a defeat and a serious worry for Thailand. There was some confusion about the bill under debate. Contrary to some reports, the senators were not voting on the controversial international trade treaties being negotiated with Asian and European countries. There are a lot of sets of initials being thrown around, two of which are TPP and TPA. The former is the extremely dangerous Trans-Pacific Partnership trade deal which has been correctly rejected by Thailand. Last week's vote was on Trade Promotion Authority (TPA) laws, a domestic US issue. The TPA is commonly called "fast track", which is a gentle, even misleading euphemism. The so-called trade promotion authority laws put all essential authority on all international trade, bills and treaties in the president's hands. Legislators may be informed or consulted, but cannot intervene. If the president signs a trade treaty, as is likely with the TPP for Asia, the US legislature cannot change it, but only vote to adopt or reject it.

Asian Inflation Begins to Sting U.S. Shoppers - The free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries — first Japan and Korea, then China, and now increasingly places like Vietnam and India.But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too. “Inflation is the major threat to Asian countries,” said Jong-Wha Lee, the head of the Asian Development Bank’s office of regional economic integration. It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers. Developing countries have had bouts of inflation before. Indeed, some are famous for them, like Brazil, which experienced triple-digit inflation in the late 1980s and early 1990s. But two things make this time different, and together promise to send prices higher at Wal-Mart and supermarkets alike in the United States, just as the possibility of recession looms. First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar. That puts American consumers in a double bind, paying at least some of producers’ higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries.

Asia giants quiet as migrant crisis worsens -  When a deadly earthquake rocked Nepal in April, China and India rushed to send relief supplies and search-and-rescue teams. But when another humanitarian crisis - boats bearing thousands of migrants - appeared off Southeast Asian shores a month later, Asia's two most populous countries said and did little. Instead, offers to resettle the migrants came from Gambia and the United States. The wealthiest nations in the Asia-Pacific region stood back as well. Australia declared it would not resettle the migrants, mostly Rohingya Muslims fleeing religious persecution in Myanmar or poor Bangladeshis seeking jobs. Japan pledged $3.5 million (118 million baht) in emergency assistance but also refrained from offering to take in any displaced people. More than a month after Malaysia and Indonesia agreed to provide temporary shelter for up to 7,000 of the migrants stranded at sea, there has been no sign of progress in finding them a permanent home, nor any hint that Myanmar would address the conditions driving the Rohingya exodus. And Asia's most powerful nations are essentially sitting out the crisis. Their passivity is all the more striking because, halfway around the world, European leaders have been actively debating a response to their own migrant crisis, in which more than 1,700 people from Africa and the Middle East have died trying to cross the Mediterranean this year.

Here’s How India Is Getting Serious About Wi-Fi -- India’s Prime Minister Narendra Modi wants to make sure his country’s population can get fast Internet as soon as possible.In fact, he’s pumping $18 billion into a campaign called “digital week,” which plans to do just that. The move comes after Wi-Fibecame available at the iconic Taj Mahal palace for the first time.“Now we are at a place where we can take off,” a spokesman for Communications and Information Technology Minister Ravi Shankar Prasad told Reuters. “The idea is to bridge the gap between haves and have-nots of services and deliverables.”The plan’s goal is to create over 100 million jobs for Indian citizens.In May, Modi, who is known for having a strong social media presence and being technologically savvy, grabbed headlines for clashing with Chinese social media users on the popular Weibo service.

MQM-RAW Connection; Pakistan Heatwave Deaths; Iran Pew Survey; Pak-Afghan Ties -Who or what is to blame for over 1000 heatwave deaths in Karachi, Sindh? Could these deaths have been prevented or reduced? What does Sindh government need to learn from this tragedy? What does the latest Pew Poll of 40 countries on Iran say about the country's highest approval rating in Pakistan? How will the Afghan parliament attack by the Taliban impact Pak-Afghan tiesViewpoint From Overseas host Faraz Darvesh discusses these questions with panelists Misbah Azam (politicsinpakistan.com) and Riaz Haq (www.riazhaq.com) https://vimeo.com/109878725

Plunge In Export Prices Is Now Worse Than The Great Financial Crisis -- Spot The Recovery... According to the World Trade Monitor, world export prices declined by -15.8% year-over-year in April and are back at level last seen in 2009. World import prices have declined by -15.1% year-over-year as well.  In the developed world, export prices are down-16.6% year-over-year. This a larger drop than what occurred in 2009 and is the largest year-over-year decline since 1990 (when this series began). Import prices have declined by -17.5% year-over-year. The drop it 2009 was slightly larger. Lastly, in the emerging markets, trade prices have fallen but not quite to the extent that they have in developed world. Emerging market export prices are down -15.1% and import prices are off -12.6% year-over-year.

The world is defenceless against the next financial crisis, warns BIS - Telegraph: The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned. The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates. Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”“Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates. "In short, low rates beget lower rates." The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises. “In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries of the unthinkable,” the BIS said. Policymakers in the eurozone, Denmark, Sweden and Switzerland have taken their interest rates below zero in an attempt to support their economies, contributing to a decline in bond yields.

Old Economic Thinking is the Problem, Says BIS - The 85th Annual Report of the BIS is not perhaps the obvious first choice for beach-reading on a holiday weekend, but having read through its 119 pages, the core message reminds me of nothing so much as the most memorable line of the 40-year-old summer blockbuster “Jaws”:  “You’re going to need a bigger boat.” Notwithstanding everything that has been done since the Great Financial Crisis, it is not at all safe to go back in the water.  Indeed danger of financial fragility is greater now than a year ago.  The danger this time comes, interestingly, not so much from the banks but from the policymakers, who persist in using empirically discredited pre-crisis thinking as a guide to macroeconomic policy.  The problem, in a nutshell, is that “a monetary policy focused on managing near-term inflation and output may do so at the cost of higher fluctuations in credit and asset prices than in the past.” (p. 75) In the modern financially globalized economy, the connection of monetary policy to domestic inflation and output is much attenuated, while the connection to asset prices is much increased.  Monetary authorities who are focused on stabilizing quarterly aggregate demand can and do easily miss the effect of their actions on building up financial imbalances in the longer run, especially so when those imbalances are building up outside their own national borders. In this respect, the biggest danger comes from the largest policy actors, the Fed and the ECB, since the “dollar zone” accounts for nearly 60% of world GDP, and the “euro zone” much of the rest (p. 87).  The major central banks are keeping domestic interest rates low in an effort to stimulate domestic output in the short run, but the consequence is to blow asset bubbles in world as a whole.  The problem is “excess financial elasticity” and the current major source of the problem is policy.

Canada Surprise April Contraction Opens Door to 2nd Cut - Canada’s economy shrank for the fourth straight month in April as oil and mining slumped and a rebound in manufacturing remained elusive, opening the door to a second interest-rate cut from the central bank this year. Output shrank 0.1 percent to an annualized C$1.65 trillion ($1.33 trillion) in the month, Statistics Canada said Tuesday, confounding economists’ expectations for a 0.1 percent expansion in a Bloomberg survey. Oil and gas, mining and quarrying fell 2.6 percent in the month, the sixth consecutive decline as crude’s slide continued to hammer Canada’s resource-rich economy. The data failed to show the strength in non-energy exports and consumer spending the Bank of Canada was counting on to take over as drivers of growth after output shrank at an annualized 0.6 percent in the first quarter, and raises the pressure to cut interest rates again at the July 15 meeting. “They shouldn’t wait any longer, and proceed with a rate cut,” . “We aren’t seeing the expected recovery in the non-energy sectors.” Canada’s dollar reversed gains after the report and was down 0.7 percent to C$1.2485 at 11:02 a.m. Toronto time. Federal government bond yields declined, including five-year debt that fell 4 basis points to 0.87 percent.

Mexico's peso hits all-time low as Greece, US data weigh - Mexico's currency hit its weakest level on record on Wednesday, part of a broader slump in regional currencies depressed by concern that Greece may leave the euro zone and that U.S. interest rates are headed higher. Mexico is seen as particularly vulnerable to the effects of higher borrowing costs in the Unites States, its main trading partner. The country's manufacturing sector slipped in June to its lowest in 11 months, a survey showed, even before the potential U.S. rate hike. "The drop in the PMI (purchasing managers' index) adds to the list of data from Mexico that have come in weaker than expected in recent weeks," Neil Shearing, chief emerging markets economists with London-based Capital Economics, wrote in a note to clients. The Mexican peso fell to as much as 15.8106 per dollar, its weakest level on record, after private payrolls data showed the U.S. economy was gathering solid momentum after contracting at the start of the year. The numbers boosted prospects that the U.S. Federal Reserve will raise interest rates more aggressively than expected, potentially reducing the allure of higher-yielding, riskier emerging market assets. U.S. employment data, rather than concern over Greece, is the main reason for the peso's weakness, Mexico's Finance Minister Luis Videgaray said on Wednesday. Citing foreign reserves worth $192 billion, he added that Mexico has enough resources to ensure the smooth functioning of its foreign exchange market. Other Latin American currencies also posted losses, with the Brazilian real dropping 0.6 percent and the Colombian peso 1.1 percent weaker.

Russia Will Hold Key Positions In China-Led Asian Infrastructure Investment Bank  Russia anticipates becoming a key manager of China’s proposed Asian Infrastructure Investment Bank (AIIB), a Moscow representative said in Beijing Saturday. China’s alternative to the Asian Development Bank, International Monetary Fund and World Bank would seek to finance much-needed Asian infrastructure projects, an effort Japan and the U.S. both view as a challenge to their influence in the region. “Russia would at least be among AIIB’s top five countries, so it would qualify for an appropriate voting share and a relevant share of the bank’s management,” Andrey Denisov, the country’s first deputy foreign minister, told its official RIA Novosti news agency. Russia is one of 57 nations that have signed on to become prospective founding members of the Beijing-based $100-billion development bank that was launched last October. Several European countries, Brazil, Australia and almost all Southeast Asian nations are bidding for founding-member status. While Russia is facing Western sanctions over its annexation of Crimea and disputed support of pro-Russian separatists in Ukraine, Beijing and Moscow have been forming closer ties. Representative of the AIIB’s prospective founding members will converge in Beijing Monday for a signing ceremony centered on the bank’s legal framework, which will lay down the rules, including members’ voting powers and its decision-making processes. “If everything goes to plan, the AIIB will start operation by the end of 2015,” Chen Fengying, a researcher with the China Institute of Contemporary International Relations, told the country’s official Xinhua News Agency.

Ukraine Halts Russian Gas Purchases After Price Talks Fail - It has been a bad day for deals and deadlines all around: first Greece is about to enter July without a bailout program and in default to the IMF with the ECB about to yank its ELA support or at least cut ELA haircuts; also the US failed to reach a nuclear deal with Iran in a can-kicking negotiation that has become so farcical there is no point in even covering it; and now moments ago a third June 30 "deal" failed to reach an acceptable conclusion when Russia and Ukraine were unable to reach an agreement on gas prices at talks in Vienna on Tuesday. As a result, Ukraine is suspending its purchase of Russian gas. According to RT, Russian Energy Minister Aleksandr Novak and Ukraine’s Energy and Coal Minister Vladimir Demchishin both admitted to reporters that the negotiations had born no fruit. Demchishin added that there would be a new round of talks in September. Meanwhile, Ukraine’s energy company, Naftogaz, will stop buying gas from Russia as of Wednesday, July 1. “As of June 30, 2015, the agreement between Naftogaz and Gazprom runs out, and conditions for continued supply of Russian gas to Ukraine have not been agreed upon; Naftogaz will no longer be purchasing gas from the Russian company,” a press release by Naftogaz said. The Russian minister seemed unhappy and said it was politically motivated and there were no grounds for it.

Many Italian banks fail to start trading Monday - -Several Italian banks failed to start trading on Monday as fears over a Greek debt default induced many investors to shed peripheral stocks, including Italian, with banks suffering the most. Sales orders on Italian stocks, in particular financial stocks, piled up before the market opening. At the start, the sales orders were so numerous that the system couldn't manage to process them, something that often happens when specific news causes a sell-off on a stock. Theoretical prices for Italian banks--the prices at which they would have started trading--hovered around losses of 8% to 10% at the beginning of the trading session. UniCredit SpA and Intesa Sanpaolo managed to start trading some time after the market opened, but were suspended immediately, accumulating losses of around 6% compared with Friday's closing prices. On Sunday, Italy's banking lobby head Antonio Patuelli dismissed fears of contagion on Italian lenders, saying the country's banks' direct exposure to Greece was less than EUR1 billion.

The Greek Crisis and Referendum - Greek Prime Minister Alexis Tsipras called for a referendum in which Greeks could vote to accept or reject the demands for further austerity made by Greece's creditors **. This seems to me to guarantee Greek default and imply that no agreement on debt rescheduling will be reached.  I think this Washington Post article by Griff Witte is a very good explanation of the current situation Both sides say that an agreement is now extremely unlikely. “The negotiations are clearly ended, if I understand Mr. Tsipras correctly,” said German Finance Minister Wolfgang Schäuble as the continent’s top finance officials gathered for their fifth emergency meeting in the past two weeks. “We have no grounds for further discussions.” The first question is whether either is bluffing. Until Tsipras called for a referendum, I had guessed that there would be an agreement which would prevent default/kick the can down the road. I now guess that there won't be an agreement.  I don't see how a Tsipras government could survive if he were to try to accept the creditors' demands and calls off the referendum. Calling a referendum as a bluff would be a crazy bluff, but the key point is that he is just Prime Minister and doesn't have the authority to fold*. At the same time, calling a referendum violates the norms of international negotiations which require that the general public is kept out of it except, perhaps, for approving the final agreement (with minor amendments and a second vote scheduled if they vote the wrong way the first time). If the European Finance ministers/Troika grant concessions in exchange for cancellation of the referendum, they will have to do something similar in all future negotations. This might be in the interest of the European Union, but it would be too humiliating and infuriating.

Europe's Moment of Truth - Paul Krugman -- Until now, every warning about an imminent breakup of the euro has proved wrong. Governments, whatever they said during the election, give in to the demands of the troika; meanwhile, the ECB steps in to calm the markets. This process has held the currency together, but it has also perpetuated deeply destructive austerity — don’t let a few quarters of modest growth in some debtors obscure the immense cost of five years of mass unemployment.  It seems to me that the troika — I think it’s time to stop the pretense that anything changed, and go back to the old name — expected, or at least hoped, that Greece would be a repeat of this story. Either Tsipras would do the usual thing, abandoning much of his coalition and probably being forced into alliance with the center-right, or the Syriza government would fall. And it might yet happen. But at least as of right now Tsipras seems unwilling to fall on his sword. Instead, faced with a troika ultimatum, he has scheduled a referendum on whether to accept. This is leading to much hand-wringing and declarations that he’s being irresponsible, but he is, in fact, doing the right thing, for two reasons. First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn’t, we need to know that, too.) Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it’s even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way. If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point. But they have, and I can’t at all blame Tsipras for turning to the voters, instead of turning on them.

White House says it expects Greece to keep commitments - The Obama administration said Monday it wants Greece to live up to its commitments, while lawmakers said austerity demands should stay on Athens and the U.S. government should protect American taxpayers from any exposure as Greece edged closer to a default. “We’ve long made clear that we expect the Greeks to keep their commitments,” White House press secretary Josh Earnest told reporters. “I’d refer you to the IMF for more information about how exactly the Greeks can do that.” Greece owes the International Monetary Fund a 1.54 billion euro, or $1.71 billion, payment on Tuesday. But Athens has said it won’t be able to make the payment.Rep. Randy Neugebauer, a Texas Republican, urged the IMF and the European Union to keep up their demands on Greece. “The situation in Greece is a case study in government spending, waste and dysfunction,” said Neugebauer in a statement emailed to MarketWatch. The congressman leads the House Financial Services subcommittee on financial institutions.

Greek negotiators learned of referendum proposal from Twitter: - No one was more surprised about Greek Prime Minister Alexis Tsipras calling a referendum than his team of negotiators in Brussels. Shortly before midnight on Friday in the Belgian capital, the Greeks and representatives of the European Union and International Monetary Fund, tucked away in the EU Commission’s Charlemagne building, learned via Twitter that their efforts were in vain, according to an EU official. It was the first Prime Minister Alexis Tsipras’s Brussels negotiators had heard about it. They soon left the room, their attempts to thrash out a compromise in tatters. Commission negotiators called their president, Jean-Claude Juncker, who had spent recent weeks in face-to-face talks with Tsipras. He hadn’t known about the vote either, the official said. A Greek government spokesman wasn’t immediately available for comment. Up until that moment, the mood on both sides had been fairly positive, the official said. They were reaching agreement on a joint proposal to be presented to a meeting of finance ministry officials set for the next morning. Greek Finance Yanis Varoufakis was interviewed by local television at about 8:30 p.m. in Athens, sounding an optimistic note about a deal. All that talk was preempted about four hours later by the stunner Tsipras delivered upon his return from weeklong negotiations in Brussels. He announced the referendum for July 5 and advocated a “no” vote, describing the last proposal made by creditors as a violation of EU rules.

"This Is A Sad Decision": Europe Responds To The Greek Referendum, Which Has One Massive Problem In the aftermath of yesterday's "nuclear option" announcement by Greece, when in a dramatic after-midnight speech Greek PM Tsipras announced that Greece would hold a referendum next Sunday, the day after the US independence day, the same Greek government made it very clear how it wants the Greeks to vote. The alternate health and social security minister Dimitris Stratoulis doubled down telling ERT-TV that Greeks are being given the opportunity to decide the way forward and “I’m optimistic” that they will give a “resounding” no to the “provocative” demands of the country’s creditors. The only issue is the question being put to the people in the referendum." It got better when he said that "Greeks are being asked to vote whether the country should be a colony, or not, of creditors." Well, if that's how the referendum question is indeed phrased then yes, it is clear how the Greeks will vote. As was to be expected, the Greek opposition parties, except for the Nazi-inspired Golden Dawn, expressed horror at the referendum. Conservative main opposition leader Antonis Samaras accused Tsipras' radical left government of advocating an exit from the eurozone and the European Union. "Mr Tsipras has led the country to an absolute impasse," he said. "Between an unacceptable agreement and leaving Europe." So with all that in place, the question was how would Europe respond to this shocking after-midnight (both literally and metaphorically as July 5 comes after the June 30th deadline by which Greece needs to have a deal in place) announcement. Conveniently we had just the soundbite venue today when the European finance minister met once more in Brussels to finalize the Greek deal, which is now clearly moot, and instead were asked for their reactions to the referendum proposal. Here are some of the key responses:  First, the take of Finnish finance minister Alexander Stubb who said "we’re basically closing the door for any further negotiations,”

Eurozone Rejects Greek Bailout Extension - First thing this morning, when summarizing the flurry of overnight events, we focused on today's final gambit by Greece: "... moments ago Varoufakis was quoted as saying he would ask the Eurogroup for a bailout extension of a few weeks to accommodate the referendum. And the punchline: if the Eurogroup says "Oxi", then the entire Greek gambit, which has been a bet that to Europe the opportunity cost of a Grexit is higher than folding to Greek demands, collapses. If the Eurogroup declines Varoufakis' request, there simply can not be a referendum, as the "institutions proposal" will no longer be on the table. As such, the only question is whether the ECB will also end the ELA at midnight on June 30, adding insult to injury, and causing the collapse of the Greek banking system days ahead of a referendum whose purpose would now be moot." And, as expected, with the Eurozone meeting on Greece having just ended after a brief hour of deliberations, AFP reports that the answer, was indeed, no. #BREAKING: Eurozone ministers reject Greek bailout extension: sources  What happens next: Eurogroup makes it official that the Greek proposal ends on June 30 making the referendum moot as the institutions proposal will no longer be on the table, the ECB pulls a "Cyprus" on Greek ELA, and a Greek bank system which is put on indefinite hiatus, leading to a "soft" Greek default if not outright Grexit, paving the way for even more ECB QE.

Greek IMF Default May Trigger €131 Billion Payment On EFSF Lonas --Back on May 11, we took a close look at what a Greek default to the IMF would mean in terms of the country’s obligations to its other creditors.  At the time, it appeared as though Greece was set to default on a €750 million payment to the Fund, so naturally, we were curious to know what the ramifications of a default might be. A day later, we discovered that Varoufakis had in fact orchestrated a deal whereby Greece was allowed to use its SDR reserves to make the payment, a move which amounted to the IMF literally paying itself. That bought Greece around three weeks and the decision to bundle June’s payments bought three more, but now, with PM Alexis Tsipras having called for a referendum, with EU officials and finance ministers having finally thrown in the towel, and with Greek depositors draining the ATMs at a frantic pace, default is now all but certain on Tuesday and so the focus has suddenly shifted back towards what happens if Tsipras doesn’t cut Christine Lagarde a check by 11:59 on June 30. As we’ve discussed at length, Lagarde can, if she chooses, delay a technical default by 30 days by not sending a formal notice of default to the IMF board. Regular readers have been well aware of this for some time now as we discussed it exactly one month ago today. Unfortunately for the Greeks, Lagarde recently indicated she isn’t likely to go that route and will “notify the board promptly” if payment isn’t made. Here's Bloomberg on the consequences: A possible Greek default on debt due to the International Monetary Fund next week would trigger cross- default clauses on 130.9 billion euros that Greece owes the euro area’s temporary rescue facility, a European Union official says.Should IMF Managing Director Christine Lagarde tell her board that Greece defaulted on a 1.5 billion-euro payment due on June 30, the European Financial Stability Facility would have to decide among three options: to claim the funds that Greece owes the EFSF; to waive the EFSF’s right to the money; or to invoke a “reservation of rights” that would avoid an immediate claim while maintaining the EFSF’s option to take such a step, the official tells reporters in Brussels on the condition of anonymity

IMF Won’t Help Greece If Payment Missed, Lagarde Says - The International Monetary Fund will be prevented by IMF rules from providing additional financial assistance to the Greeks if they miss a June 30 payment, Managing Director Christine Lagarde said. Lagarde, in an interview with the BBC, also said a referendum scheduled in Greece for July 5 may be asking voters to weigh proposals that are no longer under consideration. “I can’t speak for the IMF program, because the IMF program is on, but the European financial arrangement expires June 30,” she said. “So, at least legally speaking, the referendum will relate to proposals and arrangements that are no longer valid.” If Greece doesn’t make the $1.7 billion payment due to the IMF on June 30, it won’t have access to funding until it clears up its debts, she said, reiterating the fund’s policy on arrears. While dismayed at the breakdown of negotiations over a new bailout package, Lagarde said Greece would remain a member of the IMF, and receive technical assistance. The IMF is also constrained by fund policies from helping Greek banks with their immediate liquidity needs, which would have to be met by the European Central Bank and the Bank of Greece. In a separate interview with CNBC, Lagarde said she found the negotiations to have been “very cumbersome and very frustrating,” according to a transcript posted on the news channel’s website. Negotiations could be revived if Greek voters show they want to stay in the euro zone, Lagarde said. “If there was a resounding ‘yes, we want to stay in the euro for good, we want to be part of that, we want to restore the status of the economy, we want to be sustainable in the long run,’ there would be a resounding ‘let us try,’” she told BBC.

Greek Debt Crisis Intensifies as Extension Request Is Denied - Europe’s long standoff over Greece’s debt moved into an unpredictable stage on Sunday, with tensions reaching their highest levels yet and the risk growing rapidly that Greece could crash out of the European currency.On Saturday, eurozone finance ministers meeting in Brussels rejected Greece’s request to extend its existing bailout program past a Tuesday deadline. Greece wanted the extension so it could hold a national referendum on July 5 to let voters decide whether the country should accept bailout aid under terms that the government of Prime Minister Alexis Tsipras bitterly opposes.Then, early Sunday morning, lawmakers in Athens voted to go forward with the referendum, after a day on which many Greeks lined up at cash machines to withdraw money from banks out of concern that a fresh financial crisis could be at hand.Addressing Parliament before the vote, Mr. Tsipras defended his decision to call a plebiscite, saying it would “honor the sovereignty of our people,” and called on Greeks to say a “big ‘no’ to the ultimatum,” referring to the creditors’ proposal for a deal. He added that his government would “respect the outcome, whatever it is.”After five months of grinding negotiations, Mr. Tsipras’s surprise referendum gambit — announced early Saturday morning on national television while many ordinary citizens were asleep — left unclear whether he was seeking a final bit of leverage for a last-minute deal or was essentially calling an end to the negotiations.

Greek Officials Warn "Some Banks May Not Open Monday" - Following Tsipras' surprise referendum decision (and subsequent pulling of proposals by Troikathe institutions), Greece's bank jog has turned into a full sprint. ATM lines began to form at 2am, minutes after the announcement and now many ATMs are out of money and, as Bloomberg reports, some Greek banks are drastically limiting cash transactions. Despite all the reassurances that "banks will open Monday," two senior bank executives have warned that some lenders will not be able to open Monday (unless more emergency liquidity is released).As Bloomberg reports, Some Greek banks limiting cash transactions as hundreds of people lined up outside branches and drained cash machines after Prime Minister Alexis Tsipras called vote for July 5 that could decide whether Greece remains in euro.  2 senior Greek retail bank executives said as many as 500 of the country’s more than 7,000 ATMs had run out of cash as of Saturday morning, and that some lenders may not be able to open on Monday unless there was an emergency liquidity injection from the Bank of Greece.

Wave of contagion expected after dramatic weekend raises "Grexit" chances (Reuters) - European markets are braced for a wave of contagion from Greece on Monday, with heavy losses for southern European government bonds and regional stock markets expected as investors scramble to discount a possible "Grexit" that most had still assumed was unlikely as late as Friday afternoon. Greek Prime Minister Alexis Tsipras late on Friday surprised creditors by calling a snap referendum on what he said were the unacceptable terms offered to keep the country from bankruptcy. Greece's European partners on Saturday shut the door to extending the existing credit lifeline beyond Tuesday night's deadline, an extension that would have accommodated the planned July 5 referendum. The European Central Bank on Sunday then capped the amount of emergency financing it extends to Greek banks at last week's levels despite reports of further heavy deposit withdrawals over the weekend. Without new bailout funds, Athens is due to miss a 1.6 billion euro ($1.8 billion) repayment to the International Monetary Fund on Tuesday. And without further increases in ECB emergency to Greek banks, which is likely contingent on Greek banks being deemed solvent and the Greek government being in a bailout programme and not in default, Athens may impose capital controls and keep its banks shut on Monday. Conspicuous by its absence so far from this year's Greek drama has been contagion to other "peripheral" euro nations government bond markets as was the case during the last peak in Greek and euro tensions in 2012. Greek yields have soared, those of Italy, Spain and Portugal have not. But that could well change on Monday, said analysts, unless the ECB takes measures to contain it.

Was Grexit Inevitable? -- So it appears the Eurozone crisis has finally crossed the rubicon. Greece is going to default on Monday and this likely will put in motion its departure from the currency union. The Eurozone as we know it may soon cease to exist. Was this breakup inevitable? Many observers would say yes. The Eurozone, after all, is not an optimal currency area and therefore likely to create problems. Martin Feldstein, for example, in 1997 wrote this in Foreign Affairs: If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe...What are the reasons for such conflicts? In the beginning there would be important disagreements among the EMU member countries about the goals and methods of monetary policy. These would be exacerbated whenever the business cycle raised unemployment in a particular country or group of countries. These economic disagreements could contribute to a more general distrust among the European nations. This does seem prescient now as the tension between core and periphery countries in general and the Troika and Greece in particular have shown the inherent tension in the currency union. So maybe this path was preordained. Maybe 'Grexit' was inevitable.  Or maybe not. Maybe the Eurozone crisis happened when it did because of colossal policy errors rather than being a necessary outcome of a flawed currency union. I make this argument in a new working paper and contend the policy errors were the ECB's two tightening cycles in 2008 and 2010-2011. These tightening cycles were a huge mistake and arguably what set in motion the Eurozone crisis. They helped precipitate the sovereign debt crisis and gave teeth to the austerity imposed on the periphery.

Greece: ECB Freezes Level of Emergency Loans -- Some comments from analysts at the Financial Times Alphaville: Greece: bank analysts and eurowatchers on what to expect on Monday The analysts make good point on Greek banks, and also on the odds of the Greeks voting for more austerity, an excerpt: "according to recent polls there may be a majority in the Greek population supporting the creditor-proposed package. Hence if the vote was a ‘yes’ then the creditor side will likely work hard at keeping Greece within the Eurozone. We may thus not see full-blown risk off sentiment tomorrow as there is still a fair chance of Grexit being avoided in the end." However no analyst mentions that the austerity program failed miserably (see: Did Germany Fulfill their Promises? Did Austerity in Greece Deliver?). The definition of insanity is repeating the same thing (austerity) and expecting different results.  More austerity means more depression.  Europe has been Schauble'd!   And from the WSJ: ECB to Keep Level of Emergency Loans for Greek Banks Unchanged. The European Central Bank said Sunday it will freeze for now the level of emergency loans for Greek banks at Friday’s level, a step that could push the country closer to having to impose capital controls to halt a deposit flight that appeared to have accelerated over the weekend. And from the NY Times: European Central Bank Limits Aid to Greek Banks Amid Debt Crisis

ECB Cries Uncle, Halts ELA Amid Run on Greek Banks; Capital Controls and Bank Holiday Next? -- I have been wondering when the ECB would finally pull the plug and put a stop to the ELA. Today, amid an accelerating run on Greek banks, the ECB capped the ELA. The Guardian has a Live-Update on the crisis. Here is the key point "No more extra emergency funding to Greece’s banks, despite steady outflow of deposits since crisis escalated." Economics professor Karl Whelan says Capital Controls Coming Professor Karl Whelan of University College Dublin just launched a blogpost which explains why he thinks some Greek banks won’t open tomorrow. The ECB’s decision to cap emergency liquidity at its current level means capital controls are now coming, he argues. That’s because commercial bank reserves have probably been significantly depleted by the rush to some cash machines this weekend. So, they have little left in cash or reserves at the central bank, leaving them exposed when they open their doors on Monday morning.Professor Whelan explains: In that case, the only way the Greek banks could finance the (presumably very large) demands for withdrawals on Monday would have been to get access to additional funds from the Bank of Greece in the form of additional ELA. That will not be possible now, so most likely the banks will not open on Monday.

ECB to Stop Emergency Support of Greek Banks on Monday; Bank Holiday Likely  -- Yves Smith - The ECB has decided to lower the boom on Greece.  As we’ve mentioned, the ECB was well outside the intended use of the program that has served as the backstop to the Greek banking system, the Emergency Liquidity Assistance program. As its name suggests, the ELA was meant to provide support only for solvent banks, and then only for short-term liquidity crunches (this is why the ELA has to be re-approved every two weeks, but the voting rules favor continuation, since it takes a two-thirds vote of the current voting members to cut off the ELA).   The ECB has continued to deem the Greek banks as solvent when they clearly weren’t. The presumed justification was that Greek banks had run up huge tabs on the ELA in the 2012 debt restructuring (the so-called second bailout) and had weaned itself off it after the refinancing was in place and contagion fears in the Eurozone had receded. The ECB was clearly uncomfortable with the continued credit extension and kept the increases to the bare minimum necessary to keep the Greek banks afloat. . So as long as negotiations were underway, the ECB was duty bound to keep extending ELA support. In fact, we’ve suspected that that was the biggest reason Greece kept the talks going despite the overwhelming evidence that they were going nowhere. The European officials have interpreted the announcement of the Greek referendum on July 5 as tantamount to the termination of negotiations. As the Guardian reported:Saturday night’s eurogroup meeting said the governments “stand ready to do whatever is necessary to ensure financial stability of the euro area”. Their meeting was the fifth to be held in 10 days. The decision to end the bailout, shunning the Greek requests to extend the rescue until after the national referendum, means that Greece is likely to go bust.“Greece ended the negotiations unilaterally. There is no basis for further negotiations,” said Wolfgang Schäuble, the hawkish German finance minister. “I don’t see any possibility for doing anything. On Tuesday the programme ends.”

Greece Will Close Banks to Stem Flood of Withdrawals - — Greece will keep its banks closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.The government’s decision to close banks temporarily and impose other so-called capital controls — and to keep the stock market closed on Monday — came hours after the European Central Bank said it would not expand an emergency loan program that has been propping up Greek banks in recent weeks while the government was trying to reach a new debt deal with international creditors.The debt negotiations broke down over the weekend after Mr. Tsipras said he would let the Greek people decide whether to accept the creditors’ latest offer. That referendum vote is to be held next Sunday, after the current bailout program will have expired.Mr. Tsipras in his televised address criticized Eurozone finance ministers for refusing to extend Greece’s loan program, a decision that in turn prompted the the European Central Bank to decline to increase its emergency loans to Greek banks.“It is clearer than ever that this decision has no other goal apart from blackmailing the Greek people and obstructing the smooth democratic procedure of the referendum,” he said.

Greece Orders Banks Closed, Imposes Capital Controls to Stem Deposit Flight - WSJ: Greece shut down its banking system, ordering lenders to stay closed for six days starting Monday, and its central bank moved to impose controls to prevent money from flooding out of the country. The steps, a fateful climax to five years of debt crisis, put Greece closer than it ever has been to an exit from the euro and pushes the common currency itself into uncharted waters. The decision came after the European Central Bank—meeting in an emergency session Sunday—opted not to expand a lifeline of emergency funds that has been sustaining Greek banks while nervous depositors pulled their money out. In response, European stocks slumped Monday and the euro fell. Greece’s stock market will be closed for as long as banks are not open to the public, the country’s Capital Markets Commission said. On Athens’s rainy streets late Sunday, many ATMs had already been emptied. Prime Minister Alexis Tsipras’s announcement that he would call a referendum on the economic terms that Greece’s creditors want for fresh aid sent many Greeks scurrying to bank machines over the weekend to grab what remaining cash they could. “How can something like this happen without prior warning?” asked Angeliki Psarianou, a 67-year-old retired public servant. “I want Tsipras to tell me how I am going to make it through the week with €10 in my bag with rent coming up. It has never been as bad as this.” Withdrawals at bank machines will be limited to €60 ($66) a day for each account, the government said.

Bank Holiday: Greek Banks and Stock Market Shut Until July 7; Capital Controls Imposed --After the ECB shut off ELA, prime minister Alexis Tsipras imposed capital controls while blaming the ECB just as I predicted (but that was an easy prediction). The Guardian Live Blog has plenty of details.

  • Speaking on live TV, Alexis Tsipras is saying that the Greek central bank has been forced to recommend a bank holiday and the introduction of capital controls.
  • He blames the ECB, and other institutions, for trying to obstruct the democratic referendum he has called for next Sunday. This is a “insult” that shames European democracy, he says.
  • Tsipras also appeals for calm, and he insists that bank deposits are secure.
  • Officials said the bank closure would last for several days and would be accompanied by limits yet to be announced on bank transfers abroad and withdrawals from cash machines.
  • The cashing of cheques would be halted and fixed term deposits would be locked down. The Athens stock exchange was also set to be closed.
  • All over Athens people have been queuing tonight, but the lines outside the National Bank branches were by some distance the longest, reports Jon Henley.
  • And that’s because the National Bank supplies the banknotes, and lots of other Greek banks, by midnight on Sunday, had no more of those.

Consent of the Governed, Tsipras Style  - Yves Smith - We described in detail how the referendum scheduled in Greece for next Sunday, July 5, is a cynical exercise in democracy theater. The Greek people are being asked to vote on a (draft) proposal by Greece’s lenders to unlock €7.2 billion in funds, the last portion of the so-called “second bailout” agreed by the Greek government in 2012. Tsipras knew at the time he announced the referendum that the proposal expired on June 30; that was the known-well-in-advance final date for the bailout terms to be agreed if each and every one of the 18 Eurozone countries agreed. Tsipras has already taken the decision to miss the €1.6 billion IMF payment due June 30 and the €3.5 billion ECB payment that falls on July 20, while falsely telling Greek citizens that they have a say in this momentous choice. As we warned for months, the ECB has been keeping the Greek banking system afloat only by stretching its own rules to the breaking point. They only needed political cover to end or curtail the backstop, which would put the Greek banking system in a death spiral. We discuss the implications in an accompanying post.  Moreover, the question being put to voters is incomprehensible to most and misleading on multiple levels. Here is a translation of the ballot:Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on on June 25 and which consists of two documents: The first document is called Reforms for the Completion of the Current Program and Beyond and the second document is called Preliminary Debt Sustainability Analysis.

    • – Those citizens who reject the institutions’ proposal vote Not Approved / NO
    • – Those citizens who accept the institutions’ proposal vote Approved / YES.

Naked Capitalism readers are far more finance and economics savvy than most Anglophone country voters, and Anglophone countries, by virtue of being overfinancialized, likely have a higher proportion of the country that has a passing familiarity with economic and budgetary terminology than the average person in Greece. How much sense does that question make to you? As you can tell, it places the burden on you the voter to read and digest the underlying documents in order to make sense of them. (Greek also, I am told, has two negatives: Ne, and Oxi. Ne is like “No,” but Oxi is like “Hell, no!” and for historical reasons, it’s a powerful symbol of Greek resistance. Oxi appears on the ballot, not ne.)

Here’s why any Greek debt deal will amount to nothing --In its current form, the terms will represent a few concessions by the creditors, but almost total capitulation by the Greek government. Consider: First, the agreement is likely to cover five months, necessitating a more comprehensive further program, which will inevitably require creditors to provide new financing to Greece (in effect a third bailout) if  if default is to be avoided. Second, the focus originally has been on the release of 7.2 billion euro from the existing second bailout program. If the amounts that Greece has run down from reserves, pensions and also its account at the IMF are replaced, then there is little additional new funding to Greece. It seems the European have found a little more money, by shuffling funds, whereby the amount would be a more “generous” 17 or so billion euro. But it is far from clear what Greece needs in any case. Third, the issue of debt repayments or relief is not addressed, other than in vague terms. Greece has commitments of around 5-10 billion euro each year plus the continuing need to roll over around 15 billion euro in short-term Treasury bills. Greece may not have the ability to meet these obligations on an ongoing basis. This does not take into account additional funding needs of the State that may arise from budget shortfalls or the need of Greek banks. Fourth, the ability to meet plan commitments is affected by performance of the Greek economy. The political uncertainty, capital flight and weak banking system have resulted in a sharp contraction in activity. Bankruptcies have increased. Arrears on loans have risen. Tax receipts have fallen. This will make budgetary targets difficult to meet. Techniques to improve public finances such as delaying payments to suppliers and citizens cannot be continued indefinitely. In addition, if growth falls further with the continuation of austerity then the primary surplus objective will be missed creating additional funding needs.

Grisis - Paul Krugman  - OK, this is real: Greek banks closed, capital controls imposed. Grexit isn’t a hard stretch from here — the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before. Clearly, though, some decisions now have to wait on the referendum.   I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone — me included — the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different. Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.

Some say back to the drachma for a Greek reboot  (Reuters) - Mainstream economic thinking may hold that Greece should stay in the euro zone, but there are those who argue that abandoning the single currency will give the cash-strapped and debt-laden country just the boost it needs. Greece's economy is so depressed, they argue, that unless it regains the competitive edge that a massive one-off currency devaluation could offer, it will remain lifeless. Until then, the idea of a euro zone exit - either by accident or design - will keep on returning. "If Greece were to leave the euro, it is presented with an opportunity. That doesn't mean to say it will take it," he says, arguing that the current negotiations about Greece's debt miss the point. "How does a debt deal bring about an increase in aggregate demand in Greece? No one seems to be grappling with the economic issue." Greece and its creditors are locked in talks to secure a deal that would see Greece undertake further economic reforms in return for more aid, thereby averting default on debt repayments to the International Monetary Fund on June 30. The new proposals currently on the table include further long-term cuts to pensions as well as additional taxation that, while encouraging change in the economy overall, would have the effect of further weakening demand.

Juncker To Greece: "Don't Commit Suicide Just Because You Are Afraid Of Death" -In as brash an instance of lying propaganda as we have seen recently EU President Jean-Cleaude "when it's serious you have to lie" Juncker unleashed 6 minutes of unabashed falsehoods this morning as the fearmongering and blame-shame-game for Greece begins. He proclaimed that "pension cuts were not in the creditors proposals" which as many pointed out is a total lie and then said: "You shouldn’t commit suicide because you're afraid of dying. You should say 'yes' regardless of what the question is." Got that Greek Grandmas - Vote YES no matter what you think - that's how EU democracyu works...

Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout -- A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview.Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

Greece Over the Brink, by Paul Krugman - Leaving a currency union is, however, a much harder and more frightening decision than never entering in the first place...  But the situation in Greece has now reached what looks like a point of no return. Banks are temporarily closed and the government has imposed capital controls... It seems highly likely that the government will soon have to start paying pensions and wages in scrip, in effect creating a parallel currency. And next week the country will hold a referendum on whether to accept the demands of the “troika” ... for yet more austerity.  Greece should vote “no,” and the Greek government should be ready, if necessary, to leave the euro. It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years. ... Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable. So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

Greece in shock as banks shut after snap referendum call - (Reuters) - Stunned Greeks faced shuttered banks, long supermarket lines and overwhelming uncertainty on Monday as a breakdown in talks with international lenders plunged their country deep into crisis. With Greece's bailout expiring on June 30 and an IMF payment falling due at the same time, Prime Minister Alexis Tsipras pleaded in vain by phone with European officials to extend the program until a referendum on July 5 on its future terms. The frantic efforts to secure Greece's place within the euro zone followed a dramatic weekend. Tsipras's decision, early on Saturday, to put the aid package to a popular vote took the lenders by surprise and sent Greeks rushing to cash machines. It also pushed Greece toward defaulting on 1.6 billion euros ($1.77 billion) due to the International Monetary Fund on Tuesday, which would take it closer to an exit from the euro zone. A Greek official confirmed to Reuters that the payment would not be made. Greeks - used to seeing lengthy talks with creditors end with an 11th-hour deal - were shocked by the turn of events. Queues snaked outside ATMs and inside supermarkets while fears of disruptions to fuel and medicine supplies grew. Drugmakers said they would continue to ship medicines to Greece in coming weeks despite unpaid bills, but warned that supplies could soon be in jeopardy without emergency action.

Greece won’t make IMF debt repayment Tuesday, Greek official says - -Greece won’t make a debt repayment to the International Monetary Fund due Tuesday, a senior Greek government official said Monday. Earlier this month, Greece had notified the IMF it plans to bundle its loan repayments falling due this month into one payment of around 1.6 billion euros ($1.7 billion), which is due Tuesday. The IMF has said that Greece will immediately be in arrears if it fails to make the debt repayment. Greece’s bailout program is due to expire Tuesday and eurozone finance ministers on Saturday rejected Greece’s request for an extension.

ECB Strikes Back: Threatens With Greek Deposit Haircut If And When ELA Found To Be "Illegal" On Wednesday -- The threats are flying fast and furious now. Moments after the WSJ quoted a Greek official as saying that Greece will not make its IMF bond payment, the ECB struck back when Bloomberg reported that the ECB would review the legality of Greek aid should there not be a deal, i.e., on July 1 post an IMF default. According to Austrian central bank Governor and ECB member, Ewald Nowotny, on Wednesday’s governing council meeting the central bank will decide whether it can continue to provide emergency support for Greece once current bailout program expires June 30, as the Wiener Zeitung originally reported. He added that "Aal legal aspects will be reviewed” and that another issue is also whether Greece support will continue beyond referendum. Perhaps somewhat needlessly he added that there are differing opinions at ECB governing council.The subtext of what Nowotny just said is that absent a deal, Greek banks will have no choice but to impose a massive haircut on existing deposits, since the entire ELA will be yanked, and the Cyprus scenario would follow, one that would see existing deposits of under €120 billion, chopped off in half or probably much, more depending on the true state of Greek bank collateral.

Varoufakis Reveals Europe's Stunning Denial Of Greek People's Right To Vote --Greece’s Finance Minister Yanis Varoufakis has come out and revealed the quite shocking and anti-Democratic events that took place during the last Eurogroup meeting. Via GreekReporter.com, The Eurogroup Meeting of 27th June 2015 will not go down as a proud moment in Europe’s history. Ministers turned down the Greek government’s request that the Greek people should be granted a single week during which to deliver a Yes or No answer to the institutions’ proposals – proposals crucial for Greece’s future in the Eurozone. The very idea that a government would consult its people on a problematic proposal put to it by the institutions was treated with incomprehension and often with disdain bordering on contempt. I was even asked: “How do you expect common people to understand such complex issues?”. Indeed, democracy did not have a good day in yesterday’s Eurogroup meeting! But nor did European institutions. After our request was rejected, the Eurogroup President broke with the convention of unanimity (issuing a statement without my consent) and even took the dubious decision to convene a follow up meeting without the Greek minister, ostensibly to discuss the “next steps”. Can democracy and a monetary union coexist? Or must one give way? This is the pivotal question that the Eurogroup has decided to answer by placing democracy in the too-hard basket. So far, one hopes. Below is his full speech to the Eurogroup members

Washington Post and NY Times on the Greek Crisis - The crisis so far. Negotiations at the Eurogroup of finance ministers between Greek finance minister Yanis Varoufakis and the other 18 broke down when the Greek government announced a referendum next Sunday on whether to accept the June 25th proposal of the institutions formerly known as the Troika. The European Central Bank (ECB) decided to take the radical step of not changing the emergency liquidity assistance (ELA) program. This means sticking with the ceiling on emergency liquidity set Friday June 26th which was about 1.2 billion Euros of bank withdrawals ago. As a result, the Greek government declared a week long bank holiday with ATM withdrawals limited to 60 Euros a day. The radical non expansion of ELA shows that Greece can't really use the Euro as a normal currency unless it reaches agreement with the ECB (one of the institutions formerly known as the Troika). The Tsipras government will advise Greeks to vote no on the referendum, but polls suggest Greeks will vote yes, and the bank holiday will not make them less desperately eager to make any promise necessary to get a temporary bailout. There are a number of very good explainers at The Washington Post and The New York Times. I do think that they all leave out one key point. The Greek government made an alternative proposal for austerity in exchange for a loan. The other 18 rejected this proposal saying that the deficit reduction (which excluding interest is a surplus increase) had to be based on pension cuts not higher taxes on employers. Their argument was based on dynamic scoring/supply side economics/right wing ideology. Some might suspect that the true motivation was a desire to not reach agreement, cause a crisis and show Greeks and especially Spaniards that it is unwise to elect leftists.

The Awesome Gratuitousness of the Greek Crisis - Paul Krugman -- Barry Eichengreen asks himself why his influential analysis, suggesting that the euro was irreversible now appears wrong. Surely in a direct, mechanical sense what we’re seeing is the process I warned about five years ago: at this point it’s all too easy to imagine a default on debt, triggering a crisis of confidence, which forces the government to impose a banking holiday — and at that point the logic of hanging on to the common currency come hell or high water becomes a lot less compelling. But doesn’t the ultimate cause lie in wild irresponsibility on the part of the Greek government? I’ve been looking back at the numbers, readily available from the IMF, and what strikes me is how relatively mild Greek fiscal problems looked on the eve of crisis. In 2007, Greece had public debt of slightly more than 100 percent of GDP — high, but not out of line with levels that many countries including, for example, the UK have carried for decades and even generations at a stretch. It had a budget deficit of about 7 percent of GDP. If we think that normal times involve 2 percent growth and 2 percent inflation, a deficit of 4 percent of GDP would be consistent with a stable debt/GDP ratio; so the fiscal gap was around 3 points, not trivial but hardly something that should have been impossible to close. So yes, Greece was overspending, but not by all that much. It was over indebted, but again not by all that much. How did this turn into a catastrophe that among other things saw debt soar to 170 percent of GDP despite savage austerity? The euro straitjacket, plus inadequately expansionary monetary policy within the eurozone, are the obvious culprits. But that, surely, is the deep question here. If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable.

Good On You, Alexis Tsipras (Part 1) -- David Stockman - Late Friday night a solid blow was struck for sound money, free markets and limited government by a most unlikely force. Namely, the hard core statist and crypto-Marxist prime minister of Greece, Alexis Tsipras. He has now set in motion a cascade of disruption that will shake the corrupt status quo to its very foundations.  And just in the nick of time, too. After 15 years of rampant money printing, falsification of financial market prices and usurpation of democratic rule, his antagonists—–the ECB, the EU superstate and the IMF—-have become a terminal threat to the very survival of the kind of liberal society of which these values are part and parcel.  In fact, the Keynesian central banking and the Brussels and IMF style bailout regime—which has become nearly universal—-eventually fosters a form of soft-core economic totalitarianism. That’s because the former first destroys honest financial markets by falsifying the price of debt. That means, in turn, that banks, bond funds and fast money traders alike take on increasing levels of unacknowledged and uncompensated risk, and that the natural checks and balances of honest financial markets are stymied and disabled. Short sellers are soon destroyed because the purpose of Keynesian central banking is to drive the price of securities to artificially high and unnatural levels. At the same time, hedge fund gamblers are able to engage in highly leveraged carry trades based on state subsidized (free) overnight money, and to purchase downside market risk insurance (“puts”) for a pittance.  Eventually bond and stock “markets” become central bank enabled casinos—-riven with mispriced securities, dangerous carry trades, massive unearned windfall profits and endemic instability. When an unexpected shock or “black swan” event threatens to shatter confidence and trigger a sell-off of these drastically over-priced securities, the bailout state swings into action indiscriminately propping up the gamblers.

Europe's big guns warn Greek voters that a no vote means euro exit --  The eurozone’s three biggest countries have raised the stakes in next Sunday’s Greek referendum with an orchestrated warning to voters that a no vote would mean exit from the single currency and the return of the drachma. As the Greek economy suffered on its first day of stringent capital controls, politicians from Germany, France and Italy joined the European commission in insisting that the poll was not about whether Athens could secure more favourable bailout terms but was about continued euro membership. The stark assessment was shared by George Osborne who told MPs that the UK economy would be affected by the chaos that would result from Greece leaving the eurozone. The chancellor’s comments came as ratings agency Standard & Poor’s issued a grim analysis of the repercussions that could follow an euro exit, the chances of which it has raised from 33% to 50%. S&P said there could be “a serious foreign currency shortage for the private and public sectors, potentially leading to the rationing of key imports such as fuel”.S&P added that without continuing European Central Bank support for Greek banks, the country’s “payment system would shut down and its banks would not be able to operate”. Eurozone leaders sought to exploit pictures of cashpoint queues and empty Athens restaurants to stress what was at stake if Greeks supported the decision of their prime minister, Alexis Tsipras, to reject the fresh austerity measures being demanded by the country’s creditors for continued financial support.

No vote means isolation, Europe warns Greeks - FT.com: European leaders have warned Greeks that Sunday’s vote on the international bailout is a referendum on membership of the eurozone, insisting rejection will bring no better offer and could have disastrous economic consequences. The warnings came as Greece edged closer to default, with a Greek official conceding Athens will not make a €1.6bn payment to the International Monetary Fund due by midnight on Tuesday. Missing the payment will put Greece in the same category as Zimbabwe, Sudan and Cuba, though credit rating agencies and eurozone officials say the move will not affect Athens’ other loans. Far more consequential is a €3.5bn payment that Athens must make to the European Central Bank next month. Bond investors on Tuesday continued to shy away from the eurozone’s riskier assets. German Bund yields were down 0.05 percentage points at 0.744 per cent while Portugal’s 10-year bond yields were the worst of the peripheral sovereign performers, up 0.025 percentage points.

'We refuse to accept it': Greece set to sue as it faces euro exit: Greece is threatening to sue the EU institutions and seek a court injunction to block the country's expulsion from the euro and stop a suffocation of the banking system. "The Greek government will make use of all our legal rights," said Yanis Varoufakis, the finance minister. "The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable.": . "We are taking advice and will certainly consider an injunction at the European Court of Justice," he told The Daily Telegraph. "The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable." The defiant stand came as Europe's major powers warned in the bluntest terms that Greece will be forced out of monetary union if voters reject austerity and reform demands in a shock referendum on Sunday."What is at stake is whether or not Greeks want to stay in the eurozone or want to take the risk of leaving," said French president Francois Hollande. Sigmar Gabriel, Germany's vice-chancellor, said that the Greek people should have no illusions about the choice before them. "It must be crystal-clear what is at stake," he said. "At the core, it is a yes or no to remaining in the eurozone." Chancellor Angela Merkel - standing next to him after an emergency meeting of party leaders - was more oblique, but the message was much the same. She insisted that the eurozone cannot yield to any one country. "If principles are not upheld, the euro will fail," Ms Merkel said.

What Happens If Greece Defaults on Its Payment to the IMF? - If Greece fails to pay the International Monetary Fund a $1.7 billion debt coming due at the close of business Tuesday—around 6 p.m. EDT—the country will immediately be in arrears to the fund, an event normally known in the financial world as a “default.” The default, which Greece has already warned will happen, would be the first by an advanced economy in the fund’s seven-decade history, as well as the largest single overdue payment. It would also put the new Athens government on a par with a small group of mostly conflict-ravaged debtors that have stiffed the IMF—a short list that includes Afghanistan’s Taliban and coup-stricken Haiti.  Zimbabwe strongman Robert Mugabe was the last major default to the emergency lender, in 2001. IMF rules allow for no grace period for Greece. And given the fund’s huge financial exposure to the debt-ridden country, the managing director would immediately notify the board of Greece’s overdue financial obligation. Although months of bailout talks have failed to win a new emergency-financing deal, IMF staff will still reach out to authorities in Athens to try to negotiate a plan for Greece to clear its arrears. The country ultimately risks expulsion from the fund’s membership if, after two years, the government fails to pay its debts, but beyond that long-term penalty, the immediate sanctions applied by the IMF are relatively limited. (See page 912 of the fund’s policy on dealing with member countries in arrears.) Much more important is what nonpayment signals to all the countries, investors and other creditors Greece owes money to, including domestic institutions such as pension funds and federal employees. The escalating prospect of a default to the IMF was a major reason why the European Central Bank its emergency loans to Greek banks and Greece’s government was forced to institute capital controls—financial marshal law that prevents a mass exodus of cash out of the country.

Ed Harrison: Some Thoughts on the Coming Defaults of Greece  - After the meeting in Riga, it is more clear than ever that the gap between Greece and the Eurogroup finance ministers is wide. Default looks likely and so we have to start thinking about what this means for Greece and for Europe. My base case has always been default within the eurozone but eventual Grexit over the longer-term horizon. However, there are other scenarios in which Grexit happens sooner, and those will be instructive for other peripheral countries when the next eurozone recession hits, particularly Italy. The assessment by Charles Wyplosz that Greece will probably default is very much in line with my thinking. As I wrote last month, “I anticipate either default in the hashing out of the reform list during the extension or default when the new bailout agreement is under discussion. In short, my base case is Greek default.” But default scenarios vary and my interpretation of what the options are differs from Wyplosz.  There are two principal options here. And because the ECB is the only entity in the eurozone that simulates a federal government, the scenarios depend crucially upon what it decides. In essence, the ECB will decide whether monetary union is invioable. In the first option, which I consider a base case, Greece defaults and remains within the eurozone. In this scenario, the ECB continues to act as lender of last resort because the large majority of Greek bank assets are not Greek government bonds. And the degree to which Greek government bonds impair Greek bank capital, the Greek government is able to help recapitalize their banks in some fashion.  If Greece were to leave, it would not be an immediate catastrophe for the eurozone because of mechanisms in place to prevent contagion. But a challenge will come later at the next cyclical downturn. Now, the path to exit from the eurozone is arduous because there are no mechanisms for getting there. It is a legal and operational quagmire that involves considerable preparation. As a result, Grexit can only occur through mutual consent in a formalized process that takes months if not years. This outcome is instructive for other peripheral nations because it would set a clear path through which to leave the eurozone.

Goldman Sachs Doesn’t Have Clean Hands in Greece Crisis  --According to investigative reports that appeared in Der Spiegel, the New York Times, BBC, and Bloomberg News from 2010 through 2012, Blankfein, now Goldman Sachs CEO, Cohn, now President and COO, and Loudiadis, a Managing Director, all played a role in structuring complex derivative deals with Greece which accomplished two things: they allowed Greece to hide the true extent of its debt and they ended up almost doubling the amount of debt Greece owed under the dubious derivative deals. A February 2012 BBC documentary on the Goldman Sachs deal provides a layman’s view of the dirty underbelly of the deal, calling it “a toxic import” from America that is “hastening” the downfall of Greece. On March 5, 2012, Nick Dunbar, who appears in the BBC documentary on the Goldman Sachs deal and author of The Devil’s Derivatives, penned a revealing article for Bloomberg News with Elisa Martinuzzi. The writers describe the Goldman Sachs deal with Greece as follows: “On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said… “A gain of 600 million euros represents about 12 percent of the $6.35 billion in revenue Goldman Sachs reported for trading and principal investments in 2001, a business segment that includes the bank’s fixed-income, currencies and commodities division, which arranged the trade and posted record sales that year. The unit, then run by Lloyd C. Blankfein, 57, now the New York-based bank’s chairman and chief executive officer, also went on to post record quarterly revenue the following year…“The revised deal proposed by the bank and executed in 2002, was to base repayments on what was then a new kind of derivative — an inflation swap linked to the euro-area harmonized index of consumer prices… “That didn’t work out well for Greece either. Bond yields fell, pushing the government’s losses to 5.1 billion euros, according to an analysis commissioned by Papanicolaou. It was ‘a very bad bet,’ he said in an interview.”

Greece Rejects 25th Hour to Change Course, then Asks Eurozone for Third Bailout; Rajoy Seeks to Save His Own Ass  -Eurozone leaders are pouring it on thick again today with warning after warning. Yesterday, German chancellor Angela Merkel, French president Francois Hollande, and European Commission president Jean-Claude Juncker were all I in on the Coordinated Meddling hoping to convince Greece citizens to accept the current offer. Today Spain's prime minister, Mariano Rajoy, joined the hit parade. Like yesterday's trio, he issued another blunt warning to Greek voters that a No vote will force the country to leave the eurozone.Rajoy also argued that it would be “good for Greece” if Mr Tsipras, who is backing a No vote, was defeated in the Greek plebiscite and forced out of office. Recall that Tsipras is good friends with Podemos leader Pablo Iglesias. Like Tsipras, Iglesias wants to halt Eurozone austerity rules. Moreover, Iglesias has threatened to take Spain out of the Eurozone. I suggest Rajoy is worried about his own ass in Spanish national elections later this year as Podemos has surged in the polls and is within striking distance of winning the election. In spite of the pleas, Greece Rejects Creditor Pleas to Change CourseGreece’s government entered its final day in an EU bailout defiantly rejecting eleventh-hour pleas from its eurozone creditors to change course. It is now on a path that will lead to default on a €1.6bn loan repayment to the International Monetary Fund and being without a financial safety net for the first time in five years. The IMF default, confirmed by Yanis Varoufakis, the finance minister, on Tuesday, will make Greece the first developed country in history to go into “arrears” with the fund. But it is not expected to have a direct impact on the country’s status in the eurozone. Credit rating agencies and EU bailout lenders have signalled they will not consider non-payment a “credit event” that triggers other defaults — a move that would bankrupt Athens immediately.

Program Notes for the Greek Endgame: Austerity, Cyprus, and Currency Union Exits - The Greek government has rejected the latest austerity and reform proposals from the EU, the ECB, and the IMF. It has declared a national referendum, scheduled for Sunday, and urges a “No” vote. “”We ask you to reject it with all the might of your soul, with the greatest margin possible,” says Prime Minister Alexis Tsipras. Greek banks, which have been hit by an accelerating run, are to remain closed until after the vote. Yet rumors swirl of behind-the-scenes talk and a last minute deal. We don’t yet know what lies ahead—default? Exit from the euro? Exit from the EU? Some kind of muddling through with a parallel currency and a declaration that any default is “only technical”? Answers to those questions will come only after Greek voters make a choice. Meanwhile, here are some program notes and links to background material that should help place the Greek crisis in the context of similar episodes elsewhere. How Tough has Greek Austerity Really Been? To hear Greeks tell it, their country has undergone a deeper slump and tougher austerity measures than any other European country. Some of their EU partners, on the other hand, portray the Greek government as unwilling to take moderate, common-sense measures that everyone else has already successfully implemented. What do the numbers say? This post, published at the time of the elections that brought the radical left Syriza party to power, shows that the Greek perception is largely correct. The slump in Greece, as measured by the gap between current and full-employment levels of GDP, has been catastrophic, a plunge of more than 20 percentage points. At the same time, budget cuts and tax increases have moved the best indicator of austerity—the underlying primary budget balance—nearly 20 percentage points toward surplus. Those movements far exceed what has happened in the United States or in any other European country.

Greece Asks for Last Minute Deal Before Bailout Expires -- Yves Smith - So much for that referendum! Just kidding! Extraordinary Eurogroup teleconference tonight 19:00 Brussels time to discuss official request of Greek government received this afternoon (@J_Dijsselbloem) I don’t see how this can get possibly get done, but the Eurozone has made and art form of extend and pretend, so if anyone could possibly pull it off, this bunch could. Letter embedded at the end of the post.  They are also applying for a third bailout. The Greeks recognize they can’t go it alone. And I don’t see how the government has any credibility after its full-bore effort to secure a “no” vote on the referendum. From the Wall Street Journal:Greece on Tuesday asked for a new bailout amid a last-minute diplomatic push to seal some kind of agreement before the country’s current rescue deal expires and it defaults on a payment to the International Monetary Fund.The Greek government submitted a proposal for a two-year agreement with the eurozone bailout fund in order to cover its financing needs and restructure its debt, according to a statement issued by Prime Minister Alexis Tsipras’s office.Eurozone finance ministers will discuss the Greek request in a conference call Tuesday night, said Jeroen Dijsselbloem, the Dutch finance minister who presides over these talks.There are big questions over whether the eurozone would consider Greece’s request. While European officials have said that a new aid program would be possible, it would require Mr. Tsipras to accept the policy overhauls and budget cuts he has so far rejected. Many officials also don’t trust Mr. Tsipras and his government to implement these measures.Note the British understatement: Just got copy of @atsipras letter to #ESM. Asks for extension of current bailout & for restructuring of EFSF loans. Those unlikely to fly

Germany's Merkel won't negotiate new Greece deal before referendum -- German Chancellor Angela Merkel on Tuesday said Germany was unwilling to talk with Athens about a new bailout program ahead of a July 5 Greek referendum, Reuters reported. "Before a referendum, as planned, is carried out, we won't negotiate anything new at all," she said. Greece on Tuesday proposed a two-year bailout plan in a last-ditch effort to reach a deal before the expiration of its current program at the end of the day. Merkel indicated it was too late to vet a proposal, blaming the Greek government for allowing the current program to expire, the report said.

Why Greece and Germany just don’t get along, in 15 charts - The Washington Post  On Sunday, Greek voters will head to the polls to decide whether to endorse an austerity program that Europe demands the country put in place in exchange for continued financial assistance. If Greek voters say "yes," the bailout will continue and Greece's ruling party, Syriza, which strongly opposes the program, will likely step down from power. If voters say "no," the bailout will end and Greece will may very well leave the euro zone, a bitter milestone in the currency union's short history. The referendum is the culmination of years of tussling between Greece and Europe, though when we say Europe, we really mean Germany, the euro zone's economic behemoth. Despite a crisis that has sometimes threatened the global economy — and maybe today, still does — Greece and Germany have just not been able to get along. Both certainly understand the ramifications: for Greece, years more of what has already become a Great Depression; and for Germany, its reputation as the linchpin of Europe. The Germans insist on a tough austerity program in order to continue aiding Greece. Syriza says it understands the need to get the country's financial house in order, but demands the flexibility to do so in a way that it feels is right. Whether Greece's voters have truly had enough of Germany's mandates will be revealed Sunday. Here's a guide to the data on why Germany and Greece are such different countries, among the factors that have made it difficult for them to see eye-to-eye on the most important questions facing Europe.

Greece debt crisis: Tsipras may resign if Greeks vote yes - BBC News: Greek PM Alexis Tsipras has threatened to resign over the result of a snap referendum on Greece's debt crisis due on Sunday. Mr Tsipras said a clear vote against austerity would help Greece negotiate a better settlement to the crisis. Otherwise, he warned, he would not stay in office to oversee more cuts. Greece's bailout expires on Tuesday, the same day it faces a deadline to repay a €1.6bn (£1.1bn) loan to the International Monetary Fund (IMF). The loan is to be repaid by 18:00 Washington time (22:00 GMT). As the deadline nears, reports in Greece say a last-minute offer was made by creditors on Monday night. EU leaders have warned that a rejection of the creditors' proposals on Sunday would mean Greece leaving the eurozone - though Mr Tsipras says he does not want this to happen. Talks between Greece and its creditors broke down last week, leading to Greek banks having to shut this week. Speaking live on state TV on Monday evening, Mr Tsipras appealed to Greeks to reject the creditors' proposals, saying this would give Greece "more powerful weapons" to take to the negotiating table. "We ask you to reject it with all the might of your soul, with the greatest margin possible," he said.

Greece Threatens 'Unprecedented' Injunction Against EU To Block Grexit - Having told the citizens of Greece that the European leaders will not kick them out of Europe because "the cost of throwing them out is too high, enormous," it appears Greek PM Tspiras has another plan to ensure - no matter what the outcome of the forthcoming referendum - that there is no actual Grexit. As The Telegraph reports, Greece has threatened to seek a court injunction against the EU institutions, saying "we are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable." And now, as The Telegraph reports, Plan B is in place... Greece has threatened to seek a court injunction against the EU institutions, both to block the country's expulsion from the euro and to halt asphyxiation of the banking system.“The Greek government will make use of all our legal rights,” said the finance minister, Yanis Varoufakis.

NATO Ally Turkey Breaks Ranks: Slams EU Austerity, Offers Greek Aid - While perhaps not on the scale of China or Russia assistance, Turkey has thrown its hat into the Troika-Greece farce by offering financial assistance to its embattled neighbor. As ekthimerini reports, "We are ready to help Greece survive its economic crisis with cooperation in tourism, energy, trade," Turkish Prime Minister Ahmet Davutoglu said and Turkey's left-wing parties showed solidarity by adding, "we believe that apart from imposing austerity policies on peoples of Europe, there can be more reasonable agreements." While no aid has been asked fro Turkey says it is ready to evaluate options.  As ekathimerini reports,

Greece defaults on IMF payment despite last-minute overtures to creditors - Greece made last-minute overtures to its international creditors for financial aid on Tuesday, but it was not enough to save the country from becoming the first developed economy to default on a loan with the International Monetary Fund. The left-wing Greek government had asked European partners for a two-year aid package to cover its financing needs. Later on Tuesday, Greece's Finance Minister Yanis Varoufakis indicated on a call with European counterparts that Athens might scrap a controversial July 5th referendum if a deal was reached, according to euro zone sources. The flurry of diplomacy was an attempt to bring creditors back into talks after five months of inconclusive negotiations brought Greece close to leaving the euro currency bloc. It came as tens of thousands of people descended on Athens' central Syntagma square over the past 24 hours in two different rallies - one to support the government and the other to push for Greece to remain in the euro. Greece, as expected, was not able to repay 1.6 billion euros it owed to the International Monetary Fund, in what was the largest missed payment in the Fund's history. Late on Tuesday, the IMF said it would examine a Greek request for a payment extension in due course. The latest Greek proposals came too late to prevent Greece's existing aid package - with locked-up funds it needs to pay wages, salaries and debt - from expiring.

Greece Defaults on IMF Loan Despite New Push for Bailout Aid - WSJ: Greece became the first developed country to default on the International Monetary Fund, as the rescue program that has sustained it for five years expired and its creditors rejected a last-ditch effort to buy more time. The Washington-based fund said the Greek government failed to transfer €1.55 billion ($1.73 billion) by close-of-business on Tuesday—the largest, single missed repayment in the IMF’s history. The failure to pay the IMF was a dramatic, if anticipated, conclusion to a day full of unexpected twists and turns. On Tuesday morning—with the clock ticking toward the midnight expiration on the European portion of Greece’s €245 billion bailout—officials in Athens said they were working on a new solution to the four-month old impasse with creditors. By the afternoon, Prime Minister Alexis Tsipras had asked for a new rescue program—the country’s third in five years—to help pay for some €29.15 billion ($32.52 billion) in debt coming due between 2015 and 2017. Late Tuesday, Greek officials were also raising doubts over their plans for a referendum planned for Sunday, in which the government had asked its citizens to vote against pension cuts and sales-tax increases demanded by its creditors.

With Greece, Is the IMF at Risk of Repeating Its Own Mistakes? - As Greece defaults on its payments to the International Monetary Fund, is the emergency lender at risk of repeating bailout history? So say some of its sharpest critics. A host of economists have accused the IMF of setting up Greece for failure in 2010 by rejecting an initial debt restructuring and focusing heavily on near-term budget cuts. Instead of a return to growth by 2012, as the fund forecast, the country’s economy ended up shrinking by 25% over four years. By 2012, fund officials also pressed Europe to give Greece significantly more debt relief. The IMF seemingly took every opportunity to remind the eurozone of its promise to help cut Greece’s debt ratio to significantly below 110% of gross domestic product from over 170%. Some IMF officials privately said it would be difficult to reach that level without a write-down of the value of the debt. The fund also admitted that it underestimated the effects of budget belt-tightening on Greece and other eurozone countries. And the fund gave a half-hearted mea culpa in 2013, saying that a restructuring earlier would have been helpful, But Ajai Chopra, a visiting fellow at the Peterson Institute for International Economics and a former deputy director of the IMF’s European Department, said recent bailout negotiations with Greece show the IMF and European creditors are treading the same ground. “They are bent on repeating past policy errors of forcing drastic growth-killing fiscal adjustment in a short period of time instead of providing debt relief,” Mr. Chopra said. “I recognize that it is a fantasy to think that creditors are willing to adopt a less stifling mix of financing and adjustment that promotes growth,” he said. “But it is equally a fantasy to think the current set of policies insisted on by creditors will address Greece’s long-term problems.” Joseph Stiglitz, a Columbia University professor and former chief economist for the World Bank, said “doubling down on a set of recipes that have proven themselves to produce a depression is not a recipe for success.”

Alexis Tsipras backs down on many Greece bailout demands - FT.com: Greek Prime Minister Alexis Tsipras will accept most of the bailout creditors’ conditions offered last weekend but is still insisting on a handful of changes that could thwart a deal, according to a letter he sent late on Tuesday night.  The two-page letter to the heads of the European Commission, International Monetary Fund and European Central Bank and obtained by the Financial Times, elaborates on Tuesday’s request for an extension of Greece’s now-expired bailout and for a new, third rescue worth €29.1bn. Eurozone officials involved in the talks cautioned Mr Tsipras’s remaining demands in the letter were “not a handful of minor changes” and would have “significant fiscal impact” and may not be acceptable to creditors. Wolfgang Schäuble, Germany’s hardline finance minister, gave the latest Greek initiative short shrift, saying it was “no basis” for serious talks. Angela Merkel, German chancellor, told the Bundestag there could be no talks until after Greece’s referendum on Sunday. “Whether there can be a compromise we must decide at the right time,” she said. The letter was sent as eurozone central bankers were preparing on Wednesday to raise the heat on Greece and its banks by restricting their access to emergency loans, a decision that could topple at least one Greek bank. Although the bailout’s expiry at midnight Tuesday night means the extension is no longer on the table, Mr Tsipras’s letter, which marks a significant climbdown from his previous position, could serve as the basis of a new bailout in the coming days. Eurozone finance ministers are due to discuss Mr Tsipras’s proposal in a conference call at 5:30pm, Brussels time (4.30pm BST). The Greek concessions emerged after a night of infighting in the leftwing Syriza government over whether to call off Sunday’s referendum to avert a possible Yes vote that would force the prime minister to offer his resignation.

Tsipras looks like he is crumbling -  It looks like Alexis Tsipras is crumbling. After the banks closed and public opinion started moving against him, the Greek prime minister seems desperate for a deal with his creditors. Athens has now defaulted to the International Monetary Fund, adding to the pressure. But it is not clear lenders will cut him any slack. They may prefer to deal with his successor. When Tsipras announced last week that Greece would hold a referendum on whether to accept a cash-for-reforms deal proposed by the euro zone and the International Monetary Fund, he said the proposals amounted to “possibly the humiliation of an entire people”. The snag is that Tsipras did this when both the government and its banks were virtually out of cash. The European Central Bank refused to supply any more liquidity to banks. As a result, the banks were closed and on June 30 the government defaulted on a 1.5 billion euro payment due to the IMF. The immediate reaction of many Greeks to Tsipras’ referendum idea was to stand up to the creditors and vote “No”. But, since capital controls were imposed with cash withdrawals limited to 60 euros a day, opinion has started to swing towards “Yes”. The euro zone countries also made clear that voting “No” would amount to quitting the euro, something most Greeks do not want. Tsipras reacted by sending the euro zone bailout fund a new proposal on June 30. This pleaded for an extension to the bailout program, as well as a restructuring of Athens’ debt. The euro zone immediately rejected the plan. The Finnish finance minister pointed out that it was too late to extend a program. Angela Merkel, Germany’s chancellor, said there would be no new negotiations until after the July 5 referendum.The Greeks then said they would submit a second paper outlining reforms they plan to conduct. The euro zone finance ministers said they would hold another teleconference on July 1 to take stock of the situation, but that doesn’t quite amount to reopening negotiations.

Tsipras Allegedly Caves In On Many Creditor Demands; No Vote Leads Polls but Yes Gaining -- Stock futures are up this morning on news that Alexis Tsipras Backs Down on Many Greece Bailout Demands. A reader asked me about Tsipras' cave in, but I responded it is nothing but a political ploy ahead of the July 5 referendum as to whether or not Greece should accept the creditor's take-it-or-leave-it offer. I am not the only one who sees it that way. In spite of numerous headlines that make it appear as if this was a significant breakthrough.

  • Wolfgang Schäuble, Germany’s hardline finance minister, gave the latest Greek initiative short shrift, saying it was “no basis” for serious talks.
  • Eurozone officials involved in the talks cautioned Mr Tsipras’s remaining demands in the letter were “not a handful of minor changes” and would have “significant fiscal impact” and may not be acceptable to creditors.
There was no cave in, this is merely electioneering by Tsipras to counteract the nonstop meddling and electioneering by Germany, France, Spain, and European Commission president Jean-Claude Juncker. FXStreet reports Greek Referendum Poll Shows Lead for 'No' Vote Leading but 'Yes' Catching Up. Another Greek bailout referendum opinion poll is out, conducted by prorata polling institute for efimerida ton synatkton newspaper, with responses before bank closure showing yes 30 pct, no 57 pct, don't know 13 pct, while responses after bank closure have seen yes 37 pct, no 46 pct, don't know 17 pct. Rather than caving in, simply view this proposal as a means to influence votes. As I noted yesterday, "As pertains to game-playing, Greek leaders have run circles around the eurozone nannycrats."

Greek debt crisis: Merkel rejects request for new talks ahead of Greece referendum: The deadline for Greece to make its payment to the International Monetary Fund has passed without a deal after German Chancellor Angela Merkel dismissed a late bid for aid. While Merkel rejected talks before a July 5 referendum called by Greek Premier Alexis Tsipras on further budget cuts, euro-area finance ministers signalled the deadlock may be thawing and, as capital controls bite, Greece may be wobbling. "We'll negotiate about absolutely nothing before the planned referendum is held," Merkel told reporters in Berlin.  The exchange between the chief antagonists in the latest chapter of the crisis saga marked the final hours before Greece staggers into the economic unknown. The Greek vote, which leaders in Berlin and Paris have labeled a decision on remaining in the euro, could also determine whether the European Central Bank withdraws its emergency loans. That would decimate the economy. "A 'no' in the referendum would make it almost impossible for the IMF and for Europe to provide support for Greece beyond what would de facto be humanitarian relief,"

Europe rallies behind Merkel as Greeks hit breaking point - Her critics call her the villain of the Greek drama, a taskmaster forcing a bankrupt nation to its knees. But even as the Greeks reach their breaking point, the leaders of Europe are lining up behind German Chancellor Angela Merkel. In exchange for a German-led rescue, Merkel has demanded years of harsh budget cuts and painful restructuring in Greece. But after a five-year economic depression in Greece and demands for fresh cuts to extend its bailout, the country’s new leftist prime minister, Alexis Tsipras, has gone on the offensive. He called a surprise referendum for Sunday, asking citizens to finally reject German-backed austerity — with a “no” vote possibly crashing Greece out of the euro zone and slamming global ­markets. So firm is Merkel’s line on austerity that on Tuesday she appeared to turn down a last-minute counterproposal by ­Tsipras for a whole new bailout, arguing that it was no use discussing a fresh deal until after the results of Sunday’s vote. Her tough response came as European finance ministers also rejected a Hail Mary request by Greece to extend its existing bailout, and as Athens missed a 1.5 billion euro ($1.67 billion) payment to the International Monetary Fund — officially becoming the first developed country in the history of the institution to default on a rescue loan. Greece was set to continue talking on Wednesday with offi cials from the 18 other nations that use the euro, in what seemed like an uphill battle to secure a new lifeline. Tsipras, meanwhile, has been scrambling to win the support of Europe’s leaders. Together, he argues, they can ignite a revolution against Merkel’s fiscal tyranny, which is also crimping spending from Lisbon to Rome, Paris to Dublin.

George Osborne spearheads assault to stop Greece 'suicide’ -  George Osborne on Monday led attempts to strong-arm Greece into voting for a bail-out package as he warned that a Greek exit would threaten Britain’s financial stability. Britain joined Germany, France, Italy and the European Commission in telling the Greek people that refusing austerity measures in next Sunday’s referendum would catapult them “from the eurozone and from Europe”. Jean-Claude Juncker, the European Commission president, warned the Greeks – who are on Tuesday night expected to default on a €1.5 billion (£1.1 billion) loan from the International Monetary Fund (IMF) – not to “commit suicide” by rejecting the proposed €12 billion loans-for-reforms package. The threat comes despite voters being asked only whether they support the bail-out. Some £36 billion was wiped off the value of major British companies on the FTSE 100 as markets slid around the world, while Greeks queued in their thousands at cash machines, petrol stations and supermarkets for a third day.It emerged on Monday night that British taxpayers could be tapped for hundreds of millions of pounds to support Greece if it leaves the currency, under emergency plans prepared by the EU. Treasury sources conceded that Greece could request help from a balance of payments support system available to all 28 EU members to relieve its public finances. Britain pays into the scheme, which has previously been used by Hungary, Latvia and Romania. The cash-strapped Greek government will also be hit today with a €1.9 billion bill for public salaries and pensions.

IMF: austerity measures would still leave Greece with unsustainable debt - Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors. The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable. The documents show that the IMF’s baseline estimate – the most likely outcome – is that Greece’s debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. That is well above the 110% the IMF regards as sustainable given Greece’s debt profile, a level set in 2012. The country’s debt level is currently 175% and likely to go higher because of its recent slide back into recession. The documents admit that under the baseline scenario “significant concessions” are necessary to improve Greece’s chances of ridding itself permanently of its debt financing woes. Even under the best case scenario, which includes growth of 4% a year for the next five years, Greece’s debt levels will drop to only 124%, by 2022. The best case also anticipates €15bn (£10bn) in proceeds from privatisations, five times the estimate in the most likely scenario. But under all the scenarios, which all assume a third bailout programme, looked at by the troika – the European commission, the European Central Bank and the IMF – Greece has no chance of meeting the target of reducing its debt to “well below 110% of GDP by 2022” set by the Eurogroup of finance ministers in November 2012.

Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum  --  Yves Smith - Post-bailout expiration dynamics are likely to produce even worse outcomes for Greece than it had on offer from the creditors last month. It isn’t just that the bailout funds of €7.2 billion are gone; it’s that Greece has gone over an event horizon with stringent capital controls on and the ECB ready and able to push the Greek banking system over the brink.  Greece’s weak negotiating position is even weaker now. Even with a boost via a “no” vote on the referendum this Sunday, if the Greek government were to take a firmer stance, the creditors have the means and the incentives to keep crushing the economy via financial strangulation. The ruling coalition would not be able to hold on to power for more than a month or two as the economy continued to decay at an accelerating rate.  This is a ruthless, brutal power play in progress. Too many key actors are driven by their own narrow imperatives, most important of all, their domestic politics, as well as institutional rigidities. Those constraints work against taking a broader view and recognizing that the immolation of Greece will blow back and damage the European project and their own economies. But that would require much bolder, visionary thinking and action. The current crop of leaders has instead become habituated to incremental patches even though it is widely recognized that the architecture of the Eurozone is incomplete and wobbly. But no one is willing to move to a higher level of integration, in large measure because, particularly for Germany, that entails the loss of power and privilege at the national level. Tsipras has recognized the weakness of his position too late. Yesterday, he tried making a desperate, last-minute deal to ward off an IMF default and secure the bailout funds before the program expired. But that clearly could never happen. It would require approval from all of the other 18 states in the Eurozone, including parliamentary approval in Germany.  Moreover, Germany wasn’t even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt.

Greek poll points to no vote in referendum - Most Greeks plan to reject the country’s creditors bailout terms in a referendum to be held this weekend though support for Greece to stick to austerity and secure its place in the eurozone is growing, a poll showed Wednesday. In the first poll figures published since Prime Minister Alexis Tsipras shocked Europe by calling a vote on Sunday on whether Greece should accept more austerity in exchange for rescue funding, 46% said they back the no vote. A no vote would see Greece reject demands from eurozone partners and the International Monetary Fund to implement more cutbacks and tax hikes. But support for the no vote had been much higher, at 57%, before the Greek authorities on Monday imposed capital controls and closed banks to prevent the collapse of country’s financial system. The data, put together by pollster ProRata and published in the daily newspaper Efimerida ton Syntakton, showed that 37% of respondents backed the yes vote. Support for the yes vote was just 30% before the decision to shut banks this week.

Greece faces supply-chain crunch as crisis deepens - Supply chain experts say that Greek importers and exporters could be affected as soon as this week by the country's decision over the weekend to shut down its banking system for at least seven days as it seeks to prevent money from flooding out of the country. That decision will have an immediate impact on local Greek companies' access to capital and ability to get supplies, which could ripple out through regional and global supply chains over the next few weeks or months, the experts said. And if the latest crisis drags on, it could jeopardize regional distribution networks and eventually prompt export partners to look elsewhere. "Right now you can bet that there are lots of European companies that are reassessing: what does it mean to be doing business with Greek companies," said Greg Johnsen, chief marketing officer at GT Nexus, a supply chain technology firm. In the meantime, global delivery companies on Monday said for them it's largely business as usual in the country. United Parcel Service Inc., Deutsche Post AG's DHL and TNT Express NV confirmed they are operating normal services in the country and said they are monitoring the situation for changes. Germany-based DHL put measures in place to ensure stable operations in Greece, including asking employees to fill up vehicles regularly in case of a fuel shortage, as well as monitoring credit terms for customs duties that must be paid on inbound shipments.

Mixed Messages and No Progress in Greek Crisis - — Bewildered Greeks, not to speak of people throughout Europe and the world, could be forgiven for wondering who, if anyone, is in charge.In the past few days, Prime Minister Alexis Tsipras of Greece has blown up negotiations with European creditors on staving off default, then retreated and accepted more or less the same terms, only to have European leaders tell him the offer had expired.Greeks are supposed to vote on a referendum this weekend, but no one there or elsewhere seems sure what they will be asked, or what the consequences will be for voting yes or no.And European leaders here and in Berlin and Paris have been saying distinct — sometimes directly contradictory — things about whether there is a bailout deal for Greece still on the table, and whether they want Greece to hold its referendum before they can renew discussions about it.The question of how to save Greece, debated for more than five years, is the European Union’s recurring nightmare, and despite repeated failures to solve the beleaguered nation’s troubles, it has become a seemingly endless exercise in doing the same thing over and over in hope of a different result.Europe’s paralysis, deepened by the ever-shifting, in-your-face tactics of Greece’s left-wing government, has exposed a fundamental dysfunction — or, the designers would say, a deliberate muddle and ingenious safety valve — at the heart of the so-called European project, a push begun in 1957 to bring the states of Europe into “ever closer union.”Germany is essentially the hegemon in Europe, but it does not like being seen as running the show,” said Charles Grant, the director of the Center for European Reform, a research group in London. And, unlike Syriza, it works hard to lobby support from other countries. Greece’s left-wing government, Mr. Grant added, has itself strengthened Germany’s hand in pushing for austerity by “behaving so appallingly” that it alienated countries like France and Italy that were initially more sympathetic to Greek arguments in favor of debt relief and a relaxing of demands for budget cuts.

IMF’s Lagarde says Greece must reform before debt relief (Reuters) - One day after Greece became the first developed economy to default on a loan with the International Monetary Fund, the head of the international lender on Wednesday suggested Greece should move to reform its economy before its European creditors give it a break on its debt. In an interview with Reuters, IMF Managing Director Christine Lagarde avoided any pointed criticism of Greek Prime Minister Alexis Tsipras but still hinted at frustrations as she noted that Greece's economy had been on the road to recovery before the current left-wing Syriza party came to power. Lagarde was asked which should come first, commitments to reform by Athens or relief on its debts from euro zone governments. "Given where we are, my suspicion is it would be much preferable to see a deliberate move towards reforms (and) for that to be followed through by the other side of the balance," Lagarde said. Greece's government had pushed for debt relief in months of negotiations with its European and IMF lenders on a cash-for-reform deal before Athens abruptly called a referendum. A defiant Tsipras urged Greeks on Wednesday to reject an international bailout deal - which calls for even greater austerity measures - wrecking any prospect of repairing broken relations with EU partners before the referendum on Sunday that may decide Greece's future in Europe.

Tsipras urges Greeks to defy creditors’ ‘blackmail’ - FT.com: Greece’s prime minister accused Europe’s leaders of attempting to “blackmail” Greek voters, just hours after apparently holding out an olive branch to the country’s creditors by accepting most of the terms of the economic reform plan they had tabled last weekend. Eurozone officials said they were baffled by the mixed messages coming from Greece, which this week missed a €1.5bn payment to the International Monetary Fund and has been forced to impose capital controls to avert a financial meltdown. In a nationally-televised address, Alexis Tsipras, the Greek premier, urged his countrymen to vote No in a referendum on whether they should accept tough terms for bailout aid, and accused EU leaders of threatening to drive Greece out of the euro. He called EU leaders “extremist conservative forces” who had forced the shutdown of Greece’s banks “because the government decided to give people a say”. “The sirens of destruction are blackmailing you to say yes to everything without any prospect of exiting the crisis,” Mr Tsipras said. The prime minister’s hardline speech, which some eurozone officials saw as a declaration of impending Grexit, came despite an apparent major climbdown just hours earlier. In a letter sent to Greece’s creditors he accepted most of the terms of the earlier bailout. Markets across Europe rose on the news. But the letter was given short shrift by eurozone officials. They said the remaining concessions Mr Tsipras was seeking were “not a handful of minor changes” and the letter could not form the basis of the new €29.1bn bailout programme Athens is now seeking.

Why we recommend a NO in the referendum – in 6 short bullet points - Yanis Varoufakis:

  1. Negotiations have stalled because Greece’s creditors (a) refused to reduce our un-payable public debt and (b) insisted that it should be repaid ‘parametrically’ by the weakest members of our society, their children and their grandchildren
  2. The IMF, the United States’ government, many other governments around the globe, and most independent economists believe — along with us — that the debt must be restructured.
  3. The Eurogroup had previously (November 2012) conceded that the debt ought to be restructured but is refusing to commit to a debt restructure
  4. Since the announcement of the referendum, official Europe has sent signals that they are ready to discuss debt restructuring. These signals show that official Europe too would vote NO on its own ‘final’ offer.
  5. Greece will stay in the euro.  Deposits in Greece’s banks are safe.  Creditors have chosen the strategy of blackmail based on bank closures. The current impasse is due to this choice by the creditors and not by the Greek government discontinuing the negotiations or any Greek thoughts of Grexit and devaluation. Greece’s place in the Eurozone and in the European Union is non-negotiable.
  6. The future demands a proud Greece within the Eurozone and at the heart of Europe. This future demands that Greeks say a big NO on Sunday, that we stay in the Euro Area, and that, with the power vested upon us by that NO, we renegotiate Greece’s public debt as well as the distribution of burdens between the haves and the have nots.

Varoufakis Will Resign If Referendum Passes, Says Would Rather "Cut Off Arm" Than Sign -- Yanis Varoufakis didn’t think it would come to this.  A little over a year ago, the Greek FinMin documented his thoughts on a possible Greek endgame, asking “what if Berlin and Frankfurt don’t budge and tell Athens to go jump off the tallest cliff”? That, Varoufakis said, was unlikely because “Berlin will prefer to accommodate the Greek government and to look with a great deal more kindness on the request for a debt relief conference.”  14 months and one referendum gamble later and Berlin is all out of accommodation and has indeed told Athens to “go jump off the tallest cliff,” which means that if the Greek people make the ‘wrong’ decision on Sunday by voting to accept the (no longer valid) demands of creditors, Varoufakis may be forced to do what anyone would do in the event of an adverse referendum outcome: pen a resignation letter and cut off an arm. Bloomberg has moreYanis Varoufakis said Greece won’t “extend and pretend” that it can pay its debts, vowing to quit as finance minister if voters don’t support him in Sunday’s referendum.With banks shuttered and Greece’s economy hobbled by capital controls, Varoufakis said in a Bloomberg Television interview in Athens that he would “rather cut my arm off” than sign a deal that fails to restructure Greece’s debt. The 54-year-old economics professor said he “will not” continue in his post if Greece endorses auste

Bank closures taking their toll on businesses across Greece -- Less than 72 hours have elapsed since banks were closed and capital controls imposed on Greece, but the effect has been devastating. An economy, already labouring under an unprecedented liquidity squeeze, has come to a juddering halt. Shops have closed, factories have stopped operating and firms have told employees to take enforced leave until the country holds a referendum on July 5 over the terms of further financial assistance from international creditors. Many larger companies have refused to pay staff altogether. “Consumption has dropped by 70%,” said Vassilis Korkidis, who heads the National Confederation of Hellenic commerce. “No one trusts anyone anymore, so no transactions are taking place between wholesale and retail,” he said. The confederation, which represents some 280,000 small and medium-sized businesses, has been badly hit by capital controls. More than half of Greece’s food and raw materials are imported, but without a functioning banking system there was no way to wire money abroad and pay for supplies, said Korkidis. “Multinationals can, but local companies can’t,” he sighed. “Shortages are manageable this week because traders have stock, but next week that won’t be the case. We are experiencing things we never thought we’d see.” The cap on cash withdrawals of €60 a day has attributed to the precipitous drop in consumption. And amid fears of it only being a matter of time before banks completely run out of notes and coins , there is mounting speculation that the limit may be reduced to a paltry €20.

Plight of Greek pensioners heaps pressure on Tsipras -- Long lines of pensioners jostling to get into a limited number of banks opened specially to pay out retirement benefits have become a powerful symbol of the misery facing Greece and the problems mounting for Prime Minister Alexis Tsipras. With banks closed down and capital controls imposed to shield the financial system from collapse, the depth of the problems facing the country has become clearer each day. Tsipras' leftwing government came to power in January vowing to protect pensioners and much of the breakdown in relations with international creditors centered on its refusal to accept the cuts in pensions that the lenders demanded. Mindful of the fact that many older Greeks do not use credit or debit cards and so do not have access to cash machines, it has ordered 1,000 banks to open across the country to pay out a maximum of 120 euros and issue cards. But in the process it has created a compelling reminder of the costs its confrontation with the lenders is inflicting on a society already deeply scarred by more than five years of harsh austerity imposed under successive bailout accords. "In line for a handful of euros," the conservative Eleftheros Typos newspaper headlined on Thursday. "The dignity promised by Tsipras turns into humiliation for thousands of pensioners".

Path to Grexit tragedy paved by political incompetence: Since our last episode, the crisis in Greece has escalated further. Negotiations between the government and its creditors collapsed over the weekend, and restrictions on bank withdrawals will now follow. The next step is for the government to issue the equivalent of IOUs to pay salaries and pensions. The country is seemingly on the slippery slope to exiting the euro.Many of us doubted that it would come to this. In particular, I doubted that it would come to this. Nearly a decade ago, I analyzed scenarios for a country leaving the eurozone. I concluded that this was exceedingly unlikely to happen. The probability of a Grexit, or any Otherexit, I confidently asserted, was vanishingly small.  My analysis was based on a comparison of economic costs and benefits of a country exiting the euro. The costs, I concluded, would be severe and heavily front-loaded. Raising the possibility, however remote, of exit from the euro would ignite a bank run in said country. The authorities would be forced to shutter the financial system. Economic activity would grind to a halt. Losing access to not just their savings but also imported petrol, medicines and foodstuffs, angry citizens would take to the streets.  Not only would any subsequent benefits, by comparison, be delayed, but they would be disappointingly small.  I stand by the economic argument. Where I need to mark my views to market, however, is for underestimating the role of politics. In particular, I underestimated the extent of political incompetence – not just of the Greek government but even more so of its creditors.

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

Greek bank official dismisses 'haircut' report as 'baseless' - The Financial Times reported on Friday that Greek banks were preparing contingency plans for a possible "haircut" on deposits amid fears of financial collapse, a report the country's banking association said was "completely baseless". The report came two days ahead of a referendum in which Greeks will accept or reject the tough terms of an aid deal with international creditors, a vote with the potential to decide the country's future in the euro zone. Greek leaders have repeatedly dismissed the possibility they will have to "bail-in" depositors to prevent the collapse of the banking system. But citing bankers and business people with knowledge of the measures, the Financial Times reported: "The plans, which call for a 'haircut' of at least 30 percent on deposits above 8,000 euros, sketch out an increasingly likely scenario for at least one bank." The report quoted a source as saying: "It (the haircut) would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout program." The head of Greece's Bank Association dismissed the report as "completely baseless". Louka Katseli, who also chairs the National Bank of Greece, told Skai TV that suggestions that authorities were planning a raid on deposits belonged "only in the sphere of fantasy." "There are no such scenarios at any Greek bank, not even as an exercise on paper,"

'Yes' Camp Takes Slim Lead in Greek Bailout Referendum Poll - Supporters of Greece's bailout terms have taken a wafer-thin opinion poll lead over the 'No' vote backed by the leftist government, 48 hours before a referendum that may determine the country's future in the euro zone. The poll by the respected ALCO institute, published in the Ethnos newspaper on Friday, put the 'Yes' camp on 44.8 percent against 43.4 percent for the 'No' vote. But the lead was well within the pollster's 3.1 percentage point margin of error, with 11.8 percent saying they are still undecided. Given a volatile public mood and a string of recent election results that ran counter to opinion poll predictions, the result is in effect completely open.  Credit ratings agency Fitch said the banks were already effectively bust and would go to the wall within days unless the European Central Bank increases emergency liquidity assistance to help them cope with a wave of withdrawals. There has been little time for campaigning but Tsipras is due to address a mass rally of 'No' supporters in Athens' central Syntagma Square outside parliament on Friday evening, while 'Yes' campaigners plan a rally at the old Olympic Stadium.

Nine Myths About the Greek Crisis – by James K. Galbraith - The citizens of Greece face a referendum Sunday that could decide the survival of their elected government and the fate of the country in the Eurozone and Europe. Narrowly, they’re voting on whether to accept or reject the terms dictated by their creditors last week. But what’s really at stake? The answers aren’t what you’d think. I have had a close view of the process, both from the US and Athens, after working for the past four years with Yanis Varoufakis, now the Greek finance minister. I’ve come to realize that there are many myths in circulation about this crisis; here are nine that Americans should see through.

  • 1. The referendum is about the Euro. As soon as Greek Prime Minister Alexis Tsipras announced the referendum, François Hollande, David Cameron, Matteo Renzi, and the German Deputy Chancellor Sigmar Gabriel told the Greeks that a “no” vote would amount to Greece leaving the Euro. Jean-Claude Juncker, President of the European Commission, went further: he said “no” means leaving the European Union. In fact the Greek government has stated many times that – yes or no – it is irrevocably committed to the Union and the Euro. And legally, according to the treaties, Greece cannot be expelled from either.
  • 2. The IMF has been flexible. IMF Managing Director Christine Lagarde claims that her institution has shown “flexibility” in negotiations with the Greeks. In fact, the IMF has conceded almost nothing over four months: not on taxes, pensions, wages, collective bargaining or the amount of Greece’s debt. Greek chief negotiator Euclid Tsakalatos circulated a briefing on the breakdown that gives details, and concludes: “So what does the Greek government think of the proposed flexibility of the Institutions? It would be a great idea.”

Turmoil in Greece has security as well as economic implications - Tucked in a tough corner of Europe, Athens has been battling foreign invasions at least as long as records can tell the tale. So as this deeply divided nation prepares for a Sunday vote about whether to swallow more painful austerity from Europe, the consequences of the outcome run far beyond whether Greece will receive a new financial lifeline. In a Europe that is coming unmoored from a post-Cold War order that appeared stable just a few years ago, the outcome of Greece’s decision is certain to influence how European Union leaders handle the vast security challenges that stretch before them. An unprecedented migrant crisis, a war in Ukraine and a growing threat of Islamist militancy have shaken the 28-nation alliance, as nationalism and economic populism surge in many capitals. As Greeks go to polling places Sunday for a historic referendum, the country’s instability is bound to persist no matter the outcome. With food staples dwindling in supermarkets, gas stations running low on fuel and nearly all imports grinding to a temporary halt, Greece will need help from far beyond its borders as it wakes up Monday morning to life after the decision, leaders here said. “We are surrounded by a triangle of crisis and destabilization,” Greek Foreign Minister Nikos Kotzias said in an interview, noting the conflict in Ukraine, the bloody gains by the Islamic State in Syria and Iraq, and the civil war in Libya. “Everybody has to ask himself what will happen if this center of stabilization, Greece, will be destabilized.” Both sides have painted the vote as a decision that stretches beyond the question on the ballot, which asks Greeks whether they want to take Europe’s tough austerity terms.

Spain's PM says Greek exit could send message euro is reversible (Reuters) - Spain's Prime Minister Mariano Rajoy said on Tuesday a Greek exit from the euro could send a message that the common currency union is reversible and open up the possibility that other countries might follow suit. Greece looked set on Tuesday to default on a crucial repayment to the International Monetary Fund, deepening its financial crisis ahead of Sunday's referendum on a bailout deal Athens has rejected. Greece's European partners say the vote will be a choice on whether to stay in the euro. "What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible," Rajoy said in a radio interview. "People may think that if one country can leave the euro, others could do so in the future. I think that is the most serious problem that could arise (from a Greek exit)." Rajoy's centre-right People's Party (PP), which has implemented stringent austerity measures to reduce Spain's deficit since the euro zone debt crisis, has taken a hard line against any leniency over Greece's debt. Spain received a European bailout of over 40 billion euros ($45 billion) for its troubled lenders in 2012 but has since overhauled its banking system and has become one of the fastest-growing economies in the eurozone. Uncertainty over Greece's future in the currency bloc has shaken investor faith in Spanish assets.

Europe’s Many Economic Disasters, by Paul Krugman - Why are there so many economic disasters in Europe? Actually, what’s striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn’t — Spain’s story is all about private lending and a housing bubble. And Finland’s story doesn’t involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. Does this mean that creating the euro was a mistake? Well, yes. But that’s not the same as saying that it should be eliminated now that it exists. The urgent thing now is to loosen that straitjacket. This would involve action on multiple fronts... But there are many European officials and politicians who are opposed to anything and everything that might make the euro workable, who still believe that all would be well if everyone exhibited sufficient discipline. And that’s why there is even more at stake in Sunday’s Greek referendum than most observers realize. One of the great risks if the Greek public votes yes — that is, votes to accept the demands of the creditors, and hence repudiates the Greek government’s position and probably brings the government down — is that it will empower and encourage the architects of European failure. The creditors will have demonstrated their strength, their ability to humiliate anyone who challenges demands for austerity without end. And they will continue to claim that imposing mass unemployment is the only responsible course of action. What if Greece votes no? This will lead to scary, unknown terrain. Greece might well leave the euro, which would be hugely disruptive in the short run. But it will also offer Greece itself a chance for real recovery. And it will serve as a salutary shock to the complacency of Europe’s elites.

Eurozone inflation eases, reviving deflation fears -  The eurozone's annual rate of inflation eased in June as consumer prices barely rose from their year-ago levels, a reminder that the risk of a slide into deflation hasn't been eliminated. Surveys of businesses and economic data suggest the eurozone economy continued to grow in the second quarter, although likely at the same modest pace as in the previous six months. However, should Greece be forced to leave the eurozone following a referendum to be held on July 5, that recovery could be put at risk if business confidence in the remainder of the currency area takes a hit, or borrowing costs in other members that have high levels of debt rise. A return to economic stagnation, or outright contraction, could see prices start to fall again. After a long, steady decline in the inflation rate, consumer prices first fell below their year-ago levels in December. The next month, the European Central Bank announced the launch of a program of quantitative easing, under which it would buy more than 1 trillion euros ($1.1 trillion) of mostly government bonds. It launched the program in March. Eurozone consumer prices rose for the first time in six months during May, a victory for the ECB in its campaign to avoid a debilitating period of deflation, during which businesses and households might hold back on spending in the expectation that they will get better deals in the future. The European Union's statistics agency Tuesday said consumer prices in June were 0.2% higher than a year earlier, a reduction in the rate of inflation from 0.3% in May. Excluding prices for energy, food and alcohol that are largely beyond the ECB's influence, inflation also eased. The core annual rate dropped to 0.8% from 0.9% as the rise in services prices slowed to 1.0% from 1.3% on the year.

ECB adds to quantitative easing list, extending crisis (Reuters) - The European Central Bank added 13, mainly infrastructure-focused, government-linked agencies to its 1 trillion euro quantitative easing (QE) buying list on Thursday. It said when it started QE that it would regularly review what it could buy. A breakdown by analysts of the newly eligible bond issuers showed it gave the ECB an extra 66 billion euros ($73.10 billion) of potential debt to buy from, with just over 50 billion in its preferred 2 to 30-year maturity range. For full list of eligible agencies click: http://www.ecb.europa.eu/mopo/implement/omt/html/pspp.en.html  The largest newcomers are from Italy, France and Austria and analysts at ABN Amro said it also opened the door to the euro zone's national central banks adding new corporate debt to their own, more bespoke, buying lists. Benoit Coeure, one of the ECB's top policymakers, said this week there were new anti-crisis tools that could be used if necessary, while ECB meeting minutes this year have also flagged options such a bank bond purchases. ABN Amro added that if the central bank would like to add more utility-focused assets to its eligible universe, it could add up to an extra 100 billion euro based on IBOXX classification and the amount of investment grade assets on tap.

Sweden cuts repo rate to -0.35% on uncertainty from Greece - Sweden's Riksbank has cut its main repurchase, or repo, rate to minus 0.35% from minus 0.25%, saying the Swedish krona has become stronger than the central bank had forecast. "In the euro area, economic activity is strengthening, but the events in Greece over the past few days have substantially increased the uncertainty," the bank said in its announcement on Thursday, citing risks to the upturn in inflation in Sweden. It added that the repo rate is expected to remain at minus 0.35% for just over a year, noting it leaves open the possibility of cutting that rate further. The Riksbank also said it will increase its bond-buying program by 45 billion Swedish kronor ($5.32 billion) from September until the end of the year.

Serbia's central bank buys euros to slow down dinar rally - dealers --- Serbia's central bank bought euros on the domestic currency market on Wednesday for the second time in as many days to rein in the dinar gains versus the euro due to shallow trading and market wariness over the Greek crisis, dealers said. The central bank bought euros with the dinar trading around 120.05 to the euro, up from Wednesday close of 120.2 dinars, dealers said. After the intervention, the dinar traded at 120.12 to the euro at 1135 GMT. On Wednesday, the central bank bought 10 million euros ($11 million), bringing total purchases this year to 420 million euros. It also sold 120 million euros to tame the dinar's rate swings on the interbank market.

France's Debt Burden Reaches 97.5% of GDP -- France's public debt jumped in the first quarter of the year, driven higher by social security and central state spending. France's public debt burden rose 51.6 billion euros ($57.2 billion) in the first quarter to EUR2,089 billion, French statistics agency Insee said. That total represents 97.5% of gross domestic product, compared with 95.6% in the fourth quarter of 2014. The central state's debt rose EUR38.9 billion in the first quarter and the debt of the social security system rose EUR15.8 billion, Insee said.

French Economy In "Dire Straits", "Worse Than Anyone Can Imagine", Leaked NSA Cable Reveals -- Earlier today Wikileaks released a new batch of NSA intercepts among which one in particular stands out: an intercepted communication which reveals that then French Finance Minister Pierre Moscovici believes the French economic situation was far worse, as of mid-2012, than perceived. Specifically, Moscovici who served as French finance minister until 2014 and then became European commissioner for Economic and Financial Affairs, Taxation and Customs, used some very colorful language, i.e., the French economic situation was "worse than anyone [could] imagine and drastic measures [would] have to be taken in the next two years”.   Needless to say, no drastic measures were taken. In fact, no measures at all were taken because thanks to the ECB's "whatever it takes" 2012 intervention and subsequent QE, pushed French yields to record low levels making the need for any reform moot (a la Greece, until the whole circus exploded). He remarks about that the situation with the automotive industry was more critical than a pre-retirement unemployment supplement known as AER, which he also thought wouldn't have had a severe impact on elections (while senator Bourquin thought would have driven voters to right-wing National Front).  Moscovici's conclusion was that "the situation is dire" although the finance minister ignored warnings that without a "pre-retirement unemployment supplement known as the AER... the ruling Socialist Party will have a rough time in the industrial basin of the country, with voters turning to the rightwing National Front."  Moscovici disagreed. Fast forward 3 years, and not only did French unemployment just hit an all time high confirming that the economic situation has indeed never been more dire...

Uber Better Rethink Posting Bail For Their Jailed French Executives  The Ayn Rand-themed car service that lives on your phone has made a real habit of flouting local taxi regulations in new markets until the targeted city or country just submits to the power of people ordering up rides on their iPhones. Granted, it’s cost them a little money here and there, but they’re doing GREAT!Right, Bloomberg? Uber Technologies Inc. is telling prospective investors that it generates $470 million in operating losses on $415 million in revenue, according to a document provided to prospective investors. Holy Objectivism that’s a lot of money! $470 million? Uber doesn’t even own or maintain the cars! How in the name of John Galt are they spending all this money? The figures show the heavy losses that Uber is accruing as it expands its global car-booking operation amid fierce local competition. Uber is already operating in more than 300 cities worldwide and is raising money at a $50 billion valuation, a person familiar with the situation said last month. “Heavy losses?” But things in Europe are going great, right WSJ? French prosecutors on Tuesday ordered two top executives for Uber Technologies Inc. to stand trial on a raft of charges that could bring fines and jail time, a rapid acceleration of France’s legal salvos against the ride-sharing firm.Uber executives Pierre-Dimitri Gore-Coty and Thibaud Simphal were released after spending a night in police custody, prosecutors said, and were ordered to appear before magistrates on Sept. 30 to face charges, including deceptive commercial practices, enabling illegal taxi services and illicit storage of personal data. Uber as a company is also being charged.

A Dutch city is giving money away to test the “basic income” theory - Some people in the Dutch city of Utrecht might soon get a windfall of extra cash, as part of a daring new experiment with the idea of “basic income.” Basic income is an unconditional and regular payment meant to provide enough money to cover a person’s basic living cost. In January of 2016, the fourth largest city in the Netherlands and its partner, the University of Utrecht, will create several different regimes for its welfare recipients and test them. A group of people already receiving welfare will get monthly checks ranging from around €900 ($1,000) for an adult to €1,300 ($1,450) for a couple or family per month. Out of the estimated 300 people participating, a group of at least 50 people will receive the unconditional basic income and won’t be subject to any regulation, so even if they get a job or find another source of income, they will still get their disbursement, explained Nienke Horst, a project manager for the Utrecht city government. There will be three other groups with different levels of rules, and a control group that will follow the current welfare law, with its requirements around job-seeking and qualifying income. The experiment seeks to challenge the notion that people who receive public money need to be patrolled and punished, said Horst. The traditional criticism of basic income is that it does not incentivize people to work, and thereby damages the economy. “People say they are not going to try as hard to find a job,” she told Quartz. “We will find out.” Her view, however, is optimistic: “We think that more people will be a little bit happier and find a job anyway,” she said.

New U.K. Poll Shows Consumers Are More Upbeat - British consumers are feeling more upbeat than they have in the last decade and a half, so concludes one new survey. The survey, due to be released Tuesday by market-research firm GfK Group, showed consumers were more optimistic about both their personal financial situation and the general economy in June than they had been since January 2000. It provides one of the first snapshots of consumer sentiment in the first month since the U.K.’s general election in May. If further data releases support the findings, it raises prospects the U.K. economy will grow at a faster pace during the remainder of the year. GfK’s index of consumer confidence in Britain jumped six points to 7, from a value of 1 in May. “We’re seeing a dramatic uptick in confidence this month, a real post-election bounce that’s put a spring in the step of consumers across the U.K.”  The jump in June takes the overall index “to levels not seen since the late Nineties or early days of the Noughties,” he added.  The result of the vote on May 7 allowed the center-right Conservative Party to form a stable one-party government, after five years in a governing coalition with the centrist Liberal Democrats. But pollsters and analysts during the election campaign forecast a hung parliament, with no clear winner, and economists believe this led consumers and businesses to delay spending and investment. This is consistent with GfK’s fresh data, which show the willingness of consumers to undertake major purchases such as furniture or electrical goods, jumped to a nine-year high once the election month was over. Such larger purchases are a powerful gauge of how cheerful households are feeling, statisticians say, because they usually involve careful planning.

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