week ending Aug 29

 The Fed looks set to make a dangerous mistake  - Larry Summers - Will the Federal Reserve’s September meeting see US interest rates go up for the first time since 2006? Officials have held out the prospect that ... rates will probably be increased... Conditions could change... But raising rates would be a serious error that would threaten all three of the Fed’s major objectives— price stability, full employment and financial stability. Like most major central banks, the Fed has a 2 per cent inflation target. The biggest risk is that inflation will be lower than this — a risk that would be exacerbated by tightening policy. More than half the components of the consumer price index have declined in the past six months — the first time this has happened in more than a decade. CPI inflation, which excludes volatile energy and food prices and difficult-to-measure housing, is less than 1 per cent. Market-based measures of expectations suggest that, over the next 10 years, inflation will be well under 2 per cent. If the currencies of China and other emerging markets depreciate further, US inflation will be even more subdued. Tightening policy will adversely affect employment levels because higher interest rates make holding on to cash more attractive than investing it. Higher interest rates will also increase the value of the dollar, making US producers less competitive and pressuring the economies of our trading partners. There may have been a financial stability case for raising rates six or nine months ago, as low interest rates were encouraging investors to take more risks... That debate is now moot. With credit becoming more expensive, the outlook for the Chinese economy clouded at best, emerging markets submerging, the US stock market in a correction, widespread concerns about liquidity, and expected volatility having increased at a near-record rate, markets are themselves dampening any euphoria or overconfidence. The Fed does not have to do the job.

Rate Hike Fever - Paul Krugman -- Larry Summers argues that a Fed rate hike would be a big mistake; I completely agree. Yet he also suggests that the Fed “seems set” to do this foolish thing. Why?  What’s odd about this debate is that it’s not like debating monetary policy with the seventeen stooges conservatives whose doctrine tells them that fiat money will turn us into Zimbabwe any day now, and are impervious to evidence. The Fed chair is Janet Yellen; the vice chair is Stan Fischer; both are, as Brad DeLong emphasizes, salt-water economists whose underlying macro worldview is surely very much like Larry’s, or mine, not least because we studied under Stan himself. So why the difference on policy? Surely it has something to do with where people are sitting; something about being on the inside is making the Fedsters more rate-hike prone than those of us on the outside. It might be regular contact with Wall Street types — but Larry actually has plenty of that too. I don’t think it’s extra information: basically the Fed knows no more than anyone keeping reasonably close tabs on the economy, whatever snippets of supposed inside info it may get, and I believe that Janet and Stan are smart and level-headed enough to get that. Pressure from the usual suspects — the constant sniping against easy money — may play a role. But I also suspect that a lot has to do with the urge to resume a conventional central-banker role. The whole culture of central banks involves saying no to stuff people want, taking away the punch bowl as the party gets going, having the courage to do unpopular things; everyone wants to be Paul Volcker. The Fed is really, really eager to return to that position — and is, I fear, engaging in wishful thinking, believing much too readily that a return to normalcy is appropriate.  It’s not. I’m with Larry here: this attitude has the makings of a big mistake. Think Japan 2000; think ECB 2011; think Sweden. Don’t do it.

Does a measly quarter point matter? -- Paul Krugman and Larry Summers have recently argued that the Fed should not raise rates later this year. I agree, mostly because I believe it will prevent them from hitting their announced inflation target, but also because it slightly increases the risk of another recession. If anything Summers and Krugman seem even more concerned about recession risk than I am. Here's Krugman: Larry Summers argues that a Fed rate hike would be a big mistake; I completely agree. Yet he also suggests that the Fed "seems set" to do this foolish thing. . . . I'm with Larry here: this attitude has the makings of a big mistake. Think Japan 2000; think ECB 2011; think Sweden. Don't do it. Rather than focus on the risk of recession, I'd like to use this example to illustrate a point that causes endless confusion. (Partly because it really is confusing.)  Tyler Cowen mentioned to me that Krugman's worry that a 1/4% rate increase might push us into recession seems at odds with his frequent claim that the 1/4% interest on reserves can't explain very much. In those earlier posts, Krugman seems to suggest that just a quarter point isn't all that important. And yet the 2000 increase in Japanese interest rates was just a quarter point, and the 2011 ECB rate increase was just 1/2%. Krugman cites both examples, and I think he's right to do so. In both cases a small interest rate increase seemed to tip weak economies back into recession. To make things even more confusing, I often argue that interest rates tell us nothing about the stance of monetary policy. So how can I argue that a quarter point increase risks tipping us back into recession?  I'll try to explain this with an example.

6 reasons the FOMC is unlikely to move in September --  The majority of economists still expect the Federal Reserve to begin the long-awaited liftoff next month. However is this dovish FOMC truly prepared to "pull the trigger" this time? Here are some reasons the central bank is likely to delay the first hike.

• 1. While the Fed officially talks about not being focused on the currency markets, the recent dollar rally should give them some food for thought. The global "currency wars" have sent the trade-weighted US dollar to the highest levels in over a decade.
• 2. Commodity prices, led by crude oil and industrial metals, hit new multi-year lows, reigniting disinflationary pressures. Note that the Bloomberg Commodity Index is at the lowest level since 2002. Some at the Fed continue to view this as "transient", but the full impact of such a move is yet to be fully felt in the economy. Here is a broad commodities index.
• 3. Driven to a large extent by commodity prices as well as economic weakness in China, US breakeven inflation expectations are declining sharply as well. Does this look like a great environment to begin raising rates?
• 4. Some point to the recent stability in "core inflation", with CPI ex food and energy remaining around 1.8% and providing support for a less accommodative policy. However the main driver of this stability is the rising cost of shelter. Core CPI excluding shelter is below 1% (YoY).
• 5. The biggest argument for a rate hike is the expectation of increasing wage pressures. US labor markets continue to improve and at some point - the argument goes - wage growth will accelerate. However, we haven't seen much evidence for wage pressures thus far, as average hourly earnings continue to grow by about 2% per year (nominal). With the recent dollar strength, US corporations will speed up shifting production abroad - especially Mexico, limiting wage growth in the United States.
• 6. Finally some at the Fed have been concerned about bubbles forming in the financial markets. In recent weeks however, the markets took care of that, as a healthy dose of risk aversion returns to the markets (see post).

Something Is Still Ridiculously Wrong -  The endless debate over when the Federal Reserve will raise rates is not only myopic, but misguided. It needs to stop, and more serious analysis must be done on the current state of financial markets and the transmission of monetary policy to the real economy. Looking at the S&P 500, you would think we had one of the greatest economic and societal booms in history. Yet, the only bull market trillions of dollars in stimulus has created is one in the wealth gap between rich and poor, as the "wealth effect" only ends up affecting the wealthy. It needs to stop folks. The discussion should not be about when the Fed will raise rates, but why they haven't been able to for so long and likely can't in an aggressive way in the future. Take a look below at the price ratio of the iShares Barclays TIPS Bond Fund ETF relative to the PIMCO 7-15 Year Treasury Index.  As a reminder, a rising price ratio means the numerator/TIP (inflation protection buying) is outperforming (up more/down less) the denominator/TENZ (non-inflation protection buying). The chart below essentially tracks market expectations. Notice that as everyone is endlessly talking about the Fed's first rate hike, inflation expectations are utterly collapsing on the far right of the chart.

The Fed Has a Theory. Trouble Is, the Proof Is Patchy -  Federal Reserve officials might raise interest rates soon because they have a theory: Falling unemployment pushes up prices and wages, requiring tighter credit to keep inflation in check. What they don’t have is proof that the theory has worked consistently in the past, or evidence it is working now. The U.S. unemployment rate was 5.3% in July, just above the 5% to 5.2% range that Fed officials expect in the long run. But annual inflation readings have remained below the Fed’s 2% target, while pay raises seem stuck in low gear. Fed Chairwoman Janet Yellen and her colleagues face a tough decision at their Sept. 16-17 policy meeting. They can assume inflation will ramp up, and raise interest rates at the risk of smothering modest economic growth, or they could wait for evidence of an inflation uptick and risk seeing prices rise too fast. Their trust in the late economist A.W. Phillips, whose work on the relationship between the job market and wages remains popular but controversial four decades after his death, might matter as much as hard data on consumer prices and worker pay. “We haven’t lost faith in the framework” described by Mr. Phillips and his successors, that a tight labor market generates higher inflation, said David Altig, research director at the Atlanta Fed. But “the numbers that you would plug into that framework and the exact levels at which the pressures begin to emerge, we’re not so clear on those.”

Unnatural Obsessions - Paul Krugman - One enduring constant of the world economy since 2008 is the chorus of sober-sounding people declaring that the Fed must act responsibly and raise rates. A few years back, rising commodity prices and a flood of money into emerging markets were proof that low rates were dangerously inflationary and must be hiked. Now we have plunging commodity prices and a flood of money out of emerging markets; clearly, this shows that the Fed must do the right thing, and raise rates. The underlying claim in all such demands is that the low interest rates we’ve had since 2008 are “unnatural” or “artificial”. So it’s probably worth repeating that while very low rates may seem strange, they also seem fully justified by the economic situation. The original Wicksellian concept of the natural rate of interest defined that rate as the rate consistent with stable prices, with an economy that was neither too hot nor too cold. If we had had an unnaturally low rate these past 7 years, we should have seen accelerating inflation; we haven’t. Quantitative easing, by the way, is just more of the same. If you are claiming that the Fed has created artificially easy credit, you have to explain how it can do that year after year without producing inflation or an overheating economy. Nobody has ever produced a coherent story about how Fed policy can drive interest rates below their natural level without inflationary effects. So even if you believe that a low-rate environment is helping to feed a series of bubbles, you have to ask how it can possibly make sense to raise rates when the underlying problem is overall economic weakness, which a rate hike would make worse.

Market turmoil clouds Fed rate outlook - FT.com: For the Federal Reserve, the China-induced equity slump could hardly have come at a more sensitive time. The US central bank has been meticulously priming financial markets for an interest rate rise all year, with next month’s meeting widely seen as its best opportunity to pull the trigger. But international risks — most significantly the surging dollar — have posed a consistent challenge to Fed chair Janet Yellen’s rate-hike preparations. In the July meeting of the Federal Open Market Committee, several officials were already expressing concern about the risk of a serious slowdown in China and what it would mean for the US, as well as the hazards posed by a further upsurge in the dollar. The plunge in Chinese stocks, which on Monday triggered a sell-off on global markets including Wall Street, will only deepen those worries and embolden those on the FOMC who are pushing back against arguments for a move as soon as September 17. “If anything it will cause them to delay,” said Ted Truman, a former Fed official now at the Peterson Institute for International Economics. If the Chinese sell-off is symptomatic of a deeper weakness in China’s economy, “it will have implications for the global economy and on inflation outlooks”. That said, the Fed is unlikely to jump to any instant conclusions about the market ruckus. There are three weeks to go, as well as a key jobs report, before the Fed will make its September decision. US domestic economic indicators remain resilient, and market gyrations can quickly subside. But overseas factors — among them the Greek stand-off and dollar upsurge — have repeatedly intervened this year to muddy the waters as the Fed prepares to hike.

What the global market turbulence means for interest rates -  Turbulence in financial markets and the shaky global economy are casting doubt over whether the Federal Reserve will take the landmark step of raising its target interest rate when it meets next month. The question will take center stage when the world's economic elite gather in the Grand Tetons later this week for a symposium held by the Federal Reserve Bank of Kansas City. Fed Vice Chairman Stanley Fischer is slated to speak on Saturday, and investors are hoping he will provide some clues about how the recent market gyrations may influence the central bank's decision. "His presence is intended to both inform and calm the global financial markets," UBS chief U.S. economist Maury Harris wrote in a research note Tuesday. For months, top officials at the nation’s central bank have been signaling that they plan to hike the rate for the first time in nearly a decade before the end of the year, assuming the economy performed as expected. But there is mounting evidence that that assumption is not panning out. Several analysts said this week that they now believe the Fed won’t move until the last minute this year -- or will wait until 2016. “US financial market conditions have deteriorated in recent weeks and the pace of deterioration has accelerated in recent days,” Barclays chief U.S. economist Michael Gapen wrote in a research note Monday, changing his prediction from a move in September to March 2016. “We believe the Federal Reserve is unlikely to begin a hiking cycle in this environment for fear that such a move may further destabilize markets.”

Fed Watch: Dudley Puts The Kibosh On September -- Monday's action on Wall Street was too much for the Fed. That day, Atlanta Federal Reserve President Dennis Lockhart pulled back his previous dedication to a September rate hike earlier, reverting to only an expectation that rates rise sometimes this year. But today New York Federal Reserve President William Dudley explicitly called September into question. Via the Wall Street Journal: In light of market volatility and foreign developments, “at this moment, the decision to begin the normalization process at the September [Federal Open Market Committee] meeting seems less compelling to me than it did several weeks ago. But normalization could become more compelling by the time of the meeting as we get additional information” about the state of the economy, he told reporters. While this comment was sufficiently nuanced to leave open the possibility of September, in reality Dudley pretty much ended the debate. He only reinforced expectations that September was off the table, and time is running out to pull back expectations. Incoming data, what little there is at this point, would need to come in well above expectations to bring September back into play. And that is just mostly like not going to happen. What about October or December? I tend to think that October is off the table due to a lack of a press conference. Fundamentally, the problem for the Federal Reserve is that US financial conditions have tightened since the end of the quantitative easing, and will most likely continue to tighten as the rest of the world, notably now China, eases further. In effect, easier policy in the rest of the world requires, all else equal, easier policy in the US as well. Hence this from the FT: Interest rate futures indicate that investors now see just a 24 per cent chance of a rate increase in September, down from more than 50 per cent earlier this month. The probable path of rate rises in 2016 has also moderated markedly, according to Bloomberg futures data. The path of rates necessary to maintain stable growth in the US will be lower in response to easing conditions elsewhere. This is something known to bond market participants who as a group have long been more dovish than FOMC participants. But it was the equity market participants that shocked the Fed into the same realization.

Central Bankers to Confront Stock-Market Turmoil at Fed’s Annual Jackson Hole Retreat - WSJ: Global central bankers are preparing to converge this week for the Federal Reserve’s annual retreat in Jackson Hole, Wyo., with a new economic mess on their hands. Gathering at the mountain getaway in recent Augusts, the stewards of global currency have contended with the looming collapse of Lehman Brothers in 2008, global deflation worries in 2010, serial Greek fiscal meltdowns and other dramas. This time, they confront a big disparity between the world’s two largest economies, the U.S. and China. The U.S. has recovered enough from the last financial crisis that Fed officials have been preparing to raise interest rates to prevent overheating down the road. But China appears to have lost economic momentum, driving the People’s Bank of China to cut rates and take other measures to boost growth. Markets have responded to these conflicting forces with turbulence, creating new uncertainties for policy makers about the economic outlook. Before this week’s turmoil, Fed officials had signaled they might move as soon as next month to start lifting their benchmark interest rate from near zero, where it has been since December 2008. It was shaping up to be a tough decision even before the stock-market corrections around the globe. Now, the odds of a rate increase in September appear to have diminished, though a move is still possible if markets stabilize and new economic data show the U.S. economy is strengthening despite threats abroad. New reports on Tuesday showed increases in U.S. consumer confidence and new home sales in August and July, respectively, reasons for Fed officials not to become too glum about the U.S. outlook.

Fed Watch: The Right And Wrong Arguments For September: This September meeting is the gift that keeps on giving. Right now it is giving by the shear quantity of truly bad commentary arguing for a rate hike next month. Let's back up a few weeks. Prior to the recent market rout, September looked like a pretty good bet. And the basic story that justified that view still holds. It isn't complicated. The economy continues to improve, dragging the labor market along for the ride. Any questions about the meaning of a weak first quarter GDP report were wiped away by the second quarter. Neither is by itself meaningful; the average of 2.5 percent growth for the first half is just about the same as 2014 as a whole. As the labor market approaches full employment, policymakers expect that wage growth will accelerate and they must raise interest rates to prevent those wage gains from translating into above-target inflation. They feel they need to raise rates sooner than later to be ahead of the curve. That story is not without holes, of course. The lack of widespread faster wage growth or inflationary pressures as the unemployment rate approached the Fed's estimate of full employment should be a red flag. Moreover, measures of labor underutilization remain elevated. Marked-based inflation expectations were low and falling, the dollar was rising, and commodities were tanking. And it seems that the risks of premature exit from ZIRP still outweigh the risk of holding on just a little too long. The Fed staff highlighted this risk in the July FOMC meeting. From the minutes: The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff's assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks. Despite these questions, Fed policymakers were leaning toward a rate hike in September, at least in my opinion. Fundamentally, they want to start raising rates and had shifted toward looking for reasons to do exactly that. It was never, however, a done deal, at least according to the probabilities assigned by the Fed futures markets. I was fairly confident of a September rate hike, but arguments against were entirely reasonable. I still believe that the Phillips curve story justifies expecting a rate hike in September.

Fed’s Kocherlakota Says Open To More Stimulus Measures - WSJ: Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Friday he’d likely support additional stimulus measures from the U.S. central bank if such options were on the table. Speaking to CNBC television network on the sidelines of the Kansas City Fed’s annual Jackson Hole, Wyo. research conference, Mr. Kocherlakota once again argued against any move to raise short-term interest rates higher this year. He has long argued that with inflation falling so far short of the Fed’s 2% target, there should be no move to raise rates any time soon. Mr. Kocherlakota spoke amid a frenzied debate over whether the Fed will raise short-term rates off of near zero levels at the mid-September policy gathering. Market turmoil has called into question whether the Fed can act then. Mr. Kocherlakota said in the interview market trouble and signs of economic distress overseas help boost the case to hold off on rate rises. He also signaled that if the Fed were willing to provide a new round of stimulus, he could support such an action. “The situation right now certainly is one, especially considering our inflation outlook, that would call for consideration of those kinds of steps,” he said. Fed officials aren’t actively considering a new round of stimulus, but the matter has become an issue of debate by some observers. Mr. Kocherlakota said inflation data remains “very low” and said he believes it will take several more years for it to rise to the Fed’s 2% target. He said a rate rise soon would call into question the Fed’s true desire to hit that target, and he said there are signs the Fed’s price goal credibility is being questioned by market participants.

Some Fed thoughts: QE4 and all that - After a considerable period of boredom, trying to figure out America’s central bank has gotten interesting again. For months, the mid-September meeting of the Federal Open Market Committee was being telegraphed as the most likely start date of the “normalisation” process. Or, to use another bit of central banker-ese, the day when short-term interest rates would begin “liftoff” from the current range of zero to 25 basis points. There is still time before any decision is made, but the latest utterances from America’s central bankers — corroborated by interest rate futures and options — suggest that a September rate increase is becoming less likely. Bill Dudley, the boss of the New York Fed, said on Wednesday that the argument for moving in a few weeks was “less compelling” than it was just “several weeks ago”. At first glance, this seems strange. After all, Fed officials have constantly been telling us that the schedule of “normalisation” depends on whether the hard US macro data conformed to policymakers’ forecasts — which they have! Whether it’s the latest GDP numbers, jobs, real wages, retail sales, autos, housing, or tax receipts, the US economy continues to chug along at the pace most people on the FOMC expected it would. You may think that pace is too slow to justify rate increases, but it’s not surprisingly slow to anyone except the permabulls and inflation-phobes. (It’s been almost two years since we wrote a piece wondering whether inflation was about to come back, and look how that turned out.) Of course, central bankers are supposed to make decisions based on what will happen not what already has happened. Predictions are hard, though, and even the Fed admits that the staff forecasts are basically worthless for anything more than a year out. As if that weren’t bad enough, it’s somewhere between extremely tough and impossible to know just how any given policy change affects the economy at any point in time.

Fed's Vice Chair Fischer: “When the case is overwhelming, if you wait that long, then you’ve waited too long.” -- A couple of quotes from earlier today ... From Binyamin Appelbaum at the NY Times: Fed Official Fischer Leaves Door Open for September Rate Increase Mr. Fischer said the Fed was preparing to raise interest rates soon because of the “impressive” growth of the domestic economy. He suggested that the recent volatility of global financial markets could cause the Fed to hesitate, but only if it persisted. “We haven’t made a decision yet, and I don’t think we should,” Mr. Fischer said in an interview with the cable network CNBC. “We’ve got time to wait and see,” because the Fed’s policy-making committee does not meet until Sept. 16 and 17. ...Mr. Fischer also emphasized Friday that the Fed would not wait until all of its questions were answered. Some amount of uncertainty is inevitable. “When the case is overwhelming, if you wait that long,” he said, “then you’ve waited too long.”  September is still possible, although many economists are now looking at December for the first rate hike.

Worrying Signals from the Bond Market - Five year forward inflation breakevens are now at 1.13%. Here is an update of the graph I posted a few days ago, showing that short term TIPS yields have pushed even higher.  It's a little hard to pull out of the data, because TIPS markets have only recently developed, but this pattern of large premiums in short term TIPS yields also emerged in the summer of 2007 when the Fed signaled ambivalence about early difficulties in the mortgage market and emerged again before the fateful September 2008 Fed meeting.  I don't see a sign of this pattern at other times.  For instance, forward inflation expectations dipped down after the first two rounds of QE ended, but short term TIPS didn't signal deflationary shocks at those times. Looking at the forward Eurodollar markets, I also see worrying signals.  The recent fall in interest rates has not been associated with a shift forward in time of the first rate hike.  That is still expected to happen between in October or December, as it has all summer.  The expected date of the first rate hike had been moving ahead in time, remaining about 6 months in the future.  And now, in the past few weeks, we have TIPS markets signaling a deflationary scare.  All of this, together, says to me that the bond markets do not have faith that the Fed will respond to current weakness in a timely manner.  If the bond markets are right, the question is, "Is this August 2007 or September 2008?".  On the one hand, there is some positive momentum in labor markets and industrial markets (outside of oil exploration).  There is no momentum in construction or real estate credit to destroy.  I take this as a sort of positive.  There is not a lot of activity to undermine there.  The economy's momentum is not dependent on real estate.  On the other hand, 5 year forward inflation expectations are about where they were in September 2008.

Perry Mehrling: No One Has a Good Idea of How to Keep the Fed From Having to Rescue Mr. Market Again -- Ever since the crisis, central banks have been standing in for the pre-crisis bank dealer system, flooding the system with funding liquidity.  World-wide QE has essentially bought time for a new more robust dealer system to begin rising from the ashes of the old.  However, at the moment that new system is far from complete, even as central banks (led by the Fed) are signaling that they will not be around forever.  In normal times the central banks supports the market; only in crisis times does it become the market.  What will the new normal times look like?  Steve Strongin talks about how the Fed might respond to the next crisis:  “the Fed might have to buy the distressed assets directly and/or other parts of the government might have to step in” (p. 5).  That is of course how the Fed responded to the last crisis, as I have myself recounted in my book New Lombard Street.  But the necessity for that response shows exactly the inadequacy of the old dealer system–it was not a robust first resort system.  That’s why we have junked the old system.  The question is whether we can rely on the emerging new system to be more robust.There is a lot of hype about electronic exchanges, and also Exchange Traded Funds, and some of the hype is warranted.  Yes, to the extent that we can make it easier for buyers and sellers to find each other and do business directly, we can do without the now-missing dealer intermediary.  In effect, all such measures work by making the broker function more efficient, which is fine if markets are balanced.  “But the largest problems are likely to arise when markets are not balanced and under significant net selling pressure…”

Are Central Banks Corrupted?  - Are we witnessing the corruption of central banks?  Are we observing the money-creating powers of central banks being used to drive up prices in the stock market for the benefit of the mega-rich? These questions came to mind when we learned that the central bank of Switzerland, the Swiss National Bank, purchased 3,300,000 shares of Apple stock in the first quarter of this year, adding 500,000 shares in the second quarter.   Smart money would have been selling, not buying. It turns out that the Swiss central bank, in addition to its Apple stock, holds very large equity positions, ranging from $250,000,000 to $637,000,000, in numerous US corporations — Exxon Mobil, Microsoft, Google, Johnson & Johnson, General Electric, Procter & Gamble, Verizon, AT&T, Pfizer, Chevron, Merck, Facebook, Pepsico, Coca Cola, Disney, Valeant, IBM, Gilead, Amazon. Among this list of the Swiss central bank’s holdings are stocks which are responsible for more than 100% of the year-to-date rise in the S&P 500 prior to the latest sell-off. What is going on here? The purpose of central banks was to serve as a “lender of last resort” to commercial banks faced with a run on the bank by depositors demanding cash withdrawals of their deposits. Banks would call in loans in an effort to raise cash to pay off depositors.  Businesses would fail, and the banks would fail from their inability to pay depositors their money on demand. As time passed, this rationale for a central bank was made redundant by government deposit insurance for bank depositors, and central banks found additional functions for their existence.  The Federal Reserve, for example, under the Humphrey-Hawkins Act, is responsible for maintaining full employment and low inflation.  Neither the Federal Reserve’s charter nor the Humphrey-Hawkins Act says that the Federal Reserve is supposed to stabilize the stock market by purchasing stocks.  The Federal Reserve is supposed to buy and sell bonds in open market operations in order to encourage employment with lower interest rates or to restrict inflation with higher interest rates.

The Stock Market Is Not the Economy — Dean Baker  -- We are seeing the usual hysteria over the sharp drop in the markets in Asia, Europe, and perhaps the US. (Wall Street seems to be rallying as I write.) There are a few items worth noting as we enjoy the panic. First and most importantly, the stock market is not the economy. The stock market has fluctuations all the time that have nothing to do with the real economy. The most famous was the 1987 crash, which did not correspond to any real-world bad event that anyone could identify. Even over longer periods, there is no direct correlation between the stock market and GDP. In the decade of the 1970s, the stock market lost more than 40 percent of its value in real terms; in the decade of the 1980s it more than doubled. GDP growth averaged 3.3 percent from 1980 to 1990, compared to 3.2 percent from 1970 to 1980. Apart from its erratic movements, the stock market is not even in principle supposed to be a measure of economic activity. It is supposed to represent the present value of future profits. This means that if people are expecting the economy to slow down, but also expect a big shift in income from wages to profits, then we should expect to see the market rise. So there is no sense in treating the stock market as a gauge of economic activity–it isn’t.

The Federal Reserve and the ‘Fed Up’ campaign -  You’ve heard of the Federal Reserve, but have you heard of the “Fed Up” campaign? Led by a coalition of community-based organizations, labor and faith allies and policy advocates, including the Center for Popular Democracy, the campaign’s mission statement says that Fed Up “…stands with millions of workers and their families in calling on the Federal Reserve to adopt pro-worker policies for the rest of us. The Fed can keep interest rates low, give the economy a fair chance to recover, and prioritize full employment and rising wages.” Now, I’ve been patrolling this corner of economics for a long time and I don’t recall anything like this in the past. And given the economic challenges facing working families and the centrality of the Fed in meeting those challenges, it’s a development I wholly endorse (I’ve advised the campaign on occasion). Well, this week members of Fed Up, along with some simpatico economists, are following the Fed out to their annual Jackson Hole conference to press their case. I caught up with Dawn O’Neal and economist Josh Bivens of the Economic Policy Institute for a Q & A. Their edited remarks follow:

Global Markets To Fed: No Rate Hike, The Strong Dollar Is Killing Us - Global markets are puking at the prospect of higher yields in the U.S.  There are many reasons for global markets to melt down, but one that doesn't get enough attention is the strong dollar. In effect, global markets are telling the Federal Reserve: don't raise rates--the strong dollar is killing us. Here's the dynamic that's killing emerging markets' currencies and stocks, the China Story and U.S. corporate profits. In the glory years of a declining U.S. dollar (USD), a vast global carry trade emerged as speculators borrowed money in USD and invested it in high-yield emerging market assets such as stocks, bonds and real estate. This carry trade was a two-fer: not only were yields much higher in emerging markets, the appreciation of local currencies against the USD provided a currency gain on top of the higher yield. As the yuan strengthened against the USD, an enormous river of capital flowed into China to take advantage of the revaluation and higher yields in China. How much of this money was borrowed USD is unknown, but it's estimated that Chinese corporations alone borrowed $1 trillion in USD to profit from higher yields in China. The virtuous benefits of a weakening USD extended to U.S. corporations, which reap 40% to 50% of their total profits from sales overseas. As the USD weakened, U.S. corporations reaped the currency gains every time they reported overseas sales in USD. Everybody won with the weakening dollar, except the U.S. consumer, who paid more for imported goods.

Bridgewater’s Ray Dalio sees Fed launching quantitative-easing measures - Never mind raising interest rates — Ray Dalio, founder of the world’s largest hedge fund, is predicting that the Federal Reserve will launch a fresh round of quantitative easing rather than tightening at its coming policy meeting in September. The Bridgewater Associates boss argues in a post on his LinkedIn account that the growing risk of deflation -- not inflation -- is pressuring the U.S. central bank’s decision on raising interest rates, something it has not done since 2006. The looming deflation factor is perhaps best seen in commodity prices. Crude-oil futures for example, have plunged 17% this month alone, much of it blamed on sluggish energy demand in China.China’s slowing economy, underscored by Beijing’s decision Tuesday to cut its benchmark interest rate after a fresh 7.6% slide in the Shanghai Composite SHCOMP, -7.63% has been a deep source of worry for global markets. Over the past week, the selloff in China had led to a global rout in stocks and sent investors running to havens like 10-year Treasury notes until markets stabilized Tuesday. Yields have ticked back above 2% as stocks rallied early in Tuesday’s session. Bond yields move inversely to prices. That is the backdrop against which the Fed is expected to hike rates at its two-day policy meeting starting Sept. 16. Already, futures markets are pricing in a 21% chance of a rate hike in September, according to CME Group’s FedWatch tool, down from 50% a few weeks ago.

This Wasn't Supposed To Happen: Crashing Inflation Expectations Suggest Imminent Launch Of QE4 -- The wind up for the most telegraphed rate hike in history was supposed to achieve one thing: generate benign inflation in the form of a rising short end and a broadly steeper yield curve, or in short: boost inflation expectations without crashing the market (recall after 7 years of ZIRP and QE all the media is blasting is that "rate hikes are good for stocks") - after all why else would the Fed be hiking rates if not to offset the market's inflationary expectations and to have "dry policy powder" ahead of the next recession, even if said powder was a meager 25 basis points. It was most certainly not supposed to achieve this: This is how Nomura summarizes the chart above: "with deflation fears in the air and oil getting floored, inflation products have already become an unloved asset class. If the Fed surprises the market with a September hike, we expect all BEIs to fall under pressure but likely led by the <5yr sector as risk markets also crater. Just like currently, BEIs are held hostage to commodities and credit markets even as the Fed probabilities are being revised down." Here is a better way of summarizing it: the last three times inflation expectations tumbled this low, the Fed was about to launch QE1, QE2, Operation Twist and QE3. And the Fed is now expected to hike rates in less than a month even as inflation expectations are the lowest since Lehman?

The PCE Price Index Still Below Target - The Personal Income and Outlays report for July was published this morning by the Bureau of Economic Analysis. The latest data includes annual revisions for the previous few months. The latest Headline PCE price index year-over-year (YoY) rate is 0.30%, down from a revised 0.34% the previous month. The latest Core PCE index (less Food and Energy) at 1.24% is essentially unchanged from the previous month's 1.30% YoY. The general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since Early 2013, Core PCE Price Index has hovered in a narrow YoY range around 1.5%. For six months beginning in April 2014 it rose to a plateau slightly above the range has since dropped to a lower range around the 1.3% level. The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when Core PCE hovered in a narrow range around its interim low. The second string highlights the lower range of the past nine months. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. Also included is an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The two percent benchmark is the Fed's conventional target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. The most recent FOMC statement now refers only to the two percent target.

Oil Prices and Inflation Expectations: Is There a Link? -- St Louis Fed -- Between January 2011 and June 2014, Brent crude oil prices fluctuated around an average price level of $110 per barrel. Between June 2014 and January 2015, oil prices dropped precipitously, stabilizing at about $55 per barrel. This pattern was accompanied by a reduction in breakeven inflation expectations, which, in the case of the five-year forward rate, dropped from 2 percent at the end of June 2014 to 1.30 percent at the beginning of January 2015.1 Since then, the five-year breakeven inflation rate has increased steadily, reaching 1.72 percent by the end of April. Figure 1 displays the five-year forward breakeven inflation expectations measure and the log of the real price of crude oil.2 The figure suggests the existence of two distinct trends. First, up to the financial crisis in 2008, we observe a gradual increase in oil prices without large changes in breakeven inflation expectations. Second, since the financial crisis, the two series seem to move in tandem. In fact, the correlation of the two series up to December 2007 was 0.54, while it was 0.75 afterward.3 Also, the figure suggests a break in the mean level of inflation expectations, which falls from about 2.28 percent before the financial crisis to roughly 1.79 percent afterward. It is interesting to note that the correlation between the two variables from January 2003 to April 2015 is only 0.13. The contrast between this low correlation and the high correlation found in the two subperiods discussed above is likely explained by the break in the mean of inflation expectations. In the remainder of this article, we make an initial attempt to uncover the sources of the correlation between breakeven inflation expectations and oil prices. We do so in two steps. First, we revisit a method to break up oil price movements into three components. Second, we evaluate the correlation of each of these components with breakeven inflation rates.

Deflationary Collapse Ahead?  -- Both the stock market and oil prices have been plunging. Is this “just another cycle,” or is it something much worse? I think it is something much worse. Back in January, I wrote a post called Oil and the Economy: Where are We Headed in 2015-16? In it, I said that persistent very low prices could be a sign that we are reaching limits of a finite world. In fact, the scenario that is playing out matches up with what I expected to happen in my January post. In that post, I said Needless to say, stagnating wages together with rapidly rising costs of oil production leads to a mismatch between:

• The amount consumers can afford for oil
• The cost of oil, if oil price matches the cost of production

This mismatch between rising costs of oil production and stagnating wages is what has been happening. The unaffordability problem can be hidden by a rising amount of debt for a while (since adding cheap debt helps make unaffordable big items seem affordable), but this scheme cannot go on forever. Eventually, even at near zero interest rates, the amount of debt becomes too high, relative to income. Governments become afraid of adding more debt. Young people find student loans so burdensome that they put off buying homes and cars. The economic “pump” that used to result from rising wages and rising debt slows, slowing the growth of the world economy. With slow economic growth comes low demand for commodities that are used to make homes, cars, factories, and other goods. This slow economic growth is what brings the persistent trend toward low commodity prices experienced in recent years.

Clev Fed's Mester: 'Reasonably Confident' Infl Moving to 2% - Cleveland Federal Reserve Bank President Loretta Mester said Friday she is "reasonably confident" inflation will move back towards the Fed's 2% inflation target, but she has pushed back the timeline as to when it reaches it. "I am reasonably confident we'll get back to 2%," Mester said in an interview with Bloomberg TV on the sidelines of the Kansas City Federal Reserve Bank's annual symposium. The policymaking Federal Open Market Committee has outlined two criteria for raising interest rates off the zero lower bound where they have been since late 2008. One is full employment, which Mester said is "pretty close," and to be reasonably confident inflation is moving back to it's 2% target. Mester, who will vote next year on the policy-setting Federal Open Market Committee, said in her mind, that goal has been achieved. "I am reasonably confident because when you look at the factors figuring into the inflation forecasts, inflation expectations have been reasonably stable," she said. "We have growth - above-trend growth. We have labor markets improvement continuing." Mester pointed out the economy has had some shocks lately, including the drop in oil prices and other commodity prices and the appreciation of the dollar, "which are deflationary or disinflation factors." But those are transitory factors, she said adding policymakers have to look further into the future.

It's Getting Tighter - Krugman -When thinking about the market madness and its possible real effects, here’s something you — where by “you” I mean the Fed in particular — really, really need to keep in mind: the markets have already, in effect, tightened monetary conditions quite a lot.First of all, if break-evens (the difference between interest rates on ordinary bonds and inflation-protected bonds) are any guide, inflation expectations have fallen sharply:  Second, while interest rates on Treasuries are down, rates on private securities viewed as even moderately risky are up quite a lot: So real borrowing costs are up sharply for many private borrowers. This is a significant headwind for the U.S. economy, which was hardly growing like gangbusters in any case.A Fed hike now looks like an even worse idea than it did a few days ago.

Signs, Long Unheeded, Now Point to Risks in U.S. Economy - As investors scramble to make sense of the wild market swings in recent days, a number of financial experts argue that, for more than a year now, signs pointing to an equity crisis were there for all to see.The data points range from the obvious to the obscure, encompassing stock market and credit bubbles in China, the strength of the dollar relative to emerging market currencies, a commodity rout and a sudden halt to global earnings growth.While it would have been impossible to predict the precise timing of the last week’s downturn, this array of economic and financial indicators led to an inescapable conclusion, these analysts say: The United States economy would only be able to avoid for so long the deflationary forces that have taken root in China.And if the bull market had made it to April, it would have become the second-longest equity rally in United States history.The one common theme binding all these measures together is the risk that they pose to the economic recovery in the United States. The Federal Reserve has said that it expects to raise interest rates sometime soon, given evidence over the last year that economic growth is picking up.  But more and more analysts are now pointing to problems in China and other markets as posing a real threat to the American economy.  The most crucial over the last year, in his view, has been the relentless upward move of the dollar against just about all emerging-market currencies. The dollar rally began in January 2014, when the Fed signaled that it would raise interest rates.But the greenback’s strength against currencies like the Russian ruble, the Turkish lira and the Brazilian real began to gather steam a year ago. Veterans of past emerging-market booms and busts will tell you that the party always ends — as it did in Latin America in the 1980s and Southeast Asia in the 1990s — when the dollar takes off against these monetary units.

El-Erian: "This Will Not Derail the Economy"; Contradictions and Friendly Disagreements; Six Points El-Erian Misses -- Mohamed El-Erian, former CEO of Pimco spoke with Bloomberg TV's Olivia Sterns and Alix Steel about the selloff in stocks and the implications for Fed policy. When asked whether we are looking at another 1998, El-Erian said: "I'm not a buyer that this is 1998. Nor am I am a buyer that that's 2008. And in 1998 you had a lot of fixed exchange rates. Now you have fewer of those. And 2008 was about the payments and settlement system. This is not about the payments and settlement system. This is an old-fashioned repricing of two things." He added: "I'm not a buyer that this is the crisis of all crises. Yes, this is a very unpleasant repricing, very unpleasant. And it's going to go quite deep, but it's not going to derail the economy in a major way." El-Erian said he believes a December rate hike is still possible: "I think December is still on the table, and for the following reason. The economy will benefit from lower commodity prices, particularly oil. And the economy will benefit from lower interest rates. And that's going to fuel some underlying strength that the economy does have.  The big question is how much damage are we doing to the wealth effect, and to what extent will external demand collapse? We cannot answer that question yet. So I would think December is still a possibility, but September is unlikely to happen."   Link if video does not play: El-Erian: This Is Not 1998 or 2008.  Six Points El-Erian Misses:

1. It should be 100% obvious the entire global economy is slowing. 
2. The US economy is growing at about 1% a year through three quarters (using the Atlanta Fed GDPNow model as the GDP estimate for third quarter).
3. Even a "minor" disruption at this point can sink the US into recession.
4. Lower commodity prices are a reflection of weak demand, not a boost to consumer demand
5. Rent prices and Obamacare eat up 100% if not more of recent wage hikes for those in lower income brackets.
6. The only underlying strength in the US economy pertains to autos and housing. Neither will benefit from rate hikes.

Cure Economic Anxiety With Better Government - David Cay Johnston -- Sharp recent drops in the U.S., Chinese and European stock markets and the large crowds drawn by two very different men seeking to be president, Sen. Bernie Sanders and Donald Trump, point to the same issue: widespread economic anxiety. Government policies — and to some degree, technological changes — are creating tectonic shifts in the global economy, in which we can observe a few gigantic winners while most strivers get little for their labor. Social unrest is on the rise in China and Europe because of wage cuts and job instability. That induces continual anxiety, occasional fear and, at the moment, outright panic among heavily leveraged hedge funds and other stock traders. Monday’s sudden stock market drops from Beijing to New York simply reflect the leverage of high-speed traders, many buying shares with $30 of borrowed money for every $1 of equity. With that much leverage, panic easily sets in when stock prices become volatile. Encouraging this reckless behavior are the near zero interest rate policies of the Federal Reserve and other central banks. Artificially low interest rates decrease the costs of speculation and encourage frothing the market for quick profits, enabling traders and their clients to accumulate money without creating wealth. This scenario is entirely preventable: If the government limited stock trades to ban or minimize borrowed money, there would be less speculation and less instability. In the long term, stock prices would move in greater accord with the profits and expected profits of each company.

U.S. bonds rise as Fed's Dudley downplays Sept rate hike -- Most U.S. Treasuries prices rose on Wednesday after a top Federal Reserve official scaled back his view of a rate increase in September in the wake of market turbulence stemming from worries about China's economy. New York Fed President William Dudley said the prospect of a September rate hike "seems less compelling to me than it was a few weeks ago." Bond yields reversed from their initial rise. They had hit one-week highs on gains on Wall Street stocks and a surprise July jump in durable goods orders. "The Fed is in no hurry to raise rates even though it wants to get off from zero-bound rates," said Brian Brennan, portfolio manager at T. Rowe Price in Baltimore. "It's not a horse race." The $12.6 trillion Treasuries sector was on another roller coaster session the day after major U.S. stock indexes fell sharply in the final hour of trading and wiped out an initial 3 percent gain, analysts said. The bond market's gains were limited in advance of a $35 billion auction of five-year note supply at 1 p.m., part of this week's $90 billion fixed-rate debt supply. With worries about China and Dudley's dovish comments, analysts forecast solid demand for the latest five-year note issue. "It will go fine," "There's still so much money to put to work." On the open market, five-year notes were up 5/32 in price to yield 1.444 percent, down over 3 basis points from late on Tuesday. Benchmark 10-year Treasuries notes edged up 2/32 with a yield of 2.126 percent, down marginally from Tuesday. The 30-year bond was the weakest maturity as traders bet a delay in a Fed rate increase bolsters the risk of higher long-term inflation. The long bond was down 23/32 in price with a yield of 2.890 percent, up nearly 4 basis points from late on Tuesday.

Chicago Fed National Activity Index August 24, 2015: July was a very solid month for the economy, based on the national activity index which rose to a stronger-than-expected plus 0.34 from June's contractionary reading of minus 0.07 (revised). July is the first gain for the index this year. The 3-month average, however, still points to softness, at zero vs. June's minus 0.08. Production, as expected, was July's strongest component, swinging to plus 0.28 from minus 0.14 on a big upswing in the auto sector where sales are very strong. The contribution from employment was steady at a constructive plus 0.11 while the component for sales, orders & inventories slipped from 0.06 in June to only 0.01. The only component in the negative column in the month is personal consumption & housing at minus 0.06 which is, however, up from minus 10.00 in June. Strength in the manufacturing was narrow in July and may not extend to August, while the weakness in the consumption & housing component underscores what the Fed describes as softness in household spending and continuing uncertainty over how much housing, recent strength or not, will contribute to overall economic growth.

Chicago Fed: Index shows "Economic growth picked up in July" --The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth picked up in July Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.34 in July from –0.07 in June. Two of the four broad categories of indicators that make up the index increased from June, and three of the four categories made positive contributions to the index in July. The index’s three-month moving average, CFNAI-MA3, edged up to a neutral reading in July from –0.08 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Picked Up in July -   "Index shows economic growth picked up in July": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.34 in July from –0.07 in June. Two of the four broad categories of indicators that make up the index increased from June, and three of the four categories made positive contributions to the index in July.  The index’s three-month moving average, CFNAI-MA3, edged up to a neutral reading in July from –0.08 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.The CFNAI Diffusion Index, which is also a three-month moving average, moved up to +0.06 in July from a neutral reading in June. Fifty of the 85 individual indicators made positive contributions to the CFNAI in July, while 35 made negative contributions. Forty-four indicators improved from June to July, while 40 indicators deteriorated and one was unchanged. Of the indicators that improved, 12 made negative contributions. [Download PDF News Release] The previous month's CFNAI was revised downward from 0.08 to -0.07. This suggests economic activity was close to the historical trend in July (using the three-month average).

Chicago Fed: US Growth At Historical Trend Rate In July -- US economic output accelerated in July, returning to its historical trend rate, according to this morning’s update of the Chicago Fed National Activity Index’s three-month average (CFNAI-MA3). The benchmark’s rise to 0.0 marks the strongest pace of growth in six months, based on CFNAI-MA3. Today’s numbers offer additional evidence that the US economy has strengthened recently. Accordingly, recession risk is low via data through last month. The current CFNAI-MA3 reading of 0.0 for July is well above the -0.70 mark that signals the start of new recessions, according to Chicago Fed guidelines. Analyzing the updated CFNAI-MA3 data with a probit model continues to show that the probability is low (below 4%) that a recession started in July. The current risk estimate in the chart below is based on a probit regression that reviews the historical record of NBER’s business cycle dates in context with CFNAI-MA3. The low risk estimate is in line with last week’s update on business cycle risk via The Capital Spectator’s proprietary indexes.

GDP Revision: The US economic recovery shifted up a few gears in Q2 with the second print of the GDP estimate revised to +3.7% q/q from 2.3% q/q. This suggests a sharp acceleration in economic growth momentum following the weather-induced sluggish performance in Q1. The overall tone of this report was exceptionally strong, and with final sales revised significantly higher to 3.5% from 2.4%, this report points to very strong domestic momentum in Q2 after the recovery essentially stalled in Q1. The revision were across a broad spectrum of sectors in the economy, with the contribution to growth from consumption (from 2.0 ppt to 2.1 ppt), fixed investment (from 0.16 to 0.66), inventories (from -0.08 to 0.22), net exports (from 0.13 to 0.23) and government (from 0.14 to 0.47) all revised higher. And with much of the upward revisions coming from the strong performance in the latter half of the quarter, the hand-off to Q3 GDP will be quite favorable. In fact, our current expectation is for the economy to sustain the positive momentum, with the recovery boast growth in the 3.0% to 3.5% range in Q3. This strong positive revision to Q2’s GDP performance will be welcome news at the Fed, and it will be interpreted as further evidence that the economic recovery is on much firmer footing that previously though. Nevertheless, the key to the monetary policy stance in the near term will not be past growth or inflation performance, but the outlook for both. And given the recent financial market volatility and the lingering anxiety about global growth, the outlook for both is now more uncertain and tilted to the downside (especially for inflation). This will provide the pretext for the Fed to take a pass on raising rates in September.

Q2 GDP Revised up to 3.7%, Weekly Initial Unemployment Claims decreased to 271,000 --  From the BEA: Gross Domestic Product: First Quarter 2015 (Third Estimate) Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. ... Here is a Comparison of Advance and Second Estimates. PCE growth was revised up from 2.9% to 3.1%. Residential investment was revised up from 6.6% to 7.8%. Solid growth. And above the consensus of 3.2%. The DOL reported: In the week ending August 22, the advance figure for seasonally adjusted initial claims was 271,000, a decrease of 6,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 272,500, an increase of 1,000 from the previous week's unrevised average of 271,500.  There were no special factors impacting this week's initial claims.  The previous week was unrevised at 277,000.

September Rate Hike Back On Table: Q2 GDP Soars In Revision From 2.3% To 3.7% Driven By Record Inventory Build -- Well, if the Fed is truly data-dependent, September is now squarely back on the table following the first revision of (double seasonally-adjusted) Q2 GDP data which soared from 2.3% to a whopping 3.7%, blowing out the Wall Street consensus estimate of 3.2%, and printing above the highest Wall Street forecast (the 3.6% from JPM).  This is what the BEA said about the source of the upside:  The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.  The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment, in federal government spending, and in residential fixed investment. Here is the breakdown:

U.S. GDP Growth – At A Glance - WSJ:  The U.S. economy grew at a much faster pace than initially estimated in the second quarter, according to the Commerce Department’s gross domestic product report released Thursday. The new data showed upward revisions to business investment, inventory building and government spending. Corporate profits advanced at a the faster pace in a year during the spring. The U.S. economy expanded at a 3.7% seasonally adjusted annual pace in the second quarter. That’s a much quicker pace than the first estimate of a 2.3% advance. Last quarter’s growth is also a sharp uptick from the first quarter’s mild 0.6% expansion. 5.1% U.S. corporate profits posted the strongest quarterly increase in a year this spring. Profits after tax and without inventory or capital consumption adjustments rose 5.1% in the second quarter after increasing 2% in the first. It was the best quarterly gain since the second quarter of 2014. From a year earlier, profits advanced 7.3%.  Businesses built inventories, rather than let them dwindle, in the second quarter, according to the revised GDP reading. The change in private inventories contributed 0.22 percentage point to overall growth. The initial estimate was a 0.08 percentage point drag on the GDP advance. Businesses stepped up investments in second quarter. Nonresidential fixed investment, spending on construction, equipment and software, advanced at a 3.2% annual pace in the second quarter. That’s an upward revision from the initial estimate of a 0.6% decline in such spending. The change contributed 0.48 percentage point to the overall upward revision of 1.4 percentage points. Spending at all levels of government increased at the fastest pace since the second quarter of 2010. Public outlays advanced 2.6% annual pace during the second quarter. That’s an upward revision from the initial estimate of a 0.8% advance. Federal spending was flat for the quarter and spending at the state and local level increased 4.3%, the strongest increase since the fourth quarter of 2001.

Second Quarter GDP Revised Up, as Expected, Led by Autos, Housing  -- Economists had been expecting today's second quarter GDP estimate to rise from initial readings, based largely on auto sales and housing, and they were correct.  "The GDP estimate released today is based on more complete source data than were available for the 'advance' estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. With the advance estimate, both of these components were estimated to have slightly decreased."GDP was a bit higher than the Bloomberg Economic Consensus.  The second-quarter did show a big bounce after all, up at a revised annualized growth rate of 3.7 percent which is 5 tenths over the Econoday consensus and just ahead of the high estimate. The initial estimate for second-quarter GDP was 2.3 percent. This report points to better-than-expected momentum going into the current quarter. Consumer demand was strong with personal consumption expenditures at a 3.1 percent rate led by an 8.2 percent rate for durables, a gain that was tied to vehicle spending. Residential investment was very strong, at plus 7.8 percent, as was nonresidential fixed investment which, boosted by an upward revision to structures, came in at plus 3.2 percent. Inventories contributed to second-quarter growth as did improvement in net exports. Final demand proved very solid, at plus 3.5 percent. The GDP price index, unlike many other price readings, is showing some pressure, at 2.1 percent and just above the Fed's general policy goal.  The economy's acceleration is now much more respectable from the first quarter when growth, at only 0.6 percent, was depressed by heavy weather and special factors. Splitting the difference, first-half growth came in a bit over 2 percent which, as it turns out, is right in line with the similar performance of 2014 when first-quarter growth, again depressed by severe weather, fell 2.1 percent followed by a 4.6 percent surge in the second quarter. Growth in the third quarter last year was 4.3 percent which would be a very good performance for this third quarter. The impact of today's report on Fed policy for September's FOMC is likely to be minimal. Focus at the upcoming meeting will be on the state of the global financial markets and, very importantly, the strength of next week's employment report for August.

Q2 GDP Per Capita at 3.1 for Second Estimate - Earlier today we learned that the Second Estimate for Q2 real GDP came in at 3.7 percent (rounded from 3.68 percent), up from the 2.3 percent of the Advance Estimate. Here is a chart of real GDP per capita growth since 1960. For this analysis we've chained in today's dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence our 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale. The chart includes an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 9.8% below the pre-recession trend and similarly in Q1 of last year. The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession.  The standard measure of GDP in the US is expressed as the compounded annual rate of change from one quarter to the next. The current real GDP is 3.7 percent. But with a per-capita adjustment, the data series is currently at 3.1percent (3.05 percent to two decimal places). The 10-year moving average illustrates that US economic growth has slowed dramatically since the last recession.

Q2 GDP Soars With 3.7% Growth - Q2 GDP has been significantly revised upward from 2.3% to 3.7%.  Investment was dramatically revised upward as was spending by state and local governments.  Consumer spending was a healthy 57.2% of real GDP.  Also surprising was a lack of upward revisions in imports.  Regardless, that is a 1.37 percentage point GDP revision, a 59% change from the advance report.  Wall Street welcomes the growth news although gambling the Fed won't raise rates in September due to global market volatility might now be loser bets.  As a reminder, GDP is made up of: Y = C + I + G + (X - M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the Q2 GDP component revision comparison.  As we can see investment was significantly revised upward and the usual mass of imports did not materialize. The below table shows the GDP component comparison in percentage point spread from Q1 to Q2.  This is quite an amazing bounce back. Consumer spending, C is quite strong with over two percentage points of contribution to Q2 GDP. Motor vehicles came back with a 0.26 percentage point contribution. Durable goods overall was a 0.59 percentage point contribution. Consumer spending services added 0.93 percentage points with health care by itself adding 0.28 percentage points to GDP. Revisions in consumer spending were overall minor. Below is a percentage change graph in real consumer spending going back to 2000. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). Imports and Exports, M & X were a small 0.23 percent point positive GDP growth contribution. This was a 0.10 percentage point contribution upward revision. We suspect oil was the cause for the lower trade deficit as a global slowdown in demand is occurring. Government spending, G contributed 0.47 percentage points to Q2 GDP. The was significantly revised up over quarter of a percentage point. The revision came from state and local government investment. Originally this was 0.18 percentage points and was revised to 0.43 percentage points of GDP contribution.

Encouraging US Data In Today’s US GDP & Jobless Claims Reports -- This morning’s macro updates reaffirm the case for cautious optimism on the outlook for the US economy. The revised second-quarter GDP data show that growth was substantially stronger during the April-through-June period: 3.7% vs. the initial 2.3% estimate (seasonally adjusted annual rate). In addition, today’s weekly report on initial jobless claims reveals that this leading indicator for the labor market remains close to multi-decade lows. In short, the latest figures suggest that business cycle risk for the US is still low. The recent market volatility raises new questions about the sustainability of growth rates around the world—particularly in China and emerging markets overall. But from a US perspective, there’s still no sign of trouble in terms of the big-picture trend. To be fair, it’ll take several weeks at the least to decide if the latest market turbulence will have serious repercussions for US economic growth. Meantime, it’s clear that a positive tailwind has been blowing through the weeks going into the recent selloff in financial markets. Today’s upward revision in GDP growth for the previous quarter makes this point in no uncertain terms. The US economy’s 3.7% increase in Q2 marks the biggest gain since last year’s third quarter. More importantly, today’s update confirms that that economy bounced back sharply from Q1’s sluggish 0.6% rise.The revised GDP figures show that consumer spending advanced a healthy 3.1% in Q2, nearly double Q1’s pace of 1.8%. Meantime, exports bounced back in the second quarter, rising 5.2%, which reversed most of Q1’s 6.0% decline. On the other hand, the 8.6% quarterly increase in business investment in today’s Q2 revision—the most in eight years—is helpful but it could trigger some payback in the next quarter if corporate America decides that it needs to trim spending after such a strong gain. In any case, the bullish trend in jobless claims through last week implies that positive macro momentum remains a prudent forecast for the near term. New filings for jobless benefits dropped 6,000 to a seasonally adjusted 271,000—close to the four-decade low of 255,000 that was touched in mid-July. The ongoing year-over-year decline in claims indicates that last week’s encouraging slide is no anomaly; rather, the latest drop reflects an ongoing decline that’s been in force for the last several years.

Q2 GDP Second Estimate at 3.7%, Better than Forecasts - The Second Estimate for Q2 GDP, to one decimal, came in at 3.7 percent, anincrease from the 2.3 percent Advance Estimate. Today's number was slightly better than most mainstream estimates with Investing.com at 3.2 and Briefing.com at 3.1.  Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. With the advance estimate, both of these components were estimated to have slightly decreased. The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release]  Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. We've also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.25% average (arithmetic mean) and the 10-year moving average, currently at 1.46 percent. Note: The headline 3.7% GDP is 3.68% at two decimal places. Here is a log-scale chart of real GDP with an exponential regression, which helps us understand growth cycles since the 1947 inception of quarterly GDP. The latest number puts us 14.4% below trend, the largest negative spread in the history of this series.

Strong GDP Revision Amid Market Turmoil - (5 graphs) The past week has been a wild and crazy ride, capped by a strong GDP report, boosting Q2 growth from the advance estimate of 2.3% to 3.7%. This morning, the personal income release reveals personal income growth of 0.4% for July, the same growth rate as the previous three months. The week began with a Dow drop of about a 1000 points during the morning, but closed down “only” 588 points (-3.57%)…followed by -1.29% on Tuesday, +3.95% on Wednesday, +2.27% on Thursday. That turmoil was puzzling given that most observers saw the U.S. economy as fundamentally strong even before the latest update of Q2, with low unemployment and steady growth in real output. That the economy has grown steadily, albeit slower than during other recoveries, has given monetary policy makers the opportunity to begin to normalize operations. However, given the length of the recovery, are some now worried about another possible dip…as seen in the 1973 and 2001 cycles below? The fundamentals of this recovery are strong as well. Consumer spending growth was up 3.1% and has been strong for the past year. Investment, particularly intellectual property investment was strong. What Next for The Fed? The market turmoil of last week led many, including William Dudley , President of the New York Fed, to call for caution in normalizing monetary policy and beginning “liftof”as many expected them to do at the September meeting. Why the turmoil in markets should cause them be cautious is a puzzling question because it can be argued with some credibility that the state of financial markets has been significantly distorted by the Fed’ policy of the last seven years. It is even more bizarre to see former Treasury Secretary Larry Summers calling for more asset purchases by the Fed. The fact of the matter is that the U.S. economy is looking extremely normal with low unemployment, steady job growth, and decent growth in real GDP in spite of significant headwinds from the rest of the world and a strong dollar. If now is not the time to return to normal monetary policy, when will be?

By Another Measure, U.S. Economic Growth Has Nearly Stalled This Year - A big upward revision to gross domestic product, now seen increasing at a 3.7% pace in the second quarter, has reassured some economists that the economy is on solid footing heading into the second half of the year. But a less closely watched number in the Commerce Department report provides a fair amount of caution. An alternative measure of economic output, gross domestic income, advanced at a much slower 0.6% pace last quarter. By that gauge, economic growth barely inched ahead in the first half of the year. (GDI advanced at 0.4% pace in the first quarter versus a 0.6% increase for GDP.) GDI and GDP measure the same thing: the size of the economy. GDP measures production based on what is spent by consumers, businesses and governments, while GDI measures the income generated from production. So, things like wages, corporate profits and taxes. In theory, the two measures of output should be identical. But since they come from different source data, they can differ widely from quarter to quarter. For example, in the first quarter of 2012, GDI advanced 7.7%, while GDP increased at a 2.7% pace. In the third quarter of 2007, GDI fell at a 2.2% pace but GDP advanced 2.7%. Both measures are adjusted for inflation. Some economists suggest putting greater weight on the GDI measure.

GDP Numbers Reveal Underlying Momentum, Possible Headwinds for U.S. Economy - WSJ: The U.S. economy has offered varied evidence of its underlying strength during a week of wild swings in global stock prices and wide anxiety over signs of a slowdown in China. The Commerce Department said Thursday the nation’s gross domestic product—the government’s broadest measure of economic output—expanded at a 3.7% seasonally adjusted annual rate in the spring, faster than the initial estimate of a 2.3% growth rate. Other recent reports have shown gains in consumer confidence, retail sales and home building. Still, the second-quarter rebound, after a weak start to the year, appears unlikely to presage substantial acceleration for an economy that had been held back for years by low productivity growth, slow wage growth, a reduced share of Americans in the workforce and hesitance to spend by businesses and households. Indeed, the economy expanded at a plodding 2.2% rate for the first half of the year, and Thursday’s GDP numbers detail a three-month stretch that ended in June, before concerns about China battered global markets and introduced greater uncertainty into forecasts for the U.S. economy. Stocks soared for the second day in a row, with the Dow Jones Industrial Average erasing big losses early in the week. The Dow jumped 369.26 points, or 2.3%. Coupled with Wednesday’s 619-point surge, blue chips are now up 1.2% for the week. U.S. oil prices climbed 10%, their largest percentage gain since March 2009.

Crisis, what crisis? U.S. economy steams along - A funny thing happened while the world financial markets shuddered in panic this week. A range of indicators about the U.S. economy, the world’s largest, showed a recovery that’s continuing to gain steam. Even as stocks whipsawed, data on housing, consumer confidence, the labor market and economic growth all showed the economy flexing its growing muscle. The latest data came Thursday when the Bureau of Economic Analysis said the U.S. economy grew by a blazing 3.7 percent from April through June, not the 2.3 percent reported last month. Businesses built their inventories at an unusually high pace and helped power along the U.S. economy, the bureau said. Also, the Labor Department reported Thursday that first-time claims for unemployment benefits fell 6,000, to 271,000, for the week that ended on Aug. 22. That exceeded the forecasts of mainstream economists and suggests that August hiring, to be reported by the government on Sept. 4, is likely to remain at its healthy pace.  Those two developments follow data points earlier in the week that showed consumer confidence snapped back in August to its highest reading in seven months. And sales of new homes rose by 5.4 percent in July, the Commerce Department reported, good news on top of last week’s reading of resale of existing homes, which hit its highest point in more than eight years.

Recessions often begin before the thing that caused them occurs - I hope the title of this post has caught your attention---if not please reread it. In the previous few recessions, the consensus of economists did not even forecast a recession until it was already underway. That is, not only can economists not forecast the economy, they can't even "nowcast" the economy. One reason for this is that the early stages of a recession are often quite mild. In July 2001 the unemployment rate was only 4.6%, up from 4.3% in March, when the recession began. In April 2008 the unemployment rate was 5.0%, the same as in December 2007, when the recession began. Yes, unemployment can be a lagging indicator, but other monthly indicators were also relatively stable during the early months of each recession. The title of the post relates to a strange quirk in the definition and dating of recessions. Not all fluctuations in the economy are regarded as recessions, just large ones. But the recession is assumed to begin when the data first starts dropping, even if the initial drop was too small to constitute a recession. It's contingent on what happens later. Thus if the Fed had done massive monetary stimulus in July 2001, or April 2008, and the economy had grown strongly, then there would have been no recession. And yet that stimulus would not have even occurred until 4 months after the recession began! If (like me) you believe the recession was caused by tight money (or lack of monetary stimulus if you prefer that language), then the recessions of 2001 and 2008 began before the event that caused them.

Durable Goods Boost Third Quarter GDP Estimate to 1.4% Annualized -- Durable goods orders this morning leapfrogged all economic estimates (see Durable Goods Orders Surprise to Upside, Led by Autos). Yet the GDPNow Forecast only rose by .01%.  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 1.4 percent on August 26, up from 1.3 percent on August 18. The forecast for real GDP growth increased 0.1 percentage point to 1.4 percent after this morning's advance report on durable goods from the Census Bureau. The report boosted the model's forecast for equipment spending in the third quarter from 7.7 percent to 8.9 percent, and led to a slight improvement in the contribution of real inventory investment to third-quarter GDP growth.It's been entertaining and informative watching the evolution of these forecasts. Really big swings in some economic numbers often barely budge the expected result.
GDP growth of 1.4% is hardly the material on which rate hikes have historically been based.

Atlanta Fed Cuts Q3 GDP Forecast To A Paltry 1.2% -- Earlier today, following the disappointing July personal spending data and yesterday's record surge in inventories as part of the spike in Q2 GDP, we predicted that the Atlanta Fed would cut its already painfully low Q3 GDP forecast of 1.4%. Moments ago, it did just that, when the Atlanta Fed GDPNow "nowcast" was revised lower to just a 1.2% annualized growth rate, more than two-thirds below the BEA's first revision of Q2 GDP. If officially confirmed in two months, this would be the lowest GDP since Q1 2014, and just fractionally higher than the "harsh winter" double-seasonally adjusted GDP print from the first quarter which economists tell swear was due only to harsh weather. So what was the culprit this time: the record hot July?  Here are the reasons: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.2 percent on August 28, down from 1.4 percent on August 26. The forecast for real GDP growth in the third quarter decreased by 0.2 percentage points following this morning's personal income and outlays report from the U.S. Bureau of Economic Analysis. The slight decline in the model's forecast was primarily due to some weakness in real services consumption for July, which lowered the model's estimate for personal consumption expenditures from 3.1 percent to 2.6 percent for the third quarter.

The Global Economy Is Looking Very 1990s -Oil prices are falling, seemingly inexorably. Emerging market countries are having currency crises. A previously unstoppable East Asian economic power -- the world’s second-largest economy -- is slowing, and the country’s leaders at times seem to have lost the plot. Russia is an economic mess. Europe’s economy is being held back by German political decisions and doubts about the common currency. The U.S. economy is relatively strong, but is beset by a productivity paradox in which remarkable Silicon Valley innovations don’t seem to be having an impact on the economic data. Is this year starting to feel like it belongs in the 1990s, or what? I’m not going to even get into all the pop-culture resemblances, or the fact that a Clinton and a Bush are running for president and Al Gore has reportedly been thinking about it. In economic terms alone, there are a lot of parallels between the current situation and that of the mid-1990s in particular. Now, there are also lots of things going on in 2015 that shouldn’t remind anyone of 1995. History doesn’t repeat. I’m not even sure it rhymes. But there do seem to be some similar economic forces at work. One is that commodity prices are falling, as they did in the 1990s. The other is that the U.S. economy has gone back to being the main driver of global growth, which has brought with it a big strengthening of the dollar. These two are related. Even with the recent boom in domestic oil production, the U.S. is a net importer of commodities, so falling prices tend to boost growth. This is also true for the world’s other big economies -- Western Europe, Japan and China -- but all these places are facing economic headwinds that the U.S. is not. So the U.S. share of global economic output has been on the rise.

China Sells U.S. Treasuries to Support Yuan -  China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter. Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals. The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey. China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,”  “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”  The PBOC and the U.S. Embassy in Beijing didn’t immediately respond to requests for comment. Bill Gross, who manages the $1.47 billion Janus Global Unconstrained Bond Fund, tweeted Wednesday “China selling long Treasuries ????”. Two-year Treasuries erased an earlier advance, with their yield little changed at 0.67 percent as of 11 a.m. in London. It fell as much as two basis points. The 10-year yield declined three basis points to 2.15 percent, near to its average for the past month.

CBO Cuts U.S. 2015 GDP Forecast to 2% from 2.9% - WSJ: —Federal budget analysts dropped their estimates for U.S. economic growth after another disappointing first quarter, extending a string of downward revisions to initial forecasts that have been a hallmark of the current expansion. U.S. gross domestic product is now expected to increase 2% this year, down from a January estimate of 2.9%, the Congressional Budget Office said on Tuesday. The report revised up slightly the GDP forecasts for 2016 to 3.1% from 2.9%, and for 2017 to 2.7% from 2.5%. Meanwhile, the nonpartisan agency said the federal budget deficit for the fiscal year that ends Sept. 30 would be $60 billion lower than in its March forecast, largely reflecting a surprise boost in federal tax receipts this year. The latest CBO projection expects the U.S. will run a deficit of $426 billion, or 2.4% of GDP, the lowest since 2007. That is down from $483 billion, or 2.8% of GDP, last year. The CBO projects that revenues will rise 8% this year, while spending will rise 5%. The report made several other adjustments to its economic outlook:

• The budget office now expects the unemployment rate to fall to an average of 5.4% this year and 5.1% next year, down from its forecast of 5.5% and 5.4%, respectively, in its January forecast.Inflation is also projected to be slightly lower. The CBO forecasts that inflation, as measured by the personal consumption expenditures price index, will post an annual gain of just 0.6% in the fourth quarter this year, before rising 1.8% next year. The previous forecast was 1.1% and 1.9%, respectively. The CBO forecast sees the rate on 10-year Treasury notes rising from an average of 2.4% in the second half of 2015 to 4.2% by the end of 2019.

On the whole, lower interest costs for the U.S. government will reduce projected deficits over the coming decade by $200 billion compared with its March projection. In other words, the U.S. would add $7 trillion in debt over the next decade, down from $7.2 trillion in the last forecast. Debt held by the public would rise from 74% of GDP this year to around 77% in 2025.

New Pictures From CBO on the Extent of the Damage  -- The Congressional Budget Office just released their periodic update of our fiscal and economic outlook. Journalists often focus on their deficit projections as that’s the coin of the realm (the budget office found that near term deficits go down before they start going up). But I’m here to show you what I humbly submit are two important pictures of just how lasting and relentless economic slack—the under-utilization of our economic resources, including people—has been over this business cycle. The first picture shows potential GDP against actual GDP in real dollars, where potential GDP is the output you’d expect at full employment. The recession is clear but note that all the way through the first half of this year, actual GDP still hasn’t linked up with potential.  The second figure applies the same sort of concept to unemployment, with the “natural rate” line giving you CBO’s estimate of the jobless rate commensurate with full employment. The cost of these gaps is staggering. Output forgone is lost forever. Families that struggled with long months of unemployment can’t get those months back. The gap between actual and potential GDP in 2014 amounted to 4% of GDP—about $700 billion in today’s dollars, over $2,000 per person. That’s $8,000 for a family of four that’s missing due to these persistent gaps. What’s “interesting”—as in “depressing”—about this is that the obsessive focus on the deficit has hamstrung the fiscal policy that should have been applied to closing these gaps. So pardon me if I don’t get flustered with joy that the deficit’s coming down or enraged that it starts going up again. If policy makers had been doing their jobs, these gaps would have been closed well before today.

CBO offers an uninspiring economic forecast for the next decade -- The economic picture painted by the new Congressional Budget Office forecast is a decade of slow growth and a slightly worsening debt picture. First, the near term projection, via the WSJ: Federal budget analysts dropped their estimates for US economic growth after another disappointing first quarter, extending a string of downward revisions to initial forecasts that have been a hallmark of the current expansion. …  The latest CBO projection expects the U.S. will run a deficit of $426 billion, or 2.4% of GDP, the lowest since 2007. That is down from $483 billion, or 2.8% of GDP, last year. … The budget office now expects the unemployment rate to fall to 5.2% in the fourth quarter this year and to 5% in the fourth quarter of 2017. Previously, it saw the unemployment rate declining to 5.5% in 2015 and 5.3% in 2017. … Inflation is also projected to be slightly lower. The CBO forecasts that the core consumer-price index, which excludes food and energy, will rise 1.8% this year, down from an earlier forecast of 2%. … On the whole, lower interest costs for the U.S. government will reduce projected deficits over the coming decade by $200 billion compared with its March projection. In other words, the U.S. would add $7 trillion in debt over the next decade, down from $7.2 trillion in the last forecast. Debt held by the public would rise from 74% of GDP this year to around 77% in 2025. And a couple more charts (all the charts in this post are from the CBO report) give a longer term perspective:

Trumping the Federal Debt Without Playing the Default Card – Ellen Brown - In a post on “Sovereign Man” dated August 14^th, Simon Black argued that Donald Trump may be the right man for the presidency: [T]here’s one thing that really sets him apart, that, in my opinion, makes him the most qualified person for the job: Donald Trump is an expert at declaring bankruptcy.  When the going gets tough, Trump stiffs his creditors. He’s done it four times!  Candidly, this is precisely what the Land of the Free needs right now: someone who can stop beating around the bush and just get on with it already. Black says the country is officially bankrupt, with the government’s financial statements showing a negative net worth of $17.7 trillion: Nations that pass the economic point of no return can’t rebuild until they hit rock bottom. And the US is way past that point. So let’s get on with it already and hit the reset button. Black recommends doing this by defaulting, preferably on Social Security and Medicare. But that is unlikely to suit this leading Republican candidate. As Trump said on Meet the Press on August 16: I want people to be taken care of from a healthcare standpoint.… I want to save Social Security without cuts. I want … a strong country with very little debt.How can the country remain strong with very little debt, without defaulting on Social Security, Medicare, or the federal debt itself? There is a way. The government can reduce the debt by buying it – and ripping it up. The debt can be bought either with debt-free US Notes of the sort issued during the Civil War, or with US dollars issued by the Federal Reserve in the form of “quantitative easing.” The vast majority of the money supply today is created by banks when they make loans, as the Bank of England recently acknowledged. Banks create money by “monetizing” debt, turning loans into the digital deposits that make up most of the circulating money supply. The government could push the reset button by monetizing its own debt, turning it into what it should have been all along – debt-free, interest-free dollars.

CBO: US could reach $18.1 trillion debt limit in mid-November -- The United States will likely hit the $18.1 trillion debt limit around mid-November or early December, the nonpartisan Congressional Budget Office (CBO) predicted Tuesday. The deadline is crucial for Congress, which must approve an increase in the government’s borrowing authority to prevent a first-ever default on the national debt.  “By CBO’s estimate, the Treasury would most likely be able to continue borrowing and have sufficient cash to make its usual payments through mid-November or early December without an increase in the debt limit,” the CBO said in a report. CBO’s projected deadline is later than the one Treasury Secretary Jack Lew gave lawmakers before they left town for the August recess. He warned lawmakers they could have to deal with the debt ceiling as early as late October, though he cautioned that the situation is fluid. Lew is expected to give lawmakers a firm deadline in the coming weeks. At a press briefing, CBO Director Keith Hall explained that higher than expected revenue from individual and corporate income taxes has pushed back the estimation of when the Treasury Department will run out of its borrowing power. While CBO's report was compiled well before the volatility in the stock market over the last week, Hall told reporters it may not affect much of the long-term economic outlook. "I’m not sure we would change anything yet," he said, adding that fluctuations in the stock market don't typically affect consumers or businesses.

US CBO Improves Deficit View;Sub-2% PCE Seen to Mid-'17- Larger than anticipated tax receipts are shrinking the U.S. budget deficit, the Congressional Budget Office projected Tuesday, with this fiscal year's red ink down to $426 billion, $59 billion less than last year and $60 billion less than last estimated in March. At 2.4% of GDP, the current year's deficit will be the smallest since 2007 and below the 50-year average relative to the size of the economy. However, three years of favorable budget trends will give way to higher interest rates and an accelerating pace of debt accumulation, CBO warned. The next debt-limit deadline, when Treasury's borrowing power will be exhausted, will fall between mid November and early December, generally in line with earlier estimates, CBO projected. For the 2016 fiscal year, which begins in October, the deficit will be smaller, at $414 billion and 2.2% of GDP, followed by a third year of good budget news in 2017, when the deficit is seen at $416 billion or just 2.1% of GDP. After that, however, the budget picture gets worse, with deficits rising until they again hit $1 trillion a year in 2025. Deficits will add $7 trillion to the national debt between 2016 and 2025 in the 10-year outlook which did not see much revision from the CBO's outlook in March. The CBO saw personal consumption expenditures rising at a rate below the Federal Reserve's 2% target until mid 2017. GDP, the CBO said, is picking up in the second half of this year and will be growing 3.1% next year. The growth estimates are for slightly slower acceleration than seen previously for this year and slightly faster growth between 2016 and 2019. Interest rates, as gauged by the 10-year Treasury note, will average 2.4% this year, climbing to a 4.2% yield in 2019. Three-month bills will climb from near zero where they have been since the end of 2009 to 3.4% by the end of 2019, in the updated outlook.

Cutting defense spending could hurt economy, Bernanke warns - Former Federal Reserve Chairman Ben Bernanke warned Monday that reduced defense spending could have adverse long-term economic impacts, including undermining technological innovations that ultimately produce jobs in the private sector. Speaking at a Brookings Institution event, Bernanke said, “By far the most important (impact), certainly in the United States, has been the linkage between defense military appropriations and broader technological trends. “That is one of the major sources of U.S. growth over time. We remain a technological leader. That’s one of our national strengths.” Bernanke cited as examples the Manhattan Project and the creation of the Defense Advanced Research Projects Agency, the precursor to the Internet. “One innovation I really like is laser surgery,” Bernanke said. “There has since been something like 55,000 patents related to laser technology. Things that have come out have been laser surgery, DVDs, barcodes.” “If the same money had been spent on basic science that would have probably been an even better strategy, that would be even better … but the political system is not good at making long-run investments with uncertain impacts,” he said.

Harry Reid: 'Long shot' to block Iran bill with filibuster - — Senate Minority Leader Harry Reid acknowledged on Monday that it’s a “long shot” to stop a disapproval resolution of Barack Obama’s Iran deal from reaching the president’s desk, but said he and other deal backers are working toward that goal. Reid announced on Sunday that he would back the nuclear agreement with Iran, a shot in the arm for supporters of the international accord, who have seen the vote totals for the deal swell significantly over the past month. On Monday, Sen. Debbie Stabenow (D-Mich.) announced she would vote ‘yes,’ breaking with close ally of Sen. Chuck Schumer (D-N.Y.), who opposes the agreement. Story Continued Below It’s become increasingly obvious that with 28 Democrats backing the deal and 16 undecided, Obama is likely to reach veto-proof support for September’s resolution of disapproval, which would block congressional sanctions from being lifted. Obama needs 34 votes to sustain a veto and deny Republicans the two-thirds support that they would need to block key components of the agreement. But stopping the bill from reaching the president’s desk in the first place is another matter.

Ruling Makes It Harder For U.S. To Charge High FOIA Fees To Media, Nonprofits -  The District of Columbia Circuit Court of Appeals issued a decision which could make a huge difference for alternative media and nonprofit organizations seeking to have fees waived when making Freedom of Information Act (FOIA) requests. Under FOIA, a requester can have fees from document searches, duplication, and review of records waived if the individual or organization is a “representative of the news media.” But government agencies often refuse to grant waivers to advocacy organizations or lesser-known media outlets, which can have a prohibitive impact. More and more agencies—at all levels of government—charge high fees for public documents. For three requests, the Federal Trade Commission refused to grant a fee waiver to Cause of Action, a nonprofit organization which sought records on guides for the “use of product endorsements in advertising.” The FTC responded to the first request and rejected a fee waiver because Cause of Action would not “contribute significantly to public understanding of the operations or activities of the government.” It later declared in an administrative appeal, “You have failed to provide adequate information about your dissemination plans.” In response to a second request (which focused specifically on FTC’s process of granting fee waivers), the FTC informed Cause of Action during an administrative appeal it had failed to provide “sufficient information to establish [its] status as a news media representative.” Judge Merrick Garland disagreed [PDF] with a district court’s previous decision in favor of the FTC, because the focus had been on the requests themselves and not the requester. Cause of Action posts content to a public website to distribute information, which should be enough to qualify it as a publisher entitled to a waiver.

Budget director: 'Tax cuts do not pay for themselves' - The director of the nonpartisan Congressional Budget Office (CBO), who was appointed by GOP lawmakers earlier this year, said Tuesday that tax cuts don’t pay for themselves. At a press briefing, a reporter asked Keith Hall about that theory. “No, the evidence is that tax cuts do not pay for themselves," Hall said. "And our models that we're doing, our macroeconomic effects, show that." The briefing focused on a new report CBO released Tuesday detailing updated projections for the federal budget and economy over the next decade. The CBO projected that the deficit for 2015 will fall to an eight-year low of $426 billion, or 2.4 percent of gross domestic product. It lowered its earlier projections because of higher revenue from corporate and individual income taxes. Some conservatives argue that cutting taxes leads to more economic growth, and thus higher tax revenue from job and wage growth. The majority-GOP Congress is requiring the CBO to use "dynamic scoring," which considers how a bill will affect the broader economy and how that might affect the federal budget. The CBO also uses the more traditional static scoring approach. GOP lawmakers have argued that “dynamic scoring” would provide more accurate estimates. Hall said it does improve the quality of CBO’s scores, but he also warned that there is a lot of uncertainty involved. Congressional Republicans decided earlier this year not to reappoint former CBO Director Doug Elmendorf, appointing Hall as his successor instead.

H&R Block snuck language into a Senate bill to make taxes more confusing for poor people - H&R Block's entire business model is premised on taxes being confusing and hard to file. So, naturally, the tax preparation company has become — along with Intuit, the company behind TurboTax — one of the loudest voices on Capitol Hill arguing against measures that make it easier to pay taxes. For example, the Obama administration has pushed for automatic tax filing, in which the IRS uses income information it already has to fill out your tax return for you. That would save millions of Americans considerable time and energy every year, but the idea has gone nowhere. The main reason? Lobbying from H&R Block and Intuit. But H&R Block's latest lobbying effort is even more loathsome than its opposition to automatic filing. At the company's instigation, the Senate Appropriations Committee has passed a funding bill covering the IRS whose accompanying report instructs the agency to at least quadruple the length of the form that taxpayers fill out to get the Earned Income Tax Credit. It is hard to adequately express how despicable this is. The EITC is one of America's premier anti-poverty programs. It targets poor families specifically, and because you have to work to get it, countless studies have found it encourages single mothers and other people without much connection to the labor market to enter the workforce. The Census Bureau estimates that it and the related Child Tax Credit keep 9.4 million people out of poverty every year, and recent research suggests that when you take into account the people the EITC brings into the workforce, the real number is probably twice that. If that weren't enough, it also boosts test scores for kids in families receiving it and improves both parents' and children's health.

Sentiment Building to Deport Nation’s Billionaires - The New Yorker —They don’t pay taxes. They circumvent our laws. They get free stuff from the government. They are America’s billionaires, and many would like to see them gone. According to a new survey by the University of Minnesota’s Opinion Research Institute, the American people hold the nation’s billionaires in lower esteem than ever before, and a majority would like to see new laws enacted to deport them. “They come here, take thousands of our jobs, and export them overseas,” one respondent said, in an opinion echoed by many others in the survey. “They are part of a shadow economy that sucks billions of dollars out of the United States every year and puts it in Switzerland and the Caymans,” another said. Images of hedge-fund managers arriving via helicopter in the Hamptons this summer have only reinforced the impression that authorities have turned a blind eye to their movements. “Many of these people should be in prison, and the government is looking the other way,” one respondent said. Stirring even more controversy is the billionaires’ practice of having babies in the United States and using the nation’s porous estate-tax laws to pass down untold wealth to the next generation. “They should leave and take their children with them,” one respondent said. Even after it is pointed out to respondents that some billionaires, such as Warren Buffett and Bill Gates, have made significant philanthropic contributions to the world, a majority of those polled stubbornly maintained their negative views of billionaires. “Look, in every group you’re going to have some good ones,” one of the respondents said. “But that doesn’t take away from the fact that the vast majority of these people are destroying this country.”

Global Jitters Give U.S. Bonds an Unexpected Boost - WSJ - Fresh jitters about the global economy are giving U.S. government bonds an unexpected boost, once again upending bets by investors who were convinced the three-decade-long rally in Treasurys was over. The scramble for the safety of Treasurys—amid broader financial-market turmoil spurred by worries about the slowdown in China—has sent the yield on the benchmark 10-year note back toward 2%, its lowest since April. Many traders and investors say it is likely to pierce that level if concerns persist. It is the latest setback for bond bears, who since the financial crisis have repeatedly called for Treasury prices to fall and yields to rise and have repeatedly been wrong. But some investors have profited after betting that uncertainty about the growth outlook and subdued inflation would keep demand for Treasurys high and yields low. On Friday, the Dow Jones Industrial Average entered a correction, roughly defined as a drop of 10% from a recent peak, capping a tumultuous week in which global stock markets slumped and many emerging-market currencies hit record lows against the dollar. U.S. crude oil dipped below $40 a barrel for the first time since 2009, reviving worries about low inflation. The broad selloff in risk assets followed China’s decision to devalue its currency, triggering the yuan’s biggest fall in two decades. The volatility has cast doubt on the Federal Reserve’s willingness to raise interest rates at its September meeting, a threat that has hung over the $12.8 trillion Treasury market. Higher rates make existing bonds less attractive.

Corporate profits lead stock price: important update re Q2 corporate profits: Lost in the frenzy this week has been that second quarter corporate profits were reported by the BEA. To reiterate, since corporate profits are a long leading indicator for the economy, and stock prices a short leading indicator, it makes sense that the direction of corporate profits leads the direction of stock prices, when averaged over a quarter. So here is an update of my graph showing corporate profits (blue) vs. stock prices (red): Due to this week's thrilling action at the dog track, I am using daily S&P 500 prices for this comparison. Here is a close-up of the last year: Note that the graph norms both stock prices and corporate profits to Q4 2007, when stocks were at their richest valuation prior to the Great Recession. This year, stock valuations caught up with corporate profits -- until a couple of weeks ago. In this context the recent correction amounts to a "reset" of valuation at more reasonable levels, while the good news on Q2 profits, which set a new record, argues that sometime in the near future, equity valuations will follow.

Survey: A Third of Employees Would Sell Corporate Info: Organizations spend so much time defending against external attackers that they sometimes neglect to address insider threats. This oversight may reflect the extent to which some organizations trust that their employees will respect their intellectual property and sensitive information, among other factors. Such a mindset is well intentioned. However, it misinterprets the realities of data security. New research reveals just how careful organizations need to be when protecting their data against insider threats. Clearswift, a global cybersecurity innovator and data loss prevention provider, recently announced the results from an independently conducted survey on enterprise security practices by Loudhouse, a technology and B2B research firm. Of the 500 decision makers in Internet technology and 4,000 employees in the United States, Europe and Australia polled, 35 percent of respondents would willingly sell sensitive corporate information (or customer data stored on protected company servers) for the right price. As illustrated in Clearswift’s infographic below, insiders are willing to make off with a variety of information. This includes financial statements, product specifications, customer and employee data, supply chain information and transactional records. The infographic illustrates the kinds of prices for which internal actors would be willing to sell corporate information:

• A quarter of employees would sell company data, risking both their jobs and criminal convictions, for less than $8,000.
• Three percent of employees would sell private information for as little as $155, which is the equivalent of a meal for two at a nice restaurant.
• Nearly one in five respondents (18 percent) would accept an offer of $1,550 – approximately the value of a high-end laptop.
• 35 percent of employees were open to bribes as the offer approached $77,500, a sum which could fund a family holiday to Europe.
• A majority (65 percent) of employees said they wouldn’t sell data for any price.

Incentive Pay and Gender Compensation Gaps for Executives - NY Fed - The persistence of a gender gap in wages is shaping the debate over women’s equality in the workplace and underscores the challenge facing policymakers as they consider their potential role in closing it. While the disparity affects females at all income levels, women in professional and managerial occupations tend to experience greater gender-pay differences than those in working-class jobs. The rise in the use of incentive pay, which has been linked to the growth of income inequality (Lemieux, MacLeod, and Parent), might have contributed to the gender gap in earnings (Albanesi and Olivetti). In this post, which is based on our related New York Fed staff report, we document three new facts about gender differences in the structure of executive compensation.

How Eric Holder's Corporate Law Firm Is Turning Into a 'Shadow Justice Department' -- The revolving door between the Department of Justice and a certain corporate law firm is spinning faster than ever. On July 6, former Attorney General Eric Holder returned to his previous employer, Covington & Burling — a firm that's represented the biggest banks on Wall Street, and is internationally known for its white-collar defense practice. A week later, his DOJ chief of staff Margaret Richardson announced that she would be following him there. Meanwhile, the latest data from the DOJ reveals that criminal prosecutions for white-collar crimes are at a 20-year low. This decline and the rapid circulation of personnel between Covington and the DOJ has raised questions about the Obama administration's handling of the banking industry and the 2008 financial crisis.  Under Obama, the DOJ decided not to pursue criminal charges against most of the executives and financial institutions behind the economic collapse, opting instead to impose hefty fines that were paid out by shareholders, not the employees or executives of the banks. In contrast, some 1,100 individuals faced criminal prosecution during the savings and loan crisis of the 1980s, and the heads of several major banks served jail time. "I'm not accusing anyone of anything specific, but we're looking at a gigantic built-in conflict of interest revolving in and out of the attorney general's office," Ted Kaufman, a former Delaware senator who went on to chair the Congressional Oversight Panel tasked with monitoring the $700 billion bailout of the financial industry during the crisis, told VICE News.

JPMorgan Sheds $27.18 Billion in Market Cap in Three Trading Sessions -  America’s largest bank, JPMorgan Chase, has lost 10.87 percent of its market capitalization in the past three trading sessions. That’s $27.18 billion in three days, raising serious questions about the Federal Reserve’s theory that beefed up equity capital would buffer the mega banks in a market downturn. The indefatigable Eric Hunsader, owner of the market data firm Nanex, was Tweeting the abominations occurring in the stock market yesterday as the opening bell set off a bungee dive to a loss of 1,089 points in the Dow Jones Industrial Average (DJIA). One of Hunsader’s Tweets remarked on the bizarre price action in the stock of JPMorgan Chase, a member of the 30 stocks in the DJIA. The chart posted by Hunsader showed that JPMorgan’s stock was flash crashing by $5 a pop, only to regain the loss seconds later. The price action shown on the chart above occurred between 9:33 and 9:34 a.m., within moments of the market open. So who was this miracle worker helping to boost JPMorgan’s sagging share price? According to the SEC’s amended Rule 10b-18, JPMorgan Chase could have had its own agent buying back its stock after just one “independent” trade had occurred at the opening. The SEC’s amended rule notes:“…because the opening transaction continues to set the tone for that day’s trading session, the safe harbor will continue to preclude an issuer from being the opening (regular way) purchase reported in the consolidated system.”But after the first opening trade, the SEC explains:“We are adopting the proposed amendment to apply a uniform price condition that limits all issuers to purchasing their securities at a price that does not exceed the highest independent bid or the last independent transaction price, whichever is higher, quoted or reported in the consolidated system…” In addition to not being allowed to be the first buyer at the open, corporations with highly liquid float are barred from conducting buybacks during the last ten minutes of trading before the market closes. Issuers of illiquid stocks are barred for the last 30 minutes under the SEC’s Rule 10b-18.

Behold: Insanity -- (graph)-- This is not normal... Dow futures moved over 4,500 points intraday today!!!

Rising Anxiety That Stocks Are Overpriced -- Robert Shiller - Over the five trading days between Aug. 17 and Aug. 24, the U.S. stock market dropped 10 percent — the official definition of a “correction,” with similar or greater drops in other countries. ... But there are reasons to question whether this was a quick, effective slap on the wrist, or if the market is still too overactive, and thus asking for a more extended punishment. ...  It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S. & P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor. Or maybe this could be another 1998. We have no statistical proof. We are in a rare and anxious “just don’t know” situation, where the stock market is inherently risky because of unstable investor psychology.

Michael Hudson: Smoke and Mirrors of Corporate Buybacks Behind the Market Crash - naked capitalism - Yves here. I’m glad to see Hudson give the role of corporate buybacks the attention it deserves in propping up the stock market in this Real News Network interview. Hudson clearly differentiates what is happening in the Chinese versus the US markets. (video interview & transcript) The Dow Jones trading took a deep drive this morning, dropping over 1,000 points in the first 20 minutes of trading. It is now slowly reversing itself, but it was the greatest loss in trading since the 2010 crash. Here to discuss all of this, we’re joined by Michael Hudson. Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City. His latest book, which we promise to unpack in detail very soon, is Killing the Host: How Financial Parasites and Debt Destroy Global Economy. You can get a digital download of it at Counterpunch.

What If The "Crash" Is as Rigged as Everything Else?: There is an almost touching faith that markets are rigged when they loft higher, but unrigged when they crash. Who's to say this crash isn't rigged? A few things about this "crash" (11% decline from all time highs now qualifies as a "crash") don't pass the sniff test.

• Exhibit 1: VIX volatility Index soars to "the world is ending" levels when the S&P 500 drops a relatively modest 11%. The VIX above 50 is historically associated with declines of 20% or more--double the current drop. When the VIX spiked above 50 in 2008, the market ended up down 57%. Now that's a crash.
• Exhibit 2: The VIX soared and the market cratered at the end of options expiration week (OEX), maximizing pain for the majority of punters. Generally speaking, OEX weeks are up. The exceptions are out of the blue lightning bolts such as the collapse of a major investment bank. Was a modest devaluation in China's yuan really that unexpected, given the yuan's peg to the U.S. dollar which has risen 20% in the past year? Sorry, that doesn't pass the sniff test.
• Exhibit 3: When the VIX spiked above 30 in October 2014, signaling panic, the Federal Reserve unleashed the Bullard Put, i.e. the Fed's willingness to unleash stimulus in the form of QE 4. Markets reversed sharply and the VIX collapsed.  Now the VIX tops 50 and the Federal Reserve issues an absurd statement that it doesn't respond to equity markets. Well then what was the Bullard Put in October, 2014? Mere coincidence? Sorry, that doesn't pass the sniff test.

Why would "somebody" engineer a mini-crash and send volatility to "the world is ending" levels? There are a couple of possibilities.

Margin Calls Bite Investors, Banks - WSJ: Loans backed by investment portfolios have become a booming business for Wall Street brokerages. Now the bill is coming due—for both the banks and their clients. Some lenders, including Bank of America, are issuing margin calls to clients after the global market drubbing of the past week, forcing investors to choose between either putting up more money or selling some of the securities underlying the loans. Banks, meanwhile, are likely to take a hit to a key profit source if investors pull back from these loans as many expect. Among the largest firms, Morgan Stanley had $25.3 billion in securities-based loans outstanding as of June 30, up 37% from a year earlier. Bank of America, which owns brokerage firm Merrill Lynch, had $38.6 billion in such loans outstanding as of the end of June, up 14.2% from the same period last year. And Wells Fargo said last month that its wealth unit saw average loans, including these loans and traditional margin loans, jump 16% to $59.3 billion from last year.“Your largest wealth creator for the top end has been inflation in financial assets. You’re now seeing wealth destruction,”In a securities-based loan, the customer pledges all or part of a portfolio of stocks, bonds, mutual funds and/or other securities as collateral. But unlike traditional margin loans, in which the client uses the credit to buy more securities, the borrowing is for other purchases such as real estate, a boat or education. Securities-based loans surged in the years after the financial crisis as banks retreated from home-equity and other consumer loans. Amid a yearslong bull market for stocks, the loans offered something for everyone in the equation: Clients kept their portfolios intact, financial advisers continued getting fees based on those assets and banks collected interest revenue from the loans. The result was “dangerously high margin balances,”

Banks fine tally since crisis hits $US260bn -- The wave of fines and lawsuits that has swept through the financial industry since the 2007-08 crisis has cost big banks $US260 billion, new research from Morgan Stanley shows. The analysis, which covers the five largest banks in the US and the 20 biggest in Europe, predicts the group will incur another $US60 billion of litigation costs in the next two years. Bank of America, Morgan Stanley, JPMorgan, Citi and Goldman Sachs have borne the brunt of the fines so far, collectively paying out $US137 billion. They have another $US15 billion to come in the next two years, Morgan Stanley said. The top 20 European banks have paid out about $US125 billion and have about $US50 billion to come "albeit with a wide range", the analysis said. "In the States . . . there have been more precedents on settlements and so as more banks have settled, the market's ability to make a guesstimate of the amount for other banks has improved," said Huw van Steenis, managing director at Morgan Stanley. Mr van Steenis said the fines, which cover everything from foreign exchange rate rigging to US mortgage-backed securities and mis-selling of payment protection insurance in the UK, are having a profound impact on the banks. "Litigation not only takes a bite out of your equity but has a much longer lasting impact on the amount of capital you need to hold," he said.

U.S. Banks Moved Billions of Dollars in Trades Beyond Washington’s Reach --This spring, traders and analysts working deep in the global swaps markets began picking up peculiar readings: Hundreds of billions of dollars of trades by U.S. banks had seemingly vanished.   The vanishing of the trades was little noted outside a circle of specialists. But the implications were big. The missing transactions reflected an effort by some of the largest U.S. banks — including Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, and Morgan Stanley — to get around new regulations on derivatives enacted in the wake of the financial crisis, say current and former financial regulators.  The trades hadn’t really disappeared. Instead, the major banks had tweaked a few key words in swaps contracts and shifted some other  trades to affiliates in London, where regulations are far more lenient. Those affiliates remain largely outside the jurisdiction of U.S. regulators, thanks to a loophole in swaps rules that banks successfully won from the Commodity Futures Trading Commission in 2013. Many of the CFTC employees who were lobbied in these meetings went on to work for banks. Between 2010 and 2013, there were 50 CFTC staffers who met with the top five U.S. banks 10 or more times. Of those 50 staffers, at least 25 now work for the big five or other top swaps-dealing banks, or for law firms and lobbyists representing these banks. The lobbying blitz helped win a ruling from the CFTC that left U.S. banks’ overseas operations largely outside the jurisdiction of U.S. regulators. After that rule passed, U.S. banks simply shipped more trades overseas. By December of 2014, certain U.S. swaps markets had seen 95 percent of their trading volume disappear in less than two years.  While many swaps trades are now booked abroad, some people in the markets believe the risk remains firmly on U.S. shores. They say the big American banks are still on the hook for swaps they’re parking offshore with subsidiaries.

Wall Street Launders Derivatives Via Europe To Avoid Dodd-Frank: When Congress punted much of the rule-making for the Dodd-Frank Act to the financial regulatory agencies, they might as well have raised a white flag. As compromised as Congress is when it comes to dealing with their Wall Street donors, they have nothing on financial regulators who often end up later working for the people and companies they are supposed to be regulating. Those working for the various financial regulatory agencies — SEC, CFTC, OCC — are in a prime position to cash in on their institutional knowledge and go work for Wall Street where they can make millions gaming the rules they themselves put in place. Though there has always been a “revolving door” between government and business, Wall Street has taken it to new levels and can offer the kind of money few other businesses can. This revolving door dynamic between Washington and Wall Street leads to weaker loophole filled regulations that can easily be gamed by large financial firms. That’s exactly what is happening today thanks to regulators taking a dive on rules concerning derivatives trading. According to an August 21 Reuters report, Wall Street firms successfully lobbied to have a huge loophole inserted into the Dodd-Frank Act that enables them to evade regulations on swap agreements. Now traders and firms can shift the location of the swaps to places like London and avoid the oversight that was supposed to be provided by Dodd-Frank. The trades can no longer even be tracked by US regulators and, according to Reuters, “include some of the most widely traded financial derivatives in the world — such as interest rate swaps, where a bank takes a fee for exchanging a variable-rate interest payment for a fixed rate with a client, and credit default swaps, a sort of insurance where one party, often a bank, agrees to pay another party in the event of a bond default.”'

Better Small-Business Lending Data Could Tell Us a Lot About the Economy - New data on small-business lending could show a prospective entrepreneur which banks have the best track record of lending to female and minority business owners. They could show lenders how they stack up against their competitors, and encourage them to rethink their lending strategies. And they could give important clues to regulators and community advocates about local and regional trends in small-business lending across the country, and its impact on the economy. The only problem: The data isn’t collected or published anywhere. The 2010 Dodd-Frank law required lenders to start providing better data about the loans they make to small businesses, including the race and gender of business owners, the businesses’ revenue and whether the lender approved or rejected loans. But the agency tasked with enforcing the requirement, the Consumer Financial Protection Bureau, hasn’t written a rule to enforce it yet. Though lenders already report detailed data on mortgage borrowers—including their race, gender, ethnicity and income level–there is no such requirement for small-business loans, and the available data is limited. Community-lending advocates argue the lack of information is hampering access to credit—especially for disadvantaged borrowers—at a time when the economy could use the boost that small-business creation and expansion provides.

AIA: Architecture Billings Index indicated expansion in July - This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From the AIA: Architecture Firm Billings Continued to Rise in July Business conditions at U.S. architecture firms continued to improve in July. While the pace of growth of architecture firm billings decreased modestly from June, the ABI score of 54.7 for the month indicates that firm billings remain on the upswing overall. In addition, there continues to be plenty of work in the pipeline, with firms reporting strong inquiries into new projects as well as the highest design contracts score since the end of 2014...By firm specialization, firms with an institutional focus are still reporting some of the strongest business conditions they have ever experienced, and firms with a commercial/industrial specialization continue to recover from some softness earlier in the year. In addition, firms with a residential specialization are coming close to emerging from the slump that they have experienced for the last six months, which came on the heels of several years of strong growth. Scores for this segment have been ticking up for the last two months and will hopefully return to positive territory before the end of the summer. Sector index breakdown: institutional (57.3), commercial / industrial (53.4) multi-family residential (49.8)

Black Knight's First Look at July: Foreclosure Inventory at Lowest Level Since 2007  -- From Black Knight: Black Knight Financial Services' First Look at July Mortgage Data: Foreclosure Inventory Down 24 Percent Year-Over-Year; Lowest Level Since 2007 According to Black Knight's First Look report for July, the percent of loans delinquent decreased 2% in July compared to June, and declined 16.5% year-over-year.  The percent of loans in the foreclosure process declined 4% in July and were down 24% over the last year.   Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.71% in July, down from 4.82% in June.  The percent of loans in the foreclosure process declined in July to 1.40%.  This was the lowest level of foreclosure inventory since 2007. The number of delinquent properties, but not in foreclosure, is down 460,000 properties year-over-year, and the number of properties in the foreclosure process is down 224,000 properties year-over-year. Black Knight will release the complete mortgage monitor for July in early September.

Freddie Mac: Mortgage Serious Delinquency rate declined in July, Lowest since October 2008 -- Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 1.48%, down from 1.53% in June. Freddie's rate is down from 2.02% in July 2014, and the rate in July was the lowest level since October 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".  Although the rate is declining, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.54 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-2016. So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in July -- Economist Tom Lawler sent me an updated table below of short sales, foreclosures and cash buyers for selected cities in July.On distressed: Total "distressed" share is down in most of these markets.  Distressed sales are up in the Mid-Atlantic due to an increase in foreclosures. Short sales are down in all of these areas. The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

Rethinking Mortgage Design - NY Fed - Because mortgages make up the majority of household debt in most developed countries, mortgage design has important implications for macroeconomic policy and household welfare. As one example, most U.S. mortgages have fixed interest rates—if interest rates fall, existing borrowers need to refinance to lower their interest payments. In practice, households are often slow to refinance, or may not be able to do so. As a result, the transmission of U.S. monetary policy is dampened relative to countries like the United Kingdom where mortgage rates on most loans adjust automatically with short-term interest rates. In this post, we discuss some of the key takeaways from a recent conference where policymakers, academics, practitioners, and other experts convened to discuss mortgage design and consider possible mortgage market innovations.

MBA: Mortgage Applications Increase Slightly in Latest Weekly Survey, Purchase Index up 18% YoY -- From the MBA: Increase in Government Purchase Loans Drive Overall Increase in Latest MBA Weekly Survey Mortgage applications increased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 21, 2015. ... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 0.3 percent compared with the previous week and was 18 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.08 percent from 4.11 percent, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. Refinance activity remains very low. 2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year). The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 18% higher than a year ago.

Foreign “Smart Money” Frets about Turmoil at Home, Flees, Plows into US Housing Bubble 2, Thinks it’s a “Safe Haven”  - Wolf Richter - Wealthy, very nervous foreigners yanking their money out of their countries while they still can and pouring it into US residential real estate, paying cash, and driving up home prices – that’s the meme. But it’s more than a meme as political and economic risks in key countries surge. And home prices are being driven up. The median price of all types of homes in July, as the National Association of Realtors (NAR) sees it, jumped 5.6% from a year ago to $234,000, now 1.7% above the totally crazy June 2006 peak of the prior bubble that blew up in such splendid manner. But you can’t even buy a toolshed for that in trophy cities like San Francisco, where the median house price has reached $1.3 million. And the role of foreign buyers? [N]ever have so many Chinese quietly moved so much money out of the country at such a fast pace. Nowhere is that Sino capital flight more prevalent than into the US residential real estate market, where billions are rapidly pouring into the American Dream. From New York to Los Angeles, China’s nouveau riche are going on a housing shopping spree.   So begins RealtyTrac’s current Housing News Report. “The best place for China’s smart money to invest is the United States.” In the 12-month period ending March 2015, buyers from China have for the first time ever surpassed Canadians as the top foreign buyers, plowing $28.6 billion into US homes, at an average price of $831,800, according to the NAR. In dollar terms, Chinese buyers accounted for 27.5% of the $104 billion that foreign buyers spent on US homes. It spawned a whole industry of specialized Chinese-American brokers.

FHFA House Price Index Up 1.2% in Q2 - The Federal Housing Finance Agency (FHFA) has released the U.S. House Price Index (HPI) for the most recent month. Here is the opening of the report.U.S. house prices rose 1.2 percent in the second quarter of 2015 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). This is the 16th consecutive quarterly price increase in the purchase-only, seasonally adjusted index. FHFA’s seasonally adjusted monthly index for June was up 0.2 percent from May. House prices rose 5.4 percent from the second quarter of 2014 to the second quarter of 2015. The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. [Link to reports] Investing.com had forecast a 0.4 percent increase. The chart below illustrates the HPI series, which is not adjusted for inflation, along with a real (inflation-adjusted) series using the Consumer Price Index: All Items Less Shelter.

Black Knight: House Price Index up 0.9% in June, 5.1% year-over-year  -- Note: 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: U.S. Home Prices Up 0.9 Percent for the Month; Up 5.1 Percent Year-Over-Year Today, the Data and Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Home Price Index (HPI​) report, based on June 2015 residential real estate transactions. 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 0.9% percent in June, and is off 5.8% 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 nine months.

Case-Shiller: National House Price Index increased 4.5% year-over-year in June - S&P/Case-Shiller released the monthly Home Price Indices for June ("June" is a 3 month average of April, May and June prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.   From S&P: Home Prices Continue Upward Trend According to the S&P/Case-Shiller Home Price Indices The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 4.5% annual increase in June 2015 versus a 4.4% increase in May 2015. The 10-City Composite had marginally lower year-over-year gains, with an increase of 4.6% year-over-year. The 20-City Composite year-over-year pace was virtually unchanged from last month, rising 5.0% year-over-year... Before seasonal adjustment, the National index and 20-City Composite both reported gains of 1.0% month-over-month in June. The 10-City Composite posted a gain of 0.9% month-over-month. After seasonal adjustment, the National index posted a gain of 0.1% while the 10-City and 20-City Composites were both down 0.1% month-over-month. All 20 cities reported increases in June before seasonal adjustment; after seasonal adjustment, nine were down, nine were up, and two were unchanged. “Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,”   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 14.6% from the peak, and down 0.2% in June (SA). The Composite 20 index is off 13.3% from the peak, and down 0.1% (SA) in June. The National index is off 7.5% from the peak, and up 0.1% (SA) in June. The National index is up 25.0% from the post-bubble low set in December 2011 (SA). The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 4.6% compared to June 2014. The Composite 20 SA is up 5.0% year-over-year.. The National index SA is up 4.5% year-over-year. Prices increased (SA) in 10 of the 20 Case-Shiller cities in June seasonally adjusted.

Case-Shiller Home Prices Dip In June, Miss For 3rd Month In A Row -- Home prices rose 4.97% YoY in June, according to Case-Shiller's 20-City index, missing expectations for the 3rd month in a row. Price appreciation has now been flat for 5 months - despite surging home sales - as bubblicious San Francisco saw price depreciation once again. Portland amd Denver saw the most appreciation in June. This is the second month in a row of sequential seasonally-adjusted declines in home prices, and along with TOL's dismal report this morning, suggests maybe another pillar of the 'strong' US economy meme is being kicked out... and Case-Shiller warn more than one rate hike by The Fed (or a stock market plunge) will stymie housing considerably.  As Case-Shiller explain, “Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While prices in San Francisco and Denver are rising far faster than those in Washington DC, New York, or Cleveland, the city-to-city price patterns are little changed in the last year.Washington saw the smallest year-over-year gains in five of the last six months; San Francisco and Denver ranked either first or second of all cities in the last five months. The price gains have been consistent as the unemployment rate declined with steady inflation and an unchanged Fed policy. “The missing piece in the housing picture has been housing starts and sales. These have changed for the better in the last few months. Sales of existing homes reached 5.6 million at annual rates in July, the strongest figure since 2007. Housing starts topped 1.2 million units at annual rates with almost two-thirds of the total in single family homes. Sales of new homes are also trending higher. These data point to a stronger housing sector to support the economy.

Real Prices and Price-to-Rent Ratio in June  -- The year-over-year increase in prices is mostly moving sideways now at between 4% and 5%.. In October 2013, the National index was up 10.9% year-over-year (YoY). In June 2015, the index was up 4.5% YoY. Here is the YoY change since January 2014 for the National Index:  Most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it is 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 $276,000 today adjusted for inflation (38%). 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 7.5% 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 June) 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 June 2005. Real House Prices 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 May 2003 levels, the Composite 20 index is back to April 2003, and the CoreLogic index back to October 2003. In real terms, house prices are back to 2003 levels. Note: CPI less Shelter is down 1.1% year-over-year, so this is pushing up real prices.

Zillow Forecast: Expect Case-Shiller to show "Uptick in Appreciation" year-over-year change in July  -- The Case-Shiller house price indexes for June were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close. From Zillow: July Case-Shiller: Expect a Slight Uptick in Appreciation The June S&P/Case-Shiller (SPCS) data published today showed home prices continuing to rise at an annual rate of five percent for the 20-city composite and 4.6 percent for the 10-city composite. The national index has risen 4.5 percent since June 2014. The non-seasonally adjusted (NSA) 10- and 20-city indices were both down 0.1 percent from May to June. We expect the change in the July SPCS to show increases of 0.8 percent for the 20-city index and 0.7 percent for the 10-City Index. All Case-Shiller forecasts are shown in the table below. These forecasts are based on today’s June SPCS data release and the July 2015 Zillow Home Value Index (ZHVI), release August 24. The SPCS Composite Home Price Indices for July will not be officially released until Tuesday, September 28. This suggests the year-over-year change for the July Case-Shiller National index will be slightly higher than in the June report.

Oil-Price Plunge Could Push Down Home Prices in Three States -- The plunge in oil prices increasingly looks like it is here to stay, and that could be bad news for home values in three states that are most exposed to job losses in the drilling fields. So far, the energy-price declines don’t look like they will lead to home-price declines as severe as those inflicted on Texas during the 1980s oil patch downturn, according to an analysis by Eric Brescia, an economist at Fannie Mae. But his analysis shows that homeowners in North Dakota, Wyoming and Alaska are “at risk of experiencing significant house price declines.” Home values in Texas fell 11% from 1983 to 1988, a period in which prices nationally rose 32%, as the collapse in oil prices led the state into a deep recession and triggered sharp job losses. Mr. Brescia says today’s fall in oil prices could lead to a similar house-price decline in oil-producing states, but three factors are worth watching that could lead to different outcomes this time around. First, the current decline in oil prices is less severe. Second, the oil industry’s sensitivities to price cuts are less predictable than they were then because of changes in drilling technology. Third, most oil-producing states’ economies don’t rely as heavily on the oil industry as they did in the 1980s. At its peak in 1982, the oil industry’s share of employment in Texas stood at 4.2%. In 2013, the sector accounted for just 2.2% of all employment. “We generally see this downturn as less severe than the 1980s,” Mr. Brescia said.

New Home Sales at 507K -   This morning's release of the July New Home Sales from the Census Bureau at 507,000 was slightly below general expectations, and the previous month was revised downward by 1K. The Investing.com forecast was for 510K. Here is the opening from the report: Sales of new single-family houses in July 2015 were at a seasonally adjusted annual rate of 507,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.4 percent (±14.8%)* above the revised June rate of 481,000 and is 25.8 percent (±22.6%) above the July 2014 estimate of 403,000. [Full Report] For a longer-term perspective, here is a snapshot of the data series, which is produced in conjunction with the Department of Housing and Urban Development. The data since January 1963 is available in the St. Louis Fed's FRED repository here. Over this time frame we see the steady rise in new home sales following the 1990 recession and the acceleration in sales during the real estate bubble that peaked in 2005. Now let's examine the data with a simple population adjustment. The Census Bureau's mid-month population estimates show a 71% increase in the US population since 1963. Here is a chart of new home sales as a percent of the population.

New Home Sales increased to 507,000 Annual Rate in July - The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 482 thousand. The previous three months were revised down by a total of 12 thousand (SA). "Sales of new single-family houses in July 2015 were at a seasonally adjusted annual rate of 507,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.4 percent above the revised June rate of 481,000 and is 25.8 percent above the July 2014 estimate of 403,000." The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still close to the bottoms for previous recessions. The second graph shows New Home Months of Supply. The months of supply decreased in July to 5.3 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of July was 218,000. This represents a supply of 5.2 months at the current sales rate." The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low. The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

July 2015 New Home Sales Rate of Growth Improves. - The headlines say new home sales improved from last month. The rolling averages smooth out much of the uneven data produced in this series - and this month there was an insignificant deceleration in the rolling averages. As the data is noisy, the 3 month rolling average is the way to look at this data. This data series is suffering from methodology issues. Econintersect analysis:

• unadjusted sales growth accelerated 4.4 % month-over-month (after last month's revised acceleration of 4.5%).
• unadjusted year-over-year sales up 22.9 % (Last month was up 18.4 %). Growth this month is on the high end of the range of growth seen last 12 months.
• three month unadjusted trend rate of growth decelerated 0.2% month-over-month - is up 18.% year-over-year.

US Census Headlines:

• seasonally adjusted sales up 5.4 % month-over-month
• seasonally adjusted year-over-year sales up 25.8 %
• market expected (from Bloomberg) seasonally adjusted annualized sales of 494 K to 531 K (consensus 516K) versus the actual at 507 K.

Comments on July New Home Sales  - The new home sales report for July was slightly below expectations and there were also minor downward revisions to prior months.  However sales are still up solidly for 2015 compared to 2014. Earlier: New Home Sales increased to 507,000 Annual Rate in July.  The Census Bureau reported that new home sales this year, through July, were 316,000, not seasonally adjusted (NSA). That is up 21.2% from 260,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for the first seven months of 2015! Sales were up 25.8% year-over-year in July.  This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate). The year-over-year gain was strong through July (the first seven months were especially weak in 2014), however I expect the year-over-year increases to slow over the remaining months - but the overall year-over-year gain should be solid in 2015. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next several years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through July 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. I expect existing home sales to mostly move sideways over the next few years (distressed sales will continue to decline and be offset by more conventional / equity sales). And I expect this gap to slowly close, mostly from an increase in new home sales.

How Much Longer Can The Record New Home Sales-To-Price Divergence Continue - Moments ago the US Census Bureau reported the latest, July, new residential sales data, which at 507K, was a modest miss to expectations of 501K, if a substantial 5.4% rebound to June's 481K, which was to be expected: June was the lowest print since November 2014. The rebound was nearly across the board, with the only region posting a decline in July was Midwest where a 6.9% drop in new home sales was recorded: every other region saw gains, with the Northeast highest by far with a 23.1% sequential jump. And while the July print was ok, in the context of the long-term chart we can see just how weak the housing recovery continues to be during the post-crisis cycle. But the biggest surprise is not in the volumes of new homes sold, but the ongoing gaping divergence between volumes and prices. As we have shown previously, this record spread will have to close one way or another, and with the median new home sales price of $285,900 or virtually unchanged from a year ago, it would appear that new home buyers are finally starting to rebel against prices whose rise has far surpassed the increase in actual sales.How much longer can this record divergence persist, even if as the chart above shows, it is slowly starting to converge.

NAR: Pending Home Sales Index increased 0.5% in July, up 7% year-over-year -- From the NAR: Pending Home Sales Inch Forward in July  The Pending Home Sales Index, a forward-looking indicator based on contract signings, marginally increased 0.5 percent to 110.9 in July from an upwardly revised 110.4 in June and is now 7.4 percent above July 2014 (103.3). The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015, behind April (111.6) and May (112.3). This was below expectations of a 1.0% increase. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in August and September.

July Pending Home Sales Mostly Unchanged - Earlier today the National Association of Realtors released the July data for their Pending Home Sales Index. "Pending home sales were mostly unchanged in July, but rose modestly for the sixth time in seven months, according to the National Association of Realtors®" (more here). The chart below gives us a snapshot of the index since 2001. Over this time frame, the US population has grown by 13.2%. For a better look at the underlying trend, here is an overlay with the nominal index and the population-adjusted variant. The focus is pending home sales growth since 2001. The index for the most recent month is 13% below its all-time high in 2005. The population-adjusted index is 20% off its 2005 high.  The NAR explains that "because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing Home Sales by a month or two." Here is a growth overlay of the two series. The general correlation, as expected, is close. And a close look at the numbers supports the NAR's assessment that their pending sales series is a leading index.

MBA on Housing Demand from 2014 to 2024 - The Mortgage Bankers Association released a new report this week: Demographics and the Numbers Behind the Coming Multi-Million increase in Households by Lynn Fisher and Jamie Woodwell.  The report has some great section titles such as "Demographics is Destiny" and "35 is the new 25". These are two topics I've written about extensively.  See: Demographics and Behavior and Are Multi-Family Housing Starts near a peak? The MBA estimates the number of households will increase by between 13.8 million and 15.8 million over the next decade. Add in some demolitions and some second home buying, and that would suggest housing starts of well over 1.5 million per year. Housing starts are running at about 1.1 million so far this year (1.2 million SAAR in July). This would suggest a further increase in starts.The MBA presents two scenarios (both seem plausible although I haven't checked the numbers).   Under these conditions, the U.S. will see 15.9 million additional households — 12.7 million owner households (versus 10.3 million in scenario 1) and 3.1 million renter households (versus 5.6 million in scenario 1) — over the next ten years. Both scenarios suggest a shift to more owner built units (and more new home sales).

Home Buyers to Make Comeback in Next Decade, Mortgage Bankers Say - Over the next decade, Americans will emerge from their childhood bedrooms or rental apartments and start becoming homeowners again, a new report says. Homeownership has plunged to its lowest level in half a century. But over the next decade the country will see a surge in new household formation, with many of those families choosing to own rather than rent. By 2024, the U.S. will create between 14 million and 16 million new households, according to the report to be released Tuesday by the Mortgage Bankers Association. Of those, as many as 13 million will be owners and as few as three million will be renters, the bankers say. The report says that as many as 1.3 million additional owner households will be created each year. That is a significant pickup from the recession, when the number of owner households has been basically flat. “It’s a huge amount of housing demand any which way you cut this,” said Lynn Fisher, MBA’s vice president of research and economics. The homeownership rate rose from less than 64% in the late 1980s to more than 69% in the mid-2000s before dropping to below 64% again in 2015. If current homeownership rates by age and race persist, the report’s authors expect the homeownership rate to grow modestly to 64.8%. If those rates of homeownership by group revert to higher long-term trends, they expect the homeownership rate to rebound to 66.5%.

Real Household Net Worth: Look Out Below?  -- In my last post I pointed out that over the last half century, every time the year-over-year change in Real Household Net Worth went negative (real household wealth decreased), a recession had either started, or was about to.  (One bare exception: a tiny decline in Q4 2011, which looks rather like turbulence following The Big Whatever.) Throughout, click for source. The problem: we don’t see this quarterly number until three+ months after the end of a quarter, when the Fed releases its Z.1 report for the the preceding quarter. The Q2 2015 report is due September 18. But right now we might be able to roughly predict what we’re going to see four+ months from now, in the report on our current quarter, Q3, which ends September 30. We’re a bit over a month from the end the quarter, and we have some numbers to hand.  The U.S. equity markets are down roughly 7% year-over-year (click for source):  So a 7% equity decline translates to a $1.4-trillion hit to total market cap, which goes straight to the lefthand (asset) side of household balance sheets, because households ultimately own all corporate equity — firms issue equity, and households own it (at one or more removes); Total household net worth a year ago was $82 trillion. The $1.4 trillion equity decline translates to a 1.7% decline in household net worth. Meanwhile household liabilities over the last four quarters have been growing at a fairly steady rate just above 0.2% per year. There’s no reason to expect a big difference in Q3. This suggests a 1.9% decline in household net worth over the last year, based on the equity markets alone. (My gentle readers are encouraged to add numbers for real estate and fixed-income assets.) Add (subtract) 1.5% in inflation over that period, and you’re looking at something like 3.4% decline in real household net worth, year over year.

Another Day Younger and Deeper in Debt - I often write about the problems that come with overindebtedness, but we’re usually talking about public debt, here in the US or abroad. But personal or household debt in America is nearly as massive as government debt, as this chart shows: As you can see, household debt was relatively stable from the mid-’50s until the turn of the century, when it ballooned for a few years until the Great Recession hit and then was subject to significant deleveraging in the years since. Still, as Neil notes, average household debt is nearly twice as high today as it was in 1989, with most of the increase coming in the form of mortgage debt, although student loans are taking a bite, too – they’re up sixfold, from $888 per household in 1989 to a painful $5791 in 2013. Since these dramatic changes in indebtedness have occurred mostly in the past 20 years – in the span of a generation, that is – they have resulted in very different attitudes toward debt among US generations. The Silent generation (75+) was well-established before the changes hit, is the least burdened by debt – and sees debt in the most positive light, as an opportunity for financial advancement. But the debt they took on, back in the “good old days,” was mostly in the relatively innocuous forms of house and car loans. They weren’t subject to the wave of high-interest credit cards and “seductive Web-based come-ons for low-doc, no-down-payment bubble loans they couldn’t possibly afford,” as Neil puts it, that have plagued Boomers and Gen-Xers scrambling to keep up with the lifestyles of their elders. Millennials (today’s 20-somethings, roughly speaking), who have seen how the generation just ahead of them has suffered, are not surprisingly the most risk-averse when it comes to taking on debt. There’s more to chew on here, and a lot more to learn about the impact of demographics on economic and social change in America and the world at Neil’s Saeculum Research website.

Personal Income increased 0.4% in July, Spending increased 0.3%  - The BEA released the Personal Income and Outlays report for July:  Personal income increased $67.1 billion, or 0.4 percent ... in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $37.4 billion, or 0.3 percent. ...Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in July, compared with an increase of less than 0.1 percent in June. ... The price index for PCE increased 0.3 percent in May, compared with an increase of less than 0.1 percent in April. The PCE price index, excluding food and energy, increased 0.1 percent in May, the same increase as in April. The July price index for PCE increased 0.3 percent from July a year ago. The July PCE price index, excluding food and energy, increased 1.2 percent from July a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through July 2015 (2009 dollars).

US Consumer Spending & Income Rises At Moderate Pace In July -  Consumer spending and income continued to post moderate gains, according to this morning’s update for July from the US Bureau of Economic Analysis. Inflation remained tame in the report, with the personal consumption expenditures index higher by only 0.3% from a year earlier. Otherwise the numbers du jour reaffirm the view that a solid if modest US expansion was intact through last month. Personal consumption expenditures (PCE) increased 0.3% in July vs. the previous month—unchanged from June’s pace. Meanwhile, disposable personal income (DPI) advanced 0.5% last month, the strongest gain since last November. More importantly, the year-over-year increases in PCE and DPI ticked higher through July, strengthening the outlook that the US expansion will endure. An even stronger clue for expecting that consumer spending will continue to expand at a decent if unspectacular rate in the near-term future: private-sector wages grew 0.5% last month, the strongest rate since November. Is the encouraging comparison noise? Unlikely, or so it appears when we look at the annual pace. Private-sector wages jumped 4.6% over the year through July, slightly higher than the previous update and generally in line with the improved pace we’ve seen since May. With this critical source of household income still posting a steady pace of growth–well above consumption’s increase–it’s hard to paint a gloomy forecast for the consumer sector.

July 2015 Inflation Adjusted Personal Income Strong Improvement: The data this month showed relatively strong income growth - spending grew but grew slower.

• The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, income trend is up and expenditures is unchanged.
• Real Disposable Personal Income is up 3.3% year-over-year (3.0% last month), and real personal expenditures is up 3.2% year-over-year (3.0% last month)
• this data is very noisy and as usual includes moderate backward revision (detailed below) - this month the changes were insignificant.
• The second estimate of 2Q2014 GDP indicated the economy was expanding at 2.3% (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - income and expenditure must grow at the same rate.
• The savings rate continues to be low historically, but improved this month

Personal Spending Misses Expectations By Most Since January, Income Juiced By Government Handouts -- While the headline spending and income data consists of marginal moves, personal spending missed expectations by the largest amount since the dismal weather-strewn days of January. Consumption rose 0.3% in July, less than the 0.4% expectation and flat from the 0.3% June print. Income rose 0.4% - in line with expectations - ticking up YoY to 4.3% 0 juiced by a $13 billion government transfer receipts print - the most since March. The savings rate ticked up once again as those darned consumers refuse to spend as the elite demand. Spending missed hopeful expectations by the most since January... And aggregated... As the savings rate ticked up once again... Maybe just more lower rates for longer and morer wealth creation tools will spark the drop in savings rate that will save America? Charts: Bloomberg

Fed Queen Race: Personal Income Rises 0.4% as Expected; Good for Rate Hikes? GDP? -- Personal income for July rose as expected in today's Personal Income and Outlays report. Consumer spending rose nearly as expected, led of course by auto sales. Price pressure was nonexistent.  There's no hurry for a rate hike based on the July personal income and outlays report where inflation readings are very quiet. Core PCE prices rose only 0.1 percent in the month with the year-on-year rate moving backwards, not forwards, to a very quiet plus 1.2 percent. Total prices are also quiet, also at plus 0.1 percent for the monthly rate and at only plus 0.3 percent the yearly rate. On the consumer, the data are very solid led by a 0.4 percent rise in income that includes a 0.5 percent rise in wages & salaries which is the largest since November last year. Other income details, led by transfer receipts, also gained in the month. Spending rose 0.3 percent led by a 1.1 gain in durables that's tied to vehicle sales. The savings rate is also healthy, up 2 tenths to 4.9 percent. The growth side of this report is very favorable and marks a good beginning for the third quarter.   Let's investigate the above Bloomberg claim "The growth side of this report is very favorable and marks a good beginning for the third quarter." The Atlanta Fed GDPNow Forecast sees it this way: "The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.2 percent on August 28, down from 1.4 percent on August 26. The forecast for real GDP growth in the third quarter decreased by 0.2 percentage points following this morning's personal income and outlays report from the U.S. Bureau of Economic Analysis. The slight decline in the model's forecast was primarily due to some weakness in real services consumption for July, which lowered the model's estimate for personal consumption expenditures from 3.1 percent to 2.6 percent for the third quarter."

July Real Disposable Income Per Capita Rose 0.31% -  With the release of today's report on July Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The July nominal 0.39% month-over-month increase in disposable income drops to 0.31% when we adjust for inflation. The year-over-year metrics are 2.83% nominal and 2.52% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Nominal disposable income is up 63.1% since then. But the real purchasing power of those dollars is up only 22.1%.

August 2015 Conference Board Consumer Confidence Rebounds Following Last Month's Surprise Fall: The Conference Board Consumer Confidence Index improved to 101.5 from the 99.8 reported last month. The market expected (from Bloomberg) this index to come in at 90.8 to 96.8 (consensus 94.0) versus the 101.5 reported. This index has now improved to a point that its level is now commenserate with periods of economic expansion. Note that this data is considered preliminary, and the cutoff for these results was 13 August 2015. Here is an excerpt from The Conference Board: The Conference Board Consumer Confidence Index®, which had declined in July, rebounded in August. The Index now stands at 101.5 (1985=100), up from 91.0 in July. The Present Situation Index increased from 104.0 last month to 115.1 in August, while the Expectations Index improved to 92.5 from 82.3 in July. "Consumers' assessment of current conditions was considerably more upbeat, primarily due to a more favorable appraisal of the labor market. The uncertainty expressed last month about the short-term outlook has dissipated and consumers are once again feeling optimistic about the near future. Income expectations, however, were little improved." Consumers' assessment of current conditions was considerably more favorable in August. Those saying business conditions are "good" decreased marginally from 23.4 percent to 23.2 percent. Those claiming business conditions are "bad" declined modestly from 18.2 percent to 17.6 percent. Consumers were considerably more positive about the job market. Those stating jobs are "plentiful" increased from 19.9 percent to 21.9 percent, while those claiming jobs are "hard to get" decreased from 27.4 percent to 21.9 percent.

Consumer Confidence August 25, 2015: Enormous improvement in the assessment of the current labor market drove the consumer confidence index well beyond expectations, to 101.5 in August for a more than 10 point surge from July. A rare 6.5 percentage point drop to 21.9 percent in those describing jobs as currently hard to get points to outsized gains for the August employment report. This reading will have forecasters scratching their heads. The gain for this reading lifts the present situation component to 115.1 for a more than 11 point increase from July that points to consumer power for August. The expectations component also shows major strength, up more than 10 points to 92.5. Here the gain reflects improving expectations for the employment outlook were optimists are back out in front of pessimists. The outlook for income also remains positive. Buying plans, however, are downbeat with fewer planning to buy a vehicle and, in what could be an ominous indication for housing, many fewer planning to buy a house. Inflation expectations are dormant, down 2 tenths to only 4.9 percent which is very low for this reading. The Yellen Fed has put great emphasis on the importance on consumer confidence readings and this report points to job-driven strength ahead for household spending.

Michigan Consumer Sentiment: Down Slightly from August Preliminary Reading - The University of Michigan Final Consumer Sentiment for August came in at 91.9, a slight decrease from the 92.0 Preliminary reading. Investing.com had forecast 93.0 for the August Final. Surveys of Consumers chief economist, Richard Curtin makes the following comments:  How will consumers react to volatile stock prices? The Black Mondays of October 17, 1987 and August 24, 2015 represent two episodes when the stock market declined mainly due to reasons other than the domestic economy. Prior to each stock decline, the Sentiment Index was very positive, but immediately following, it fell by about 10%. Consumers quickly dismissed the 1987 episode since it didn't involve their jobs or incomes, and today's consumers hold similar favorable views about their job and income prospects. While this preliminary reading must be confirmed by additional data, there is every reason to expect continued growth. Overall, the data suggest that real personal consumption expenditures will expand by a still healthy 2.9% in 2015, with the pace of growth rising to 3.0% in 2016. Needless to say, consumer sentiment must be carefully monitored in the months ahead. [More...] See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

UMich Consumer Sentiment Tumbles As "Hope" Drops To Lowest Since 2014 -- After July's disappointing drop in UMich Consumer Confidence, August did not help. Printing 91.9, below expectations of 93.0, UMich is hovering at the 2015 lows. Both current and future sub-indices dropped with hope falling to its lowest since 2014 (biggest 7mo decline in 2 years). Income growth expectations dropped and business expectations dropped to lowest since Sept 2014. This follows the highest conference board confidence in 2015 and lowest Gallup confidence in a year. Bill Dudley will be disappointed after proclaiming this a key driver of The Fed's rate hike call.

Americans’ Economic Outlook Plunges  -- Wolf Richter - The rout in Chinese stocks, the deteriorating Chinese economy, the subsequent rout in US stocks, and nagging questions about the US economy – they all got blamed for the unceremonious collapse of the confidence Americans have in our rosy scenario. It’s sinking in. Even NPR has been talking about it. Whatever you do, “don’t sell,” was their admonition today. Those kind of shows first thing in the morning don’t fit into our rosy scenario. That scenario looked a lot rosier in early January, when after a long hard climb the economic confidence of Americans reached the highest level in the Index since Gallup started collecting the data on a weekly basis in 2008. At the time, Gallup credited lower gas prices for the miracle. At +5 in January, the index wasn’t exactly wallowing in exuberance, given its theoretical range of +100 to -100 (it hit -65 during the Financial Crisis). But these folks don’t live in the Wall-Street economy. They struggle with their daily challenges in the real economy. And it’s tough out there.Yet, even at that level in January, lousy as it was, it was practically exuberant compared to what it is today.  And for the week ending August 23, which Gallup released today, the index dropped to -14. The culprit, according to Gallup: Growing concerns about China, which devalued its currency and saw major losses in its stock market, led to a global stock sell-off, including in the U.S., where the Dow Jones declined by more than 500 points by market close on Friday. However, the mayhem in these departments that has happened since Friday hasn’t made it into the index yet. So the index has dropped back to where it had been in the week ending July 14, which had been the worst level since September:

CPI Increases Only 0.1% for July, From a Year Ago Up Only 0.2% -- The Consumer Price Index increased 0.1% for July, which is very mild.  This is in spite of a 0.9% increase in gasoline prices.  Energy overall only increased 0.1%.  Inflation without food or energy prices considered increased 0.1% for the month even with a 0.4% shelter cost increase.  From a year ago overall inflation has increased 0.2%, which is very low.   CPI measures inflation, or price increases.  The flat yearly inflation is shown in the below graph, yet from April onward annual inflation has been increasing.  Core inflation, or CPI with all food and energy items removed from the index, has increased 1.8% for the last year.  This is no change from last month.  Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate.  The Fed watches other inflation figures as well as GDP and employment statistics on deciding when to raise rates.  Graphed below is the core inflation change from a year ago.  For the past decade the annualized inflation rate has been 1.9%. Core CPI's monthly percentage change is graphed below.  This month core inflation increased 0.1%, as rents and the owner's equivalent of rent increased 0.3%.  Lodging away from home, i.e. hotels, motels increased 2.5% for the month.  The energy index is down -14.8% from a year ago.   The BLS separates out all energy costs and puts them together into one index.  For the year, gasoline has declined -22.3%, while Fuel oil has dropped -29.7%.  Fuel oil dropped -3.4% for the month.  Graphed below is the overall CPI energy index. Graphed below is the CPI gasoline index only, which shows gas prices wild ride and recent increases.

In 2014, an Improving Economy—and the Worst Traffic in Three Decades - Traffic congestion has staged a comeback as the economy recovers from the 2007-09 recession, researchers at Texas A&M have found, a conclusion that will probably come as no surprise to harried urban commuters. In a study set for release Wednesday, the university’s Texas Transportation Institute and Inrix, a data analysis firm, found traffic congestion was worse in 2014 than in any year since at least 1982. American commuters spent 42 hours each on average in traffic last year and wasted a total of 3.1 billion gallons of fuel, costing the economy $160 billion. That’s a sharp increase from 2008 and 2009, when lost jobs kept people from commuting and cut down the overall amount of time spent in traffic. “It follows the economic thread,” “There’s clearly this relationship that the higher congestion levels are a downside of this increase in economic activity.”  The study’s travel time index—a ratio of travel times under peak conditions to travel times when traffic is free-flowing—also rose to a record last year. Inrix provided speed data “from a variety of sources every day of the year on almost every major road,” which the researchers combined with traffic volume statistics from the Federal Highway Administration, the report said.

Port of New York and New Jersey Saw Record Container Traffic in July - WSJ: The Port of New York and New Jersey handled a record number of shipping containers in July, though the pace of growth eased from the torrid rates seen in recent months. The port complex saw total traffic rise last month to 588,918 twenty-foot equivalent units, the standard measure for containers, a gain of 14.1% from a year earlier and 4.7% higher than June, when volumes also set an all-time high. July’s pace of annual growth was slightly faster than the 13.5% growth rate the port saw through the first seven months of 2015. East Coast ports have seen a surge in container volumes in 2015 as shipping lines diverted vessels away from West Coast ports that saw disruptions tied to labor strife earlier this year. However, ports along the East Coast saw the rate of growth tail off in July. Traffic is also rebounding on the West Coast, with ports from Long Beach to Seattle reporting strong increases in container volumes last month. Together, the numbers indicate that shipping routes are slowly returning to normal, analysts say.New York and New Jersey also saw a smaller increase in imports of loaded containers, a measure of the amount of goods entering the country through the port. Loaded-container imports grew 11.% in July, the slowest pace since April. Still, the strong port volumes on both coasts are a sign that U.S. imports as a whole remain strong, defying signs of a slowdown in global trade and unease about the economic health of major trade partners, said Jonathan Starks, an analyst with FTR Transportation Intelligence.

Rail Week Ending 22 August 2015: Some Improvement But Continued Deterioration Of Year-over-Year Rolling Averages: Week 33 of 2015 shows same week total rail traffic (from same week one year ago) marginally expanded according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. but weekly railcar counts continued in contraction. This analysis is looking for clues in the rail data to show the direction of economic activity - and is not necessarily looking for clues of profitability of the railroads. The weekly data is fairly noisy, and the best way to view it is to look at the rolling averages (carloads and intermodal combined).  For this week, total U.S. weekly rail traffic was 567,943 carloads and intermodal units, up 0.4 percent compared with the same week last year. Total carloads for the week ending Aug. 22, 2015 were 288,971 carloads, down 3.7 percent compared with the same week in 2014, while U.S. weekly intermodal volume was 278,972 containers and trailers, up 5 percent compared to 2014. Five of the 10 carload commodity groups posted an increase compared with the same week in 2014. They included: miscellaneous carloads, up 16.4 percent to 10,204 carloads; farm products, up 7.1 percent to 16,670 carloads and motor vehicles and parts, up 4.8 percent to 18,077 carloads. Commodity groups that posted decreases compared with the same week in 2014 included: metallic ores and metals, down 15.1 percent to 22,970 carloads; petroleum and petroleum products, down 12.1 percent to 14,420 carloads; and coal, down 6.4 percent to 107,273 carloads. For the first 33 weeks of 2015, U.S. railroads reported cumulative volume of 9,172,144 carloads, down 4.3 percent from the same point last year; and 8,766,756 intermodal units, up 2.6 percent from last year. Total combined U.S. traffic for the first 33 weeks of 2015 was 17,938,900 carloads and intermodal units, a decrease of 1 percent compared to last year.

Durable Goods Orders Surprise to Upside, Led by Autos -- Durable goods orders surged in July, beating the top-end of Bloomberg Consensus Estimates. Despite the surge, year-over-year orders are still in the red.  Exports have been weak but they didn't hold down July's durable orders which, for a second straight month, are strong, and strong nearly across the board. New orders rose 2.0 percent in the month which easily beat out top-end Econoday expectations for 1.2 percent. Excluding transportation, orders rose 0.6 percent which is near the top-end forecast for 0.7 percent. Capital goods data show special strength with nondefense ex-aircraft orders up 2.2 percent following June's 1.2 percent gain and with related shipments up 0.6 percent following a gain of 0.9 percent. Motor vehicles led the industrial production report for July and they're a standout in this report also. Orders for vehicles surged 4.0 percent in the month on top of June's 0.8 percent gain. Vehicle shipments are right behind, up 3.9 percent following a 0.9 percent gain. Commercial aircraft, a center of strength for the nation's factory sector, fell back with orders down 6.0 percent following June's 70 percent surge. The good news continues with total shipments up 1.0 percent vs June's 0.9 percent gain which are very strong readings. Unfilled orders rose 0.2 percent while inventories, reflecting strength in shipments, were unchanged. The factory sector has had a tough year, that is up until June when demand for vehicles began to take hold. This report speaks to domestic strength and should help offset ongoing concerns over global volatility. In a special note on year-on-year change, total new orders are down 19.6 percent which reflects an aircraft comparison with the Farnborough airshow in July last year. Excluding transportation, orders are down 2.5 percent which is an improvement vs declines of 4.5 and 2.7 percent in the prior two months.

July Durable Goods: New Orders Up 2%, Better Than Expected - The Advance Report on Manufacturers’ Shipments, Inventories and Orders released today gives us a first look at July's durable goods numbers. This update has more extensive data on factory orders. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in July increased $4.6 billion or 2.0 percent to $241.1 billion, the U.S. Census Bureau announced today. This increase, up two consecutive months, followed a 4.1 percent June increase. Excluding transportation, new orders increased 0.6 percent. Excluding defense, new orders increased 1.0 percent. Transportation equipment, also up two consecutive months, led the increase, $3.8 billion or 4.7 percent to $83.2 billion. Download full PDF The latest new orders headline number at 2.0% percent was above the Investing.com estimate of -0.4% percent. This series is down -19.6 percent year-over-year (YoY). If we exclude transportation, "core" durable goods came in at 0.6 percent month-over-month (MoM), a bit above the Investing.com estimate of 0.4 percent. However, the core measure is down -2.5 percent YoY. If we exclude both transportation and defense for an even more fundamental "core", the latest number was down -1.0 percent MoM and down -4.3 percent YoY. Core Capital Goods New Orders (nondefense capital goods used in the production of goods or services, excluding aircraft) is an important gauge of business spending, often referred to as Core Capex. It posted a 2.2 percent monthly gain, However, it is down -3.3 percent YoY. For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of Durable Goods New Orders minus Transportation and Defense with those two components stacked on top. We've also included a dotted line to show the relative size of Core Capex.

Durable Goods Up 2.0% for July -- The Durable Goods, advance report shows new orders shot up by 2.0% in July.  June showed a whopping 4.1% new orders increase.  Core capital goods, showed a 2.2% monthly gain.  Without transportation new orders, which includes aircraft, durable goods new orders would have increased by 0.6%.  Motor vehicles & parts new orders gained 4.0% for the month.  Below is a graph of all transportation equipment new orders, which increased by 4.7% for the month. Nondefense aircraft & parts new orders dropped by -6.0%. Aircraft & parts from the defense sector decreased by -13.1%. Aircraft orders are notoriously volatile, each order is worth millions if not billions, and as a result aircraft manufacturing can skew durable goods new orders on a monthly comparison basis. Core capital goods new orders increased by 2.2%. June's core capital goods new orders increased by 1.4%. Core capital goods is an investment gauge for the bet the private sector is placing on America's future economic growth and excludes aircraft & parts and defense capital goods. Capital goods are things like machinery for factories, measurement equipment, truck fleets, computers and so on. Capital goods are the investment types of products one needs to run a business. and often big ticket items. A decline in new orders indicates businesses are not reinvesting in themselves. This month machinery new orders increased by 1.5%, while computers & electronics increased by 2.0% and primary metals decreased -1.8%. To put the monthly percentage change in perspective, below is the graph of core capital goods new orders, monthly percentage change going back to 2008. Looks like noise, even during the great recession, which tells us the monthly percentage changes in this report really need to be taken with a grain of salt and one should think quarterly. It maybe an early indicator, or simply a false alarm as these figures are nearly always revised in the more complete factory order report.

Durable Goods New Orders Improved in July 2015? Rolling Averages Declined.: The headlines say the durable goods new orders improved. This series has been in a general downtrend since seen since November 2014. The three month rolling average is continuing to decline and is in contraction. Note that there is significant variation between the unadjusted and the adjusted data.. Econintersect Analysis:

• unadjusted new orders growth decelerated 20.0 % (after accelerating an upwardly revised 5.5 % the previous month) month-over-month , and is down 20.4 % year-over-year.
• the three month rolling average for unadjusted new orders decelerated 5.9 % month-over-month, and down 8.9% year-over-year.
• Inflation adjusted but otherwise unadjusted new orders are down 21.5% year-over-year.
• The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth accelerated 1.2 % month-over-month, up 1.5 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, and has been decelerating for a year..
• unadjusted backlog (unfilled orders) growth decelerated 5.2% month-over-month, down 0.6 % year-over-year.
• according to the seasonally adjusted data, it was motor vehicles which accounted for the strength this month.
• note this is labelled as an advance report - however, backward revisions historically are relatively slight.

Vehicle Sales Forecasts for August: Over 17 Million Annual Rate Again -- The automakers will report August vehicle sales on Tuesday, Sept 1. Sales in July were at 17.5 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in August will be over 17 million SAAR again. Note:  There were 26 selling days in August, down from 27 in August 2014 (Also note: Labor Day is not included in August this year).  Here are two forecasts: From J.D. Power: Industry Strength Continues in August, Full-Month Volume Impacted by Calendar For the first time since 2012, new-vehicle sales over the Labor Day weekend will be tallied as part of September’s sales rather than counted in August’s number. New-vehicle retail sales are projected to hit 1.3 million units in August, a 1.2 percent decrease on a selling-day adjusted basis, compared with August 2014. ... [Total forecast 17.2 million SAAR]  From Kelley Blue Book: New-Car Sales To Drop 4 Percent In August 2015, According To Kelley Blue Book New-vehicle sales are expected to decline 4 percent year-over-year to a total of 1.52 million units in August 2015, resulting in an estimated 17.2 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book.  Another solid month for auto sales - although some reporting will ignore the calendar issues (Labor Day not included in August this year).

Richmond Fed Manufacturing Survey Shows No Growth in August 2015 - Below Expectations.: Of the three regional Federal Reserve surveys released to date, one shows manufacturing expanding, one is flat, and one is in contraction. The market expected values (from Bloomberg) from 8 to 15 (consensus 10) with the actual survey value at 0.0 [note that values above zero represent expansion]. Fifth District manufacturing activity slowed in August, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and order backlogs decreased, while new orders flattened this month. Manufacturing hiring softened this month; however, average wages continued to increase at a moderate pace. Prices of raw materials rose more slowly in August, while prices of finished goods grew slightly faster compared to last month. Despite the soft current conditions, producers remained optimistic about future business conditions. Expectations were for solid increases in shipments and in the volume of new orders in the six months ahead, with increased capacity utilization. In addition, manufacturers looked for rising backlogs and longer vendor lead times. Producers expected faster employment growth and solid growth in wages during the next six months. Survey participants looked for moderate growth in the average workweek. Looking ahead, manufacturers looked for faster growth in prices paid and prices received. Current Activity Overall, manufacturing conditions slowed in August, with several components softening. The composite index flattened to a reading of 0. Shipments dropped sharply; the index lost 20 points to end at −4 and the index for new orders fell 16 points to finish at a reading of 1. Manufacturing employment remained at a flat reading of 1.

Richmond Fed: Manufacturing Dropped 13 Points - Today the Richmond Fed Manufacturing Composite Index dropped 13 points to 0 from last month's 13. Investing.com had forecast a decrease to 9. Because of the highly volatile nature of this index, we include a 3-month moving average to facilitate the identification of trends, now at 6.7, indicating expansion.The complete data series behind today's Richmond Fed manufacturing report (available here), which dates from November 1993. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series. Here is the latest Richmond Fed manufacturing overview. Fifth District manufacturing activity slowed in August, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and order backlogs decreased, while new orders flattened this month. Manufacturing hiring softened this month; however, average wages continued to increase at a moderate pace. Prices of raw materials rose more slowly in August, while prices of finished goods grew slightly faster compared to last month. Despite the soft current conditions, producers remained optimistic about future business conditions. Expectations were for solid increases in shipments and in the volume of new orders in the six months ahead, with increased capacity utilization. In addition, manufacturers looked for rising backlogs and longer vendor lead times.Here is a somewhat closer look at the index since the turn of the century.

Richmond Fed Manufacturing Collapses To 2015 Lows, Drops Most In 9 Years -- The 3-month bounce in the Richmond Fed Manufacturing survey... is dead. From 13 in July, August saw it collapse to 0 (massivley missing expectations of a 10 print). This is the biggest absolute drop in the index since May 2006. Across the board, underlying factors crashed with Shipments plunging, New Orders cliff-diving, order backlogs disappearing and Capacity Utilization plunging. This is exactly what we would expect after a massive inventory build up that was not accompanied by a surge in sales... but the pundits stil proclaim "no signs of an imminent US recession." Manufacturing collapses... The biggest drop in Order Backlogs in history... Charts: Bloomberg

Regional Manufacturing Expectations From Mars --Last month, economists were excited when the Richmond Fed Manufacturing index unexpectedly rose from 6 to 13. The excitement lasted one month. A new Richmond Fed report for August came out this morning. The forecast range of economic activity for August was 8 to 15, with the Consensus Estimate at 10. The actual result was a goose egg.  Early indications on August factory conditions are mixed with Richmond the latest, coming in at a disappointing zero. Orders are flat this month at only 1 vs 17 and 10 in the prior two reports. And backlogs are in deep contraction at minus 15. Shipments are also negative at minus 4 and capacity utilization is at minus 5. Hiring is flat and price data are mute. This report follows last week's big fall in the Empire State report and respectable readings in the Philly Fed and manufacturing PMI reports. All together, they point to a bumpy month for the still struggling factory sector. Diving into the Richmond Fed Manufacturing Report we see the same perpetual optimism that never seems to arrive.

Kansas City Fed Manufacturing Index August 27, 2015: Factory activity in the Kansas City Fed's region remains in deep contraction, at minus 9 in August vs minus 7 in July and deeper than the Econoday consensus for minus 4. New orders are also at minus 9 with backlog orders at minus 21. These are deeply depressed readings that point to a long run of weak activity in the months ahead. Production is already far into the negative column at minus 16 with hiring at minus 10. Price readings in the August report are in contraction. This report speaks to significant distress for the region which is getting hit by the oil-led fall in commodity prices. Taken together, regional reports have been mixed to soft so far this month, pointing to slowing for a factory sector that got a bit of a boost from the auto sector in June and July. The Dallas Fed report, which like this one has been badly depressed, will be posted on Monday.  The Kansas City Fed manufacturing index has been in deep contraction reflecting weak exports and the freeze on energy equipment. No let up is seen for August with the consensus at minus 4.

Kansas City Region Activity Remains in Deep Contraction -- Unlike housing and auto sectors, economic regions dependent on oil activity remain severely stressed. For example, the Kansas City Fed regional factory report came in today at -9, compared to an Economic Consensus of -4.  Factory activity in the Kansas City Fed's region remains in deep contraction, at minus 9 in August vs minus 7 in July and deeper than the Econoday consensus for minus 4. New orders are also at minus 9 with backlog orders at minus 21. These are deeply depressed readings that point to a long run of weak activity in the months ahead. Production is already far into the negative column at minus 16 with hiring at minus 10. Price readings in the August report are in contraction. This report speaks to significant distress for the region which is getting hit by the oil-led fall in commodity prices. Taken together, regional reports have been mixed to soft so far this month, pointing to slowing for a factory sector that got a bit boost from the auto sector in June and July.

Kansas City Fed Survey: Manufacturing Declined Moderately in August - The Kansas City Fed Manufacturing Survey business conditions indicator measures activity in the following states: Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, and northern New Mexico Quarterly data for this indicator dates back to 1995, but monthly data is only available from 2001. Here is an excerpt from the latest report: The Federal Reserve Bank of Kansas City released the August Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to decline moderately, similar to the pace of the previous few months. "Survey respondents reported that weak oil and gas activity along with a stronger dollar continued to weigh on regional factories”, said Wilkerson. “Price indexes also fell after rising in recent months." [Full release here] Here is a snapshot of the complete Kansas City Fed Manufacturing Survey. The three-month moving average, which helps us visualize trends, is at its lowest level since mid-2009.

Kansas City Fed Survey Misses For 8th Straight Month - Flashes Recessionary Signal -- The last two times the Kansas City Fed survey was this low, the US was in recession.The KC Fed survey has missed expected for eight straight months, falling to -9 in August from -7 (missing the -4 estimate). Across the board, underlying components were ugly with Shipments collapsing, Order backlogs echoing earlier surveys in demise, New Orders tumbling, and Prices received crashing. But still the mainstream sees "no recession imminent"   Charts: Bloomberg

PMI Services Flash August 25, 2015: Service-sector growth is holding solid this month, well over breakeven 50 at 55.2 for the August flash vs Econoday expectations for 54.8. A negative is a marked slowing in new orders where growth is below average and the slowest since January. But hiring in the sample remains steady and solid and, in a positive indication for business investment, expansion efforts are underway to increase capacity. The 12-month business outlook improved in the month but is still among the weakest over the past 3 years, the likely result of rising concerns over the global economic outlook. Price readings are soft with prices charged flat for the weakest reading since June 2013. Growth in this report has been trending lower this year but not substantially at least yet, though the latest weakness in new orders may be an early warning. The service sector is more important than ever to the health of the economy given building troubles in China and Asia and slowing in Europe.

22 August 2015 Initial Unemployment Claims Rolling Average Again Degrades Marginally: The market was expecting the weekly initial unemployment claims at 268,000 to 275,000 (consensus 270,000) vs the 271,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 271,500 (reported last week as 271,500) to 272,500. The rolling averages generally have been equal to or under 300,000 since August 2014. It should be pointed out that Econintersect watches the year-over-year change on the 4 week moving average. There is always some seasonality which migrates into the seasonally adjusted data, and year-over-year comparisons helps remove some seasonality. The four week rolling average of initial claims are 9.3 % lower (marginally worse than the 10.5 % for last week) than they were in this same week in 2014.Claim levels remain near 40 year lows (with the normal range around 350,000 weekly initial unemployment claims of levels seen historically during times of economic expansion - see chart below).

Mind the Gap: Assessing Labor Market Slack -- An earlier post, “A Mis-Leading Labor Market Indicator,” argued that the gap between the E/P ratio and a demographically adjusted version of the same ratio is a useful measure of labor market slack. A challenge in constructing this measure is that it requires a normalization (a level shift) to “re-center” the demographically adjusted E/P ratio. In this earlier post, we normalized by assuming that the average labor gap should be zero over a long period of time. Although this approach was easy to implement, it had the disadvantage of not being linked to wage behavior.  Indicators of labor market slack enable economists to judge pressures on wages and prices. Direct measures of slack, however, are not available and must be constructed. Here, we build on our previous work using the employment-to-population (E/P) ratio and develop an updated measure of labor market slack based on the behavior of labor compensation. Our measure indicates that roughly 90 percent of the labor gap that opened up following the recession has been closed.

The Upsurge in Uncertain Work - Robert Reich - As Labor Day looms, more Americans than ever don’t know how much they’ll be earning next week or even tomorrow. This varied group includes independent contractors, temporary workers, the self-employed, part-timers, freelancers, and free agents. Most file 1099s rather than W2s, for tax purposes. On demand and on call – in the “share” economy, the “gig” economy, or, more prosaically, the “irregular” economy – the result is the same: no predictable earnings or hours. It’s the biggest change in the American workforce in over a century, and it’s happening at lightening speed. It’s estimated that in five years over 40 percent of the American labor force will have uncertain work; in a decade, most of us. Increasingly, businesses need only a relatively small pool of “talent” anchored in the enterprise – innovators and strategists responsible for the firm’s unique competitive strength. Everyone else is becoming fungible, sought only for their reliability and low cost. Complex algorithms can now determine who’s needed to do what and when, and then measure the quality of what’s produced. Reliability can be measured in experience ratings. Software can seamlessly handle all transactions – contracts, billing, payments, taxes. All this allows businesses to be highly nimble – immediately responsive to changes in consumer preferences, overall demand, and technologies. While shifting all the risks of such changes to workers. Whether we’re software programmers, journalists, Uber drivers, stenographers, child care workers, TaskRabbits, beauticians, plumbers, Airbnb’rs, adjunct professors, or contract nurses – increasingly, we’re on our own.

Household Labor, Caring Labor, Unpaid Labor - Nancy Folbre: Non-market household services such as meal preparation and childcare are not considered part of what we call “the economy.”This means they literally don’t count as part of Gross Domestic Product, household income, or household consumption.This is pretty crazy, since we know that these services contribute to our living standards and also to the development of human capabilities. They are all at least partially fungible: time and money may not be perfect substitutes, but there is clearly a trade-off. You can, in principle, pay someone to prepare your meals (as you do in a restaurant), or to look after your kids. If you or someone else in your household provides these services for no charge (even if they expect something in return, such as a share of household earnings) that leaves more earnings available to buy other things. In fact, you could think of household income after taxes and after needs for domestic services have been met as a more meaningful definition of “disposable income” than the conventional definition, which is simply market income after taxes. One macroeconomic consequence is a tendency to overstate economic growth when activities shift from an arena in which they are unpaid to one in which they are paid  (all else equal). When mothers of young children enter paid employment, for instance, they reduce the amount of time they engage in unpaid work, but that reduction goes unmeasured. All that is counted is the increase in earnings that results, along with the increase in expenditures on services such as paid childcare. As a result, rapid increases in women’s labor force participation, such as those typical in the United States between about 1960 and the mid-1990s, tend to boost the rate of growth of GDP. When women’s labor force participation levels out, as it has in the United States since the mid 1990s, the rate of growth of GDP slows down. At least some part of the difference in growth rates over these two periods simply reflects the increased “countability” of women’s work.

The Fight for 15: One Organization Champions a Higher Minimum Wage, Unionizing Workers - Underwritten by the Service Employees International Union, the Fight for 15 has not only focused a national spotlight on the issue of low-wage work, but accomplished more than many thought possible just a few years ago. The campaign and its allies have gotten Seattle, San Francisco, Los Angeles, and New York to adopt a $15 minimum wage and Chicago and Kansas City a $13 wage— not to mention more modest increases in Alaska, Arkansas, Nebraska, and other cities and states. SEIU leaders say that the Fight for 15’s efforts have yielded raises for over 8 million U.S. workers. (By contrast, SEIU has 1.8 million members.) Enacting a higher minimum wage is one of the most surefire paths to lifting the prospects of millions of low-wage workers—although many economists say a jump in the minimum wage all the way to $15 will result in fewer jobs overall. If the U.S. labor movement continues to shrink, it follows that it will become harder to get minimum-wage hikes enacted. As SEIU officials note, it is often organized-labor’s clout that persuades lawmakers to raise the minimum wage, even though those increases help far more non-union workers than union members.

Bill Maher, New York Times Op Ed on the “Post Greed is Good Economy” -  Yves Smith - Bill Maher has a devastating short segment on the “post greed is good” world, as exemplified by the “sharing economy”. Trust me, just watch it, and then circulate it widely: In a bit of synchronicity, the New York Times today had another important zeitgeist piece (hat tip Scott), Dinner and Deception, by Edward Frame, a grad student and recent captain at a Michelin three-star restaurant in New York City. It describes the artifice, stress, and tight control of workers required to achieve the illusion of effortless, flawless service. This is also an important piece to read in full, and hopefully this extract will encourage you to do so pronto: Next to a doorway leading into the dining room, a sign in the kitchen summed up the job in the form of a commandment: “Make it nice.” Make it nice means you hold yourself accountable to every detail. It means everything in the restaurant must appear perfect — the position of the candle votives, the part in your hair. Everything matters.  Most of us internalized this mantra quickly. One of my first assignments as a food-runner was to polish glassware. I worked in a small alcove, connected to the dishwasher. Glass racks came out, I wiped away any watermarks or smudges, and then, just as I finished one rack, another appeared. This went on for hours, like some kind of Sisyphean fable revised for the hospitality industry. By hour two my fingers hurt and my back ached. But I couldn’t stop. The racks kept coming. Slowing down never occurred to me. There wasn’t time. I needed to make it nice. I wanted to make it nice…

The Happy Hypocrisy of Unpaid Internships -- Let me begin, like virtually every writer on unpaid internships, by blockquoting the Department of Labor's rules about such positions' permissibility.  Unpaid internships in the for-profit sector are allowed as long as all of the following are true:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Unlike virtually every writer on unpaid internships, I'm not going to suggest that many unpaid internships in the for-profit sector are illegal because they run afoul of one or more of these rules.  Instead, I'm going to categorically state: No unpaid internship in the for-profit sector ever has or ever will satisfy these rules!  Why?  Because Rule #4 is absurd beyond belief.

Does Capitalism Cause Poverty? -- Capitalism gets blamed for many things nowadays: poverty, inequality, unemployment, even global warming. As Pope Francis said in a recent speech in Bolivia: “This system is by now intolerable: farm workers find it intolerable, laborers find it intolerable, communities find it intolerable, peoples find it intolerable. The earth itself – our sister, Mother Earth, as Saint Francis would say – also finds it intolerable.” But are the problems that upset Francis the consequence of what he called “unbridled capitalism”? Or are they instead caused by capitalism’s surprising failure to do what was expected of it? Should an agenda to advance social justice be based on bridling capitalism or on eliminating the barriers that thwart its expansion? The answer in Latin America, Africa, the Middle East, and Asia is obviously the latter. To see this, it is useful to recall how Karl Marx imagined the future. For Marx, the historic role of capitalism was to reorganize production. Gone would be the family farms, artisan yards, and the “nation of shopkeepers,” as Napoleon is alleged to have scornfully referred to Britain. All these petty bourgeois activities would be plowed over by the equivalent of today’s Zara, Toyota, Airbus, or Walmart. As a result, the means of production would no longer be owned by those doing the work, as on the family farm or in the craftsman’s workshop, but by “capital.” Workers would possess only their own labor, which they would be forced to exchange for a miserable wage. Nonetheless, they would be more fortunate than the “reserve army of the unemployed” – a pool of idle labor large enough to make others fear losing their job, but small enough not to waste the surplus value that could be extracted by making them work.

How companies make millions off lead-poisoned, poor blacks - — The letter arrived in April, a mishmash of strange numbers and words. This at first did not alarm Rose. Most letters are that way for her — frustrating puzzles she can’t solve. Rose, who can scarcely read or write, calls herself a “lead kid.” Her childhood home, where lead paint chips blanketed her bedsheets like snowflakes, “affected me really bad,” she says. “In everything I do.” She says she can’t work a professional job. She can’t live alone. And, she says, she surely couldn’t understand this letter.  So on that April day, the 20-year-old says, she asked her mom to give it a look. Her mother glanced at the words, then back at her daughter. “What does this mean all of your payments were sold to a third party?” her mother recalls saying. The distraught woman said the letter, written by her insurance company, referred to Rose’s lead checks. The family had settled a lead-paint lawsuit against one Baltimore slumlord in 2007, granting Rose a monthly check of nearly $1,000, with yearly increases. Those payments were guaranteed for 35 years. “It’s been sold?” Rose asked, memories soon flashing.  Rose, who court records say suffers from “irreversible brain damage,” didn’t have a lot of friends. She didn’t trust many people. Growing up off North Avenue in West Baltimore, she said she’s seen people killed. But Brendan was different. He seemed like a gentleman, someone she said she could trust. One day soon after, a notary arrived at her house and slid her a 12-page “purchase” agreement. Rose was alone. But she wasn’t worried. She said she spoke to a lawyer named Charles E. Smith on the phone about the contract. She felt confident in what it stated. She was selling some checks in the distant future for some quick money, right? The reality, however, was substantially different. Rose sold everything to Access Funding — 420 monthly lead checks between 2017 and 2052. They amounted to a total of nearly $574,000 and had a present value of roughly $338,000.

In Less Than 10 Years, The Federal Reserve Has Driven Millions Of American Women Into Prostitution -- SeekingArrangement.com (SA) is a website catering to men and women who exchange sex for compensation, like an allowance or paying bills like student loans and rent.  It has 4.5M registered users

• 3.3M Sugar Babies
• 1.2M Sponsors (aka Sugar Daddies & Mommies)
• Average age of Sugar Baby: 21
• Average age of Sugar Daddy/Mommy: 45
• Average Income of Sugar Daddy/Mommy: $500K
• Average compensation: $5K per month

- It's where the 1% converges with the 99%. Earning $500K or more and spending $60K per year on a mistress: this is the 1%.  Needing help with college loans and rent: this is the other 99%. It's not an online dating website.  If someone wants a relationship or a liaison, there are plenty of other sites like Craigslist and Ashley Madison.  Millions of college students and recent grads are struggling to make ends meet.  Talk about excess supply: there is a 3:1 ratio of Babies to Daddies/Mommies.  Sugar Babies need help with their basics: college loans, rent, & car payments.  Rent is now 40% of income in most major metro cities.  It's 50% in New York.

Survey: Weak economic growth seen for 10 states’ rural areas  (AP) - A new survey suggests that the economic outlook for 10 Midwest and Plains states is weaker than in previous months. The Rural Mainstreet Index sank to growth neutral 50.0 in August from 53.4 in July. The survey indexes range from 0 to 100. Any score below 50 suggests decline in that factor in the months ahead. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming were surveyed. Creighton University economist Ernie Goss oversees the survey, and he says the weaker business conditions for agriculture and energy businesses accounted for the downtown. The confidence index, which reflects expectations for the economy six months out, slumped to 42.0 from 46.6 last month.

Puerto Rico Turmoil Sinks Sewer Bond -  Up against a deadline to reveal its plan to restructure its staggering debt, Puerto Rico has decided not to move ahead with a controversial proposal to borrow an additional $750 million to pay for improvements to its water and sewer authority.It attributed the decision, made late Monday, to the turmoil in the global markets. But the government also appears to have decided it could not borrow the money — by issuing bonds — at an affordable interest rate.Just a few days earlier, Puerto Rico petitioned the United States Supreme Court asking for the right to restructure its debt — which has reached $72 billion — under its own quasi-bankruptcy law. Puerto Rico, a United States commonwealth, enacted the law last year because it has no access to the federal bankruptcy courts. But the law was later found unconstitutional and was voided by the courts.Continue reading the main story Related in Opinion Exposures: Turning Puerto Rico’s Lament Into Hope AUG. 21, 2015 Investors who at one time might have been potential buyers of the water and sewer bonds seemed taken aback by the island’s move, on the one hand, to sell new bonds (and incur new debt) while also telling the Supreme Court that it had to restructure its old debt.“You could take it on face value and say, ‘Either they’re lying to investors about the bonds being payable, or lying to the Supreme Court about the bonds being unpayable,’ ” said Matt Fabian, a partner at Municipal Market Analytics, a financial research firm. “I see it as a blunder, ultimately, and not anything more heinous, but it really undermines their ability to negotiate.”

Illinois must disclose which bills it has paid or not paid: judge | Reuters: A federal judge on Wednesday gave Illinois until midday on Friday to disclose which bills the state has paid or not paid and why it could not fully comply with a court order to fund services for developmentally disabled residents in the absence of a fiscal 2016 state budget. U.S. District Court Judge Sharon Johnson Coleman said she was "very disappointed" the state failed to meet an Aug. 21 payment deadline she set in her Aug. 18 order and did not communicate that failure to the court. "You have to make contact with the court or else you are in contempt of the court order," the judge told attorneys for Illinois' comptroller and two state agency heads. An impasse between Republican Governor Bruce Rauner and Democrats who control the House and Senate over a spending plan for the fiscal year that began July 1 ignited a rush to court to seek payment orders. State and federal courts have ordered state money to continue to flow for human services covered under existing consent decrees and for state payroll. Services for more than 10,000 disabled residents were covered under a 2011 consent decree.

California officials eyeing stock market plunge, hope it won't last - Jerry Brown’s administration isn’t ready to sound the alarm, especially since the last few years have been good ones as investment gains translated into rising revenue. Moments after the U. S. stock market opened Monday, anyone checking prices might have rubbed their eyes in disbelief: The Dow Jones industrial average had plunged nearly 1,100 points. Moments after the U. S. stock market opened Monday, anyone checking prices might have rubbed their eyes in disbelief: The Dow Jones industrial average had plunged nearly 1,100 points.  “The governor insisted on putting a good insurance policy in place,” said H. D. In recent years, the state has pulled about half of its income tax revenue from the top 1% of residents, whose incomes ebb and flow with the unpredictable stock market. Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, said he expects job growth in the state to help generate more sales tax revenue, offsetting any losses in capital gains. Gyrations in the stock market have taken California’s fragile finances for a ride before — when the dot-com bubble burst, when the Wall Street crash sank the national economy less than a decade ago. Although it’s rare that a single company is big enough to make its presence felt in California’s budget — Facebook’s IP0 in 2012 was an exception — state finances have benefited from robust activity in Silicon Valley. Administration officials estimate that a moderate recession could cost the state $40 billion in income over three years, which would quickly wipe out the $3. 5 billion that is expected to be in the rainy-day fund by next summer. Broadening the tax base — applying the sales tax to some services, for example — “would soften any major changes in the market,”  . One-tenth of the current budget’s $115 billion in general fund revenue is expected to come from capital gains — compared with 2. 7% in 2009, during the depth of the recession.

Should Prison Sentences Be Based On Crimes That Haven’t Been Committed Yet? - Criminal sentencing has long been based on the present crime and, sometimes, the defendant’s past criminal record. In Pennsylvania, judges could soon consider a new dimension: the future. Pennsylvania is on the verge of becoming one of the first states in the country to base criminal sentences not only on what crimes people have been convicted of, but also on whether they are deemed likely to commit additional crimes. As early as next year, judges there could receive statistically derived tools known as risk assessments to help them decide how much prison time — if any — to assign. Risk assessments have existed in various forms for a century, but over the past two decades, they have spread through the American justice system, driven by advances in social science. The tools try to predict recidivism — repeat offending or breaking the rules of probation or parole — using statistical probabilities based on factors such as age, employment history and prior criminal record. They are now used at some stage of the criminal justice process in nearly every state. Many court systems use the tools to guide decisions about which prisoners to release on parole, for example, and risk assessments are becoming increasingly popular as a way to help set bail for inmates awaiting trial. But Pennsylvania is about to take a step most states have until now resisted for adult defendants: using risk assessment in sentencing itself. A state commission is putting the finishing touches on a plan that, if implemented as expected, could allow some offenders considered low risk to get shorter prison sentences than they would otherwise or avoid incarceration entirely. Those deemed high risk could spend more time behind bars.

Almost One-Third Of Children Live In Poverty In ‘The Richest Nation In The World’ — The financial collapse of 2008 and the absence of true economic recovery in the years since has left millions more children in poverty than before the recession. About 22 percent of American children live in poverty, and even that figure may not fully account for all those who are struggling. According to the annual Kids Count Data Report, which ranks states based on the well-being of children living there, about 3 million more children were impoverished in 2013 than in 2008, an increase of 3 percent that brings the total number of children in poverty to 16,087,000. Following the report’s release, Al-Jazeera America and The Associated Press noted: Poverty rates have nearly doubled among African-Americans and American Indians since 2008, and hardship is most severe in the South and Southwest, the report found. Other studies in recent years have yielded similar results. A 2014 UNICEF report looked at the decline in incomes since the financial collapse and found that over one-third of American children live in households where the combined income is less than 60 of the median household income in 2008, a sign of the so-called “jobless recovery” since the crash. Christopher Ingraham, analyzing the report for The Washington Post, noted that this makes the U.S. among the worst in the developed world for its treatment of children: The United States ranks near the bottom of the pack of wealthy nations on a measure of child poverty … In the richest nation in the world, one in three kids live in poverty. Let that sink in. Yet even these figures do not account for the total number of children from families that may struggle to make ends meet. The National Center for Children in Poverty reported in January that 44 percent of children in the U.S. — about 31.8 million children — come from low-income families. Further, the idea of the “poverty line” itself, developed in the 1960s by the U.S. Census Bureau, may be out of date when it comes to inequality. For one thing, the poverty line was designed around the notion that most families would have a full-time housewife able to skillfully and economically prepare meals from scratch.

Designing The Back-To-School Scent -- With the significant rise in rave and DJ popularity, we decided to drop in a Base Note that helped us close in on getting a near 100% euphoric back-to-school sentiment among students and parents. Teachers had noticed the effects of the two notes lasted about two weeks and wanted the potency increased to last into the winter school break. Our first extracts came from soaking low frequency piano strings in Everclear, but the only parents responded to this change. It wasn’t until we extracted vinyl from discarded records that we saw a positive response across the board. Our remaining efforts isolated the best vinyl records for a potent extraction. From our research, the two records that had the most synergistic response were DJ Magic Mike’s Bass Is The Name of the Game and Techmaster’s PED. With all of our results, we found the scent was not only winning the hearts and minds of parents, students, and teachers, we also saw, after years of experiencing BTS, children related back-to-school shopping as a euphoric event from their past.

The slow invasion of privacy in U.S. public schools - A recent acquisition by an equity firm could be putting millions of school-age students’ data at risk. PowerSchool, the classroom management software used by 15 million students, was sold in June by educational software firm Pearson to Vista Equity Partners, a private equity firm specializing in investing in companies that provide enterprise software for industries as varied as real estate, college sports, and agriculture. While seemingly unconcerning on its own, this means PowerSchool—and all the student data it owns—is now in the hands of a company that has failed to join the 153 education companies that have pledged not to sell student data or use targeted advertising toward students. The slow creep of private software companies into public education has accelerated enormously since PowerSchool was first founded in 2000. According to Education Week, public schools in the U.S. spend over $3 billion every year providing digital services to their students. Some companies, like Code.org and Khan Academy, offer individualized tutoring to help take the load off overpopulated schools. Others, like Google, have offered their own free versions of expensive digital tools similar to Microsoft Excel and Word.The danger inherent in the purchase of PowerSchool is that its own massive trove of student data could likewise be sold as a commodity to marketers instead of being used to better improve PowerSchool’s services. Of course, nine out of ten American teenagers use social media, so it’s safe to say much of our kids’ personal lives is not completely divorced from making software companies very, very rich. School data, however, often contains very specific information about grades, medical needs, and even disciplinary records. Companies trusted with this information need to be held to higher standards than the ones we’ve set for Facebook, Snapchat, Google, and Amazon.

The Myth of the New Orleans School Makeover - Before the storm, the New Orleans public school system had suffered from white flight, neglect, mismanagement and corruption, which left the schools in a state of disrepair. The hurricane almost literally wiped out the schools: Only 16 of 128 buildings were relatively unscathed. As of 2013 the student population was still under 45,000, compared with 65,000 students before the storm. Following the storm, some 7,500 unionized teachers and other school employees were put on unpaid leave, and eventually dismissed.Two years before the storm, the State of Louisiana had set up a so-called Recovery School District to take over individual failing schools. After Katrina, the district eventually took over about 60 local schools; about 20 well-performing schools remained in the Orleans Parish School Board, creating, in essence, a two-tier system. Nearly all the schools in both parts of the system have since been converted to charters.Last year, 63 percent of children in local elementary and middle schools were proficient on state tests, up from 37 percent in 2005. New research by Tulane University’s Education Research Alliance shows that the gains were largely because of the charter-school reforms, according to Douglas N. Harris, the alliance’s director. Graduation and college entry rates also increased over pre-Katrina levels.  But the New Orleans miracle is not all it seems. Louisiana state standards are among the lowest in the nation. The new research also says little about high school performance. And the average composite ACT score for the Recovery School District was just 16.4 in 2014, well below the minimum score required for admission to a four-year public university in Louisiana.

Analysis Finds Higher Expulsion Rates for Black Students - With the Obama administration focused on reducing the number of suspensions, expulsions and arrests in public schools, a new analysis of federal data identifies districts in 13 Southern states where black students are suspended or expelled at rates overwhelmingly higher than white children.  The analysis, which will be formally released Tuesday by the Graduate School of Education at the University of Pennsylvania, focused on states where more than half of all the suspensions and expulsions of black students nationwide occurred. While black students represented just under a quarter of public school students in these states, they made up nearly half of all suspensions and expulsions. In some districts, the gaps were even more striking: in 132 Southern school districts, for example, black students were suspended at rates five times their representation in the student population, or higher.

‘The Teacher Shortage’ Is No Accident—It’s the Result of Corporate Education Reform Policies -- Like much else in the national education debate, panics about teacher shortages seem to be a perennial event.  In a widely discussed article for the New York Times earlier this month, Motoko Rich called attention to sharp drops in enrollment in teacher training programs in California and documented that many districts are relaxing licensure requirements as a result, pushing more and more people into the classroom without full certification or proper training.   But the reality is that speaking of a “shortage” at all is a kind of ideological dodge; the word calls to mind some accident of nature or the market, when what is actually happening is the logical (if not necessarily intended) result of education reform policies. “This is an old narrative, the idea that we aren’t producing enough teachers,”   “As soon as you disaggregate the data, you find out claims of shortage are always overgeneralized and exaggerated. It’s always been a minority of schools, and the real factor is turnover in hard to staff schools. It may be true enrollment went down in these programs nationally, but there are so many former teachers in the reserve pool.” In other words, the problem isn’t that too few people entering the profession, but rather that too many are leaving it. Such high turnover rates are disruptive to school culture and tend to concentrate the least experienced teachers in the poorest school districts. A 2014 paper by Ingersoll and his colleagues shows “45 percent of public school teacher turnover took place in just one quarter of the population of public schools. The data show that high-poverty, high-minority, urban and rural public schools have among the highest rates of turnover.” “If you look at the shortage areas in terms of subject or what districts are having trouble filling jobs, it’s a shortage of people who are willing to teach for the salary and in the working conditions in certain school districts,”  “It’s not a shortage in every district.  Look at the whitest, wealthiest districts in every state and call up the personnel department, ask if they have a shortage in special ed or bilingual ed. They don’t—in fact, they are turning candidates away.”

Rutgers University Warns Students - "There Is No Such Thing As Free Speech" -- Reason reports that:Rutgers University students, you are being watched. That appears to be the message a Rutgers.edu web page would like the campus community to absorb. The web page is maintained by the Bias Prevention & Education Committee, which chillingly warns students that there is “no such thing as ‘free’ speech,” and to “think before you speak.” From the web page: Since 1992, the Bias Prevention Committee has monitored the New Brunswick/Piscataway campus for bias incidents and has provided bias prevention education to staff, students, and faculty. … . You may file a report on line at www.bias.rutgers.edu and you will be contacted within 24 hours.  Ironically, U.S. college campuses are rapidly becoming the least free, most censored places in the country. Many people have commented on this, including high profile, enormously talented comedians such as Chris Rock and Jerry Seinfeld. In fact, Chris Rock was so appalled that he stopped playing colleges because audiences had become “too conservative” Before getting all bent out of shape, this is what he meant: Not in their political views — not like they’re voting Republican — but in their social views and their willingness not to offend anybody. Kids raised on a culture of “We’re not going to keep score in the game because we don’t want anybody to lose.” Or just ignoring race to a fault. You can’t say “the black kid over there.” No, it’s “the guy with the red shoes.” You can’t even be offensive on your way to being inoffensive.

Government Gives Away Billions In Grants To Students Who Never Graduate -- In "Who Is Stoking The Trillion Dollar Student Debt Bubble?," we highlighted the rather disconcerting fact that in 2014, the US government gave out some $16 billion in loans to students attending colleges that graduated fewer than a third of their students after six years.  As WSJ suggested, accrediting agencies are part of the problem. "One problem may be that the accreditation game suffers from similar conflicts of interest as those which caused ratings agencies like Moody's and S&P to rate subprime-ridden MBS triple-A in the lead-up to the crisis," we argued.  In the end, the disbursal of billions in federal aid to students attending schools where they’re unlikely to graduate is, like lending to students that attend for-profit colleges that the government is fully aware will likely one day be shut down, just another example of the misappropriation of taxpayer funds.  Well, if you needed further evidence of this, look no further than the Pell grant program. As NBC reminds us, "Pell grants are given to low-income families and, unlike student loans, do not need to be paid back - [they] are the costliest education initiative in the nation." Well, the costliest until the across-the-board debt forgiveness, but in any event, it turns out that despite the fact that taxpayers have dumped $300 billion into the program since 2000,"the government keeps no official tally of what proportion of those who receive the grants end up getting degrees."

More than half of students chasing dying careers, report warns -- Sixty per cent of Australian students are training for jobs that will not exist in the future or will be transformed by automation, according to a new report by the Foundation for Young Australians. Key points:

• 44 per cent of jobs will be automated in the next 10 years
• 60 per cent of students are chasing careers that won't exist
• Young people will have an average of 17 different jobs

The not-for-profit group, which works with young Australians to create social change, says the national curriculum is stuck in the past and digital literacy, in particular, needs to be boosted.Foundation chief executive Jan Owen says young people are not prepared for a working life that could include five career changes and an average of 17 different jobs.  She says today's students will be affected by three key economic drivers: automation, globalisation and collaboration. "Many jobs and careers are disappearing because of automation," Ms Owen said. "The second driver is globalisation - a lot of different jobs that we're importing and exporting. "And then thirdly collaboration which is all about this new sharing economy."

Audit: Too Many Administrators With No One to Administer at Syracuse U. --  Syracuse University is scrambling to offer retirement buyouts after an audit discovered that the university employs hundreds of administrators who only oversee one or two employees. According to The College Fix: The report states 211 managers, or 30 percent, have only 1 “direct report,” and another 134 managers have just two people reporting to them. Ninety-three managers have three people reporting to them, it adds, noting the private university employs “too many decision makers.” “Syracuse has a higher ratio of staff to faculty, and senior administrative staff to line-level administrative staff, than peer averages,” states the report, which advises an organizational redesign to reduce administrative bloat.  The College Fix also noted—with an appreciable hint of sarcasm—that Syracuse was labeled a “Best Value” school by U.S. News & World Report in 2015. Tuition is scheduled to increase again at Syracuse next year—to $41,974 per student—as is room and board. At least now students know why their education is so expensive: they are quite literally paying for edu-crats to sit around doing nothing.

Trump University Was A Scam, Say Former Students -- Do you remember Trump University? Probably not — it didn’t really catch on.  And one big reason it didn’t catch on is because it was a total scam, say a slew of former students in complaints that were filed to the Federal Trade Commission and were recently unearthed by a Freedom of Information Act recently requested by Gizmodo.  “For my $35,000+ all I got was books that I could have gotten from the library that could guide me better then Trump’s class did. I just want my $35,000+ money back.  Another grievance describes a level-unlocking strategy reminiscent of Scientology.  It is not only former students who have called into question the legitimacy of Trump University, which was founded in 2005. The New York Department of Education sent Trump a letter in 2010, accusing the operation of misleading students and misuse of the word “university.” Soon thereafter, the operation was renamed the Trump Entrepreneur Initiative.  In 2013, the New York Attorney General’s office filed a $40 million lawsuit against the former reality star and current Republican presidential candidate for failing to impart the promised real estate education on 5,000 students and subjecting prospective students to high-pressure sales tactics. Naturally, Trump responded with his own complaint, accusing the attorney general of extorting him for campaign contributions. In April 2015, a judge ruled that Trump was indeed personally responsible and that the matter would go to trial. A class-action suit against Trump related to Trump University is also pending.

Scammed by Corinthian, Now Facing Eviction - Alexis Goldstein - One of the real-world consequences of the lack of timely debt discharges for the scammed students of the for-profit Corinthian Colleges, Inc has been the situation of Pam Hunt of Ledyard CT. Ms. Hunt is buried in debt from the now-defunct Corinthian. The school was sued by the Consumer Financial Protection Bureau, multiple state Attorneys General, and other regulations. 13 Senators (including Elizabeth Warren) have called for all the debt to be forgiven, as have 9 state attorneys general. But the Department of Education is still dragging their feet. As a result, Ms. Hunt has been unable to secure a mortgage to buy the house she rented. She wanted to purchase it after her landlord walked away from the property, and it went into foreclosure. But loan officers have told her that would have given her a mortgage, if not for her high level of student debt from Corinthian. Ms. Hunt’s story is just one example of the human consequences of the ongoing delay in Corinthian debt cancellation.  Ms. Hunt’s situation was recently profiled by Al Jazeera America News Daily: (embedded) The Debt Collective has put out a call to ask Altisource (who is the vendor of servicer Ocwen) and U.S. Bank to rent to Pam, rather than evict her family, including her wheelchair-bound son. If you’d like to help, please share this image, or RT Strike Debt’s tweet.

How the attempt to fix student loans got bogged down by the middlemen - The Education Department has grown into one of the biggest money lenders in the country, overseeing a $1.2 trillion portfolio of student debt rivaling the entire loan business of JPMorgan Chase with a staff roughly the size of the National Weather Service. But instead of fulfilling a presidential mission of remaking and simplifying a confusing and corrupt system that enriched financial firms at the expense of taxpayers — and ultimately the nation’s college students — serious problems have emerged. The government hired contractors to service and collect the loans, but state and federal authorities have accused the companies of ignoring borrowers’ requests for help, misleading them about their rights and mismanaging their payments. And while the government charges families lower interest rates than what banks typically offer, it is still making money on the program, raising questions about how it should balance its obligations to families and to taxpayers. “Moving to direct loans was the right way to go. Now . . . we have growing pains in how the government handles this new responsibility,”   Long after a student signs on to a loan, the way that debt is serviced — whether borrowers get the help they need or how the payments are collected — can make a big difference. When contractors mishandle payments or don’t provide the right information, students end up missing out on repayment programs intended to save them money or to keep them from defaulting on their loans, an outcome that can severely damage a person’s credit rating, making it much harder to buy a car or a house.

7 Million People Haven't Made A Single Student Loan Payment In At Least A Year -- Perhaps it’s all the talk about across-the-board debt forgiveness or maybe the total amount of outstanding student debt has simply grown so large ($1.3 trillion) that even those with no conception of how much money that actually is realize that it’s simply never going to paid back so there’s no point worrying about, but whatever the case, the general level of concern regarding America’s student debt bubble doesn’t seem to be at all commensurate with the size of the problem.  And it’s not just the sheer size of the debt pile that’s worrisome. There’s also the knock-on effects, such as delayed household formation and the attendant downward pressure on the homeownership rate, and of course hyperinflation in the rental market.  As we’ve documented in excruciating detail, if one excludes loans in deferment and forbearance from the numerator in the delinquency calculation, but includes those loans in the denominator then the delinquency rate will be deceptively low. In any event, as WSJ reports, even if one looks at something very simple like, say, the number of borrowers who haven’t made a payment in a year, the picture is not pretty and it’s getting worse all the time. Here’s more: Nearly seven million Americans have gone at least a year without making a payment on their federal student loans, a staggering level of default that highlights how student debt continues to burden households despite an improving labor market. As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this week. That was up 6%, or 400,000 borrowers, from a year earlier. The figures translate into about 17% of all borrowers with federal loans being severely delinquent—and that share would be even higher if borrowers currently in school were excluded. Additionally, millions of other borrowers who haven’t hit the 360-day threshold that the government defines as a default are months behind on their payments.

Illinois towns drowning in pension debt from hundreds of funds --  The pension-funding crisis undermining the stability of Illinois and Chicago is rippling through hundreds of smaller governments, squeezing budgets as officials prop up teetering police and fire retirement funds.  The eastern Illinois border city of Danville has reduced its firefighter ranks by 27 percent in five years to lower retirement costs. The tiny Chicago suburb of Stone Park sold $2 million in bonds last year to bolster the police pension, which had just six cents for every dollar owed retirees. "Most communities in this state are in no position to continuously meet the pension requirements," said Tom Weisner, mayor of Aurora, the state's second-largest city, with a population of almost 200,000. The squeeze comes from about 650 police and fire pension funds and is largely overlooked in the deepening Illinois and Chicago pension crises. The state is saddled with $111 billion in unfunded liabilities. Chicago and its public school system, with a combined shortfall of almost $30 billion, face the prospect of bankruptcy. Half of local retirement systems are less than 60 percent funded, according to a May report from a commission created by the legislature to monitor Illinois's long-term debt position. Even those in better financial condition share a trait with weaker peers: mounting pressure from state-enacted benefit increases, resulting in higher taxes and service cuts to cover the costs of 11,000 retirees and 22,000 active public-safety employees.

City of Houston fire, police, municipal pension systems likely owe nearly $1 billion more than being calculated - The city of Houston’s estimated unfunded pension liabilities stand at $3.3 billion. But when you look at the way that number’s calculated, there’s a significant chance that Houston might be even deeper in the hole, one former city official says. The major variable at play is Houston’s assumed return on its current pension funds, said Craig Mason, pension executive to the city of Houston. Mason is still technically affiliated with the city, but his contract expires in September following an early release notice he received in August. His contract was originally set to expire in December. City of Houston officials were not immediately available for comment. Right now, the city operates under an anticipated 8.5 percent return on its pension funds. So, that $3.3 billion that Houston owes is contingent on the city actually making an 8.5 percent return on the money it’s set aside for pensions. But there’s a strong likelihood that won’t happen, Mason said. Houston’s predicted 8.5 percent return is “an outlier,” and that the lion’s share of other public pension systems assume a 7 percent or 8 percent return. For every quarter of a percent that the return rate is lowered, the liabilities increase by roughly 5 percent. That means if Houston drops its anticipated return rates from 8.5 percent to 7.5 percent, it could be looking at a 20 to 30 percent increase in pension liabilities to the tune of $660 million to just under $1 billion, Mason said.

The GOP Plan to Stiff Millennials on Social Security  -- According to Pew Research, this year the Millennial generation (ages 18 to 34 in 2015) is projected to surpass the Baby Boom generation (ages 51 to 69) as the nation’s largest living generation — with 75.3 million Millennials vs. 74.9 million Boomers. The Gen X population (ages 35 to 50 in 2015) is also projected to outnumber the Boomers by 2028. Where will Social Security be for them when they retire? The Social Security trust funds will start paying reduced benefits to the disabled and retirees if Congress doesn't do something very soon to shore up its finances. Via the Economic Populist: Because the Social Security disability trust fund is projected to pay 19% less in monthly benefits to recipients sometime in 2016, and because the old age trust fund is projected to pay only 75% of benefits to retirees by the year 2033, the current debate is two-fold: shoring up the disability trust fund with revenues from the old-age trust fund (as it's been done 11 times before); and shoring up the old-age trust fund for retirees by raising the $118,500 income cap for Social Security payroll taxes. In a recent town hall meeting Ohio's Republican Governor John Kasich dusted off a very old and failed idea when he referenced his 1999 Social Security plan (which most Republicans support) that would base future Social Security payments on the Consumer Price Index, which reflects increases in prices, rather than the current formula that reflects increases in wages. The results would have been that the average worker beginning to collect Social Security in 2020 would have received almost $4,000 less in their first year of retirement than he/she would have otherwise expected to receive under the current formula.Also, the difference increases with time. By 2070, newly retired workers (including young Republicans) would have received almost half as much than they would have received under the current program.

Obamacare is facing another big threat: accounting - Obamacare has survived computer glitches, the Supreme Court (twice), and Republican’s best efforts to destroy it. Now, it might face a threat from an unexpected place: a little noticed accounting standard for state and municipal pensions. Earlier this summer the Governmental Accounting Standards Board (GASB) released new recommendations urging states and municipalities to include retiree health care when they calculate their liabilities. When private sector firms had to do the same thing in 1990, they ditched the health benefits for retired workers altogether. If state and local governments do the same, it could have serious consequences for Obamacare. A key feature of the Affordable Care Act are the exchanges where people can buy health care directly from insurers and comparison shop. Insurance markets inherently face an adverse selection problem: The only people who want to buy lots of insurance are the ones most likely to need it. That’s why it was so important that the “young invincibles”—young, healthy people—buy insurance on the exchanges to balance out the high cost of older, sicker people. So far, the population appears sufficiently diverse. The government claims 11.7 million people enrolled through the exchanges and 4.1 million are under 35. But the new accounting rules might change the group’s composition. Many state and municipal workers retire under the age of 65, when they qualify for Medicare. Since minimum retirement ages for these workers are below age 60, this can leave a significant coverage gap to fill. In addition, some pensions offer health care that subsidizes or supplements Medicare after retirees turn 65. All these benefits are extremely expensive—the total liabilities are estimated to total $1 trillion. State and local governments have almost no money put aside to pay for retiree health care. The average funding ratio—how much money is put aside relative to how much is owed—is only 6%. Compare that to state pensions, which are allegedly about 70% funded.

Insurers Win Big Health-Rate Increases - WSJ: President Barack Obama played down fears of a spike in health insurance premiums in his signature health law’s third year. “My expectation is that they’ll come in significantly lower than what’s being requested,” he said, saying Tennesseans had to work to ensure the state’s insurance commissioner “does their job in not just passively reviewing the rates, but really asking, ‘OK, what is it that you are looking for here? Why would you need very high premiums?’” That commissioner, Julie Mix McPeak, answered on Friday by greenlighting the full 36.3% increase sought by the biggest health plan in the state, BlueCross BlueShield of Tennessee. She said the insurer demonstrated the hefty increase for 2016 was needed to cover higher-than-expected claims from sick people who signed up for individual policies in the first two years of the Affordable Care Act. Several regulators around the country agree with her, and have approved all or most of the big premium increases sought by the largest health plans in their states for the new sign-up season that begins Nov. 1. Not all states have made their rate decisions, and some have approved relatively modest increases. A number of the states with lower average increases this year had higher rates to begin with. Some also fared better with enrollment under the law. Insurance premiums vary from state to state, for a number of reasons including regional disparities in the costs of care. Still, the upsurge is likely to be a big talking point not only during the three-month enrollment season, but through the 2016 campaigns, where GOP opponents of the law are expected to use it as a defining issue against their Democratic rivals.

The Real Dark Side of Health Care: Health Care Corruption - The editors of the prestigious Annals of Internal Medicine just stated they they were shocked, shocked to find out that physicians occasionally express disrespect for patients when the patients cannot hear or see them.  The occasion was an editorial signed by three editors whose title included the phrase, “shining a light on the dark side of health care.”(1)  The editorial referred to an anonymous narrative that recounted two incidents from the past.(2) The first incident, discussed second hand, was of a obstetrician who made a sexist comment about a patient, who was under anesthesia, presumably unconscious, and being prepared for surgery.  The second incident, presumably less recent, was of an obstetric/gynceology resident who, after performing an emergency procedure that saved a woman from potentially fatal acute hemmorhage, performed an impromptu dance routine that appeared to disrespect the patient’s ethnicity, until stopped by the anesthesiologist who issued a profance rebuke. As noted above, the editorial called the incidents examples of medicine’s “dark side.”  It further said they may make “readers’ stomachs churn,” referred to “medicine’s dark underbelly,” and “repugnant behavior,” and characterized the narrative as “disgusting and scandalous,” and having the potential to “damage the profession’s reputation.”   Readers of Health Care Renewal know that we often discuss systemic problems in health care, often involving the leadership of large health care organizations, that may produce real harms to patients’ and the public’s health, but for which no good policing mechanisms seem to exist.  Worse, these problems seem to be a taboo topic in health care policy discussions, and in medical journals, like the Annals of Internal Medicine. In my humble opinion, the Annals’ editorial outrage would ring less hollowly if it was accompanied by even greater outrage at such more extreme problems.

Red Cross CEO Gail McGovern Tried to Kill Government Investigation - American Red Cross CEO Gail McGovern has long portrayed her organization as a beacon of openness, once declaring “we made a commitment that we want to lead the effort in transparency.” But when the Government Accountability Office, the investigative arm of Congress, opened an inquiry last year into the Red Cross’ disaster work, McGovern tried to get it killed behind the scenes. “I would like to respectfully request that you consider us meeting face-to-face rather than requesting information via letter and end the GAO inquiry that is currently underway,” McGovern wrote in a June 2014 letter to Rep. Bennie Thompson, D-Miss.McGovern sent the letter, which was obtained by ProPublica and NPR, after meeting with Thompson, the ranking member of the homeland security committee. At the request of Thompson’s office, the GAO had earlier that year started an inquiry into the Red Cross’ federally mandated role responding to disasters and whether the group gets enough oversight. In her letter, McGovern suggested that, in lieu of the investigation, the congressman call her directly with questions. She provided her personal cell phone number. In a statement, Thompson criticized McGovern’s request to spike the investigation. “Over time, the public has come to accept the American Red Cross as a key player in the nation’s system for disaster relief,” he said. “It is unfortunate that in light of numerous allegations of mismanagement, the American Red Cross would shun accountability, transparency and simple oversight."

MIT, Harvard find 'master switch' behind obesity - “Obesity has traditionally been seen as the result of an imbalance between the amount of food we eat and how much we exercise, but this view ignores the contribution of genetics to each individual’s metabolism,” said senior author Manolis Kellis, a professor of computer science and a member of MIT’s Computer Science and Artificial Intelligence Laboratory and of the Broad Institute, in a release. Until now. Previous research had shown there was a strong association with obesity in the gene region known as FTO. Researchers started there, experimenting with more than 100 tissues and cell types, changing the genomic controls within that region to see if fat storage could be programmed independently of the brain. Once researchers discovered evidence that there was a switchboard, researchers looked at fat tissue from Europeans with differing versions of the region, finding that those at risk for obesity had switchboards that turned on two distant genes — IRX3 and IRX5. Further research into these genes showed that they act as master controllers of how fat cells either burn fat as release the energy as heat, or store it. The discovery ultimately comes down to one letter nucleotide difference in these genes, which turns on these genes and ultimately turns off the body’s way of burning fat, leading to storage.

HOW much bottled water is getting sold?!?!?!  -- Almost $19 billion last year: Mary Clare Carley leaves home each morning with a gallon water jug and carries it wherever she goes to stay hydrated. The 34-year-old teacher doesn’t remember when she last drank water from a tap.“If I don’t have my gallon of water, I just feel incomplete,’’   Despite obvious drawbacks—the plastic and the extra cost for something essentially free out of the tap—thirst for bottled water just keeps growing. U.S. bottled water volume rose 7% last year. That puts it on track to outsell soda by 2017, according to forecasts by industry tracker Beverage Marketing Corp. You may remember Nestle from my Upshot piece where I noted that they funded a number of those studies showing everyone is dehydrated. Sigh: But water is so hot that most consumers buy it despite the environmental drawbacks. Meanwhile, dozens of smaller, high-end specialty-water brands with names like Real Water, People Water and HappyWater have begun flooding the market. All you’re doing is making expensive urine. And buying something that you can get for almost free in your homes. But go ahead. Keep on saying stuff like this: Debra Ann Stokes recently stopped at Whole Foods in Atlanta to stock up on bottles of alkaline water, which has a high pH level that proponents say can neutralize acids and help the body absorb nutrients. “This goes down much different, smoother,’’ said Ms. Stokes, a 64-year-old belly-dance instructor, grabbing six one-liter bottles of Alkalife Ten. There are people forcing themselves to drink so much water that they’re concerned with how smoothly it’s going down? Baffling.

Consumer Reports Finds Fecal Matter in Ground Beef  - Just in time for Labor Day cookouts, Consumer Reports found that eating undercooked ground beef might leave you very sick. According to the organization’s investigation, supermarket ground beef can harbor superbugs, or antibiotic-resistant strains of bacteria. Oh, and almost all store-bought varieties likely contain fecal matter. Meanwhile, the meat industry and the U.S. Department of Agriculture (USDA) denies any harm. Drug-resistant bacteria found in 18% of burgers from conventional meat http://t.co/dDgf0oRlIF #buybetterbeef pic.twitter.com/Iwd47ymWlH   Consumer Reports tested 300 packages of raw ground beef—conventionally and sustainably produced (meaning no antibiotics, organic or grass-fed)—from 100 food stores around the country, and “the results were sobering.” Consumer Reports tested 300 packages of raw ground beef—conventionally and sustainably produced (meaning no antibiotics, organic or grass-fed)—from 100 food stores around the country, and “the results were sobering.” Here’s what the team found:

• All 458 pounds of beef examined contained bacteria that signified fecal contamination (enterococcus and/or nontoxin-producing E. coli), which can cause blood or urinary tract infections.
• About 20 percent contained C. perfringens, a bacteria that causes almost 1 million cases of food poisoning annually.
• 10 percent of the samples had a strain of S. aureus bacteria that can produce a toxin that can make you sick. That toxin can’t be destroyed—even with proper cooking.
• 1 percent of the samples contained salmonella.
• On three conventional samples (and none on sustainable samples), the team found an antibiotic-resistant S. aureus bacteria called MRSA (methicillin-resistant staphylococcus aureus), which kills about 11,000 people in the U.S. every year.

All ground beef eaten in U.S. contains food poisoning bacteria: Study reveals dangers if meat is not properly cooked -- Almost all ground beef eaten by Americans contains bacteria at levels high enough to cause illness, according to a new study.  Consumer Reports tested 300 packages of ground beef from 103 stores in 26 cities across the country in order to test the prevalence of bacteria in the meat.Incredibly, every product purchased contained bacteria showing faecal contamination - which can lead to E. coli and blood or urinary infections.Although the bacteria is unlikely to cause illness if the meat it cooked properly, unlike white meats such as chicken and pork, many people choose to consume their red meat rare.According to the report, ground beef also poses particular problems because it bacteria can be easily spread throughout several batches during production. Furthermore, the bacteria on single cuts of beef such as a steak are often limited to the piece of meat's exterior which is easily killed in cooking.But the bacteria in grounded beef is spread throughout the entirety of the package of meat.The report stated: 'Also contributing to ground beef’s bacteria level: The meat and fat trimmings often come from multiple animals, so meat from a single contaminated cow can end up in many packages of ground beef.

Huge Glut in European Dairy Cows and Milk Coming Up  -- There are so many dairy cows in Spain that farmers have not been able to make any money. There is a glut of milk. The government solution, amazingly, is to Give 300 Euros Per Cow to Farmers With Insufficient Profitability.  The Minister of Agriculture, Food and Environment, Isabel García Tejerina, announced on Saturday that the Ministry will grant direct aid of 300 euros per cow for those farms that are selling milk below profitability. The measure will benefit 2,500 to 3,000 farms according to estimates by the Ministry. Tejerina is "working at full speed" to prevent milk being sold at prices that are unprofitable. Any rational person would suggest there are too many dairy cows and perhaps too many farms. But instead we see articles like this one from El Confidencial: Do you buy milk at less than 60 cents? This is what you're doing to farmers.  The prices in the dairy sector have plummeted in recent months by the combination of several factors. Historically Europe produces more milk than it consumes and therefore dependent on international markets to survive. Especially Asians. And China has stopped buying milk in recent months. To this must be added the effects of Russia's veto imports of fresh products. The result is that the European market does not absorb all the milk generated and there is an excess of 'stock' that brings down prices. "What you buy below 55 cents indirectly causes the closure of farms", points out Andoni Arriola Garcia, spokesman for COAG (Coordinator of Organizations of Farmers and Ranchers). "They are using the deregulation of the market to offer the farmer a ruinous prices," said García Arriola.  Mind you, closure of farms is precisely what needs to happen (given the inane sanctions on Russia).  By country, here is a Dairy Cows Count for every country in the EU.  As of 2013, Spain has 857,000 cows. Assuming there are no more cows in Spain now than in 2013, the cost of the guarantee would be €257,100,000. Instead of blaming farmers for producing too much milk, and instead of blaming inane sanctions on Russia, the government and news outlets blame people for paying too little for milk.

Global Grain Stocks At 30 Year Highs Mean Food Deflation Is Next -- Everywhere you look there’s still more evidence that the world economy is grappling with a  global deflationary supply glut. To be sure, this wasn’t supposed to happen.  As China’s slowdown continues unabated, the commodity hoarding becomes more evident and indeed on Thursday, The International Grains Council reported that global grain stocks are forecast to hit 447 million metric tons, the highest level in 29 years.  From the report: End-season grain stocks in 2015/16 (aggregate of respective local marketing years) are now placed at 447m t, up fractionally y/y. While carryovers of wheat, barley, sorghum and oats are expected to increase, maize inventories are seen retreating slightly from last year’s levels. Trade in the year ending June 2016 is forecast to be down by 2% y/y. As China has recently been a heavy importer of feedstuffs, including sorghum, barley and DDG, traders are wary of potential changes to state support mechanisms, which could alter buying patterns. And more from Bloomberg: Wheat and corn futures in Chicago are heading for a third year of losses after back-to-back bumper global harvests and world wheat production this year will match last season’s record 720 million tons, the IGC said.European wheat crops escaped damage from heat this summer, and prospects for the U.S. corn harvest have improved, said Amy Reynolds, a senior economist at the council. Corn futures declined 6.2 percent this year on the Chicago Board of Trade and wheat slipped 17 percent. The commodity is trading about 6 percent above a five-year low set in May. France, the European Union’s largest wheat grower, will harvest 41 million tons of the grain, the IGC said. That’s higher than FranceAgriMer’s outlook earlier this month for a record 40.4 million tons. Surging supplies of grain have filled up silos in Rouen and Dunkirk and sent futures in Paris to a nine-month low.

US ‘Big Sugar’ fighting to protect a sweet deal from TPP | Bangkok Post - A sweet deal for American sugar farmers is compounding delays in a proposed trade agreement affecting 40% of the world’s economy. The commodity has become a sticky subject in talks over the Trans-Pacific Partnership, potentially the biggest trade deal in history and a key goal of the Obama administration. TPP, as it's known, would link a dozen countries and, its proponents say, make it easier for US companies to sell goods around the world. But the trade deal may also weaken protections for the sugar industry dating back to the Great Depression should negotiators heed the calls of Australia and other nations for the US to loosen a quota system that protects domestic suppliers while making the product more expensive for consumers. As they have for decades, sugar lobbyists are fighting to keep it that way by using their clout with lawmakers. In Washington, that means one thing: money. Sugar accounts for a small fraction of US farm output, but the industry contributes more to congressional campaign coffers than any other commodity producer. Between 2007 and 2014, growers donated $18.5 million, according to the Center for Responsive Politics. "The sugar lobby is one of the strongest in the country," said James Cassidy, global head of sugar derivatives at Societe Generale in New York. Sugar isn't the only thing snarling the trade talks, which broke off in July and are expected to resume as early as September. Other issues include dairy products, cars and intellectual property rights. But sugar occupies a special place in US politics. The commodity has been a source of controversy since before the American Revolution. Import protections have artificially inflated domestic costs for decades.

Mexican Gourmet Chefs Sharpen Knives in Monsanto GMO War - Don Quijones - In the last two years, Mexico has become one of the major battlegrounds of the 21st century global food wars. On one side of the battle line is Demanda Colectiva AC, a collective of 53 scientists and 22 civil rights organizations and NGOs fighting to protect Mexico’s extraordinary wealth of food crop biodiversity; on the other is a coalition of the world’s GMO goliaths led by US agribusiness giant Monsanto. Their ultimate goal is simple: complete control over the Mexican food chain. And in their bid to achieve it, they can count on the unwavering support of Mexico’s Ministries of Agriculture and the Environment. On Tuesday they won a vital, albeit not yet decisive, victory when Mexico’s XII District Court overturned Judge Marroquín Zaleta’s 2013 ruling to suspend the granting of licenses for GMO field trials. In his original ruling, Zaleta cited the potential risks to the environment posed by GMO corn. If the biotech industry got its way, he argued, more than 7000 years of indigenous maize cultivation in Mexico would be endangered, with the country’s 60 varieties of corn directly threatened by cross-pollination from transgenic strands. However, it was only a matter of time before the behemoths of global agribusiness found a judge with a sympathetic ear, especially given the pressure being exerted behind the scenes by ranks of GMO lobbyists and Environment and Agriculture Ministry officials. But Mexico’s popular resistance is unlikely to yield quite so easily. Indeed, signs are that the fight could well go mainstream. Demanda Colectiva AC has just launched a public appeal for members of scientific, academic, artistic and civil society organizations to lend their support in its battle to safeguard Mexico’s crop biodiversity. And 78 high-profile gourmet chefs have already joined the struggle, El País reports. In an open letter to the government, the chefs sharpen their knives against the court’s recent decision to overturn the moratorium. The cultivation of GMOs could pose an “existential threat to the diversity of Mexico’s native species of corn,” they argue.

As pesticides wipe out Monarch butterflies in the U.S., illegal logging is doing the same in Mexico. -  The news was already bad. Really, really bad. Monarch butterflies that alight from Mexico and fly across the United States to Canada are being massacred. The U.S. Fish and Wildlife Service laid out a grim statistic in February: Nearly a billion have vanished since 1990 as farmers and homeowners sprayed herbicides on milkweed, a plant the colorful creatures use as a food source, a home and a nursery. On Tuesday, Mexican scientists and American conservationists announced that the killing field has widened in the worst place possible — a monarch sanctuary. More than 52 acres of a haven where the butterflies hibernate over winter has been degraded, mostly by deforestation from illegal logging, with drought helping the decline, they said. The upshot is that a sizable portion of monarchs that straggle from Canada, back across the states and into Mexico won’t have a home. The finding is from a newly released survey of the core area of the Monarch Butterfly Biosphere Reserve in Mexico for 2014-2015.  Butterflies aren’t immune to extinction, in spite of their prolific reproduction. The blueberry-colored Xerces blue disappeared from San Francisco years ago, and in recent years Fish and Wildlife announced that a pair of subspecies — the rockland skipper and Zestos in South Florida — haven’t been seen since 2004 and are probably extinct. Populations of other pollinators have collapsed — wasps, beetles and especially honeybees. Widespread pesticide use is the suspected cause.

6.5 Million Americans Drink Water Contaminated With the Chemical Used to Make Non-Stick Pans -- When you drink a glass of water, you expect it to be clean and pure, not contaminated with invisible toxic chemicals. But nationwide testing has found that 6.5 million Americans in 27 states are drinking water tainted by an industrial compound that was used for decades to make Teflon.  The chemical, known as PFOA, has been detected in 94 public water systems. The amounts are small, but new research indicates that it can be hazardous even at the tiniest doses. PFOA and closely related fluorinated chemicals—including PFOS, once used to make Scotchgard—can cause cancer, birth defects and heart disease and weaken the immune system.Even the lowest level of PFOA detected by the water testing, which was mandated by the U.S. Environmental Protection Agency (EPA), was about five times higher than what’s safe to drink, according to the new research. This means that even if the EPA has not reported finding PFOA in your drinking water supply, it could still be contaminated.  Americans should be protected against water contamination by PFOA and other so-called perfluorinated compounds, or PFCs. PFOA and PFOS are just two members of this large family of chemicals, which do not break down in the environment. They’ve spread to the farthest reaches of Earth, are in virtually every American’s blood and can be passed from mother to child in the womb and in breast milk. PFOA and PFOS have been phased out in the U.S., but scientists have raised concerns that the new chemicals that replaced them may be no safer.  This map identifies where water has been contaminated by PFCs county-by-county.

Judge Blocks Clean Water Rule Hours Before It Takes Effect --Late Thursday, a North Dakota federal judge issued a temporary injunction just hours before an Environmental Protection Agency and Army Corps of Engineers rule to protect small streams and wetlands went into effect.  North Dakota and 12 other states requested the injunction, which halts enforcement of the Waters of the United States rule. Alaska, Arizona, Arkansas, Colorado, Idaho, Missouri, Montana, Nebraska, New Mexico, Nevada, South Dakota, and Wyoming were also party to the suit, which seeks to have the rule, scheduled to go into effect Friday, overturned.  “I am very pleased by today’s ruling, which protects the state and its citizens from the serious harm presented by this unprecedented federal usurpation of the state’s authority,” North Dakota Attorney General Wayne Stenehjem said in a statement. “There is much more to do to prevent this widely unpopular rule from ever taking effect. Still, I remain confident that the rule will be declared unlawful once all the issues have been presented.”  The rule would protect two million miles of streams and 20 million acres of wetlands that were not clearly designated under the Clean Water Act. The rule clarifies what tributaries and wetlands are part of the overall water system and will decrease confusion and expense, the EPA and Army Corps said when the rule was announced. According to the EPA, one out of every three Americans gets drinking water from sources connected to water that did not — and, now, due to the injunction, still do not — have clear protections. The new rule is intended to protect downstream water sources, using current scientific practices to determine what bodies of water are interconnected, officials said.

Governance Matters -- It is time we recognised that the current ways of fixing the environment are not working. Rivers are more contaminated; air is more polluted and cities are filling up with garbage we cannot handle. The question is: where are we going wrong? What do we need to do? For this, we first need to recognise that India and countries like ours have to find new technical solutions and approaches to solve environmental problems. It is a fact that the already industrialised world had the surplus money to find technologies and fund mitigation and governance, and they continue to spend heavily even today. We have huge demands—everything from basic needs to infrastructure—on the same finances and will never be able to catch up in this game. So, we need to build a new practice of environmental management, which is affordable and sustainable. In this way, environmental management options will have to be explored carefully and leaps made. Take river cleaning. For long we have invested in sewage treatment plant technologies that were adopted by the rest of the world. We hoped we would clean our rivers the way other countries did. But we forgot that most of our cities do not have sanitation systems or underground sewage networks. Even if flush toilets of a few urban Indians are connected to the underground drain, and their waste is pumped for some length and transported to sewage plants and treated, it does not clean rivers. The reason is that the rest—in fact, the majority—do not have the same connection. Their waste goes to open drains and then to the same river or lake. The end result is dirty water. Pollution control measures must be affordable to meet the needs of all. They must cut the cost of water supply and the cost of taking back wastewater. This would require reworking sewage management so that we can intercept wastewater in open drains and septic tanks, and treat it as cost effectively as possible. It would also require strategies to make sure that rivers have enough water to dilute wastewater.All this can be done. But it will require backing new solutions, ensuring that they are put to practice and scaling them up.

Lake Erie algae bloom spreads to Cleveland, could set record, scientists warn | The Columbus Dispatch: This summer’s Lake Erie algae bloom is almost certain to be the worst on record, warn the scientists who study the lake. The bloom, which started in the western part of the lake in June, has stretched to Cleveland and could still grow. The bloom is on pace to peak in September. Scientists originally thought the bloom would be about average this year, but heavy, sustained rains in June and July washed large amounts of phosphorus into the watersheds that feed the lake. Algae feed, in part, on phosphorus, a key ingredient in manure, farm fertilizers and sewage. When phosphorus levels began to rise, scientists say, it became clear that this year’s algae bloom would be bad. Still, they originally thought the bloom would be smaller than the record-setting one in 2011. The levels of phosphorus were high this year, but not as high as 2011 levels. But new data about the amount of phosphorus that ended up in the lake show that this summer’s bloom will likely will top 2011’s bloom. That data shows dissolved reactive phosphorus reached the lake in the largest amounts in recent history.

Despite Historic Drought, California Farmers Are Enjoying Record Revenue. How Is That Possible? - California is an agricultural powerhouse, supplying the majority of the nation’s fruits, vegetables, and nuts.  California also happens to be in the midst of the fourth year of a historic drought — the most severe in recorded history — which is a problem for all that agricultural production, because growing crops — or raising livestock, or tending to nurseries — requires water, and large-scale agriculture, like the kind in California, requires a lot of water. Numerous models predicted that California’s agricultural sector would be hit hard by the drought. But emerging data shows that California’s farmers have been more resilient than expected — according to the first comprehensive analysis of the actual impacts of the drought published Wednesday by the Pacific Institute, California’s agricultural sector experienced record sales in 2013 and 2014.  That economic boom comes at a cost to the environment, however, as farmers drill deeper into the ground to tap groundwater, raising questions about who will eventually bear the costs of depleted groundwater resources and damaged infrastructure. According to USDA and NASS data, 2014 was the year with the lowest harvested acreage for field crops in California over the past 15 years. But despite losing acreage, California farmers, on a statewide level, haven’t been losing money — both 2013 and 2014 were record years for revenue, with 2013 reaching a record high of $34 billion. There are a few reasons for the surge in revenue despite a drop in available surface water and crop acreage. The first is that for the past decade or so, California farmers have increasingly been making the switch from low-value crops — like alfalfa, cotton, and rice — to high-value crops, like almonds. Although the almond has been the source of much environmental rancor — an illustration of California agriculture’s water lust, according to some — it’s actually a pretty smart crop for farmers to grow, in part because it’s worth so much more than the water that goes into it. The same cannot be said for alfalfa, much of which is grown for livestock and dairy feed or shipped overseas.

Wine and Water Watch (WWW) Challenges Northern California’s Invasive Wine Empire --Activists objecting to the over-growth of the wine/hospitality industry in rural areas of four Northern California counties have met monthly for half a year. At their August 15 meeting in Healdsburg, Sonoma County, one of the wine industry’s epicenters, they agreed to name themselves Wine and Water Watch (WWW). They ratified the following mission statement: “We challenge the over-development of the wine tourism industry and promote ethical land and water use. We advocate agricultural practices that are ecologically regenerative.” The new WWW name replaces the temporary name of Four County Network, which was agreed upon at the third meeting. The group met previously in Middletown, Lake County, Jenner on the Sonoma County coast, twice in Calistoga, Napa County, and in unincorporated Graton, Sonoma County. Attendance has varied from around two-dozen to over 50 activists, by invitation only. The group has studied the wine industry and criticized its over-expansion, especially in rural areas. Participants have published some of their research widely, attended meetings of Sonoma County’s Wine Advisory Group, which is dominated by the wine industry, been interviewed by newspapers, on the radio and TV, and held protest signs in Napa County. They have sent many letters to editors and government officials. A mass movement seems to be emerging.

Humans Are Set To Wipe An India-Sized Chunk Of Forest Off The Earth By 2050 -  By 2050, an area of forests the size of India is set to be wiped off the planet if humans continue on their current path of deforestation, according to a new report. That’s bad news for the creatures that depend on these forest ecosystems for survival, but it’s also bad news for the climate, as the loss of these forests will release more than 100 gigatons of carbon dioxide into the atmosphere.   The report, published Monday by the Center for Global Development (CGD), found that, without new policies aimed at cutting back on deforestation, 289 million hectares (about 1,115,840 square miles) of tropical forests will be cleared away. That’s a chunk, the report states, that’s equal to one-seventh of what the Earth’s total tropical forest area was in 2000. And, according to the report, the 169 gigatons of carbon dioxide that this deforestation will unleash is equal to one-sixth of the carbon budget that humans can emit if they want to keep warming below 2°C — the level that’s generally viewed as the maximum warming Earth can endure while still avoiding the most dangerous climate impacts (and even 2°C is seen by many experts as too high). The study, unlike other recent studies on deforestation, projects that in a business-as-usual scenario, in which the world doesn’t make any effort to reduce deforestation, tropical deforestation will increase, rather than decrease. According to the study, tropical deforestation rates in such a scenario will likely climb steadily in the 2020s and 2030s and then speed up around 2040, “as areas of high forest cover in Latin America that are currently experiencing little deforestation come under greater threat.”

Drought and Climate Change Fuel Historic Western Wildfires - A historic wildfire season in the Western United States and Canada claimed more victims last week. Three firefighters battling the Twisp Fire in central Washington State died Wednesday after their vehicle crashed and was overtaken by the flames, NBC News reported. Four other firefighters were also injured. The three firefighters’ deaths marked a dangerous week for fire crews battling blazes throughout the West. Over 7.2 million acres have burned this year, according to the federal National Interagency Fire Center, with 1.3 million of those acres actively burning on Thursday. In the Pacific Northwest alone, wildfires grew from 85,000 acres to 625,000 acres in only a week. Canadian firefighters also struggled with blazes this summer, with over 690,000 acres burned in British Columbia as of August 4, according to the Globe and Mail. Fire season is a difficult time for Western states in any year, but the dire lack of rainfall in recent years has exacerbated the current threat. Most news outlets refer to the crisis as “the California drought.” In fact, the drought exists in some form across the entire Western United States: One hundred percent of the state of Nevada is in drought — with 40 percent in the extreme drought category. Over to the southeast, 93 percent of Arizona's territory is in some form of drought. Even Washington state, far to the north, finds all of its territory in drought and 32 percent of its land in extreme doubt. Although some media outlets have focused on almonds, a much larger contributor to warming temperatures and drying landscapes is climate change. A study published in Geophysical Research Letters on Thursday estimated that climate change’s effects exacerbated the Western drought by an additional 15 to 20 percent. That same day, NOAA announced that July 2015 was the hottest month since recordkeeping began in January 1880. As climate change continues to worsen, longer and more intense droughts are likely.

State of Emergency Declared as Wildfires Create 'Unprecedented Cataclysm' in Washington -- Three firefighters were killed this week and President Barack Obama on Friday issued an emergency order over wildfires raging through central Washington state. Emergency workers from Australia and New Zealand have been flown in to help the crews currently fighting blazes in five states, including Washington, California, Montana, Idaho, and Oregon. The damage has hit hundreds of thousands of acres of land, including Indigenous territory. In Washington alone, 11 counties have been affected, as well as the Confederated Tribes of the Colville Reservation, the Kalispel Tribe of Indians, the Spokane Tribe of Indians, and the Confederated Tribes and Bands of the Yakima Nation. According to a White House news release, the state of emergency authorizes the Department of Homeland Security and the Federal Emergency Management Agency (FEMA) to coordinate all disaster relief efforts. Okanogan County information officer Dan Omdal told the Seattle Times that "people should take care of themselves and their neighbors, but it's 'no time for heroics.'" The President’s action authorizes the Department of Homeland Security and the Federal Emergency Management Agency (FEMA) to coordinate all disaster relief efforts, according to a White House news release.

Wildfires Are Pushing Western States To Their Limits And Pushing Toxic Smoke As Far As New Mexico -- The 2015 wildfire season throughout the West, as historic drought conditions and record temperatures have pushed many states’ fire suppression capacities to their breaking points.  As of Monday morning, at least 13 large fires burned across the central and eastern portion of Washington, while 11 burned across Oregon. All told, 65 major wildfires are currently burning across seven Western states. According to the National Interagency Fire Center statistics, more than 27,000 firefighters are deployed across the country. To date, this years’ fire season has burned 7,487,737 total acres, more than any other season in the last 10 years. “Nationally, the system is pretty tapped,” Rob Allen, the deputy incident commander for the fires around the Cascade Mountain resort town of Chelan, told the Associated Press last Wednesday. “Everything is being used right now, so competition for resources is fierce.”  Last week, for the first time since 2006, the National Interagency Fire Center mobilized 200 active-duty military troops to help control the fires that are spreading throughout the West. Along with active-duty soldiers, members of the National Guard and Air Force have already been called to help fight the fires. This weekend, dozens of firefighters from Australia and New Zealand were deployed to help fight blazes in Idaho, Washington, Montana, Oregon, and California. This isn’t the first time that firefighters have come from Australia to help fight U.S. fires — under an exchange program, Australian firefighters have come to the United States 11 times since 2000, according to the Strait Times.

Historic Wildfire Season Has Burned More Than 7.5 Million Acres (That’s Larger Than Massachusetts) -- This wildfire season was predicted to be worst one yet and it looks like experts are correct. More than 7.5 million acres have burned in wildfires this year—an area roughly the size of Massachusetts—according to the National Interagency Fire Center. This is the first time in 20 years that the area charred has exceeded 7 million acres by this date, according to the National Interagency Fire Center. 7 milliion acres and counting: The West’s Wildfire Season Is Getting Even Worse http://t.co/DDyobmp3dm #climate pic.twitter.com/Jt5BQNVncZ The massive fire burning in north central Washington, dubbed the Okanogan Complex, has surpassed last year’s record-setting Carlton Complex to become the largest fire in the state’s history. The blaze is estimated to be 400 square miles as of Monday. Fire spokesman Rick Isaacson told NBC News he fears the fire may burn until the end of October when the rain and snow season arrives. “It’s only Aug. 24th,” he said. “In our district we could see this go clear to the first of November.” The fire was only 17 percent contained as of Tuesday with hot, dry and windy conditions stymying the efforts of the nearly 1,300 people battling the flames. And Washington is not alone. Idaho currently holds the dubious title for the highest number of active, large wildfires. Eleven states are currently reporting at least one large fire: Arizona (1), California (11), Colorado (1), Idaho (21), Louisiana (1), Montana (10), New Mexico (1), Oregon (9), Texas (3), Utah (1) and Washington (12). That makes for a total of 71 active large fires burning nearly 1.6 million acres. And only two of them (both in Texas) are 100 percent contained.  Here’s a map from AirNow showing the air quality from all the fires:

Projecting 2015 Acres Burned and Firefighting Expenditures -- Reader CoRev asserts wildfire intensity has not been severe of late. I’ll just some graph some data to bring reality to the interested. Notice the upward trend; it is estimated by regressing log acres on a time trend. The t-statistic on the time trend is highly significant. The DW statistic is 1.83, the R²=0.81. Robust least squares provides a similar time trend. The coefficient on the time trend is 0.036, indicating that the acres burned trends upward at 3.6% per year (in log terms). We don’t have 2015 data yet (obviously), but we do have year-to-date (YTD) figures. The values for 2015 on YTD burn are the highest in 20 years. [1] One can use the YTD burn to project total burn. I use a log-log specification (R² = 0.95, DW = 2.07) to produce a forecast for 2015. While the 2015 mean forecast is slightly below the previous peak in 2006, a slight modification (no constant) would yield a mean forecast above the 2006 peak. And using the baseline specification, the 90% interval easily encompasses much higher values. Finally, I can use the relationship between total firefighting expenditures, projected acres burned and the CPI to infer 2015 expenditures. (CPI growth for 2015 is assumed to be the same as experienced in the first 7 months of 2015.) Update, 5:15PM Pacific: Reader Steven Kopits argues (1) the linear regressions R² of 0.32 is “risible”, and (2) I should look to moving averages. Here is a ten year moving average, in bold red. I let readers determine what they think the “trend” is. To ensure that I am not accused of picking a specific depiction to favor my case, here is a centered 11 year moving average.

Earth is on track to lose an India-sized chunk of its tropical forests by mid-century - Tropical forests face a lot of threats, particularly from the logging and agriculture industries. Their continued disappearance from the face of the Earth is therefore no great news — but new research suggests that they may be disappearing even faster than we thought. And that could have big implications for the global effort against climate change. A new report from the Center for Global Development, released Monday, warns of what will happen if world leaders don’t take stronger steps to cut down on deforestation — that is, if we follow a “business-as-usual” trajectory. By 2050, they estimate, an area of forest equal to the size of India will be lost. The researchers came to their conclusions by using published satellite data on global forest cover from 2001 to 2012 to assess current rates of deforestation around the world. There are some limitations to the data set the researchers used. For one thing, the satellite data are unable to distinguish between different types of tree cover, meaning tree plantations get lumped in with natural forests. This means there’s the potential for the data set to over- or underestimate the amount of natural forest being lost each year, and the researchers say future studies should attempt to investigate this issue. However, the data otherwise turned up some alarming findings.  Judging from the patterns they observed using the satellite data, the researchers believe that deforestation under a business-as-usual scenario will climb steadily for the next several decades and then slightly accelerate in the 2040s.

Tropical forests will still exist in 2100 – but they will be a sorry sight -- By the end of the century, the world’s remaining tropical forests will be left in a fragmented, simplified, and degraded state. No patch will remain untouched – most remnants will be overrun by species that disperse well, which often means “weedy” plants like fast-growing pioneer trees and small rodents that thrive in disturbed areas. Most of the rest will be “the living dead” – tiny remnant populations of plants and animals hanging on with no future.  In research published in the journal Science, colleagues and I outline an all too common chain of events. The first cut of timber from any natural forest is the most lucrative. The most remote places, in the interior of Amazonia, in central Congo and the heart of Borneo are all coveted by industrial loggers. The logging frontier marches relentlessly on. They selectively take the biggest trees and along with them the habitat of species that rely them. Today, less than 25% of tropical forests have escaped industrial logging and each year new concessions are given to industrial loggers in forests that had hitherto never been logged. While parts of the forest remain following logging, truly intact tropical forests may soon become a thing of the past. It’s estimated that an astonishing 25m kilometres of road will be built in the tropics by 2050. Roads begin to isolate fragments of forest, and some ground-dwelling specialist species fail to cross even small openings. Roads also bring hunters and markets together: in the decade to 2011 some 62% of Africa’s forest elephants were killed for their tusks. Usually international logging companies cut first, for export, and then they sell on their concession. This encourages a second cut of less desirable timber species, without waiting for the forest to recover, and further degradation ensues. This degraded forest is more susceptible to forest fires which kill trees and drive out many species.

What’s The Actual Impact Of Setting Ivory Stockpiles Ablaze? -- Thailand crushed and incinerated two tons of ivory from its stockpile on Wednesday. The move was praised by conservation groups who have long believed that the country has turned a blind eye toward illegal trade of ivory. “For too long Thailand has been exploited by wildlife criminals as both a gateway and marketplace for ivory poached in Africa and Asia,” Janpai Ongsiriwittaya of the World Wildlife Foundation said in a statement.  Noting several regulatory steps the country has taken to protect elephants and crack down on illicit ivory trade, she said, “Thailand’s ivory destruction is more than just a symbolic event.” While many conservation groups have called countries that supply ivory and those that buy it to destroy the stockpiles of ivory they seize at their borders or collect from national parks as a way to curb demand, the impact of such efforts are complex and not well-studied. “Ivory destruction events remove ivory from supply and potentially signal to the market that the commodity is getting scarcer,” Tom Milliken of TRAFFIC, a wildlife trade monitoring network, said in an email to ThinkProgress.  Economic theory holds that as ivory becomes scarcer, the price for ivory will rise. Since people tend to buy ivory even as its prices rise, those involved in illegally trafficking and trading ivory might stand to make higher profits by continuing to sell ivory. If that argument holds, Milliken wrote, “[P]oaching of elephants will continue and possibly even increase.” “On the other hand,” he said, “the messaging behind destruction events in end-use markets can serve to dissuade some potential consumers from buying ivory.”

Air pollution kills an average of 4000 people every day in China, 17% of all China’s deaths - Air pollution in China is one of the greatest environmental catastrophes in the world today, no doubt about it. We've been covering the issue for years, yet considering the scale of the damage that is being done to hundreds of millions of people as well as to large ecosystems, the issue is probably still under-reported (despite now being the #1 cause of social unrest in the country). A new study by Berkeley Earth shows just how bad things have gotten there, despite some positive steps in the right direction lately: The new study shows that air pollution kills an average of 4000 people every day in China, 17% of all China’s deaths. For 38% of the population, the average air they breathe is “unhealthy” by U.S. standards. “Air pollution is the greatest environmental disaster in the world today,” says Richard Muller, Scientific Director of Berkeley Earth, coauthor of the paper. “When I was last in Beijing, pollution was at the hazardous level; every hour of exposure reduced my life expectancy by 20 minutes. It’s as if every man, women, and child smoked 1.5 cigarettes each hour,” he said. Elizabeth Muller, Executive Director of Berkeley Earth, said “It’s troubling that air pollution is killing so many and yet isn’t on the radar for major environmental organizations in the US or Europe.” She says that solutions include greater use of scrubbers, increased energy efficiency, and switching from coal to natural gas, nuclear power, and renewables. “Many of the same solutions that mitigate air pollution will simultaneously reduce China’s contribution to global warming. We can save lives today and tomorrow.”

Navajo leader feels betrayed by EPA over 'contaminated' water supply - The president of the Navajo Nation said he feels betrayed that water supplied by the Environmental Protection Agency appeared to be tainted with a black oily substance. The water was delivered by the EPA to Shiprock, New Mexico, on Friday 14 August, to sustain agricultural operations and livestock after an EPA accident released a toxic plume from Gold King Mine into their natural water supply. When the water arrived, Joe Ben Jr, a representative of Shiprock’s farm board, said he rejected it after noting signs of contamination.  “I was astounded,” Begaye told the Guardian by phone on Thursday. “I couldn’t believe there were black oily streaks in the water.” He said he filled up a cup three or four times to be sure, and each time, the same oily black spots appeared in the water. When he ran water from the intake valve, his hand was reportedly coated with oil and grease. “I couldn’t believe what I was seeing,” he added. “I couldn’t believe the EPA’s higher-ups basically told me a lie.” The EPA contracted Triple S Trucking, which is part of the Aztec Well family of companies that services the oil and natural gas industry, to deliver the water while irrigation pumps that normally deliver water from the San Juan river are shut down pending water quality assessments. Ben said he requested certification from Triple S Trucking and the EPA that the barrels used to store the water, allegedly used in fracking operations, had been thoroughly cleaned. But no such report was forthcoming, Ben said.

Ten Years After Katrina, Will Sacramento Be The Next New Orleans?  -- A 2011 New York Times Magazine story sounded the alarm: “Scientists consider Sacramento — which sits at the confluence of the Sacramento and American Rivers and near the Delta — the most flood-prone city in the nation.” The article went on to note that experts fear an earthquake or violent Pacific superstorm could destroy the city’s levees and spur a megaflood that could wreak untold damage on California’s capital region.  “The levee situation was worse than New Orleans in Sacramento before Katrina. Now it’s of course worse,” said Robert Verchick, Gauthier-St. Martin Chair in Environmental Law at Loyola University New Orleans and a former EPA deputy associate administrator, who calls the aging flood-control system “a monstrous accident waiting to happen.” “Ruptures of the levees would swamp Sacramento and places like San Francisco wouldn’t have water for weeks. That’s what keeps me up at night, thinking about those kinds of problems,” he said. Tyler Stalker, a spokesman for the U.S. Army Corps of Engineers Sacramento District, agreed that the Sacramento area is uniquely at risk. “Two million people live here” at the “confluence of two major river systems,” he said. “Interstate 5 runs through the heart of Sacramento. Interstates 80 and 50 come right through Sacramento. These are major transportation corridors. And it’s the capital,” he added, with “a lot of water flowing through here, relying on a levee system that is quickly aging.”

Whales Are Mysteriously Dying in the Pacific Northwest -- While we're all busy talking about anchor-babies, and watching the stock market behave like a feather in a wind tunnel, whales are dying in the northeast corner of the Pacific Ocean and nobody knows why in the hell this is happening. . Speculation as to the cause is all over the lot, but a lot of attention is being paid to the massive algae bloom that has erupted off the west coast of North America. The size of the algae bloom is unprecedented, and the potential dangers from it spread as it does. While not all algae species in the bloom are dangerous, some of them produce a toxic chemical called domoic acid that can kill or make animals sick — and can even impact human health. Domoic acid is a neurotoxin produced by the algae Pseudo-nitzchia. When an animal, say a clam, eats this algae, it also injects the domoic acid, which can build up inside it. Any bigger animal that comes along and eats it — including humans — can get sick too if they take in enough of the toxin. This year's bloom is so bad that we are seeing lots of animal deaths. At least nine fin whales were found dead in the waters off Alaska in June, according to Alaska Dispatch News, and in July reports of dead or dying whales, seals, birds, and fish have been rolling in according to NOAA. It's difficult to pin these deaths on the algae specifically, but signs are pointing to these toxins as the cause.And things always get worse before they collapse completely.​ The algae doesn't just poison sea creatures, they also poison the water and create dead zones when they die. The decomposing algae use up all of the water's oxygen, making it unlivable for the majority of sea life. There's nothing we can do to stop this process, and it seems like it will keep getting worse as climate change makes oceans warmer, creating more dangerous algae blooms.

The World’s Oceans Are in Peril  The world’s oceans—covering nearly two-thirds of the Earth’s surface, and on which much of human life depends—are under severe pressure, a new report says.  Overfishing has dramatically reduced fish stocks. The thousands of tonnes of rubbish dumped in the oceans wreak havoc on marine life, while climate change is warming and acidifying them, putting them under further stress.Over-exploitation of fish stocks compounds ocean damage from climate change. Photo credit: John Wallace / NOAA via Wikimedia Commons  These are the sobering conclusions of a wide-ranging study of the Earth’s ecosystems by the Worldwatch Institute, a U.S.-based organization widely rated as one of the world’s foremost environmental think-tanks.  “Our sense of the ocean’s power and omnipotence—combined with scientific ignorance—contributed to an assumption that nothing we did could ever possibly impact it”,  “Over the years, scientists and environmental leaders have worked tirelessly to demonstrate and communicate the fallacy of such arrogance.” More than 50 percent of commercial fish stocks are now fully exploited with another 20 percent classified as over-exploited, the report says, while the number of dead zones—areas of the ocean depleted of oxygen and incapable of supporting marine life—has doubled in each decade since the 1960s. The oceans play a  key role in absorbing vast amounts of greenhouse gases and slowing the warming of the atmosphere. The report says: “… Evidence suggests that as the ocean becomes saturated with CO2, its rate of uptake will slow, a process that has already begun.”

Researchers sample enormous oceanic trash vortex ahead of clean-up proposal | Reuters: Researchers returned on Sunday from mapping and sampling a massive swirling cluster of trash floating in the middle of the Pacific Ocean, as the Dutch-borne crew works to refine a clean-up strategy it will roll out globally. The crew of the Ocean Cleanup, backed by volunteers in sailboats, ventured to areas of the "Great Pacific Garbage Patch", a swirling mass of human-linked debris spanning hundreds of miles of open sea where plastic outnumbers organisms by factors in the hundreds. The debris, concentrated by circular, clockwise ocean currents within an oblong-shaped "convergence zone", lies near the Hawaiian Islands, about midway between Japan and the U.S. West Coast. The trash ranges from microscopic pieces of plastic to large chunks. Working for about a month, the group collected samples as small as a grain of sand and as large as discarded fishing nets weighing more than 2,000 pounds. They mapped the area, using aerial balloons and trawling equipment to locate samples, said oceanographer Julia Reisser. "We did three types of surveys in 80 locations, and now we are working on completing an up-to-date estimate of the size of the patch, making a chart of hot spots and publishing our findings by mid-2016," Reisser said. "There were hundreds of times more plastics in these areas than there were organisms," she added.

Thousands of Walruses Stranded Ashore in Alaska Once Again Due to Rapidly Melting Sea Ice -- In what has now become a regular occurrence, thousands of walruses are being forced ashore on a remote barrier island in Alaska, threatening their survival. Walruses use sea ice to rest and feed. But with Arctic sea ice hitting a new low this past winter and fears that the Arctic could be entirely ice-free in summer months by the 2030s, walruses have no choice but to crowd ashore in mass numbers. The first reported sighting this year was earlier this week. Gary Braasch, an environmental photographer, told The Guardian he first spotted the walruses coming ashore on the southern end of the barrier island, about two miles from the hamlet of Point Lay. The mass stranding comes ahead of President Obama’s visit to Alaska to shed a spotlight on the toll climate change is taking on the Arctic region. Last year, upwards of 35,000 walruses were forced ashore, setting a record. U.S. government agencies and the Native village of Point Lay ask that the media refrain from visiting the community to film or “sightsee” as “the walruses need space to reduce disturbance and possible trampling of animals.” Since at least 2007, due to the loss of sea ice in the Chukchi Sea, “walrus females and calves are coming ashore in the late summer/early fall in large numbers near the community,” The site has been occupied by as many as 20,000 to 40,000 animals at its peak, according to Jim MacCracken, supervisory wildlife biologist with the USFWS. Scientists worry that any disturbances could lead to large stampedes, which injure and kill some walruses, especially calves.

NASA sees unavoidable sea level rise ahead - (AFP) - Sea levels are rising around the world, and the latest satellite data suggests that three feet (one meter) or more is unavoidable in the next 100-200 years, NASA scientists said Wednesday.Ice sheets in Greenland and Antarctica are melting faster than ever, and oceans are warming and expanding much more rapidly than they have in years past. Rising seas will have "profound impacts" around the world, said Michael Freilich, director of NASA's Earth Science Division. "More than 150 million people, most of them in Asia, live within one meter of present sea level," he said. Low-lying US states such as Florida are at risk of disappearing, as are some of the world's major cities such as Singapore and Tokyo. "It may entirely eliminate some Pacific island nations," he said. .. There is no doubt that global coastlines will look very different in years to come, US space agency experts told reporters on a conference call to discuss the latest data on sea level rise. "Right now we have committed to probably more than three feet (one meter) of sea level rise, just based on the warming we have had so far," said Steve Nerem of the University of Colorado, Boulder and leader of NASA's sea level rise team. "It will very likely get worse in the future," he told reporters.

Scientists are still trying to figure out how fast we could lose West Antarctica - The global warming problem seemed to take on a new level of urgency last year, when a NASA study suggested that a key region the massive West Antarctic ice sheet may have been destabilized. “We conclude that this sector of West Antarctica is undergoing a marine ice sheet instability that will significantly contribute to sea level rise in decades to centuries to come,” the NASA study concluded. Research suggests that if all of West Antarctica were to melt, global sea level could potentially rise by 3.3 meters, or about 11 feet. However, the NASA study did not directly address how quickly this could occur — a question with implications from Miami to Bangkok. The core reason for worry about West Antarctica is clear — its oceanfront ice shelves, buttressing regions for the larger ice sheet, rest on what is termed a “retrograde” bed, not only below sea level but sloping downhill as you move further inland. Hence the fear that once warm ocean water starts melting them from below, the process just continues and continues. But it also takes time to move gigantic volumes of ice. And now, in a new study recently published in The Cryosphere, a large team of researchers from a bevy of universities and research institutes across 6 countries — including the University of Bristol in the UK and Lawrence Berkeley National Laboratory in the U.S. — have applied a sophisticated computer modeling approach to try to determine West Antarctica’s potential melt rate.

Conservationist: Apocalyptic views about climate change don't work to change minds - — To get to the most rational discussion about environmentalism and have it work in today’s world, the conversation has to change, a leader in the environmental movement told oil and gas energy industry officials this morning on the final day of the Colorado Oil and Gas Association’s annual conference at the Colorado Convention Center. Peter Kareiva, director of the UCLA Institute of the Environment and Sustainability, and known for his advocacy of harmony between environmentalism and the forces that would tend to harm the environment, told audience members that the apocalyptic version of climate change no longer works. “When you talk about the apocalyptic vision of global collapse to the climate, I don’t think that’s a powerful way to motivate people,” he said during a panel discussion with Oliver Morton, senior editor of The Economist. “It’s too far off.”  While that apocalyptic vision has always been a part of the conversation, studies have shown it simply doesn’t work. Karieva said a more poignant way to influence the conversation about climate change and the need to clean up the environment, is to focus on the now.

Rescuing Mes Aynak - National Geographic -- Over the past seven years a team of Afghan and international archaeologists, supported by up to 650 laborers, has uncovered thousands of Buddhist statues, manuscripts, coins, and holy monuments. Entire monasteries and fortifications have come to light, dating back as far as the third century a.d. More than a hundred check posts surround the site, which is patrolled day and night by some 1,700 police. The excavation is by far the most ambitious in Afghanistan’s history. But the security wasn’t put in place just to protect a few scientists and some local workers. Buried below the ancient ruins is a lode of copper ore that extends two and a half miles across and runs a mile or more into the Baba Wali mountain, which dominates the site. It ranks as one of the world’s largest untapped deposits, containing an estimated 12.5 million tons of copper. In antiquity, copper made the Buddhist monks here wealthy; colossal deposits of purple, blue, and green slag, the solidified residue from their smelting, spill down the slopes of Baba Wali, attesting to production on a nearly industrial scale. The Afghan government hopes that copper will help make the country wealthy again, or at least self-sufficient.

Conflict Over Water In Central Asia - The Rogun Dam was originally conceived in 1959 as just one of several hydroelectric projects to be built throughout the Soviet Union. Developed in an era of gigantic Soviet projects, construction began along the banks of the Vakhsh River in 1976 but was not complete by the time of the collapse of the Soviet Union in 1991. A new agreement was forged between Russia and Tajikistan in 1994, but the agreement fell through and no progress was made on the dam. Another agreement was made ten years later with the Russian aluminum company RUSAL in which RUSAL would finish the dam and build a new aluminum plant; only the plant has been built, as the agreement was terminated one year later. Another agreement was sought between Russia and Tajikistan, but none was forthcoming.   When finished, the dam would provide 13 billion terawatt hours of electrical power per annum. This would turn Tajikistan from a country that experiences power rationing and blackouts in winter into a year-round exporter of electricity. In addition to the income from selling electricity to countries like Afghanistan, Pakistan, and Kyrgyzstan, it would provide steady electrical power domestically, allowing industry to gain a foothold in one of Central Asia’s poorest countries. Completing the dam would benefit neighboring states as well. The Rogun Dam would be an integral part of the long-planned Central Asia South Asia Regional Electricity Trade Project (CASA-1000). Under the memorandum of cooperation for this project, Tajikistan and Kyrgyzstan would transmit up to 1,600MW of its summer energy surpluses to Afghanistan and Pakistan. This program has several top-shelf supporters, including the United States, which is looking for a cheap, sustainable energy source to leave with the Afghanis as the U.S. draws down its forces there.  As advantageous as the dam may be to Tajikistan, it would be a major problem to neighboring countries, especially Uzbekistan. As the world’s second largest exporter of cotton, Uzbekistan has substantial water needs, and it meets those needs from the glacial runoff that forms the Vakhsh River. The importance of the cotton industry can scarcely be overstated, but the Uzbek government has a poor record in terms of labor rights in the cotton industry. Should the dam be completed, it would impound almost 14 square kilometers of water, severely restricting the badly needed flow into Uzbekistan and likely devastating the domestic cotton trade.

India offers technology to Pacific island countries to cope with climate change -  India today offered its expertise and technology to the 14 resource-rich countries of the strategically important South Pacific region to help them combat the threat of climate change, a major concern for the island nations. Leaders and delegates of these countries have arrived are here to attend the second Summit of the Forum for India- Pacific Islands Cooperation (FIPIC) on August 21 in Jaipur. In an address at a reception for FIPIC member-countries, External Affairs Minister Sushma Swaraj said India stands ready to share its expertise and technology with the island nations for mitigation and adaptation to climate change. "India also urges the Pacific Island countries to forge a global partnership to harness technology, innovation and finance to put affordable, clean and renewable energy within the reach of our countries," she said. The island countries taking part in FIPIC Summit include Fiji, Papua New Guinea, Cook Islands, Tonga, Tuvalu, Nauru, Kiribati, Vanuatu, Solomon Islands, Samoa, Niue, Palau, Micronesia and Marshall Islands. Some of the countries have oil and gas reserves.

China’s jaw-dropping progress at reducing CO2 emissions in just 4 months — Against all odds, China has made tremendous strides in the fight against CO2 emissions. In just four months, it reduced levels to the amount the UK emits in the same period. Experts have been warning China for years of an impending eco catastrophe.  The progress comes on the heels of Chinese promises to shut down the last remaining coal plant in Beijing in 2016 and cut reliance by 160 million tons in a matter of just five years. Very worrying statistics have been coming out of the country, with stark health warnings to people living in or near the industrial regions of the country.  An analysis of its energy production, carried out by Greenpeace and Energydesk China, reveals a drop of eight percent in coal consumption and a reduction in CO2 emission by five percent in as little as four months, since the start of this year. In comparison to last year, the pace of weaning itself off coal is gathering steam. To achieve these reductions, China has had to close more than 1,000 coal plants (it leads the world in coal consumption and greenhouse gas emissions). It managed to get levels down to the same amount the UK has emitted in the last four months.

White House aims to boost homeowner renewable energy use -- The White House on Monday expanded its push for greater renewable energy adoption, announcing fresh financial incentives for solar panels, smart grid technology and other alternative energies for homeowners and builders. President Barack Obama will travel to Las Vegas, Nevada, later on Monday to unveil the new steps, which include an additional $1 billion in loan guarantees for new research projects and near-term savings for homeowners using renewable energy. The Department of Interior on Monday approved the Blyth Mesa Solar project in California and its transmission line, expected to bring enough solar energy to power 145,000 homes. The moves are part of Obama's "broader vision" for ameliorating the effects of climate change, which he will emphasize throughout the next week in trips to New Orleans and the Arctic, Brian Deese, senior adviser to Obama on climate, said on a call with reporters. They come after Obama's announcement earlier this month to limit carbon emissions from U.S. power plants by 32 percent from 2005 levels by 2030.

Obama: Momentum of renewables is unstoppable -  The president isn’t intimidated in the slightest by the major money from fossil-fuel and the pact the industry has with the conservative right as he announced new investment incentives for renewable energy. Bloomberg reported that on Monday, the White House announced a $1 billion increase in loan guarantees for renewable energy projects and $24 million in new grants for solar research and measures to reduce costs for homeowners to install solar panels. In addition, the current administration also noted that it would approve a transmission line for a large solar plant in Riverside County, California. “We’re going to make it even easier for individual homeowners to put solar panels on their roof with no upfront cost,” Obama said Monday night at the National Clean Energy Summit in Las Vegas. “A lot of Americans are going solar and becoming more energy-efficient not because of tree huggers — although trees are important, just want you to know — but because they’re cost-cutters.” Obama is really ruffling feathers in his last years in office. After meeting an agony of gridlock on nearly every decision in his first term, Obama is ready to deliver on everything he promised and then some to environmentalists in his early years. Most recently, policies to address what the president called “one of the greatest challenges we face this century,” such as the Clean Power Plan and the revamped solar programs, have infuriated traditional fuel producers. However, Obama stated firmly that the industry will thrive despite opposition by Republicans and fossil-fuel suppliers.

Wind Energy Is Having a Railroad Moment -  Taxpayers may have subsidized the boom in emissions-free energy, but that’s triggered a whole lot of unsubsidized private investment in turn. Someone has to pay to build the infrastructure that conveys the power from the empty places where it’s produced to the populated places where it’s consumed. This is particularly evident in wind energy. Developers needs the federal production tax credit—2.3 cents for every kilowatt-hour produced by a wind farm for 10 years after its construction—to justify the nine-figure investments to plant clusters of turbines in the plains. But just as oil needs pipelines and coal needs railroads, wind power needs transmission lines to reach cities. A report by the Edison Electric Institute, a trade group for investor-owned utilities, highlighting some $47.9 billion worth of transmission lines in the works through 2025, found that about $22.1 billion in funds will be spent on transmission projects aimed at integrating renewable energy into the grid.And there could be much more to come. In Houston, the global capital of the fossil fuel industry, a startup, Clean Line Energy, is aiming to replicate the feats of 19^th-century railroad barons, erecting audacious, expensive tracks that will turn farmland and fallow space into economically useful terrain. The company wants to spend about $10 billion in private capital to wire the plains with direct current electricity wire. The names of its proposed lines evoke the age of the iron horse: There’s the Rock Island Clean Line, which would ferry juice 500 miles from Iowa to Illinois; the Grain Belt Express, traversing 780 miles from Kansas to points east; and the Plains & Eastern, which would convey power from the windy Oklahoma panhandle to Memphis, Tennessee. (Here’s a map of Clean Line’s proposed projects.) Farther to the west, billionaire Philip Anschutz is plotting the TransWest Express, a 730-mile line from Wyoming to Las Vegas. That effort, along with Clean Line’s Plains & Eastern—both of which could get federal approval to proceed this year—“may be the two most ambitious transmission lines ever built in this country,”

Carbon credits undercut climate change actions says report - BBC News: The vast majority of carbon credits generated by Russia and Ukraine did not represent cuts in emissions, according to a new study. The authors say that offsets created under a UN scheme "significantly undermined" efforts to tackle climate change. The credits may have increased emissions by 600 million tonnes. In some projects, chemicals known to warm the climate were created and then destroyed to claim cash. As a result of political horse trading at UN negotiations on climate change, countries like Russia and the Ukraine were allowed to create carbon credits from activities like curbing coal waste fires, or restricting gas emissions from petroleum production. Under the UN scheme, called Joint Implementation, they then were able to sell those credits to the European Union's carbon market. Companies bought the offsets rather than making their own more expensive, emissions cuts. But this study, from the Stockholm Environment Institute, says the vast majority of Russian and Ukrainian credits were in fact, "hot air" - no actual emissions were reduced. They looked at a random sample of 60 projects and found that 73% of the offsets generated didn't meet the key criteria of "additionality". This means that these projects would have happened anyway without any carbon credit finance. "Some early projects were of good quality, but in 2011-2012, numerous projects were registered in Ukraine and Russia which had started long before and were clearly not motivated by carbon credits,"

Alarms Sounded Over Latest EPA Ozone Guidelines - It hasn't been as publicized as regulations for coal-fired power plants.But political leaders are sounding the alarm about the EPA's latest proposed ozone standards.These involve what has been a growth business for our area in this decade: the oil and gas drilling industry.The Ohio Environmental Protection Agency-which is not directly associated with the federal EPA-warns of a "crippling impact" not only on drilling, but on industry in general.  And a Washington County Commissioner says the new guidelines could mean lowering the emission standard to 65 parts per billion-or lower."Washington County currently has an ozone level of 69 parts per billion, and we're one of the lowest in the state," says County Commissioner Ron Feathers. "A noncompliance would mean our manufacturers wouldn't be able to expand without a reduction of emissions."The administration aims to cut methane from oil and gas drilling by 40 to 45% during the next ten years, compared to levels of three years ago.Feathers warns that if the new standards, if implemented, are not met, Washington County could lose potential federal funding for a variety of projects, including highways.Republican U.S. congressman Bill Johnson, in a statement, estimates the new rules could cost Ohio $28 billion, and 22,000 jobs a year.

Colorado energy companies spend top dollar on lobbyists -  — Colorado state Sen. Leroy Garcia hit a powerful force — the well-funded energy lobby — during the 2015 legislative session when he tried to make the board that regulates utility companies representative of the entire state. “You can be up against 15 or 20 lobbyists easily,” Garcia said. “You’re spending your time talking to your colleagues about the facts, and they could be distorting that. They can work a committee pretty quick.” Garcia’s House Bill 1319 died in a Senate kill committee. The Pueblo Democrat faced an uphill battle in the Republican-dominated Senate, but the lobby against his bill didn’t help. Xcel Energy spent $205,758 during the 2015 legislative session on lobbyists. That was more than any other single interest during the year, according to lobbyist disclosure information released for the first time last month by the Secretary of State’s Office in a fashion that could be analyzed in a database. A Gazette analysis of the data showed that combined electricity generating companies spent almost $450,000. Colorado Springs Public Utilities spent $43,750 of that. The oil and gas industry spent more than half a million dollars. The telecommunications industry dropped nearly $400,000. It’s all part of an intricate system of relationships and power broking that plays out under the Gold Dome every year from January to May.

Coal producers getting burned by switch to natural gas -- The coal industry is in deep trouble, and Southern Company’s decision to buy an Atlanta natural gas utility puts it even deeper in the hole. For years, coal producers have been taking it on the chin as electric utilities have closed more and more coal-fired power plants and switched to cheaper, cleaner-burning natural gas. The situation was made worse when coal shipments to the once-voracious Chinese market slowed. “You can see it across the industry,” said Kristoffer Inton, an investment analyst who covers the coal industry for Morningstar in Chicago. “Neither the domestic situation nor the international situation looks good for coal.” Coal producers’ revenues have dropped 25 percent or more in three years and profits have disappeared, he said. Several companies have filed bankruptcy. Mines are being closed, and jobs are disappearing by the thousands in major coal-producing states such as West Virginia and Kentucky. Electric utilities across the nation have been retreating from coal-fired plants as a boom in oil and gas production — created by hydraulic fracturing and other new techniques — caused natural gas prices to plunge more than 50 percent in recent years. Meanwhile, federal regulators have tightened clean air standards for carbon emissions and other pollutants, putting more pressure on utilities to close coal plants or invest in costly upgrades.

King Coal, Dethroned, and Its Aftermath -  In the first half of this year, at least six domestic coal companies filed for bankruptcy. In February, West Virginia’s Covington Coal fell, followed by Xinergy and Grass Creek Coal in April, Patriot and Birmingham Coal & Coke in May, and A&M Coal in June. In August came the biggest announcement of all: the $10-billion coal giant Alpha Natural Resources had entered the bankruptcy sweepstakes, too. Only four years earlier, Alpha had secured its position as one of the world’s largest coal outfits by purchasing the Appalachian company Massey Energy for $7 billion and expanding its operations to 60 mines, many in Appalachia. But its reign would prove short-lived. The price of coal has been plummeting as utility companies shift to significantly cheaper shale gas, extracted through the drilling process known as hydraulic fracturing, or fracking, to produce power. This April, for the first time since the U.S. Energy Information Administration began collecting data in 1973, gas surpassed coal as the nation’s number one producer of energy. By late July, the New York Stock Exchange announced that it had suspended trading of Alpha Natural Resources’ stock because it was worth next to nothing. In August, the inevitable occurred. Alpha submitted a bankruptcy filing which read in part: “The unprecedented changes facing the coal industry run deep and are occurring at a frenetic and unpredictable pace…The U.S. coal industry as currently structured is unsustainable.”Headlines in various papers not only announced Alpha’s demise, but offered autopsies for the entire industry. As the New York Times put it in its headline three days after the filing: “King Coal, Long Besieged, Is Deposed by the Market.” Causes of death: the explosion of cheap natural gas, the rising costs of new environmental and worker safety regulations, and a simple geological reality — the industry has already mined out the majority of all economically recoverable coal.

China, US seek 'clean coal' agreement as industry struggles — U.S. and China officials took a major step Tuesday toward an agreement to advance “clean coal” technologies that purport to reduce the fuel’s contribution to climate change — and could offer a potential lifeline for an industry that’s seen its fortunes fade. The agreement between the U.S. Department of Energy and China’s National Energy Administration would allow the two nations to share their results as they refine technologies to capture the greenhouse gases produced from burning coal, said Christopher Smith, the Energy Department’s assistant secretary for fossil energy. Terms of the deal were finalized late Tuesday. Officials said it would be signed at a later date. Smith spoke after he and other senior officials from President Barack Obama’s administration met with representatives of China’s National Energy Administration during an industry forum in Billings. The discussions took place near one of the largest coal reserves in the world — the Powder River Basin of Montana and Wyoming, where massive strip mines produce roughly 40 percent of the coal burned in the U.S. But clean-coal technologies are expensive, and efforts to develop them for commercial use have struggled to gain traction in the U.S. Some critics describe clean coal as an impossibility and say money being spent on it should instead go toward renewable energy. China leads the world in coal use. It produces and consumes about 4 billion tons annually, four times as much as in the U.S.

Where Did China’s Missing Carbon Emissions Go?  -- The pollution caused by China’s coal use gets a great deal of attention, and for good reason. It causes health problems in both China and America — helping to kill 4,000 Chinese people per day and traveling across the Pacific Ocean to increase smog levels in the western United States.  China burns four times as much coal as the United States does. Coal is, in large part, why China surpassed the United States as the biggest carbon polluter on the planet in 2006. In two years, despite a massive head start, China will surpass the United States in cumulative greenhouse gas emissions since 1990. But a Harvard-led study released last week in Nature found that the carbon pollution caused by burning coal in China is actually 14 percent lower than originally thought. Researchers found that from 2000 to 2012, total energy consumption was 10 percent higher than the official statistics. Meanwhile, emissions factors — the carbon content of the coal — for coal in China are actually 40 percent lower than what the Intergovernmental Panel on Climate Change (IPCC) assumed. They also found that Chinese emissions from cement production were actually 45 percent lower than thought.  “Altogether, our revised estimate of China’s CO2 emissions from fossil fuel combustion and cement production is 2.49 gigatonnes of carbon in 2013, which is 14 percent lower than the emissions reported by other prominent inventories,” the study’s abstract reads. This is hundreds of millions of metric tonnes of carbon dioxide less than the world thought China was emitting.

Corporate Rights Trump Democracy in Ohio Fracking Fight  -  People who oppose having their communities transformed into corporate resource colonies are familiar with the Halliburton Loophole, a secretly drafted edict that places the oil and gas industries above the law, exempting them and no one else from obeying the clean water act, the clean air act, the safe water drinking act, and others. Now, Ohio Sec. of State Jon Husted has unilaterally placed those same corporations above the Ohio State Constitution. On Aug. 13, Husted declared that the people’s right to change their government, ensconced since 1851 in Article 1, Section 2 of the Ohio Constitution, is null and void when it interferes with the profit interests of these industries. Under that Section’s title “Right to alter, reform, or abolish government, and repeal special privileges,” Ohio’s highest law declares: All political power is inherent in the people. Government is instituted for their equal protection and benefit, and they have the right to alter, reform, or abolish the same, whenever they may deem it necessary; and no special privileges or immunities shall ever be granted, that may not be altered, revoked, or repealed by the general assembly. Clearly, the general assembly has no intention to subordinate the special privileges of giant energy corporations to the right of the people to govern in their own communities. And when citizens, in whom “all political power is inherent,” attempt to alter their county governments by asking the voters to consider a home rule style of government, the state, represented by Husted, steps in to block them from exercising that right.

Supreme Court to rule on anti-fracking measures - Representatives of committees in Athens County and two other Ohio counties seeking passage of anti-fracking county charters are asking the Ohio Supreme Court to order Secretary of State Jon Husted to dismiss protests against the measures and allow them to make the Nov. 3 general election ballots in the three counties. The 10 plaintiffs in the complaint for a writ of mandamus (court order) filed it as an expedited election case, meaning a relatively accelerated schedule for briefs and evidence goes into effect. In a decision Aug. 13, Secretary of State Husted rejected petitions for the charter/bill of rights proposals in Athens, Medina and Fulton counties, finding that the provisions in each of the charters relating to oil and gas development represented an attempt to circumvent state law in a manner Ohio courts already have found to violate the state constitution.

Case before state Supreme Court could allow communities to restrict drilling activities with zoning - The recent debate over Ohio cities and counties’ efforts to ban or regulate oil and gas drilling, fracking and/or waste disposal has mainly involved proposed community bills of rights that assert an innate right of local citizens to pass laws to protect their environment. So far, those efforts haven’t won success with Ohio courts, including the Supreme Court. The courts have backed up state officials and the oil and gas industry’s contention that only the state, not local government, has the authority to regulate oil and gas. However, the Ohio Supreme Court is currently considering a case involving a different question – whether traditional zoning in cities and towns can dictate where oil and gas activities can go, just as it does with other industrial, commercial and residential activities.  This case, if it goes against the industry, could be the lifeline that municipalities in Ohio have been seeking when it comes to asserting some control over oil and gas activities within their borders. The industry, however – in this case, specifically Beck Energy Corp. of Ravenna, Ohio – hopes for a different outcome. Beck, a key player in a landmark Ohio case involving local oil and gas regulations, Morrison (Munroe Falls) vs. Beck Energy, is now seeking an order from the Ohio Supreme Court stating that the small northeast Ohio city cannot use its zoning ordinance “to prohibit drilling for oil and gas in 99.06 percent of the city’s territory.” THE BECK ENERGY CASE ISN’T the only one involving local oil and gas regulations that the Supreme Court is considering. In the other case, representatives of committees in Athens County and two other Ohio counties seeking passage of anti-fracking county charters are asking the Supreme Court to order Secretary of State Jon Husted to dismiss protests against the measures and allow them to make the Nov. 3 general election ballots in the three counties.

Ohio Organizers Still Pushing Anti-Fracking Petitions Despite Ruling Against Them - The city council in Youngstown, OH, will vote to again to put an anti-fracking initiative on the November ballot, despite a recent decision by Ohio Secretary of State Jon Husted to invalidate three similar petitions at the county level. The city council was expected to vote on the issue at a special meeting late Monday. The Mahoning County Board of Elections is expected to do the same in the coming weeks. Earlier this month, Husted invalidated petitions in Athens, Fulton and Medina counties that sought to ban oil and natural gas development, underground injection wells or both (see Shale Daily, Aug. 14). He said they were an attempt to circumvent state law in a way that the courts have already found to be a violation of the Ohio Constitution. Organizers in those counties have filed a lawsuit in the Ohio Supreme Court against Husted, saying their rights as citizens were violated (see Shale Daily, Aug. 21). But Youngstown officials said Husted's decision did not apply to municipal initiatives and added that the time to explore the legality of the issue would be after it's been approved for the ballot. FrackFree Mahoning Valley received more than 1,500 signatures for its latest effort to have voters decide on a charter amendment that would ban oil and gas development within city limits. While they've tried and failed four times before, including three rejections at the ballot box, the organizers have vowed to keep pushing for the amendment (see Shale Daily, May 7, 2014).

County Strikes Down Youngstown Anti-Fracking Petition - Another petition to ban oil and natural gas development in Ohio has been invalidated, this time in Youngstown, where the local county board of elections voted unanimously Wednesday not to certify it for the Nov. 3 ballot.  In its decision, the Mahoning County Board of Elections cited an Ohio Supreme Court ruling in February that found municipalities could not prohibit oil and gas development in a way that conflicts with the state's regulatory authority. "I think a great deal of consideration went into [the vote], particularly in light of the supreme court decision that came down early this year that basically said state law preempts the authority of a local municipality to impede, oppose or regulate these things," Board Chairman Mark Munroe told NGI's Shale Daily. "My own take was the petitions being circulated to put the issue on the ballot were flawed. They were proposing to do something that had been ruled illegal under the constitution."FrackFree Mahoning Valley needed to secure 1,270 signatures to be certified for the ballot, and it received 1,534 valid signatures. It was the fifth time that the group had tried to put the issue before voters. Similar efforts failed at the ballot box in 2013 and 2014 (see Shale Daily, May 7, 2014). The proposal would have banned exploration, drilling and production in addition to oil and gas infrastructure, among other things, within the city's borders.

Elections board won't put anti-fracking amendment issue before Youngstown voters - As it stands now, people in Youngstown this fall will not be voting for a fifth time on a city charter amendment that would ban hydraulic fracturing within city limits. The Mahoning County Board of Elections, by a unanimous 4-0 vote, decided on Wednesday evening to keep the Community Bill of Rights off the November ballot. Board members say the proposal is unconstitutional because state law gives the Ohio Department of Natural Resources sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations of Ohio’s oil and gas industry. "this community bill of rights attempted to regulate oil and gas activity. Therefore, in my opinion, it was clearly an unconstitutional attempt to make the people of Youngstown vote on something that was unconstitutional." said Elections Board member David Betras. Although Youngstown City Council approved putting the issue on the ballot, the Mahoning County prosecutor's office felt the board needed to vote to certify the issue. Over a two year period, the amendment has been rejected four times by voters.

State says Ohio oil, natural gas production at historic high | marcellus.com: — The state Department of Natural Resources says historic amounts of oil and natural gas are being produced by Ohio shale wells. Statistics released by the department Thursday show more than 10 million barrels of oil and 405 billion cubic feet of natural gas were produced during the second quarter of the year. The department says those amounts were more than in any previous three-month reporting period. During the same period in 2014, the state’s wells produced about 4.4 million barrels of oil and 156 billion cubic feet of natural gas. The state says oil drilling production increased 126 percent and gas drilling production by 160 percent in the first half of this year compared with the first half of 2014. The report listed 978 wells producing oil and gas.

Utica and Marcellus activity in Ohio, August 16th through August 22nd - Permit activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to the last well activity update, but when it comes to fracking-related issues on ballot proposals, things are getting very heated. Last week, the Associated Press (AP) reported that residents of Fulton, Medina and Athens Counties in Ohio are filing a lawsuit again Ohio’s Secretary of State Jon Husted. Husted allegedly invalidated ballot proposals that are related to the oil and gas drilling technique called fracking. The filing states Husted has violated the right to initiative of the residents of the three Ohio counties. The following information is provided by the Ohio Department of Natural Resources (ODNR) and is for the week of August 16^th through August 22^nd. The ODNR reported 998 horizontal wells in production, 1586 horizontal wells drilled and a total of 1997 horizontal permits. Twelve horizontal permits were issued this week, and there are 21 rigs in the Utica. Activity in the Marcellus Shale in Ohio remains unchanged from last week’s well report. The area is still sitting at 15 wells permitted, 11 drilled, 17 wells in production and one well inactive. There are a total of 44 wells in the Ohio Marcellus Shale.

Marcellus permit activity in Pennsylvania, August 18th through August 23rd - The Marcellus Shale formation in Pennsylvania created a little buzz with the addition of 21 new permits last week.  The following information is provided by the Pennsylvania Department of Environmental Protection and covers August 18th through August 23rd.  New: 21 - Renewed: 0 - Top Counties by Number of Permits: Susquehanna: 15 - Warren: 3 - Lycoming: 2 - Washington: 1 Oil goes down and takes gas with it - It’s not like oil and gas were doing all that well to begin with, but Monday’s stock market selloff hit the sector unsparingly, tossing all related fuels into the same sinking barrel. Oil future prices at West Texas Intermediate hub were at $38.20 per barrel on Monday, just before market close, a level not seen since 2009. “You’re certainly testing new lows there,” said Mark Hanson, an equity analyst with Morningstar. “Just psychologically, once you’ve gone through the [$40] floor, it probably induces some panic.” The list of industry stressors goes on: global oversupply of oil unleashed by successful shale fracking, potential for more Iranian oil to enter the picture, weakening Chinese demand. “Everything has kind of coalesced here,” Mr. Hanson said. Natural gas, whose precocious descent began three years ago, ended at $2.67 per million British thermal units at 4 p.m. on Monday, a six-week low but still not far from the range it has occupied all year. And while the Marcellus Shale that underlies much of Western Pennsylvania is consistently ranked at the top of the most economic shale plays in the country, companies with operations here also came out bruised. Cabot Oil & Gas, the largest producer of natural gas in Pennsylvania, fell by 10 percent, closing at $22 per share. Range Resources lost 7 percent, settling at $33.20 per share, while Antero Resources plunged 8 percent to $22.31. Consol Energy Inc. and Rice Energy Inc. and Southwestern Energy Co. were down 7 percent, with Consol closing below $12 per share for the first time in more than a decade.

Regulators expect lawsuit over oil, gas rules process - State regulators expect a judge eventually will decide whether they followed the proper process in writing environmental rules for the conventional oil and gas industry. “You’re going to sue us,” Pennsylvania Department of Environmental Protection Deputy Secretary Scott Perry told industry members during an advisory committee meeting Thursday in Harrisburg. He and the Conventional Oil and Gas Advisory Committee agreed to continue working on the latest draft of the rules because the department intends to enact them in some fashion. “I appreciate the members … think the process is fundamentally flawed. But it’s still useful to have a conversation on it,” Perry said. Gov. Tom Wolf directed the DEP to form the advisory group when it reworked an existing Technical Advisory Board that now focuses only on shale gas drilling. The conventional board, whose members work in or around the older industry devoted to traditional oil and gas drilling, is opposed to new rules they say are too burdensome for small operators. The committee wrote a letter to DEP in July saying it would not support the rules. Tension between members and DEP staffers was evident during the committee meeting from the start. The two sides could not agree on approving minutes from their first meeting in March.

US natural gas glut prompts price warning - FT.com: Hot summer weather has done little to burn off an impending US natural gas glut, prompting warnings of record-breaking inventories and lower prices for the fuel in the year to come. By the onset of winter, gas banked for the heating season is likely to approach or exceed 4tn cubic feet, surpassing a previous high set in 2012, analysts believe. The forecasts are surprising, because this summer has been warmer than the last two and the 10-year norm, according to Commodity Weather Group. Power plants have consumed 4bn cu ft per day more gas than in 2014 as they meet air conditioning needs and turn away from coal as an energy source, according to Bentek Energy. But robust output from shale formations has more than compensated for this demand, with states such as Ohio emerging as important suppliers. Bentek, an analysis and forecasting unit of commodities information service Platts, warned in a report that benchmark US gas prices could fall below $2.50 per million British thermal units by autumn, with regional prices around northeastern wells dropping to record lows. Nymex September gas settled at $2.685 per mBtu on Tuesday. “Not much stands in the way of US gas storage inventories reaching record high levels this fall of about 4tn cu ft,” Bentek said in the report, to be issued at an industry conference this week. “And that strong likelihood points to a winter of relatively weak gas prices, perhaps carrying deep into 2016.” In the US gas market, producers inject gas into underground storage reservoirs from spring to autumn, banking fuel for the winter heating season. Design capacity of these facilities, consisting of salt domes, depleted gasfields and aquifers, is 4.665tn cu ft, according to the Energy Information Administration. The record for stocks held at the end of injection season was 3.929tn cu ft in November 2012. Because storage capacity is ample, some analysts do not expect a fire sale in which producers unload gas they cannot store. However, Bentek said that some storage reservoirs, especially salt domes along the US Gulf of Mexico coast, would approach physical limits by late autumn.

Whose Capital Is Getting Destroyed in US Natural Gas?  -- Chesapeake Energy, the second largest natural gas producer in the US, after Exxon, is the biggest exclamation mark in a special Fed-designed phenomenon: for years, QE-besotted, ZIRP-blinded, yield-hungry investors kept funding an industry that dished out nothing but hype, false hopes, and losses. Two natural gas producers have already thrown in the towel: Quicksilver Resources filed for Chapter 11 bankruptcy in March, listing $1.21 billion in assets and $2.35 billion in debts. Much larger Samson Resources has scheduled its date with bankruptcy court for September 15. In 2007, the hype around fracking for natural gas got started in earnest, and billions poured into the industry month after month. By September 2009, natural gas was below $3 per million Btu at the Henry Hub, and that’s where it is today ($2.67). No one can profitably frack for dry natural gas at these prices, regardless of what they claim. The most productive US natural gas field, the miraculous Marcellus Shale, where Chesapeake is a big player… well, there are pipeline constraints and other issues, and the gas is traded at local hubs, not at the Henry Hub, and prices are even lower. At Tennessee’s Zone 4 Marcellus hub, gas traded for $0.78 per million Btu last week, according to the EIA. On the Transco Leidy Line, prices fell to $0.77 per million Btu. At Dominion South, prices fell to $1.22 per million Btu. Marcellus hubs service the densely populated East Coast areas from New England down to Virginia. Regardless of what the hype is, no driller can survive for long at these prices.The Marcellus Shale is where money went to die the fastest.Especially the “smart money” got fooled by the hype and false hopes of natural-gas fracking. Private equity firm KKR made two big bets on natural gas and lost $5 billion.

Marcellus: Methane and water do not mix -- According to state environmental regulators, three natural gas drilling companies have found out the hard way as to what happens when methane and drinking water mix together. Regulators shared that the three companies together contaminated 17 different drinking water wells in Bradford, Lycoming and Tioga Counties in north central Pennsylvania. Combined, the companies so far have paid nearly $375,000 in fines for the water contamination. The Department of Environmental Protection (DEP) has pointed the finger of blame to poor well construction which allowed methane to migrate into the water wells. The incidents date back to 2011 and 2012. If methane is allowed to build up in an enclosed space, such as a house, the gas, which is odorless, can explode. The DEP’s Director of District Oil and Gas Operations John Ryder commented on the investigation that took place regarding the drinking water well contamination: These were complex and lengthy investigations that took a considerable amount of time to resolve … But the department was able to conclusively determine that methane gas from natural gas wells had migrated off-site and impacted private wells serving homes and hunting clubs. However, Ryder was unable to explain why the investigation regarding the wells took over three years to conduct.

Feds expect decline in shale gas production - A new federal government study released Wednesday predicted the nation’s shale gas production will begin to wane starting next month. The U.S. Energy Information Administration’s monthly “Drilling Production Report” projected a nearly 1.5 percent production decrease at the country’s seven major sale regions. This should not come as a shock to industry watchers. In April, the administration warned that the domestic drilling industry was facing significant headwinds as plummeting prices and oversupply have prompted companies to scale back spending, backtrack on production and lay off workers. Wednesday’s report, stated natural gas-rich Marcellus shale production in Pennsylvania and West Virginia, is expected to decrease to 44.9 billion cubic feet daily from a high of 45.6 bcf/d in May. The Marcellus basin, which is centered in the north central part of West Virginia, is expected to lose an estimated 60 million cubic feet per day during the projected periods, the report states. Southern Ohio’s Utica basin is expected to see the smallest declines of about 3 million cubic feet a day. The Eagle Ford basin is Texas is expected to experience the hardest hit during the decline, witnessing a 112 million cubic foot loss daily, the report predicts. “Several external factors could affect the estimates, such as bad weather, shut-ins based on environmental or economic issues, variations in the quality and frequency of state production data, and infrastructure constraints,” the report reads. The report also found net natural gas production from new wells drilled in the nation’s shale reserves is not enough to counter the expected decline from legacy wells. The EIA attributed that phenomenon to the decline in the number of drilling rigs deployed across the country.

W. Virginia is getting a wastewater treatment complex -- A Denver-based company is teaming up with Veolia Water Technologies Inc. and Veolia North America to construct a wastewater treatment complex in West Virginia. Antero Resources Corporation shared last Wednesday it will be partnering up with the two companies and designing and building a “state-of-the-art advanced wastewater treatment complex in Doddridge County, West Virginia,” states the company’s press release. The treatment complex consists of a 60,000 barrel per day facility, which will allow Antero to treat and reuse flowback, along with produce water, rather than dispose of the water the in injection wells. The complex assets will be owned by Antero; this includes any related facilities. The location of the complex is in the heart of Antero’s Marcellus Shale formation footprint and will serve the company’s shale developments in the Marcellus Shale and Utica Shale formations. 

New Jersey Is Letting Exxon Pay $225 Million For $8.9 Billion Worth Of Pollution A state supreme court judge approved a settlement between Exxon and New Jersey on Monday, despite the fact that the settlement was $8.68 billion less than the $8.9 billion the state had originally requested.   Environmentalists are calling foul on the agreement, which they say falls dramatically short of the amount needed to clean up and restore 1,500 polluted acres of wetlands and surrounding natural environment in northern New Jersey, where Exxon operated a petrochemical operations for decades. Exxon was found responsible for the pollution in 2008.  “It’s certainly really disappointing and a little hard to understand from the outside,” Margaret Brown, an attorney with the Natural Resources Defense Council (NRDC) told ThinkProgress. Brown said that up until the closing arguments last November, the state was saying that it needed $2.5 billion to clean up the site and was asking for $8.9 billion in costs for clean up and restoration. NRDC and a group of environmental advocates applied to be named as intervenors in the case in June, but the judge turned them down.  “Once Exxon and the state agreed to the settlement, there was no one arguing the other side,” Brown said.

Study: Lack of energy infrastructure would cripple New England -- A study funded by trade groups representing the oil and natural gas industries is predicting dire consequences for New England if the region doesn’t improve its energy infrastructure by the end of the current decade. The 68-page report released Thursday was prepared for the New England Coalition for Affordable Energy, a Boston-based advocacy group. But it was sponsored by two energy trade groups, the American Petroleum Institute and America’s Natural Gas Alliance. The report predicts that homes and businesses across the region could collectively pay $5.4 billion more than what they are paying now for energy costs. It also claims the region could be facing 167,000 jobs lost or not created as a result of higher energy costs. The combination of higher energy costs and lost jobs would reduce the amount of disposable income available to New England by more than $12 billion. Alvaro Pereira, principal consultant at La Capra Associates, one of the study’s authors, said in a conference call that the report examined “multiple types of infrastructure to reduce energy costs including natural gas pipelines, electricity transmission lines, renewable and non-renewable electricity generation.” “We looked at that and compared it with the cost impact of continuing to rely on existing infrastructure,”

Cooling tower tumbles at refinery — There were no reported injuries Tuesday evening after a cooling tower collapsed in what refinery officials call an “operational upset.” The cooling tower was used in the day-to-day operations at the refinery. While production was impacted, officials at the refinery said they were still meeting all of its product supply commitments to customers in the area Wednesday morning. The incident caused the refinery to utilize additional flaring, which required contacting regulatory authorities. “Notifications were made to appropriate agencies in compliance with permits due to some flaring associated with the process upset,” refinery spokesperson Melissa Erker said Wednesday. “Anytime we have a flaring incident, we send it to the agencies moments after it happens. We can’t just do it randomly.” Erker said the facility is currently working to resupply cooling water to the impacted units using “redundant cooling water supply from other towers.” She said the redundancy systems in the refinery assure such incidents can have as low of an effect on refinery operations as possible. The Wood River Refinery is operated by Phillips 66. Erker said she could not speculate on what the incident could do to regional gasoline prices citing the sheer amount of factors coming into play when gas prices are calculated including oil prices and refining capabilities of other facilities.

A Broken Well Has Been Leaking Oil Into The Gulf Of Mexico For The Last 10 Years -- For more than a decade, oil has been continuously leaking into the Gulf of Mexico. On Thursday, the Associated Press reported that environmental groups and the New Orleans energy company responsible for the spill had finally reached a settlement ahead of a trial slated to begin in October. According to the AP, under the terms of the settlement, Taylor Energy agreed to make a $300,000 donation to a Louisiana marine research consortium — to purchase vessels, electronics and other equipment — as well as fund $100,000 worth of research into the ecological effects of long-term oil leaks in the Gulf. According to Waterkeeper Alliance, however, there has been no final agreement on a settlement or terms.  “We are very pleased about the progress of negotiations with Taylor, and have come to a conceptual agreement that has not yet been finalized,” Waterkeeper Alliance said in a statement.  The leak first began in 2004, when Hurricane Ivan struck the Gulf Coast, triggering an underwater mudslide that knocked over an offshore well platform owned by Taylor Energy. The mudslide essentially buried 28 wells beneath the Gulf, some 10 miles off the coast of Louisiana. Because the wells were buried some 475 feet under water in sediment up to 100 feet deep, traditional plug methods did not work to staunch the flow of oil.

160000 Californians call for statewide ban on fracking --- On Tuesday, August 25th, as the California legislature holds a joint oversight hearing on a new report by the California Council on Science and Technology on the risks and dangers posed by fracking, State Sen. Ben Allen and State Asm. Das Williams will join with anti-fracking activists in a press conference on the steps of the Capitol calling for a statewide ban on fracking. At the press conference, members of the California-based Courage Campaign joined by members of California Against Fracking, Rootskeeper and local Sacramento activists will deliver a petition signed by nearly 160,000 Californians backing a permanent ban on oil and natural gas fracking in the State. Earlier this Summer, a newly released independent scientific study by the California Council on Science and Technology (CCST) identified serious risks associated with oil development processes and concluded that state regulatory officials lack data to adequately protect the public or even to propose effective mitigation strategies to avoid associated health risks. “Right now we’re in the midst of critical moment when California could decide to turn away from extreme extraction and toward clean energy. Every time we’ve confronted Governor Jerry Brown and asked him to halt fracking over the past few years, he’s insisted that we wait until the release of an independent scientific report,” explained Tim Molina, of the California-based Courage Campaign. “When the report came out, it rang emphatic alarm bells about the dangers extreme energy poses to our air, water, ecological and geological security, and public health. It’s now clear that lives are at risk. With Jerry Brown refusing to act, we need the our State Senate and Assembly to step in and protect California and the planet.”

Activists Take to the Sea to Demand an End to Offshore Drilling --Activists in Santa Barbara, California took to the sea this past weekend to “raise awareness and generate action in support of four critical bills currently moving through the State Assembly” to help stop future offshore oil spills. The kayaktivists paddled out five miles and unfurled a 70-foot floating banner that read: #CrudeAwakening.  The groups involved said the Refugio Oil Spill off the coast of Santa Barbara this past May was a “rude awakening” for them. The spill ended up blanketing the shore and coastal waters with 140,000 gallons of crude oil. “It shut down beaches, greased marine protected areas and killed or injured several hundred birds and marine mammals,” said Patagonia. “The effects continue to linger and likely will for some time. If there’s any upside to this horrible mess, we now have a good opportunity to stop future spills.” The event was organized by the Surfrider Foundation, in collaboration with Patagonia, Environmental Defense Center and Santa Barbara Channelkeeper. According to the groups, the bills currently moving through the State Assembly would:

• stop new oil drilling in the Marine Protected Area at Tranquillon Ridge, in the Santa Barbara Channel.
• improve oil spill response off our coast.
• require oil companies to use “best available technology” on their pipelines.
• improve requirements for pipeline inspection.

Which Pipeline Inspired Protesters To Stage A Sit-In At John Kerry’s House? Hint: It Wasn’t Keystone -- On Tuesday morning, over 100 protesters gathered front of Secretary of State John Kerry’s Georgetown home, urging him to stop a pipeline that would carry thousands of barrels of tar sands from Canada into the United States. But the pipeline in question wasn’t Keystone XL — it was the Alberta Clipper, an expansion project that would increase the capacity of an Enbridge-owned pipeline from 450,000 barrels of tar sands oil per day to over 800,000. Environmentalists have accused the State Department of allowing Enbridge — the Canadian company responsible for the largest inland oil spill in U.S. history, the Kalamazoo River Spill — to push forward with expanding the Alberta Clipper pipeline without undergoing necessary regulatory process, including presidential approval required for all cross-border pipelines. Pipelines spill. It happens. Everyone knows that   “This expansion is going to be expanding this pipeline to 880,000 barrels of tar sands a day, whereas the Keystone pipeline is proposed to 830,000 barrels a day,” Kieran Williams, a protester and student at Kalamazoo College in Michigan, told ThinkProgress. “We think it’s absolutely absurd that there has been the environmental review and delay of the Keystone pipeline, but that Enbridge can continue this illegal expansion.” Enbridge applied for a presidential permit to expand the pipeline, which runs from Hardisty, Alberta to Superior, Wisconsin, in 2012. But obtaining a presidential permit from the State Department is a lengthy process — it involves parties at a local, state, and federal level, and requires assessment of a pipeline’s environmental impact, among other things.

Fate Of U.S. Fracking Could Rest With Colorado Supreme Court --The oil and gas landscape is changing fast these days. And a big item this month suggests the courts may have a major impact on shaping the sector over the coming months. Especially issues like fracking. An area where a precedent-setting lawsuit was sent last week to the highest court possible in order to resolve a long-running issue over who can regulate oil and gas activity. That's happening in Colorado. Where the state oil and gas association is suing two cities -- because of frack bans imposed by lawmakers within their municipal limits.Oil and gas proponents argue that, under the Colorado state constitution, municipalities do not have the right to regulate drilling. With that area being the sole responsibility of the Colorado Oil and Gas Commission. But judges at the Colorado Court of Appeals failed to return a clear verdict on the matter. Instead referring the case to the Colorado Supreme Court for a final decision. In doing so, the judges noted that the matter of municipal control over fracking is becoming an issue in several states across the U.S. And said that the Colorado lawsuits are "test cases for determining whether county and local governments may regulate or prohibit fracking and related activities".  That puts a lot of weight on a decision here. With the verdict likely becoming precedent for similar cases in other parts of the country -- and thus potentially affecting the entire American oil and gas sector.

Quakes shaking up New Mexico -- Has oil and gas drilling claimed another state as an earthquake victim? Scientists at the U.S. Geological Survey have linked the quakes in Kansas and Oklahoma to oil and gas activity, but KRQE reports fossil fuel development may be to blame several small quakes near Raton and Dagger Draw in New Mexico. “[There have] been very intense reviews of the models and earthquakes over the past couple years for the USGS,” Geophysicist Robert Williams told KRQE. “Most of them that people are feeling are magnitudes 2.5 and greater range.” Researchers have linked earthquakes to man-made sources for years, but they attribute recent spikes in seismic activity to wastewater injection, which they say loosens faults in the ground. The largest of these man-made quakes, they say, hit a magnitude of 5.2 in 2011 near the Colorado state line. “We’re taking another step to inform the communities that might need to make decisions about wastewater disposals,” Williams said. Researchers believe the state’s quakes will increase along with its oil and gas industry. Representatives from the New Mexico Oil and Gas Association told KRQE that, while the issue of earthquakes is important, much of the state’s economy relies on the industry.

Green groups threaten to sue US watchdog over fracking quakes - FT.com: Green groups are threatening to sue the US environmental regulator, alleging it is failing in its duty to tackle a surge in earthquakes that they blame on the American shale revolution. The groups on Wednesday said they were preparing a lawsuit against the Environmental Protection Agency for not curbing the disposal of wastewater by oil companies, a practice that scientists say has triggered a spike in seismic activity. Earthquakes linked to oil and gas production have unnerved residents in Oklahoma, Texas and elsewhere, and become an unexpectedly pressing problem for the US fracking boom that has upended energy markets. The groups threatening to sue the EPA, their usual ally, say it has a legal obligation to update rules on the disposal of wastewater from oil production, which have not changed since 1988. “We think EPA’s failure to act is particularly egregious in light of the shale boom and the vast amount of waste it has generated,” said Adam Kron, a lawyer at the Environmental Integrity Project, which is part of the coalition. “We’re flying blind here. We need to have some rules in place.” The EPA would not comment on the lawsuit threat. But it said existing rules include requirements related to seismicity and that it would continue to work with states to address potential concerns. The oil and gas industry is trying to fend off regulations that would require it to overhaul its practices or spend more money, as it buckles under the strain of sub-$40 a barrel US crude. “Anything that raises costs right now is a problem,”

Groups to sue EPA in effort to better regulate disposal of fracking waste - Eight environmental organizations announced today they intend to sue the U.S. Environmental Protection Agency to force it to set new and tighter standards for disposal of oil and gas drilling and fracking waste that they say threatens public health and the environment. The groups, in a notice of intent to sue filed in U.S. District Court in Washington, D.C., allege that the EPA has failed for 27 years to update and tighten baseline drilling and waste disposal regulations, as required by the Resource Conservation and Recovery Act, the federal law that governs waste disposal. Adam Kron, an attorney at the Environmental Integrity Project, a D.C.-based environmental group and one of those that filed the notice, said the EPA should “do its legal duty” and follow its own 1988 determination that concluded changes were needed in federal regulations for oil and gas waste. “The oil and gas industry has grown rapidly since then, and yet EPA has repeatedly shirked its duties for nearly three decades,” Mr. Kron said. “The public deserves better protection than this.” The official court filing of a notice gives the EPA 60 days to review and revise the regulations for disposal of the waste, which includes carcinogenic chemicals and radioactive waste found in drilling muds, drilling waste water and fracking flowback water. If EPA does not begin to revise its rules and commit to a schedule for completing those revisions within the next two months, the groups plan to ask the federal court to set tight deadlines for a regulatory update.

Eco-groups file notice with EPA for new federal regulations on disposing of drilling wastes -- A coalition of environmental organizations on Wednesday filed a legal notice with the U.S. Environmental Protection Agency demanding regulations to stop oil and gas companies from dumping drilling and fracking waste in ways that threaten public health and the environment. That includes Ohio injection wells for liquid drilling wastes that have triggered earthquakes and low-level radioactive waste from drill cuttings going into Ohio landfills. The groups filing the 20-page notice were the Environmental Integrity Project, Natural Resources Defense Council, Earthworks, Responsible Drilling Alliance, San Juan Citizens Alliance, West Virginia Surface Owners Rights Organization and the Center for Health, Environment and Justice with an Ohio office. In a teleconference, they called on the EPA to comply with its long-overdue obligations to update waste disposal rules that should have been revised 27 years ago. Toxic and radioactive drilling wastes should not be treated like household garbage, they said. For example, the EPA should institute stricter controls for underground injection wells, which accept 2 billion gallons of oil and gas wastewater every day and have been linked to earthquakes in Ohio, Oklahoma and Texas. The federal EPA should also ban spreading fracking wastewater onto roads or fields and should order landfills and ponds that get drilling wastes to be built with adequate liners to prevent leaks and spills, the eco-groups said.

Bakken, Eagle Ford output continues rise despite prices -- Oil prices have continued on a downward slide, but production in the Bakken and Eagle Ford Shale formations increased slightly between June and July, reports the Houston Chronicle. According to Bentek Energy, an energy market analytics company, oil production in North Dakota’s Bakken continued to pump over 1.2 million barrels per day in July, up by about 500 daily barrels compared to June figures. From the same time last year, production in North Dakota has increased by roughly 90,000 barrels per day. Production in the Eagle Ford averaged about 1.6 million barrels per day for the month of July, an increase of roughly 10,000 barrels per day when compared to June production. In a press release, Bentek Energy Analyst Sami Yahya said, “Initial production rates have been improving, especially in the oily window of the Eagle Ford Basin.” Yahya continued, “As well, producers in the Eagle Ford are currently drilling 2.5 wells per rig per month, which is higher than the national average of 1.5 wells. Drill times have been improved from an average of 15 days per well in 2014 to roughly 11 days per well in 2015.” The timeframe for drilling new wells in the Bakken has also improved, dropping from the 15 days per well late 2014 to about 13 days per well during the second quarter of this year.. “Substantial cost savings protocols alongside reduced drill times have kept internal rates of return in the Bakken shale formation among the best in the country. Current rates of return in the Bakken shale formation are around 15 percent, which is comparable to the 18 percent found in the Eagle Ford Basin.”

No more Bakken crude: Canada's largest refinery heads overseas for supply - Bakken Shale oil produced in the U.S. is no longer being shipped to Canada for use in the nation’s largest crude oil refinery, reports the Wall Street Journal (WSJ). Rather than importing Bakken shale oil from the U.S., the refinery’s operator, Irving Oil LTD, has opted to use more inexpensive crudes from producers such as Saudi Arabia. The change is the latest indicator of shifting crude costs, which are affecting East Coast refiners as the global oil price slump persists. As reported by the WSJ, the refinery located in Saint John, New Brunswick, and one of the largest by volume refineries in North America, will be feeding zero barrels of Bakken crude into its 320,000-barrel-per-day refining capacity. Irving President Ian Whitcomb told the WSJ that purchases of Bakken crude shipped by rail have been reduced from a high of roughly 100,000 barrels a day two years ago to zero. He said, “We’re not importing any Bakken crude right now.” The change is indicative of the energy industry’s globally shifting economics as the price of oil, Bakken crude included, recently sank to a low not seen in six years. As a result of the price decline and persistent global oversupply, the disparity between North American and overseas crude, priced with the Brent global benchmark, has lessened. American East Coast refiners are now able to import crude shipped from overseas for less than the cost of hauling it via railway from producers in North Dakota’s Bakken and elsewhere.

BNSF asks for delay in lawsuit over Casselton derailment — A civil lawsuit against BNSF by an engineer who was at the helm during a train derailment near Casselton nearly two years ago should be put on hold until it can be determined whether a broken axel was the cause of the fiery crash, a lawyer for the railway said Monday. The suit by Bryan Thompson of Fargo accuses BNSF of negligence and says the railway failed to properly inspect and maintain its equipment and failed to warn him of the dangers of hauling explosive oil tank railcars. Thompson says he suffers from post-traumatic stress disorder and isn’t capable of returning to work. BNSF lawyer Timothy Thornton asked Judge Norman Anderson during a hearing Monday to delay the proceedings until the National Transportation Safety Board comes out with detailed findings on the crash. Without that information, Thornton said, BNSF officials won’t be able to testify completely and will have “at least one hand tied behind their backs and maybe two hands.” The broken axel wasn’t pinpointed as the cause of the crash, but the NTSB said the derailment might have been prevented if BNSF railroad had inspected it more carefully and found a pre-existing flaw. The final report isn’t due for at least six months.

ND regulator: Industry unlikely to meet flaring target — North Dakota’s oil industry likely won’t meet a Jan. 1 target set by new self-imposed rules that require reducing the amount of natural gas burned off as a byproduct of oil production, the state’s top energy regulator said Wednesday. Problems with federal permits, land access permission for planned pipelines, stalled processing plants and increased natural gas production will make reaching new capturing goals “essentially impossible,” state Mineral Resources Director Lynn Helms told North Dakota’s Industrial Commission, which regulates the oil and gas industry. The three-member panel headed by Gov. Jack Dalrymple adopted the rules last year to reduce flaring to 90 percent in incremental steps through 2020. The new rules, which were drafted by the oil industry, allow regulators to set production limits on oil companies if the targets are not met. The rules also require oil companies to craft a natural gas capturing plan before a well is drilled. North Dakota, the nation’s No. 2 oil producer behind Texas, is producing about 1.2 million barrels daily. The state also is producing a record 1.6 million cubic feet of natural gas daily that comes when an oil well is drilled. Until the new rules were imposed, North Dakota drillers burned off, or flared, about a third of the gas because development of pipelines and processing facilities to capture it didn’t keep pace with oil drilling. Less than 1 percent of natural gas is flared from oil fields nationwide, and less than 3 percent worldwide, the U.S. Energy Department said.

In downturn, North Dakota's oilfield firms jostle for tiniest of jobs  – Oilfield service companies eager for work amid plunging crude oil prices have until the end of Wednesday to bid for a guaranteed job: plugging a North Dakota well abandoned by a producer closing up shop in the No. 2 U.S. oil patch. Whichever oilfield service company does the plugging, be it Halliburton Co , Schlumberger NV or another firm, the job could bring in more than $20,000. While that’s far less than the millions they have received to drill and fracture wells in years past, the more-than 70 percent drop in oil prices since last summer means no job is too small. Oil producers are delaying fracking jobs at roughly 850 wells throughout the state, according to data from regulators, harming profitability throughout the oilfield service industry and fueling layoffs. Amid that slump, North Dakota officials last year confiscated Rio Petro Ltd’s Sundhagen #1 well in Williams County, near the state oil capital of Williston. The reason: Rio Petro did not notify regulators about work done on the well, a violation of state law. Nor did it increase the required bonding on the well, aimed at covering the cost of its reclamation, to $50,000 from the previously required $20,000. The privately held company also did not respond to the state’s inquiries.  “Since they did not respond, we are basically confiscating the well,” said Alison Ritter, spokeswoman for the state’s Department of Mineral Resources. The well has never been prolific, producing only 55,569 barrels since it first came online in 1980, according to state data.

Government lab researchers develop radioactive waste tracker — Two government lab researchers are in the process of licensing technology that could improve disposing of and tracking radioactive waste. Idaho National Laboratory physicist Doug Akers and software engineer Lyle Roybal started developing the Integrated Waste Screening System last year when they realized similar INL-produced technology that tracks nuclear waste could be tailored to apply to the oil and gas drilling industry, the Post Register reported. The project is focused on North Dakota and is funded by $550,000 in North Dakota Oil and Gas Research Council grants. State health officials recently indicated they are in favor of the technology. A truck equipped with a screener will take oil field waste readings to determine radiation levels and appropriate dump sites. Akers said the device is intended to reduce waste that disappears or is improperly disposed of. “It’s the Wild West out there,” he said. “Waste sites are taking the wrong stuff, or they’re dumping it in fields. Nobody really knows what’s going on.”

EPA Urged by Nearly 100,000 Americans to Redo Highly Controversial Fracking Study  -- The public comment period for the highly controversial U.S. Environmental Protection Agency’s (EPA) fracking study ends today. Food & Water Watch, Environmental Action, Breast Cancer Action and other advocacy groups delivered nearly 100,000 comments from Americans asking the U.S. EPA to redo their study with a higher level of scrutiny and oversight. The study produced significant controversy due to the discrepancy in what the EPA found in its report and what the agency’s news release title said. The study stated that “we did not find evidence” of “widespread, systemic impacts to drinking water resources,” but the title of the EPA’s news release said, “Assessment shows hydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources”—a subtle but significant difference that led to most news coverage having headlines like this one in Forbes, “EPA Fracking Study: Drilling Wins.”  In addition to the misleading EPA headline, the groups were also quick to point out that the study had a limited scope and was conducted with a lack of new substantive data. “Concluding that fracking is safe based off a study with such a limited scope is irresponsible,” said Wenonah Hauter, executive director of Food and Water Watch. “How many more people must be poisoned by the oil and gas industry for the EPA to stand up and protect people’s health? It’s time for the agency to do its job and stop letting industry shills intimidate it.”  The groups emphasize that despite the limitations of the report, the agency still found numerous harms to drinking water resources from fracking. For instance, the EPA found evidence of more than 36,000 spills from 2006 to 2012. That amounts to about 15 spills every day somewhere in the U.S.  “By downplaying its findings of water contamination from fracking, the EPA ultimately provided cover for the fracking industry to continue to poison our drinking water with chemicals linked to a variety of health problems, including breast cancer,” said Karuna Jaggar, executive director of Breast Cancer Action. “When the EPA finalizes its study, they need to focus on protecting public health—not the fracking industry—by highlighting and condemning drinking water contamination from fracking.”

Plunge in Oil Prices Causes Junk-Debt Bloodbath for Drillers -  The latest rout in crude prices is coming at about the worst time possible for energy producers that have been relying on credit markets to keep drilling. That’s because banks that extended credit lines tied to the value of the companies’ oil reserves are preparing to recalculate how much they’re willing to keep lending. With crude prices more than 60 percent below their peak last year, lenders are poised to reduce those lines by 10 percent to 15 percent on average -- a move that could wipe out $15 billion of credit, according to estimates from CreditSights Inc. analyst Brian Gibbons. Unlike earlier this year, when drillers in need of fresh capital found debt investors anxious to capitalize on high yields, there’s little appetite for such deals this time around. About $7 billion of junk bonds issued by oil and gas producers in the first quarter to refinance debt have since lost 17 percent, data compiled by Bloomberg show. “Nobody is in good shape with oil at $39,” Gibbons said. “Most energy companies are shut out of the debt markets. There are few companies that can get a deal done right now.” The bank reviews may spell trouble for companies such as Swift Energy Co., which abandoned a $640 million loan offering in July that was to be used to repay borrowings under its credit line. Its $375 million borrowing base is likely to be cut when the company’s lenders review it in November, Penn Virginia Corp. told its investors in July that it’s expecting the $425 million borrowing base on its credit line to be reduced. Standard & Poor’s last week cut its credit rating on the company to six levels below investment-grade after lower-than-expected production resulted in weakened “financial and liquidity measures.” “It’s too early to know exactly what will happen in the fall re-determination in October, but I expect it will come down,” Steven Hartman, the company’s chief financial officer, said of the credit line during a July 30 earnings call.

Worst Junk-Bond Bet Wipes Out Junior Lenders of KKR's Samson - Few investors in the beleaguered energy industry have suffered more this year than those who purchased Samson Resources Inc.’s bonds. Owners of Samson’s $2.25 billion of unsecured notes maturing in February 2020 have seen the value of their investments shrink 95 percent in 2015 through Friday to half a cent on the dollar. That’s the worst performance among issues in the Bloomberg High-Yield Corporate Bond Index, which is up 0.5 percent. For distressed-debt investors Blackstone Group LP’s GSO Capital Partners and Oaktree Capital Group LLC, which bought the bonds at the beginning of the year, plunging oil prices not only took their toll on the securities, but they foiled a plan to profit from Samson’s woes. Samson, majority-owned by private-equity firm KKR & Co., announced Aug. 17 it will file for bankruptcy by Sept. 16. The company will propose a reorganization that would leave the GSO-led bondholders with almost nothing and hand over control of the restructured business to a group of senior lenders including hedge fund Silver Point Capital LP and private-equity firm Cerberus Capital Management LP. The junior bondholders were pummeled after Samson rejected their April proposal to help the company cut its total borrowing by exchanging some of its debt for equity, according to two people with knowledge of the matter. The bondholders, in return, would have been allowed to exchange the rest of their holdings for higher-ranking securities that would put them in the driver’s seat should Samson have to restructure in the future. This plan did not propose a bankruptcy filing.  Samson will join at least 10 companies in the sector to file for Chapter 11 this year. The oil plunge has already sent Hercules Offshore Inc., Sabine Oil & Gas Corp. and Quicksilver Resources Inc. to bankruptcy court.

US crude oil prices hit lowest since 2009, eliminating thousands of jobs -- America’s oil boom is faltering, and with US crude oil prices hitting lows unseen since 2009 this week, experts believe the fall may continue taking thousands of jobs with it. Consumers may cheer the lower prices at the pump, but jobs are being lost in the energy industry across the world. In June, the Energy Information Administration said the US petroleum industry lost about 6.5% of its jobs from October to April, or about 35,000 of its 538,000 workers, citing US Bureau of Labor Statistics data. On Wednesday, Royal Dutch Shell said it would eliminate 6,500 jobs worldwide as the company tries to reduce costs because of the lower oil prices. Declines in oil and natural gas extraction and support employment tend to lag declines in crude oil prices, so given the recent return to lower prices, more job cuts could be on the way. Global stock markets have been rattled by the fall and continuing woes in China. The Dow Jones Industrial average hit a low for 2015 on Thursday and is expected to come under renewed pressure on Friday. “Globally there’s probably been approaching a quarter-million layoffs from the oil industry. And hundreds and billions in cancelled projects,” said Walter Zimmermann Jr, vice president and chief technical analyst at United-ICAP. “Houston is getting hit especially hard. You go to Houston and nobody talks about the economic benefit of lower oil prices. And certainly no one is talking about that in the Bakken Field [North Dakota].” So far, he added, the impact on consumers is limited. “The problem is when people think of consumers saving a few pennies at the pump, they’re not going to take that money and buy a new house or a new car or send their child to college. They’re probably going to buy extra socks and potatoes,” Zimmermann said.

For Oil Producers Cash Is King, and That's Why They Just Can't Stop Drilling - Investors sent a surprising message to U.S. shale producers as crude fell almost 20 percent in August: keep calm and drill on. While most oil stocks have fallen sharply this month, the least affected by the slump share one thing in common: they don’t plan to slow down, even though a glut of supply is forcing prices down. Cimarex Energy Co. jumped more than 8 percent in two days after executives said Aug. 5 that their rig count would more than double next year. Pioneer Natural Resources Co. rallied for three days when it disclosed a similar increase. Shareholders continue to favor growth over returns, helping explain why companies that form the engine of U.S. oil -- the frackers behind the boom -- aren’t slowing down enough to rebalance the market. U.S. production has remained high, frustrating OPEC’s strategy of maintaining market share and enlarging a glut that has pushed oil below $40 a barrel.  “These companies have always been rewarded for growth,” “the balance sheets of this sector are so challenged that investors are going to have to look at other factors,” he said. Output from 58 shale producers rose 19 percent in the past year, according to data compiled by Bloomberg. Despite cutting spending by $21.7 billion, the group pumped 4 percent more in the second quarter than in the last three months of 2014. That’s buoyed overall U.S. output, which has only drifted lower after peaking at a four-decade high in June. The government estimates production will slide 8 percent from the second quarter of this year to the third quarter of 2016. Growth has been a key pillar of the revolution that helped transform the U.S. into the world’s largest producer of oil and gas. Frenzied drilling often distinguished the new technology’s winners, while profits or free cash flow were less important. Even amid the worst price crash in a generation, that continues to be true for some companies.

Oil Industry Needs to Find Half a Trillion Dollars to Survive -- At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it. The number of oil and gas company bonds with yields of 10 percent or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades. If oil stays at about $40 a barrel, the shakeout could be profound, according to Kimberley Wood, a partner for oil mergers and acquisitions at Norton Rose Fulbright LLP in London. “The look and shape of the oil industry would likely change over the next five to 10 years as companies emerge from this,” Wood said. “If oil prices stay at these levels, the number of bankruptcies and distress deals will undoubtedly increase.” Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent. < In the U.S., the number of bonds yielding greater than 10 percent has increased more than fourfold to 80 over the past year, according to data compiled by Bloomberg. Twenty-six European oil companies have bonds in that category, including Gulf Keystone Petroleum Ltd. and EnQuest Plc.

The Scariest Number For The Oil Industry: $550 Billion -- Just over half a trillion dollars: that's how much cash oil industry companies will need to repay in maturing debt over the next 5 years. Specifically, according to BMI Research cited by Bloomberg, there is $72 billion in oil-related debt maturing this year, $85 billion in 2016 and $129 billion in 2017, and a total of $550 billion in bonds and loans through 2020. This is a problem because while paying annual interest is one thing and easily manageable, rolling over debt when it is yielding over 10% - as is the case for over 168 global companies, or triple last year's number - is virtually impossible. It is an even bigger problem when considering the recent surge in energy company net debt/EBITDA (shown below in red) which has recently hit an all time high, surpassing the oil sector crisis of 1999, dragging energy sector credit risk and spreads with it to all time highs. In fact, unless oil soars higher and miraculously concludes a second dead cat bounce, there will be hundreds of companies which are simply unable to refinance, and have no choice but to default. Considering that 20% of total debt due in 2015 belongs to US drillers (with Chinese companies coming in second with 12%), what was until last week perceived a junk bond crisis, and has been largely forgotten this week following the artificial, central-bank inspired price-action euphoria when in reality absolutely nothing has changed on the cash flow scene, expect the hangover of the post month-end window dressing orgy to come down like a ton of bricks. The reason: fundamentals continue to go from bad to worse, and its not just the fwd P/E chart we won't tire of showing...... as Bloomberg adds, some earnings metrics are already breaching the lows of the 2008 financial crisis. The profit margin for the 108-member MSCI World Energy Sector Index, which includes Exxon Mobil Corp. and Chevron Corp., is the lowest since at least 1995, the earliest for when data is available.

Lifting of oil-export ban urged - New Mexico oil-industry leaders urged the federal government on Tuesday to lift its four-decade-old ban on oil exports at a forum at Albuquerque’s Crowne Plaza Hotel. A five-member panel, organized by the New Mexico Association for Commerce and Industry, discussed the impact of plummeting oil prices on local industry and the need for producers to gain access to international markets to sustain production and jobs in the state’s two oil-and-gas basins in northwestern and southeastern New Mexico. The federal government has prohibited crude-oil exports by domestic producers since the 1970s to ensure adequate national supplies in the face of shortages from an Arab oil embargo that decade that caused gas rationing and huge bottlenecks at pumping stations. But the ban is no longer needed in today’s world, given the huge surge in U.S. production thanks to modern drilling technologies, panelists said, and is instead harming the local and national economies. “In Hobbs, we produce a good, and we want it treated like any other good to reach international markets,” said Hobbs Chamber of Commerce President and CEO Grant Taylor. “We thought Congress would lift the ban in 2015, but we’re now two-thirds of the way through the year, the clock is ticking, and the urgency is mounting.”  About 1,000 rigs have been idled nationwide since last year, said Craig Mayberry, a manager with Process Equipment Service Co. in Farmington. About 244 jobs are directly connected to each rig, meaning more than 200,000 people have been laid off in oil-producing regions around the country.

Boehner: Oil export ban thwarts success - (UPI) -- U.S. House Speaker John Boehner wrote in a Pennsylvania newspaper the nation's oil sector is headed for a "brick wall" in the form of a crude oil export ban."For all its success, this energy boom is currently running into a brick wall in the form of ... federal government policies that date back to the 1970s," Boehner wrote in the (Pittsburgh) News-Tribune-Review.Boehner, his Republican colleagues, led by Sen. Lisa Murkowski, R-Alaska, and some Democrats, notably Sen. Heidi Heitkamp, D-N.D., have moved several pieces of legislation aimed at overturning the 1970s ban on the export of domestic crude oil.The ban was enacted after Arab members of the Organization of Petroleum Exporting Countries stopped exporting oil to the United States in response to U.S. policies on Israel.Last year, the U.S. Bureau of Industry and Security, a division of the Commerce Department, authorized two U.S. companies, Pioneer Natural Resources and Enterprise Products Partners, to ship an ultra-light form of oil called condensate from the U.S. market. Processing steps mean condensate doesn't qualify as crude oil under the terms of U.S. law.In early August, the Commerce Department granted a request from Mexican energy company Petroleos Mexicanos, known also as Pemex, to swap as much as 100,000 barrels of U.S. crude oil per day for Mexican refining. The deal forbids the re-export to other nations. In Pennsylvania, Boehner said the oil sector has supported a wage increase of nearly 79 percent. Supporters of lifting the ban say those benefits could spread nation-wide. Meanwhile, overseas leverage would increase if U.S. oil pushed aside supplies sources from adversaries Russia and, eventually, Iran.

Lessons from the oil market’s “lost decade” – Saudi Arabia and its OPEC allies are counting on strong growth in demand coupled with slower growth in non-OPEC supply to rebalance the oil market in 2016. But the experience of the “lost decade” after prices slumped in 1986 suggests rebalancing could take longer than some OPEC members and market analysts expect. Following the price slump in 1985/86, the oil market struggled with persistent surpluses for much of the next 17 years. In real terms, oil prices did not rise above the 1986 crisis level on a sustained basis until 2003. Lower prices led to consistent strong growth in oil consumption after 1986, reversing the decline in demand that had occurred in the first half of the 1980s. Non-OPEC supplies were flat between 1985 and 1989, as lower prices halted the exploration and production boom that had caused non-OPEC production to surge since 1976. But non-OPEC oil supplies did not fall, disappointing expectations of some oil ministers that lower production outside the organization would make way for increased production by its members.From 1991 onwards, non-OPEC began growing rapidly again, and generally kept pace with the growth in the organization’s output until 2003. OPEC’s own output grew strongly after 1986 even though prices failed to rise. Real prices were essentially unchanged between 1986 and 1997 while the organization’s output rose from 18.5 million barrels per day to 29.5 million bpd. Saudi Arabia, Iraq, Iran, Kuwait and the United Arab Emirates all boosted production and invested in extra capacity in pursuit of a higher share of the oil market. It was not until the early 2000s, almost two decades later, that falling non-OPEC supplies and surging fuel demand from China and the rest of East Asia, resulted in sustained price increases.

Cheap Oil and Global Growth -- Violent swings in oil prices are destabilizing economies and financial markets worldwide. When the oil price halved last year, from $110 to $55 a barrel, the cause was obvious: Saudi Arabia’s decision to increase its share of the global oil market by expanding production. But what accounts for the further plunge in oil prices in the last few weeks – to lows last seen in the immediate aftermath of the 2008 global financial crisis – and how will it affect the world economy? The standard explanation is weak Chinese demand, with the oil-price collapse widely regarded as a portent of recession, either in China or for the entire global economy. But this is almost certainly wrong, even though it seems to be confirmed by the tight correlation between oil and equity markets, which have fallen to their lowest levels since 2009 not only in China, but also in Europe and most emerging economies. The predictive significance of oil prices is indeed impressive, but only as a contrary indicator: Falling oil prices have never correctly predicted an economic downturn. On all recent occasions when the price of oil was halved – 1982-1983, 1985-1986, 1992-1993, 1997-1998, and 2001-2002 – faster global growth followed. Conversely, every global recession in the past 50 years has been preceded by a sharp increase in oil prices. Most recently, the price of oil almost tripled, from $50 to $140, in the year leading up to the 2008 crash; it then plunged to $40 in the six months immediately before the economic recovery that started in April 2009.

WTI Crude Jumps After 'Another Huge Surprise' API Inventory Draw -- In a deja-vu-all-over-again echo of last week, API reported a huge 7.3 million barrel drawdown in oil inventories this week (against expectations of a build) and sparked a headline-driven jerk higher in crude prices. Last week the same happened and the next day DOE reported a huge build (consensus for tomorrow is a 345k draw), crushing oil prices... Trade Accordingly... Biggest inventory draw sicne July 2014... The reaction is clear (for now)... but remember last week we saw same and it faded fast...

Crude Oil Price Dips After Inventory Shows Big Decline - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 5.5 million barrels last week, maintaining a total U.S. commercial crude inventory of 450.8 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years.  Tuesday evening, the American Petroleum Institute (API) reported that crude inventories fell by a whopping 7.3 million barrels in the week ending August 21. For the same period, analysts surveyed by Platts had estimated an increase of 1.9 million barrels in crude inventories. Total gasoline inventories increased by 1.7 million barrels last week, according to the EIA, and remain in the middle of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged 9.6 million barrels a day for the past four weeks, up by 5.8% compared with the same period a year ago. Crude oil has gotten pounded over the past week, dropping to below $40 a barrel for the first time in more than six years. And even though prices are low and falling, production in the Bakken shale play in North Dakota and Montana and in the Eagle Ford play in south Texas continues to rise. According Bentek, July production in the Eagle Ford totaled 1.6 million barrels a day, up about 10,000 barrels a day compared with June and about 250,000 barrels a day higher than in July 2014. In North Dakota, Bakken production rose by about 500 barrels a day to 1.2 million barrels, up about 90,000 barrels a day compared with July 2014.

U.S. fuel stocks rise, driving prices lower despite big crude draw -  – U.S. crude oil stockpiles fell sharply last week as imports tumbled, while gasoline and distillate inventories rose despite a reduction in refinery runs, data from the Energy Information Administration showed on Wednesday. Crude inventories fell 5.5 million barrels in the week to Aug. 21, the biggest one-week decline since early June and counter to analysts’ expectations for an increase of 1 million barrels. U.S. crude imports fell last week by 740,000 barrels per day. Despite the unexpected fall in crude stocks, which was in line with the industry group the American Petroleum Institute’s report late on Tuesday, oil prices whipped lower following the data. U.S. crude fell more than 1 percent to below $39 a barrel, nearing the 6-1/2-year lows touched earlier this week, and New York gasoline futures tumbled down more than 4 percent at one point as traders focused on rising fuel supplies, a worrying sign for U.S. demand. “The products builds are overwhelming the constructive crude draw,” Gasoline stocks rose 1.7 million barrels, compared with forecasts for a 1.3 million-barrel drop. Gasoline prices spiked earlier this month after the refinery disruptions, although nationwide inventories remain in line or slightly above seasonal norms. Some analysts also said the decline in crude stocks may have been an aberration driven by a brief dip in imports. Most are bracing for a sustained rise in stocks over the coming months as U.S. refiners shut for seasonal work.

Crude Plunges Despite DOE Confirming Major Inventory Draw But Production Slows Only Modestly -- Following last night's huge drawdown in inventories, according to API, The DOE data shows a huge 5.45mm bbl draw (against expectations of a 3.7mm bbl draw). This is the biggest draw since early June and 2nd biggest draw in 13 months. WTI crude's reaction was an initial surge to test API-spike highs but then weakness ensued as Production data showed a 3rd weekly drop in a row (4th of last 5 weeks) but of lesser magnitude.  Crude inventory tumbled...  And Production continues to slow... though only modestly… The reaction for now...  Surge and purge... Charts: Bloomberg

Oil soars over 10 percent, biggest gain in six years as shorts scramble – Oil rocketed more than 10 percent higher on Thursday, posting its biggest one-day rally in over six years as recovering equity markets and news of diminished crude supplies set off a short-covering scramble by bearish traders. Snapping back from a deep two-month slump that knocked U.S. crude to 6-1/2 year lows below $40 this week, oil climbed as world stock markets rose on hopes Chinese government measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased. The rally was aided by news of a force majeure on Nigerian oil exports declared by Shell (RDSa.L) and private data indicating more drawdowns in crude this week at Cushing, Oklahoma, traders said. A big upward revision in second quarter U.S. economic growth helped. Front month Brent crude LCOc1 for October more than reversed a week’s worth of losses, rising $4.42 to settle at $47.56 a barrel, marking a 10.25 percent rise. Gains accelerated toward the close, locking in the biggest one-day jump since late 2008, when prices were bouncing back after the financial crisis. The contract traded on Monday at a March 2009 low of $42.23. “Whenever you have a short-covering rally in a bear market they’re always violent. I wouldn’t be surprised to see it continue another day or two,”

U.S. Oil-Rig Count Rises for Sixth Consecutive Week - WSJ: The U.S. oil-rig count ticked up by one in the latest week to 675, marking the sixth consecutive week of increases, according to Baker Hughes Inc. BHI 1.80 % The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, has fallen sharply since oil prices headed south last year. The rig count dropped for 29 straight weeks before climbing modestly in recent weeks. Oil prices were up 6.9% to $45.49 following the report, as a surprise one-day rally extended to a second day. Oil prices surged Thursday as traders who had bet on lower prices closed out those positions following positive U.S. economic data, news that some Nigerian exports would be halted and a report that Venezuela wanted an emergency meeting of the Organization of the Petroleum Exporting Countries to respond to low prices. The rally comes after concerns about China’s economy, coupled with persistently high oil output from the U.S. and OPEC, the 12-nation oil cartel, has soured investor sentiment recently. Despite recent increases, there are still about 58% fewer rigs working since a peak of 1,609 in October. According to Baker Hughes, gas rigs fell by nine from the prior week to 202. The U.S. offshore rig count fell to 30 in the latest week, down two from last week and 36 a year earlier.  For all rigs, including natural gas, the week’s total was down eight to 877.

Drillers added just one oil rig this week - Fuel Fix: — U.S. producers put one oil rig back to work this week, as the number of active oil rigs continued a six-week streak of meager increases. The Baker Hughes rig count, considered a proxy for oil field activity, showed rigs drilling for oil increasing from 674 last week to 675 this week. Over the past six weeks, the number of active oil rigs has risen by 37, though only five have been added in the past four weeks. The oil rig count is down significantly from last October’s high of 1,609. The number of rigs drilling for natural gas fell by nine to 202 this week. Miscellaneous remained at nil, and the combined rig count fell by eight rigs to 877. The rig count began falling in late 2014 as oil prices collapsed amid an oversupply of oil. Drillers found a brief respite at $60 per barrel crude and in May and June and began putting rigs back to work — sending the oil rig count up from a low of 628 in late June. But the pace of the increase has stalled in recent weeks as the price of crude has started falling once again. Though the count continues to rise, the last four weeks have shown gains of two or fewer rigs. Oil production, meanwhile, has remained stubbornly high thanks to lower drilling costs and more efficient production. The Energy Information Administration estimated that domestic oil production declined by just 100,000 barrels per day in July compared with June. Oil prices were up for a second straight day in early New York Mercantile Exchange trading on Friday. Benchmark U.S. oil rose $2.77 or 6.5 percent to $45.33 per barrel.

U.S. crude up 6 percent in second day of short-covering frenzy | Reuters: U.S. crude jumped 6 percent on Friday as a rally in gasoline prices and air raids in Yemen prompted traders to scramble for a second day to cover short positions, while market players also kept an eye on a storm that appeared to be approaching the oil-rich U.S. Gulf. U.S. crude has gained about 16 percent over two sessions, headed for its first weekly rise since mid-June. If the day's gains stick, it would be the second largest two-day rise in 25 years. "A severely oversold and shorted oil market is creating a bid for covering in U.S. crude," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland. U.S. crude's front-month CLc1 was up $2.60, or 6.1 percent, at $45.16 a barrel by 11:38 a.m. EDT. It showed a near 12 percent gain on the week. Brent, the global benchmark LCOc1, rose $2.44, or 2.5 percent, to $50 a barrel. It gained 10 percent on the week. Gasoline RBc1 prices surged about 5 percent on the day after Phillips 66 (PSX.N) unexpectedly shut down a 150,000-barrel-per-day fluid catalytic cracker at its 238,000 bpd refinery in Linden, New Jersey, due to a leak. In Yemen, warplanes from a Saudi-led coalition killed 10 people in air raids on Friday, local officials said.

Oil prices surge in short-covering rally: Kemp – Front-month Brent crude futures surged more than 10 percent higher yesterday, one of the largest daily percentage movements on record, as traders raced to cover short positions. U.S. crude futures rose almost as much, with the October contract ending the day up by more than 9 percent. Various fundamentals have been cited as the trigger for the rally, including the rebound in global stock markets and the declaration of force majeure on some Nigerian crude exports. But whatever the initial cause, the main impetus driving the market higher was short-covering of futures and options. A bout of short covering had been expected at some point given the concentration of bearish bets on oil prices over the last two months.  Since mid-June, hedge funds have accumulated one of the biggest short positions in U.S. crude on record, equivalent to almost 160 million barrels of oil, up from less than 60 million, according to data from the U.S. Commodity Futures Trading Commission. With so many speculators betting on a further decline in prices, the bearish trade had become crowded and vulnerable to any shift in sentiment that triggered a rush for the exit. But the scale of the one-day move was still unusual. The one-day jump in Brent was more than four standard deviations away from the mean and has only been exceeded on seven days in the last quarter of a century.

Oil extends short-covering frenzy to second day, topping $50 | Reuters: World oil prices roared back to $50 a barrel in the second day of a frenetic short-covering rally on Friday, with violence in Yemen, a storm in the Gulf and refinery outages helping extend the biggest two-day rally in six years. Oil had tumbled in tandem with stocks over much of the past week, hitting 6-1/2-year lows below $40 a barrel as Chinese financial tumult stoked fears of slowing growth. Oil rallied on Thursday as equities rebounded, but on Friday oil kept pushing higher even as equity markets were calm. Dealers said a handful of emerging risks fed oil's gains. Warplanes from a Saudi-led coalition killed 10 people in air raids over Yemen; Tropical Storm Erika moved closer to Florida, prompting worries about oil and gas installations in the U.S. Gulf. Brent, the global oil benchmark LCOc1, closed up $2.49, or 5 percent, at $50.05, after nearly reaching $51 a barrel. It gained 10 percent on the week. U.S. crude's front-month contract snapped an eight-week losing streak, rising $2.66, or 6.3 percent, to settle at $45.22 a barrel. At its session high, it was up more than $3, or 7 percent at nearly $46. For the week, it rose 12 percent. "A severely oversold and shorted oil market is creating a bid for covering,"

Oil markets catch breath after biggest gains in six years – Crude oil futures were largely steady on Friday after posting their biggest one-day rally in over six years the day before led by recovering equity markets and news of diminished crude supplies. Stock markets around the world rallied on Thursday, shaking off a slump related to China growth fears, as strong U.S. economic data boosted investor sentiment, and the dollar advanced for a third consecutive session. Front-month October Brent crude had dipped 20 cents to $47.36 per barrel as of 0046 GMT. It settled $4.42 higher at $47.56 per barrel in the previous session. U.S. crude edged down 3 cents to $42.53 per barrel, after ending up $3.96, or 10.3 percent, at $42.56 per barrel, its biggest one-day percentage gain since March 2009. “A short covering rally, led by crude oil pushed commodities higher across the board. Better than expected U.S. GDP numbers was the main spark, although the force majeure on BP’s exports from Nigeria extended the gains,” ANZ said in a note on Friday morning.

The Continuing Problem with Oil Inventories -- A recent "Today in Energy" posting by the U.S. Energy Information Administration very succinctly explains the reason why oil prices have dropped over the past year and why it is unlikely that the oil market fundamentals will change any time soon.   Here is a graphic showing global inventory levels for oil and petroleum liquids in millions of barrels per day since January 2008 along with the price of Brent crude: As you can see on the dark brown bars, oil inventory has been steadily positive since August 2014. This tells us that global production of both oil and hydrocarbon liquids has outpaced the growth in consumption. In fact, for the first seven months of 2015, total global liquids inventories have grown by an average of 2.3 million barrels per day, the highest level since 1998 when oil prices collapsed as shown on this chart: The EIA provides the following data for 2014 and 2015: 2014 Global petroleum liquids consumption growth: 1.1 million BOPD. Global petroleum liquids production growth: 2.3 million BOPD Average global consumption rate: 92.4 million BOPD 2015 (to the end of July 2015) Global petroleum liquids consumption growth: 1.2 million BOPD. Global petroleum liquids production growth: 2.9 million BOPD. Average global consumption rate: 93.3 million BOPD. Here is a graphic showing the same data along with a graphical representation of the buildup in global petroleum liquids inventory: The sources of petroleum liquids supply have changed.  In 2014,  global liquids production growth was from countries outside of OPEC, including the United States, with OPEC production levels actually dropping.  In 2015, increased production levels of petroleum liquids has come from both OPEC nations (up 0.9 million BOPD in 2015) and non-OPEC nations (up 2.0 million BOPD in 2015). Since global liquids inventories started to build in August 2014, there has been a significant change in   the difference between futures prices and near-term petroleum liquids contracts, increasing from nearly zero in 2014 to between $5 and $10 per barrel.  This reflects the increased cost of growing storage needs and the increased supply of oil.

Consortium picked to build oil shale plant 'might not secure financing' - Stakeholders in Jordan’s first shale oil-fuelled power plant are facing difficulties securing finance for the project and may seek an extension of the deadline for financial closure, according to a partner in the project. They have until October 1 to secure finance for the $2.2 billion, 470 megawatt (MW) project, while they are facing difficulties at this stage with many entities refusing to finance the project, said Mohammad Maaitah, project partner of Attarat Power Company (APCO). The company a wholly owned subsidiary of Enefit Jordan BV, owned by Enefit (Estonia’s Eesti Energia AS), Malaysia’s YTL Power International Berhad and Jordan’s Near East Investments Limited. “It is unfortunate that many international and regional financing entities have not shown interest in financing this strategic and vital project for Jordan that will help it address one of its main major challenges posed by the bloating energy bill,” said Maaitah in a recent interview with The Jordan Times. “Many agencies including the International Finance Corporation, the European Bank for Reconstruction and Development and the Islamic Development Bank, among others either, have rejected or showed no interest in financing the project, which is likely to create 3,000 direct jobs during the construction phase and 700 jobs for ongoing operations,” said Maaitah. He added that the consortium of companies that owns the power plant may seek an extension for two more months to to be ready for the financial closure for the scheme.

Mideast Stocks Extend Decline Led by Saudi Arabia as Oil Sinks -- Middle Eastern stocks extended their decline amid a global rout and as Brent crude fell below $45 per barrel for the first time since 2009. Saudi Arabia’s Tadawul All Share Index, which entered a bear market on Sunday, led the drop after it fell 5.9 percent at the close in Riyadh to the lowest level since March 2013. Dubai’s DFM General Index closed less than 20 points away from the threshold for a bear market and Israel’s TA-25 Index dropped for a fourth day. Brent sank 4.4 percent to $43.46 per barrel at 3:25 p.m. in London. The MSCI World Index slid for a fifth day to the lowest level since October 2014. Global equities have lost more than $5 trillion in value since China’s shock currency devaluation on Aug. 11, with U.S. shares succumbing to the selloff at the end of last week. The slide in Brent to the lowest in more than six years is piling pressure on Gulf states, which rely on oil income to fund government spending. The six-nation Gulf Cooperation Council is home to about 30 percent of the world’s proven crude reserves. “Oil just can’t stop sliding and local investors are very worried about where the bottom is and how long regional economies can take the battering,”  “With China’s currency devaluation and concerns of a global economic slowdown, equities as an asset class are just too risky at the moment and no wonder regional indexes are entering bear territory.”

Oil Surges After Saudi Troops Invade Yemen - For the 3rd day in a row, crude oil prices are spiking as the short squeeze morphs into a war premium. Heberler reports that Saudi ground troops have entered Northern Yemen and seized control of two areas in the Saada province. WTI is now above $44... As Haberler reports, forces seize control of two areas in Yemen’s Saada province. Saudi Arabian ground troops have advanced into northern Yemen, in a bid to push back against Houthi Shia militia and forces loyal to ousted president Ali Abdullah Saleh, military and tribal sources said. This is Saudi Arabia's first ground offensive in Yemen since it launched an extensive military campaign in March targeting Houthi positions. The sources told Anadolu Agency that Saudi Arabian troops advanced into Saada province after Houthi militants recently stormed Saudi positions in the southern Saudi province of Jizan. "Saudi ground forces seized control of two areas in Saada province and intend to advance toward Houthi positions," sources said. Yemen descended into chaos last September, when the Houthis overran capital Sanaa and other provinces, prompting Saudi Arabia and its Arab allies to launch a massive air campaign against the Shia group. Pro-Hadi forces – backed by Saudi-led air power – have managed recently to retake Aden and Taiz from the Houthis.

Saudi Arabia Faces Another "Very Scary Moment" As Economy, FX Regime Face Crude Reality -- "They are working for their market share, not for the price," Kazakh Prime Minister Karim Massimov told Bloomberg on Saturday, during the same interview in which he predicted that sooner or later, dollar pegs in Saudi Arabia and the UAE would have to be abandoned.  The Saudis are essentially betting that their FX reserves all large enough to allow the Kingdom to ride out the self inflicted pain from persistently low crude prices on the way to bankrupting the US shale space. But the battle for market share comes at a cost, especially when ultra easy monetary policy in the US has served to kept capital markets open to heavily indebted drillers, allowing otherwise insolvent producers to remain in business longer than they otherwise would. It is, as we’ve noted before, a fight between the Saudis and the Fed.  In the midst of it all, the petrodollar has died a rather swift if quiet death and as we documented on Saturday, the demise of the system that has served to underwrite decades of dollar dominance has left emerging markets in no position to defend themselves in the face of China’s move to devalue the yuan. With Kazakhstan’s decision to float the tenge, we are beginning to see the post-petrodollar world (or, the "new era" as Karim Massimov calls it) take shape. Here’s Bloomberg on why the current situation mirrors a "very scary moment" in Saudi Arabia’s history. The oil price was near its lowest in more than a decade, cash reserves were being depleted, emerging markets were in turmoil and Saudi Arabia was beginning to panic. “And luckily at that point, oil prices started going up. Not by design, by good luck.” That was 1998, and now Saudi Arabia’s fortunes threaten to turn again. This time, luck might not be enough as the government tries to protect the wealth of a nation whose economy has swelled by five times since then. The bastion of conservative Sunni Islam also is paying for an expanding role in regional conflicts in the face of a resurgent Iranand Islamic State extremists who have bombed Saudi mosques.

Something Is Very Wrong In Saudi Arabia... Ever since Kazakhstan stormed onto the radar of market participants who, prior to last week, didn’t know the country existed, the world has awoken to the fact that a sharp and persistent decline in oil, that most financialized of commodities, comes with very real and far-reaching consequences.  For producers, crude’s slide strains budgets and pressures FX reserves and as we documented at length on Sunday in "Saudi Arabia Faces Another 'Very Scary Moment' As Economy, FX Regime Face Crude Reality," nowhere is this more apparent than in Saudi Arabia where the country faces a fiscal deficit on the order of 20% and the first current account deficit in a decade.  The situation has some betting that Saudi Arabia will not be willing (or able) to retain the riyal’s peg to the dollar and as you can see from the 12-month forwards, it might be time for sellside FX strategists to reconsider their position that the currency regime isn’t likely to change anytime soon.

Why It Really All Comes Down To The Death Of The Petrodollar -- Last week, in the global currency war’s latest escalation, Kazakhstan instituted a free float for the tenge. The currency immediately plunged by some 25%.  The rationale behind the move was clear enough. The plunge in crude prices along with the relative weakness of the Russian ruble had severely strained Kazakhstan, which is central Asia’s largest crude exporter. As a quick look at a chart of the tenge’s effective exchange rate makes clear, the pressure had been mounting for quite a while and when China devalued the yuan earlier this month, the outlook for trade competitiveness worsened.  What might not be as clear (on the surface anyway) is how recent events in developing economy FX markets following the devaluation of the yuan stem from a seismic shift we began discussing late last year - namely, the death of the petrodollar system which has served to underwrite decades of dollar dominance and was, until recently, a fixture of the post-war global economic order.  In short, the world seems to have underestimated how structurally important collapsing crude prices are to global finance. For years, producers funneled their dollar proceeds into USD assets providing a perpetual source of liquidity, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop. That all came to an abrupt, if quiet end last year when a confluence of economic (e.g. shale production) and geopolitical (e.g. squeeze the Russians) factors led the Saudis to, as we put it, Plaxico themselves and the US.  The ensuing plunge in crude meant that suddenly, the flow of petrodollars was set to dry up and FX reserves across commodity producing countries were poised to come under increased pressure. For the first time in decades, exported petrodollar capital turned negative.

Saudi Arabia Is Seeking Advice on Cutting Billions From Its Budget in the Wake of the Oil Crash -  Saudi Arabia is seeking advice on how to cut billions of dollars from next year’s budget because of the slump in crude prices, according to two people familiar with the matter. The government is working with advisers on a review of capital spending plans and may delay or shrink some infrastructure projects to save money, the people said, asking not to be identified as the information is private. The government is in the early stages of the review and could look at cutting investment spending, estimated to be about 382 billion riyals ($102 billion) this year, by about 10 percent or more, the people said. Current spending on areas such as public sector salaries wouldn’t be affected, the people said. The Arab world’s largest economy is expected to post a budget deficit of almost 20 percent of gross domestic product this year, according to the International Monetary Fund. With income from oil accounting for about 90 percent of revenue, a more than 50 percent drop in prices in the past 12 months has put pressure on the nation’s finances. The country has raised at least 35 billion riyals from local bond markets this year, the first time it has issued securities with a maturity of over 12 months since 2007.

Gulf bonds partly lose safe-haven status in cheap oil era (Reuters) - International bonds from the Gulf's wealthy energy-exporting countries are losing some of their safe-haven status as an era of low oil prices looms. For several years, bonds from the six-nation Gulf Cooperation Council appeared almost immune to global instability, handily outperforming debt from other emerging markets. Unlike most of the world, GCC governments enjoyed big budget surpluses that let them spend their way out of trouble. Current account surpluses and currency pegs to the U.S. dollar protected the GCC from currency devaluation jitters elsewhere. But as oil hits new six-year lows, most of those surpluses have vanished. A Reuters poll last week found economists expect all GCC states to post fiscal deficits this year, and half of them to post current account deficits. So investors are starting to re-examine their assumptions about the Gulf, and during the last two weeks of global market turmoil, GCC bonds have not escaped a general emerging markets sell-off.

Saudi foreign reserves fall slows in July after bond sale (Reuters) - The speed of decline in Saudi Arabia's foreign reserves slowed in July after the government began issuing domestic debt to cover part of a budget deficit created by low oil prices, central bank data showed on Thursday. The world's largest oil exporter has been drawing down its reserves to cover the deficit. Net foreign assets at the central bank, which acts as the kingdom's sovereign wealth fund, have been sliding since they reached a $737 billion peak last August. But the latest data showed net foreign assets shrank only 0.5 percent from the previous month to 2.480 trillion riyals ($661 billion) in July, their lowest level since early 2013. They had dropped 1.2 percent month-on-month in June and at faster rates early this year. In July, the government began selling bonds for the first time since 2007, placing 15 billion riyals ($4 billion) of debt with quasi-sovereign funds; this month it sold 20 billion riyals of bonds to banks. The domestic debt sales appear to have reduced the need for the government to cover its deficit by drawing down foreign assets. Authorities have not publicly said how many bonds they will issue in future, but the market is expecting monthly issues of roughly 20 billion riyals through the end of 2015. The foreign assets are held mainly in the form of foreign securities such as U.S. Treasury bonds - securities totalled $465.8 billion at the end of July - and deposits with banks abroad, which totalled $131.2 billion. The vast majority of the assets are believed to be in U.S. dollars.

Here's How Long Saudi Arabia's US Treasury Stash Will Last Under $30, $40, And $50 Crude -- On Friday we explained why the most important chart in global finance may well be the combined FX reserves of Saudi Arabia and China plotted against the yield on the 10Y.   Here’s the reason that graphic is so critical: Saudi Arabia and China are sitting on the first and third largest stores of reserves, respectively, and if these two countries continue to liquidate those reserves, it will amount to “reverse QE” or, "quantitative tightening" as Deutsche Bank calls it.  The attendant decline in oil revenue has resulted in a fiscal deficit on the order of 20% of GDP which, in the absence of sharply higher oil prices must either be financed by drawing down reserves or else through the bond market because between the war in Yemen (which escalated meaningfully on Thursday) and the necessity of maintaining the status quo for a populace that’s become used to a certain level of stability and comfort, fiscal retrenchment is a decisively difficult task.  Here’s more from BofAML on how long the Saudis can hold out under various price points for crude and assuming various mixes of debt financing and spending cuts:Safeguarding Fx reserves will require deep budgetary cuts at current oil prices, in our view. Our dynamic analysis suggested that current low oil prices could rapidly erode the sovereign creditworthiness, even as the sovereign balance sheet is at its strongest on an historical basis. Despite the rapid drawdown over 1H15, SAMA’s Fx reserves still stood at c100% of GDP in June, and government deposits at SAMA represented US$294bn or 42% of GDP. Another way to look at sustainability is a static analysis to calculate the number of years required to exhaust government deposits under various oil, spending and financing scenarios. Based on the narrow definition of resources available to the government, we think that there is no realistic mix of debt financing and spending cuts at US$30/bbl that can decrease pressure on Fx reserves, and pressure on the USD peg would be acute if oil prices were to be sustained at this level.However, at US$40/bbl and US$50/bbl, debt financing and deep capex cuts (to bring spending 25% lower) can keep government deposits at SAMA covering 7 years and 11 years of government spending, respectively. Government spending has historically adjusted to oil prices with a variable lag. It is worth recalling that spending was 50% lower in 1988 compared to its 1981 peak as oil prices tumbled, and government spending in 2000 was at the same levels as that of 1980 in nominal terms.

Saudi Arabia Paying American Lobbyists To Spread Anti-Iran Propaganda -- Though the Saudi Arabian government publicly declared its tentative support for the widely-praised Iran nuclear deal last month, new reports reveal it is secretly funding propaganda efforts to undermine it. A new group called the American Security Initiative has spent over $6 million on advertisements criticizing the deal — using money supplied by the Saudi monarchy. The president of the American Security Initiative Norm Coleman is a former Republican senator who now runs the lobbying firm, Hogan Lovells. He is a registered lobbyist for Saudi Arabia and his firm is on retainer for the Saudi monarchy at a rate of $60,000 per month. According to The Intercept, “In July 2014, Coleman described his work as ‘providing legal services to the Royal Embassy of Saudi Arabia’ on issues including ‘legal and policy developments involving Iran and limiting Iranian nuclear capability.’” Other founders of the American Security Initiative include former Senator Joe Lieberman ( a Democrat) and former Senator Saxby Chambliss (a Republican), who works at DLA Piper, yet another firm hired to lobby on behalf of the Saudi monarchy. Opposition to the deal enjoys bipartisan support. The lobbying effort has run commercials in nine states — Arizona, Colorado, Connecticut, Indiana, Maryland, Montana, North Dakota, Virginia, and West Virginia — and was initiated in partnership with a group called Veterans Against the Deal. One ad features a maimed Iraq War veteran who ominously warns that “Every politician who is involved in this will be held accountable. They will have blood on their hands.”

From Venezuela to Iraq to Russia, Oil Price Drops Raise Fears of Unrest - Oil, the lifeblood of many countries that produce and sell it, appears to be rapidly turning into an ever-cheaper economic curse.A year ago, the international price per barrel of oil was about $103. By Monday, the price was about $42, roughly 6 percent lower than on Friday. In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics are growing threats, a new source of instability erupted this month with violent protests over the government’s failure to provide reliable electricity and explain what has been done with all the promised petroleum money. In Russia, a leading oil producer, consumers are now paying far more for imports, largely because of their currency’s plummeting value. In Nigeria and Venezuela, which rely almost completely on oil exports, fears of unrest and economic instability are building. In Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands of demonstrators pour into the streets every week, angered by the government’s economic policies. Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to preserve its legitimacy, the government has been burning through roughly $10 billion a month in foreign exchange holdings to help pay expenses, and it is borrowing in the financial markets for the first time since 2007. Other Arab countries in the Persian Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are facing fiscal deficits for the first time in two decades.

Russian oil firms raise profits and output, spurred by rouble weakness Russian oil firms are increasing their rouble profits and raising production as a weak currency protects their business, which has turned into one of the world’s most profitable. Russia has kept its production, which includes gas condensate, near post-Soviet highs as its producers benefit from getting the bulk of their export revenues in dollars while most of their expenditure is in the domestic currency. On Friday, Bashneft, a medium-sized Russian oil producer, posted a 13 percent increase in second quarter net profit to 17.9 billion roubles ($272.7 million), following strong results by Gazprom Neft earlier this month. Bashneft, Russia’s fastest growing oil firm by output, saw its average oil production at 387,500 barrels per day (bpd) in the second quarter, up from 350,900 bpd the same period a year ago. Gazprom Neft, the oil arm of state gas producer Gazprom , had earlier reported a 47 percent increase in the second quarter net profit, also on the weak rouble, and its output jumped 25 percent. Net profit at Surgut was flat in the first half of the year at 135 billion roubles. “In our global energy universe, the Russian oils screen (rank) strongly versus global peers on most metrics: highest free cash flow yields, dividend yields, lowest leverage, and lowest sensitivity to changes in oil prices,” Goldman Sachs said in a report earlier this month.

From Russia to Iran, the consequences of the global oil bust -- While we have been watching the Islamic State and discussing Iran, something much bigger is happening in the world. We are witnessing a historic fall in the price of oil, down more than 50 percent in less than a year. When a similar drop happened in the 1980s, the Soviet Union collapsed. What will it mean now? Nick Butler, former head of strategy for BP, told me, “We are in for a longer and more sustained period of low oil prices than in the late 1980s.” Why? He points to a perfect storm. Supply is up substantially because a decade of high oil prices encouraged producers throughout the world to invest vast amounts of money in finding new sources. Those investments are made and will keep supply flowing for years. Leonardo Maugeri, former head of strategy for the Italian energy giant Eni, says, “There is no way to stop this phenomenon.” He predicts that prices could actually drop to $35 per barrel next year, down from more than $105 last summer. A primary reason for the accelerated price decline is that Saudi Arabia, the world’s “swing supplier” — the one that can most easily increase or decrease production — has decided to keep pumping. The Saudis “know it hurts them but they hope it will hurt everyone else more,” says Maugeri, now at Harvard. One of Saudi Arabia’s main aims is to put U.S. producers of shale and tight oil out of business. So far, it has not worked. Though battered by plunging prices, U.S. firms have used technology and smart business practices to stay afloat. The imminent return of Iran’s oil — which markets are assuming will happen, but slowly — is another factor driving down prices. So is the increasing energy efficiency of cars and trucks.

Iran says an OPEC emergency meeting may stop oil price slide -  – Iran’s Oil Minister, Bijan Zanganeh, said on Sunday that holding an emergency OPEC meeting may be “effective” in stabilizing the oil price, Iran’s oil ministry news agency Shana reported. Algeria said earlier this month that the Organization of Petroleum Exporting Countries could hold an emergency meeting to discuss the drop in oil prices but other OPEC delegates said no meeting was planned. “Iran endorses an emergency OPEC meeting and would not disagree with it,” Zanganeh told reporters in Tehran, according to Shana. U.S. oil prices fell below $40 a barrel on Friday for the first time since the 2009 financial crisis, pressured by signs of oversupply in the United States and weak Chinese manufacturing data.OPEC is not due to meet until Dec. 4. While OPEC rules say a simple majority of the 12 OPEC members is needed to call an emergency meeting before then, some OPEC delegates say a meeting is unlikely unless Saudi Arabia is in favor. Saudi Arabia, the world’s top oil exporter, and other Gulf states pushed OPEC’s strategy shift last year to defend market share rather than cut output to support prices.

Iran Prepared To Defend Old Market Share "At Any Cost" -- Iran’s oil minister says his country supports calls for an emergency OPEC meeting to explore ways to shore up the price of oil, but even without such an effort, Tehran is willing to regain its market share “at any cost.” Iran once was OPEC’s second-leading producer, after Saudi Arabia, but output has plunged since 2012, when international sanctions forbade any country or energy company to buy, ship, finance and insure its crude because of Tehran’s nuclear program. In 2011, Iran’s output was 3.7 million barrels per day. With the sanctions, production dropped to 1.2 million barrels per day. Iran and six world powers – Britain, China, France, Germany, Russia and the United States –reached an agreement in July on controlling that program and lifting the sanctions, probably by early 2016. Oil Minister Bijan Zanganeh has said repeatedly that his country can quickly boost production by more than 1 million barrels per day within a month after the sanctions are lifted. This could further depress the price of oil, which has dropped precipitously since summer 2014. Already there is a glut of oil, and OPEC members lately have been producing at near-record levels. The group already is exceeding its output cap of 30 million barrels a day by at least 1.5 million barrels per day. Once Iran returns to the market, the price probably will fall further. So be it, Zanganeh said in Tehran on Aug. 23. “We will be raising our oil production at any cost and we have no other alternative,” he was quoted by his ministry’s website, Shana. “If Iran’s oil production hike is not done promptly, we will be losing our market share permanently.”

Why Water Is More Important To Iran's Future Than Oil - Iran is working from a considerably weaker – and more arid – position than the United States. Though economic promise is on the horizon, the crippling effects of international sanctions still handicap the water-poor nation of 78 million. What’s worse, the current drought, which stretches back more than two decades, shows no signs of letting up. The World Resources Institute projects a 20 percent decrease in water supply across much of Iran toward 2040. Conversely, it sees demand rising by as much as 70 percent in that time. The future demand profile – still mostly agricultural with a controversial sprinkle of nuclear power generation – is of little consequence if the nation can’t source water. With reservoirs at 40 percent and several rivers running dry, Iran will have to get creative. In that regard, and with the pending normalization of international business relations, the water sector represents a prime growth engine for both Iran and outside investors. Few concrete deals of any kind have emerged as the Joint Comprehensive Plan of Action finds its footing, but wastewater and sewage treatment, pipeline construction, irrigation, desalinization, bottled water, and general efficiency are all spheres to watch as Iran makes its grand reentrance. Because it’s the water that will determine Iran’s future, and not it’s oil and gas (or nuclear).

OPEC is producing at a loss, Ecuador admits -  Member nations with the Organization of Petroleum Exporting Countries (OPEC) are feeling the financial stress created by low oil prices and many, such as Equador, are now pumping oil at a loss.  As reported by FuelFix, earlier this week Ecuador President Rafael Correa said that while production costs average about $39 per barrel, the country is fetching as little as $30 per barrel for its crude. The statement, which some might heed as a warning, comes after several OPEC members, including Algeria and Libya, called for an emergency meeting to address the drop in oil prices. In a speech, Correa said, “We are going through a very difficult year economically because the price of oil collapsed.” Following concerns regarding China’s financial sector, the persisting oil price slump and the growing supply glut, international benchmark Brent crude prices fell to a six-year low of less than $45 per barrel. According to OPEC, the average selling price for the group’s crude is $40.47. By output, Ecuador is OPEC’s second-smallest member with production levels of 538,000 barrels per day for last month. On Wednesday, the country’s crude blend sold for $36.32 compared to $43.21 for Brent crude, a higher quality blend. Other OPEC members are also fetching prices below the Brent benchmark due to the crude being a heavier weight or containing more sulfur. According to data compiled by Bloomberg, Saudi Arabia sells several grades of crude at prices from $37 to $39 per barrel to U.S. buyers, and Iraqi blends can sell for as low as $34 per barrel. According to the International Monetary Fund, both Algeria and Libya need about $120 per barrel to cover government spending plans, and Kuwait can make due with less than $50. Saudi Arabia, on the other hand, needs around $100 per barrel to balance its budget. However, the state finds some padding with minimal debt and foreign exchange reserves.

Without Saudi support, talk of OPEC emergency meeting is just noise – Once upon a time, talk of an emergency OPEC meeting would have rippled through oil markets, likely triggering at least a brief rally in prices. The last extraordinary meeting to discuss a price slump, in 2008, resulted in the Organization of the Petroleum Exporting Countries’ largest ever production cut, paving the way for prices to double within a year. Nowadays, however, calls for an unscheduled meeting to address spiraling prices are more a sign of growing friction within the group than a leading indicator of policy action. Although OPEC’s statutes say support from a simple majority of the 12 members can trigger an extraordinary meeting, none will occur without support from Saudi Arabia, which has yet to give its blessing, OPEC delegates say. With oil falling further, support is growing among non-Gulf members for action and even some Gulf officials are concerned about the latest drop in prices. But the top OPEC producer’s policymakers have remained publicly silent. Without the Saudis on board, even some OPEC members who are desperate to shore up prices say an abrupt public gathering is not the way to go and might only make matters worse. “The environment here is not to have any meeting without reaching unity in the position and measures of the majority at least,” said an OPEC delegate.

Oil plunges on China worry, pares losses in volatile trade - – Crude oil futures fell sharply to fresh 6-1/2-year lows on Monday, then pared losses in volatile trading as a dive in Chinese equities sparked more fears of drastically curbed oil consumption even as a supply glut pressures prices. A near 9-percent tumble in China shares roiled global markets and sent the Dow Jones Industrial Average down more than 1,000 points in early trading, before Wall Street pared losses. “China’s drop pushed everything lower and now we’ll see if the bounce by U.S. stocks after the early pull back can stop the slide,” said Phil Flynn, analyst at Price Futures Group in Chicago. Brent October crude was down $2.33 at $43.13 a barrel at 11:37 a.m. EDT (1537 GMT), after plunging to a contract low of $42.51, off 6.5 percent from Friday and the lowest front-month price since March 2009. Off 16 percent in August, Brent is heading for a fourth straight monthly loss. U.S. October crude was down $1.94 at $38.51, after falling to $37.75, off 6.7 percent from Friday and weakest front-month price since February 2009. U.S. crude is on pace for a 17 percent monthly loss posted its eighth consecutive weekly loss on Friday, the longest weekly losing streak since 1986.

Commodities strike six-year lows, set to enter new cycle -- Falling demand, rising production and faltering growth in the world's second-largest economy China have sent many major commodities plummeting to their lowest level since 2009, with some experts predicting the start of a new cycle. Oil prices this week dived to 6.5-year lows as commodities tumbled over concerns that China's slowing economy will curb demand for metals and other vital raw materials which have helped feed its astonishing growth over the past three decades. China's shock devaluation of the yuan two weeks ago stoked fears about its economic expansion, sparking a slump in world equities and sending commodities, as measured by the Bloomberg Commodity Index of 22 raw materials, to a 16-year-low on Monday. Base or industrial metals were among the hardest hit, with aluminium and copper striking six-year lows, while lead and zinc touched their lowest levels in more than five years. Copper prices had already collapsed late last week under the key barrier of $5,000 per tonne for the first time since 2009. "Investor sentiment towards commodities has rarely ?- if ever ?- been more negative. However, the recent sharp falls in prices can largely be seen as the continuation of trends in place since 2011. The main difference is that oil, previously an outlier, has caught up,"

Commodities Slump to 16-Year Low on Mining, Oil Stocks -- A measure of returns from commodities sank to its lowest since 1999 and shares in resource companies tumbled by the most since the financial crisis on concern that a slowing Chinese economy will exacerbate supply gluts. The Bloomberg Commodity Index of 22 raw materials from oil to metals lost 2.2 percent to end the day at 85.8531, the lowest closing since August 1999. Shares in miners and explorers including Glencore Plc, BHP Billiton Ltd. and Exxon Mobil Corp. tumbled while Brent crude fell below $45 a barrel for the first time since 2009. “Sentiment is extremely negative across the commodity complex,” “Markets are plagued by concerns of oversupply.” Raw materials are in retreat as supplies outstrip demand amid forecasts for the slowest Chinese growth since 1990. The largest user of energy, grains and metals was much weaker than anyone expected in the first half of the year, according to Ivan Glasenberg, head of Glencore, the world’s leading commodity trader. The Bloomberg Commodity Index is a measure of returns that takes into account the loss or gain from holding futures contracts as well as the performance of the underlying commodities. A separate gauge that only reflects the change in prices fell 2.2 percent to the lowest since 2009. “It’s being fueled by the large drop in the Chinese stock market today, which is making people nervous about the management of the Chinese economy, which has direct implications for commodities,”

How Significant is China's Consumption of the World's Commodities? -   China is one of the world's largest economies and its consumption of commodities since it joined the World Trade Organization in December 2001 has led to a bull market in commodities, particularly metals and hydrocarbons.  According to the World Bank, here is what has happened to the prices of the three main groups of commodities since January 2011: Here is what has happened to the prices of those three commodity groups since 1980: This graph quite clearly shows us the rise in all three commodity groups during the early 2000s as China started to flex its economic muscle. In 2015, the World Bank expects non-energy commodity prices to fall 12 percent with metals falling 17 percent due to capacity increases as new mines come on stream and as demand from China slows. The largest decline in non-energy commodities is expected in iron ore which will experience a price decline of 46 percent as new low-cost mining capacity comes on stream in Australia. Energy prices are projected to be 39 percent below 2014 levels with declines in natural gas prices in all three main markets in the United States, Europe and Asia. As well, coal prices are expected to fall by 17 percent on a year-over-year basis due to surplus supply and weak demand. Agricultural commodity prices are expected to decline 11 percent in 2015, particularly in edible oils and meals.   Now, let's look at how important China is to the world's commodity markets. Between 2001 - 2002 and 2011 - 2012, China's consumption of key commodities and their share of the world's consumption (in 2011 - 2012) rose as follows:Here is a graph showing how China's primary energy consumption rose at a far faster rate than the rest of the world between 1975 and 2014: Here is a graph showing how the growth in China's coal consumption far outstripped the rest of the world: All of the world's increase in consumption for coal is due to increased demand from China and India; in 2014, China consumed half of the world's coal, up from less than one-third in 2000. Here is a graph showing how the growth in China's metals consumption (aluminum, copper, lead, nickel, tin and zinc) also far outstripped the rest of the world:

BHP Cuts China Steel Forecast to 1 Billion Tons -  Steel production in China will peak at less than 1 billion metric tons as the world’s biggest producer accelerates its transition to a consumer-driven economy, according to a new forecast from BHP Billiton Ltd. Production will peak at between 935 million and 985 million tons in the middle of next decade, the Melbourne-based company said Tuesday, when reporting profit plunged 52 percent. The prediction is as much as 15 percent less than its May estimate that output would peak between 1 billion and 1.1 billion tons in the mid-2020s. The revision by BHP, the world’s biggest miner, contrasts with rival Rio Tinto Group whose most recent forecast is that China will produce 1 billion tons of steel by 2030. The largest mining companies have been wrong-footed on slower growth in China, Glencore Plc Chief Executive Officer Ivan Glasenberg said last week, with demand getting tricky to call. “Our most recent analysis suggested a slight reduction from what we previously spoke about,” BHP CEO Andrew Mackenzie told reporters on a media call Tuesday. “That’s really because the Chinese as we expected are managing the move from investment to consumption I think very sensibly.” Mining companies are confronting a commodities slump that’s hurting profits and shares amid concern that China’s deepening slowdown will undermine demand and exacerbate supply gluts from crude oil to iron ore. Chinese steel production declined 1.3 percent in the first half for this year, triggered largely by a slowing construction sector, BHP said.

China Shares Wipe Out All Gains This Year - WSJ: Chinese stocks suffered their worst single-day loss in more than eight years, shining an unwelcome spotlight on the country’s financial condition at a time when its leaders are putting on two big events meant to showcase China’s global standing. Chinese government media dubbed it “Black Monday,” a surprisingly bleak description to come from the People’s Daily, which normally tries to cushion bad news. The Shanghai Composite Index’s 8.5% loss was its biggest percentage decline since February 2007, leaving the market down 0.8% for the year and down 38% from its mid-June peak. At that point stocks were up 60% for the year, having doubled over the preceding 12 months. Coming on top of a global downturn Friday, it spurred more selling in Europe and Asia. “Compared with the selloff in June and July, when investors still harbored hope of government rescue measures, this time investors are completely despairing because the previous government stabilization measure have failed,”

China’s Black Monday… and the Fed --Xinhua’s words, so it’s official: Black Monday! #ChinaStocks join global panic selloff, dive 8.5%, worst since Asian financial crisis at midday pic.twitter.com/nLHoFf34bV  Yes, China’s stock market just got walloped — off 8.5 per cent today wiping out all of 2015′s gains, lack of expected support being blamed, loads of support now being expected. “Xi put” awaited, albeit with a raised eyebrow.  For some though, the stock market rout doesn’t necessarily matter. We however believe it does, whether due to the knock-ons throughout the economy via a new sense of gov fallibility alongside debt-entanglements (leverage, inflated collateral & unclear risk responsibility, if you will) or simply as a flashing warning sign that something somewhere is going wrong and all flailing by the gov must be for a reason. (And yes, it might be worth relooking at that last idea if China is actively stepping down support and letting the market fall.)But fine, let’s leave that alone and look past the stock market to the underlying slowdown in the economy. And the bloodbath going on elsewhere. As Deutsche’s Jim Reid summarised this morning, with new Fed hike odds included: The fragility of this artificially manipulated financial system was exposed over the last couple of days of last week. It all ended with the S&P 500 falling -3.19% on Friday – its worst day since November 9th 2011. Following on, China has witnessed another remarkable session overnight with the Shanghai Comp (-8.45%) and CSI 300 (-8.56%) tumbling into the midday break, and in turn wiping out YTD gains to dip into negative territory now with the former suffering from the biggest one-day fall since 2007. It’ll be interesting to see if there’s any post lunch quiet intervention from the authorities to stem the losses. There is a similar decline for the Shenzhen (-7.61%) while the Hang Seng (-4.64%), Nikkei (-3.93%), Kospi (-2.48%) and ASX (-3.51%) have all sold off in parallel.

Fading Economy and Graft Crackdown Rattle China’s Leaders - Mr. Zhou’s sudden downfall — he is the first sitting provincial party chief to be purged by Mr. Xi — underscores the uncertainty that permeates the Communist elite as they contend with two unnerving developments beyond their control: an economic slowdown that appears to be worse than officials had anticipated and that could mark the end of China’s era of fast growth, and a campaign against official corruption that has continued longer and reached higher than most had expected.Driving decisions on both issues is Mr. Xi, who took the party’s helm nearly three years ago and has pursued an ambitious agenda fraught with political risk. Now, weeks before a summit meeting in Washington with President Obama, those risks appear to be growing, and there are signs that Mr. Xi and his strong-willed leadership style face increasingly bold resistance inside the party that could limit his ability to pursue his goals.Mr. Xi has positioned himself as the chief architect of economic policy — usually the prime minister’s job — and has vowed to reshape the economy, exposing himself to blame if growth continues to sputter. At the same time, Mr. Xi is making enemies with an anticorruption drive that has taken down some of the most powerful men in the country and sidelined more than a hundred thousand lower-ranking officials.Senior party officials are said to be alarmed by the state of the economy, which grew at the slowest pace in a quarter century during the first half of the year, and now seems to be decelerating further. In a sign of its anxiety, the leadership this month implemented the biggest devaluation of the Chinese currency in more than two decades, sending global markets into plunges.

Asia’s Richest Man Lost Billions in Monday’s Collapse -- The Chinese stock market experienced its biggest slump in eight years on Monday, and the market took several of the world’s billionaires down with it.  Asia’s richest person, Wang Jianlin, lost $3.6 billion over the course of what some have called “Black Monday,” according to theBloomberg Billionaires Index.  Wang lost about $2 billion from the tumble of Dalian Wanda Commerical Property, a subsidiary of the Dalian Wanda Group Corp. that he chairs. Declines in the value of Wanda Cinema Line also hit Wang, whose net worth stood at $31.2 billion at the end of the day. That’s $13 billion lower than his wealth in June, when Chinese stocks peaked, according to CNN.  Wang had plenty of company: the world’s richest 400 people lost a collective $124 billion in Monday’s market correction, according to the South China Morning Post. Bill Gates’ wealth fell $3.2 billion, the second-worst decline among the billionaires, as the Chinese] collapse sent ripple effects through stock markets around the globe. The Dow Jones Industrial Average closeddown nearly 600 points, still an improvement over the 1,000-point drop it saw earlier Monday.

Angry Chinese Investors Capture Head Of Metals Exchange In Predawn Hotel Raid -- Meet Shan Jiuliang.  He’s the head of Fanya Metals Exchange and he was captured in a daring predawn raid in Shanghai on Saturday.  As FT notes, "Fanya is a forum for trading minor metals like indium and bismuth that has also functioned as a shadow banking conduit — not only leveraging metal deposited with the exchange as collateral for loans, but offering high interest investment products to retail investors."  If that sounds familiar to you, it should. Just last week in "The 8 Trillion Black Swan: Is China's Shadow Banking System About To Collapse?," we took a fresh look at the dizzying array of wealth management products and collective trust products that are, together, a CNY17.2 trillion industry in China. Summarizing a (very) long and convoluted story, WMPs are marketed to investors through banks as a high yielding alternative to savings deposits. Investors aren’t often aware of exactly what they’re investing in or how risky it might be or that in many cases, issuers borrow short to lend long resulting in a perpetual case of maturity mismatch.  Here’s FT with the story:  The head of a Chinese exchange that trades minor metals was captured by angry investors in a dawn raid and turned over to Shanghai police, as the investors attempted to force the authorities to investigate why their funds have been frozen. Investors have been protesting for weeks after the Fanya Metals Exchange in July ceased making payments on financial investment products. The exchange, based in the southwestern city of Kunming, bought and stockpiled minor metals such as indium and bismuth, while also offering high interest, highly-liquid investment products from its offices in Shanghai and its financing branch in Kunming.  Some investors flew in from faraway cities to join hundreds more surrounding a luxury hotel in Shanghai before dawn on Saturday. When Fanya founder Shan Jiuliang attempted to check out, they manhandled him into a car before delivering him to the nearest police station. Shanghai police took Mr Shan into custody and promised to work with local authorities in Yunnan province to investigate what has happened to investors’ money. They later released him without charge.

Chinese are hiring surrogate moms in America -  After years of hoping for a baby, Linda Zhang was heartbroken to learn that she and her husband couldn't conceive. She considered tapping China's underground surrogacy network, but was put off by the risks. "Then I heard from friends in the U.S. that surrogacy laws and medical procedures were more advanced there, so I decided to go to America to find a surrogate," Zhang said. Fourteen months later, Zhang and her husband flew back to Shanghai with their newborn son. The Zhangs are part of a growing number of Chinese families that are hiring American women as surrogate mothers, spawning a lucrative industry that spans two continents. "I've never seen anything like what I've seen with the Chinese," said   "It's like an explosion." Paying Americans to carry their children allows Chinese to circumvent their home country's restrictive policies on reproduction -- surrogacy is illegal, and despite recent reforms, families still face penalties if authorities learn they have more than one child. Another incentive: The child is automatically a U.S. citizen, and can sponsor their parents for a green card on reaching the age of 21. While there is currently a debate in the U.S. over birthright citizenship, surrogacy centers interviewed by CNNMoney said they carefully screen applicants, and require couples to demonstrate a medical reason for seeking surrogacy.

China’s economic slowdown -- U.S. stock prices as measured by the S&P500 fell almost 7% last week. What’s going on?  Center stage seems to be China’s stock market, where equities have lost about a third of their value since June 12. Though even after that loss, Chinese stocks are still up 57% from a year ago. If you believed that China had been experiencing a bubble that’s now in the process of popping, you might have expected to see a graph just like that one. China’s economic growth has certainly slowed, and some of the recent indicators raise concerns. China’s Manufacturing Purchasing Managers’ Index fell to 47.1 in August. A value below 50 means that more establishments are reporting a drop in indicators like orders, output, and employment than are reporting increases. A value below 47 hasn’t been seen since the Great Recession, though it’s often come close to its current value without necessarily signaling anything. Rail shipments are also down, and the rate of growth of electricity production has slowed.  Chinese leaders’ worries about a slowing economy likely figured prominently in China’s decision to devalue the yuan on August 10. If China’s economy is slowing significantly, it has huge implications for markets around the world. Concerns about a Chinese downturn were likely key not just in the recent U.S. stock market decline but for a host of other indicators as well. The yield on 10-year U.S. Treasuries has fallen 20 basis points since August 10, and West Texas Intermediate has dropped $4.50/barrel.  China’s changing demographics have to mean a slower economic growth rate. Coming off an apparent bubble in real estate and stock markets is clearly going to make it a challenge to manage a smooth landing.

Too much debt, part II -- "China to flood economy with cash" reads today's WSJ headline. When you read the article, however, you find it's not quite true. China to flood economy with debt is more accurate.The expected move to free up more funds for lending—by reducing the deposits banks must hold in reserve—is directly aimed at countering the effects of a weaker currency, The People’s Bank of China’s latest planned move, which could come before the end of this month or early next month, would involve a half-percentage-point reduction in banks’ reserve-requirement ratio, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans. I had hoped the world learned this lesson in the financial crisis. Equity is great. When things go bad, shareholders lose value by prices falling, but they cannot run and the firm cannot fail if it does not pay equity holders.  Financial crises are always and everywhere about debt, especially short term debt. Lending more, encouraging more bank leverage, reducing reserves and margin requirements, means that when the downturn comes a needless wave of runs and defaults follows.  Inevitably, it seems, another downturn will come, another set of books will have been found to have been cooked, and then we will find out who lent too much money to whom. US investment banks, 2008, strike one. Greece, 2010, strike 2. China, 2015, strike 3? Do we no longer bother closing the barn doors even after the horse leaves?

Foreign automakers brace for China slowdown -  Foreign automakers are bracing themselves for declining sales as China's economy slumps. BMW, Volkswagen, and Peugeot have all reported slowing sales in recent earnings reports, and Ford singled out the Chinese economy as a major risk. Sales of passenger cars fell nearly 7% in July to their lowest level in 17 months, while production tumbled nearly 12%, according to the China Association of Automobile Manufacturers. Weak sales reflected the slowdown in economic growth, according to Barclays auto analysts, and there's little sign of improvement in the short term. "We believe the sluggish auto sales will continue until at least the end of 2015 given a lack of evidence supporting economic stabilization or recovery," they wrote in a research note. Volkswagen, the world's largest automaker, has seen its stock tumble around 12% in a month. Mercedes owner Daimler and BMW have suffered similar falls, while Japan's Toyota is down nearly 19% over the same period. Rising wages in recent years fueled a car buying spree in China. Auto sales ballooned an astonishing 24% a year on average from 2005 to 2011, making China the world's largest car market, ahead of the U.S., according to McKinsey.

What’s Scarier Than a Strong China? A Weak China. --  China’s “black Monday,” the Shanghai Composite’s largest fall since 2007, is being felt around the world today—from a tumble in the Dow Jones, to a drop in oil prices, to an alarming crash of the South African rand—as investors weigh fears that the Chinese economic downturn may be worse than originally feared.  All of this highlights the paradox of international competition in an era of economic interdependence: Americans may be alarmed by Beijing’s economic and political rise and know-nothing, populist presidential candidates can count on easy applause for pledges to “beat China,” but when China actually does take a tumble, Americans feel it in their pocketbooks and portfolios. The latest economic distress is happening at the same time as heightened geopolitical tensions involving Beijing. The U.S. is becoming increasingly assertive in challenging China’s activities in the South China Sea, which have alarmed its southern neighbors. And China has been ramping up its World War II-themed patriotic displays in what seems like an attempt to needle Japan’s nationalist Prime Minister Shinzo Abe at a time when he’s pushing changes to his own country’s pacifist World War II-era constitution. The economic turmoil of the past few weeks has dealt a blow to the image of China’s leaders as competent stewards of the country’s economic rise, and President Xi Jinping looks powerless in the face of economic forces.   If Xi feels threatened by a lack of support at home, he could ramp up his purge of potential rivals. The bigger fear if there’s a long-turn economic downturn is social instability. But thanks to steady growth, public anger over economic conditions hasn’t been a major problem over the last 25 years. It could be soon: Chinese investors, who were strongly encouraged by the state-run media to put money in the market during the country’s boom, are already venting their anger online.

Record capital flight from China as industrial slump drags on - Telegraph: Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency. The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress. Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar. Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows.  Mr Zhao said the PBOC had intervened “very aggressively” to stabilise the currency and prevent the devaluation getting out of hand, but this automatically tightens monetary policy. The central bank will almost certainly have to cut the reserve requirement ratio (RRR) for banks to offset the loss of liquidity, with some analysts expecting action as soon as this weekend.

How to Create a Chinese Economic Crisis in Three Easy Steps - First, peg the Chinese yuan to another currency that has been rapidly appreciating over the past year... ...this will choke the tradeable sector... ...and really put a damper on nominal spending growth. Second, respond to the above economic weakening by easing domestic monetary conditions. Over the past year, the People's Bank of China has done so with five cuts to its prime lending rate and several large reductions in the required reserve ratio for banks. Third, allow nervous investors to pull their capital out of China. Investors have come to expect a large yuan devaluation given the above developments. For the easing of domestic monetary conditions has put downward pressure on the yuan while the dollar peg has pushed it up inordinately high, creating an imbalance. The only way China can maintain this imbalance is to defend its dollar peg by burning through its foreign exchange reserves... ...a response that becomes more expensive the the tighter Fed policy becomes... ...but there is a limit to burning through these assets since China still needs some foreign reserves buffer.  Ambrose-Evans Pritchard reports some observers are already wondering if China is getting close to its buffer limit. If so, China will be forced to devalue. This is what investors are now expecting and therefore are eager to get out. This puts further pressure on China's stock of foreign reserves. Note that devaluing the yuan will be costly too. Many Chinese firms, previously expecting the dollar peg to hold, have taken out lots of dollar denominated debt. So either China burns through its reserves or it increases the private sector's real debt burdens. There are no easy choices here.  China, in short, has backed itself into a corner because it has attempted to do all three goals of the impossible trinity...

Political Risks May Foil Economic Reform in China - Can China pull it off? A couple of weeks ago, the International Monetary Fund told the world that China was essentially doing O.K. It is “transitioning to a new normal,” the I.M.F. said in its regular economic assessment, toward “slower but safer and more sustainable growth.” The main risk, it argued, was that the Chinese government’s push for economic reform might prove “insufficient.” It seems this is a pretty big risk. Financial markets were shaken by China’s decision to abruptly devalue its currency on Aug. 11, days ahead of the publication of the I.M.F. report. For all the I.M.F.’s assurances that this was a minor adjustment after a sharp appreciation of the currency until then, a welcome step that “should allow market forces to have a greater role in setting the exchange rate,” investors seem to have taken it as an unsettling signal that the Chinese authorities are desperate. Nobody believes China’s official statistics anyway. What if the country’s economy is slowing faster than anybody knows? Developing countries — already reeling from the collapse of China’s demand for their raw materials — could feel the screws tighten further. And if China resorted to further devaluations to bolster exports and work itself out of an economic morass, it would undercut growth worldwide.

China's workers abandon the city as Beijing faces an economic storm - Liu Weiqin swapped rural poverty for life on the dusty fringes of China’s capital eight years ago hoping – like millions of other migrants – for a better future. On Thursday she will board a bus with her two young children and abandon her adopted home. “There’s no business,” complained the 36-year-old, who built a thriving junkyard in this dilapidated recycling village only to watch it crumble this year as plummeting scrap prices bankrupted her family. “My husband will stick around a bit longer to see if there is any more work to be found. I’m taking the kids.” Following a stock market rout dubbed China’s “Black Monday”, government-controlled media have rejected the increasingly desolate readings of its economy this week. “The long-term prediction for China’s economy still remains rosy and Beijing has the will and means to avert a financial crisis,” Xinhua, the official news agency, claimed in an editorial. Meanwhile, Li told the state TV channel CCTV that “the overall stability of the Chinese economy has not changed”.The evidence in places such as Nanqijia – a hardscrabble migrant community of recyclers about 45 minutes’ drive from Tiananmen Square – points in the opposite direction. “It’s the worst we’ve seen it. It’s even worse than 2008,”

Somebody in China Has Set Up a Fake Goldman Sachs and Is Doing Business -- China has been known for ripping off designer goods, iPhones and even public sculpture. Now, financial companies can start worrying about having a Chinese counterfeit too.American multinational financial giant Goldman Sachs Group Inc. appears to share an English name with Goldman Sachs (Shenzhen) Financial Leasing Co., a financial services company based in the southern Chinese city of Shenzhen. The company also uses the same Chinese moniker (Gao Sheng) as the American one, and even has a similar font for its logo, according to Bloomberg.A spokeswoman for the American Goldman Sachs, Connie Ling, told Bloomberg that there is no connection between the two companies. A secretary at the Shenzhen company told Bloomberg that no one had ever inquired with her about the similarities.Name-poaching isn’t the only controversy the company has encountered — it has also been accused of dabbling in money-laundering.The company first came to light when a U.S. casino workers’ union sent a letter to the Chinese government complaining that the Shenzhen company was linked to the notorious gaming figure Cheung Chi-tai. Chinese prosecutors allege that Cheung in turn has links to organized crime and he is awaiting trial, Bloomberg says.

China fears and global growth doubts grip markets - Markets will be watching for China's next move as signs of a slowdown in the world's second-largest economy stack up, raising expectations it will act to stoke growth. A looming snap election in Greece and a closely watched conference hosted by the Federal Reserve in the United States are also likely to keep investors on their toes next week, in particular as they look for hints on when the U.S. will raise interest rates. Fears that Chinese growth is weakening, dragging down the global economy with it, are already hammering commodities and world stock markets. Both tumbled on Friday after a survey showed Chinese manufacturing slowed the most since the global financial crisis in 2009 - adding to other worrying clues about the country's health, including its falling exports. China devalued the yuan earlier in August, by pushing its official guidance rate down 2 percent. The central bank has said there was no reason for the currency to fall further, but investors are also bracing for further interest rate cuts.

IMF official says 'premature' to speak of Chinese crisis - Reuters: China's economic slowdown and a sharp fall in its stock market herald not a crisis but a "necessary" adjustment for the world's second biggest economy, a senior International Monetary Fund official said on Saturday. Fresh evidence of easing growth in China hammered global stock markets on Friday, driving Wall Street to its steepest one-day drop in nearly four years. "Monetary policies have been very expansive in recent years and an adjustment is necessary," said Carlo Cottarelli, an IMF executive director representing countries such as Italy and Greece on its board. "It's totally premature to speak of a crisis in China," he told a press conference. He reiterated an IMF forecast for a 6.8 percent expansion in the Chinese economy this year, below the 7.4 percent growth achieved in 2014. "China's real economy is slowing but it's perfectly natural that this should happen ... What happened in recent days is a shock on financial markets which is natural," he added. China's stock markets have fallen more than 30 percent since mid-year. Following a slew of poor economic data, Beijing devalued the yuan in a surprise move last week. Cottarelli said the IMF would discuss in coming months with Chinese authorities their decision to weaken the currency. China is eager for the yuan to join the IMF's Special Drawing Rights basket of currencies. But the fund is considering extending the current SDR basket by nine months until September 30, 2016.

On China, and Preventing the Financial Runs of August -- Commodity prices, which have been driven by China’s business cycle, have come down as expectations of growth decline. If my assessment of Chinese policymaker priorities are correct, growth should not slow too much more, putting a floor on commodity prices. I hope that’s correct, because commodity exporting emerging markets have been for years buoyed by Chinese demand. Should my (political) assessment prove wrong, then we should expect a lot more stress on emerging market currencies and foreign exchange reserves (even more than documented in this post).  I anticipate further shifts of funds to US safe assets as herd behavior takes hold. [1] In this sense, my biggest fears surround the potential runs of August. This is where US policy comes into play. My hope is that this time around, the Fed does put higher weight on the rest of the world. I’ve already recounted the reasons why the Fed should not raise rates on the basis of domestic factors (a persistent output gap). And the dollar appreciation has already depressed aggregate demand, as discussed in this post. There is no need for a rapid tightening of monetary policy.  In addition, I would say US and Chinese policymakers have to tread very careful. Irresponsible calls to cancel state visits, or to impose sanctions because of vague allegations of plots to undermine the US (as in this case) carry the risk of sparking even greater global financial turmoil. With the world economy running on one and a half engines – the US and (kind of) Europe – further financial stress due to Fed tightening (or bellicose political language) is the last thing we need.

Chinese stocks tumble for a second day after global fall - Chinese stocks have plunged for a second day after worries over China's slowing growth triggered a global sell-off. The Shanghai Composite, China's main stock exchange, fell 7.6% on Tuesday - after losing 8.5% on what state media have called China's "Black Monday". It was the worst fall since 2007 and caused sharp drops in markets in the US and Europe Tokyo's Nikkei index had a volatile day, closing 4% lower.  The Shanghai index ended the day 245 points lower at 2,964.97. After decades of rapid growth, China is slowing down, and investors globally are worried that firms and countries which rely on high demand from China - the world's second largest economy and the second largest importer of both goods and commercial services - will be affected.

China Poised to Raise Banks’ Liquidity to Boost Lending - WSJ: The People’s Bank of China is preparing to flood the banking system with liquidity to boost lending, according to officials and advisers to the central bank, as its recent currency moves are squeezing yuan funds out of the market and renewing concerns over capital leaving Chinese shores. The planned step—which involves cutting the deposits banks are required to hold in reserve—signals that the Chinese central bank’s exchange-rate maneuvering in the past two weeks is backfiring, forcing it to again resort to the reserve-requirement reduction, the same easing measure that so far has failed to help spur economic activity. The move, which could come before the end of this month or early next month, would involve a half-percentage-point reduction in the reserve-requirement ratio, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans. It would be the third comprehensive reduction in the reserve requirement this year. Another option being considered at the PBOC is to target the cut only at banks that lend large amounts to small and private businesses—the ones deemed key to China’s future growth—though such a strategy hasn’t proven effective in the past in channeling credit to those borrowers.  One concern the Chinese central bank has over further lowering the reserve-requirement ratio is that, in theory, releasing more liquidity could add to the depreciation pressure on the yuan. But right now, the PBOC’s bigger worry is over the liquidity squeeze as a result of its recent yuan intervention—actions that have resulted in yuan funds being drained from the financial system. That, on top of fresh signs of capital outflows, is threatening a shortage of funds at Chinese banks, causing greater market jitters. To ensure ample liquidity, the central bank is poised to cut the reserve-requirement again.

Global Stock Markets Rebound Despite Continued Sell-Off in China - The New York Times: The Latest:

• ■ In China, the benchmark Shanghai composite index closed 7.6 percent lower.
• ■ Chinese officials responded by cutting interest rates and easing banks’ reserve requirements.
• ■ Most other markets in Asia stabilized or rallied modestly. An exception was Japan, whose stocks closed down 4 percent.
• ■ European equities rebounded, clawing back some of Monday’s losses. The Euro Stoxx 50 rose 4.1 percent in midday trading. In London, the FTSE 100 rose 3.1 percent.
• ■ The international and American oil benchmarks rebounded, despite concerns about oversupply.
• ■ In the United States, where the Standard & Poor’s 500-stock index closed down nearly 4 percent on Monday, futures contracts were pointing to a higher Wall Street opening on Tuesday.

Is China blinking?, and other developments --

• 1. The forces within the government who want to let stock prices adjust are winning.  Intervention is expensive, and so far it hasn’t achieved valuable ends.
• 2. The Chinese central bank is cutting interest rates for the fifth time since November.  Additional liquidity is flowing, but where to?  The Prime Minister by the way must sign off on every rate cut.
• 3. China is cracking down on underground banks and capital flight.  See #2.
• 4. The allowable rates on term deposits one year and longer have been raised.  This will help limit capital flight but squeeze the profits of the banks.  See #3 and #2.
• 8. You can think that China is in for a very bad recession, as I do.  But do not forget that countries hold most of their wealth in the form of human capital, China too.  That said, the conversation will now switch to the Chinese currency, and soon.  Some Chinese agencies are talking about the yuan at seven or eight to the dollar (video at the link, sorry)

Renminbi looms large behind latest China easing - FT.com: The timing of China’s twin easing measures, announced late on Tuesday, appeared to chime with the view that Beijing had blinked in the face of tumbling stocks. Earlier in the day, the Shanghai Composite had dropped 7.6 per cent, marking its steepest two-day slide in almost 20 years. However, some analysts are pointing the finger instead at the renminbi, and the mounting costs of supporting the Chinese currency following this month’s devaluation. China stunned global markets on August 11 when it announced a 1.9 per cent cut to the daily fixing rate around which it allows the renminbi to trade against the US dollar, the largest drop on record. Further cuts came on the following two days, raising fears that Beijing was embarking on a competitive devaluation to boost exports in the face of slowing economic growth. In the space of just three days, the renminbi weakened by 3.8 per cent to its lowest since mid-2011. Since then, the renminbi has been roughly flat against the dollar, even as other emerging market currencies have fallen sharply. Many analysts attribute the steadier exchange rate to intervention by the People’s Bank of China. But selling US dollars to buy renminbi has become an increasingly costly endeavour for Beijing, in terms both of ebbing foreign exchange reserves — albeit still by far the world’s largest — and renminbi liquidity within China. “The battle to stabilise the currency has had a significant tightening effect on domestic liquidity conditions,” said Wei Yao, economist at Société Générale, in a note. “The PBoC’s war chest is sizeable no doubt, but not unlimited. It is not a good idea to keep at this battle of currency stabilisation for too long.”

China Stunner: Real GDP Is Now A Negative -1.1%, Evercore ISI Calculates -- With Chinese data now an official farce even among Wall Street economists, tenured academics, and all others whose job obligation it is to accept and never question the lies they are fed, the biggest question over the past year has been just what is China's real, and rapidly slowing, GDP - which alongside the Fed, is the primary catalyst of the global risk shakeout experienced in recent weeks. One thing that everyone knows and can agree on, is that it is not the official 7% number, or whatever goalseeked fabrication the communist party tries to push to a world that has realized China can't even manipulate its stock market higher, let alone its economy. But what is it? Over the past few months we have shown various unpleasant estimates, thelowest of which was 1.6% back in April. Today we got the worst one yet, courtesy of Evercore ISI, which using its own GDP equivalent index - the Synthetic Growth Index (SGI) - gets a vastly different result from the official one, namely Chinese growth of -1.1% annually. Or rather, contraction.To wit, from Evercore: Our proprietary Synthetic Growth Index (SG!) fell 1.1% mim in July, and was also down 1.1% y/y. No wonderglobal commodities are so weak. The most recent 18 months have been much weakerthan the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% yly. And, it is not improving, Most worrisome to us; the 'equipment' portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.

Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks -- On August 11, China devalued its currency, and in the subsequent 3 days the onshore Yuan, the CNY, tumbled by some 4% against the dollar. Then, as if by magic, the CNY stabilized when China started intervening massively, only this time not through the fixing, but in the actual FX market. This means that while China has previously been dumping reserves as a matter of FX policy, after August 11 it was intervening directly in the FX market, with the intervention said to really pick up after the FOMC Minutes on August 19, the same day the market finally topped out, and has tumbled into a correction since then. The result was the same: massive FX reserve liquidations to defend the currency one way or the other. And yet something curious emerges when comparing the traditionally tight, and inverse, relationship between the S&P and the Treausry long-end: the tumble in stocks has not been anywhere near as profound as the jump in yields. In fact, the 30 Year is wider now than where it was the day China announced the Yuan devaluation. Why is that? We hinted at the answer on two occasions earlier (here and here) and yet the point is so critical, and was missed by virtually all readers, that it deserves to be repeated once again: as part of China's devaluation and subsequent attempts to contain said devaluation, it has been purging foreign reserves at an epic pace. Said otherwise, China has sold an epic amount of Treasurys in the past two weeks.

China’s central bank is fighting against the waves of cash flowing out of the country -- In the immortal words of the nuns in The Sound of Music, how do you hold a wave upon the sand? Central bankers in China would like to know, as they struggle to stop the tide of speculative capital now flowing out of the country.  Earlier today (Aug. 25), the People’s Bank of China cut the bank reserve requirement for the third time this year, and slashed benchmark lending and deposit rates for the fifth time since November. Coinciding with the stock market rout in Shanghai, there is a whiff of panic in the air.  Along with the PBoC’s surprise devaluation on Aug. 11, these moves are designed to boost liquidity and, thereby, to juice lending. In particular, the cut to the reserve ratio requirement (RRR), as it’s known, was widely anticipated due to huge sums of money that are fleeing the yuan right now, upping the risk of mass defaults or a June 2013-style cash crunch.  Today’s worries date back to the global financial crisis. As Chinese GDP growth hit double-digit rates—even as most other countries foundered—speculative inflows washed into China to profit from high onshore interest rates and the rapid appreciation of the yuan against the dollar. Much of it masqueraded as trade finance, as we have explained previously.  Data on foreign bank loans to China capture some of this activity. As you can see, starting in 2014, those flows began reversing: In July, foreign currency held by Chinese financial institutions shrank by 249 billion yuan ($39 billion), the biggest monthly drop since on record:

China devaluation stirs deflation fears - FT.com: What is behind global financial markets’ extreme moves since China’s decision to allow its currency to move to a managed float? One explanation is that investors increasingly fear global disinflation is not a dragon that has been slain by muscular central bank measures, but a phoenix that is rising from the ashes. Certainly, the direct impact of the renminbi fall on US and European inflation and economic activity — even if it extends to 10 per cent — is too small to justify the large falls seen in bond yields and inflation gauges.  The weight of China’s currency in the trade-weighted dollar and euro is about 20 per cent and, as a rule of thumb, a 10 per cent rise in the trade-weighted dollar and euro takes about 0.5-0.6 per cent off inflation and real GDP growth over 18 months. So even if the renminbi is devalued by 10 per cent, the effect would be to cut US and European inflation and growth by only 10 or 20 basis points over a year, other things being equal. The same is true of the fresh fall in commodity prices. Yes, further weakness in commodities also weakens the near-term inflation outlook. But such falls wash out of year-on-year inflation data over time as base effects roll forward. And they amount to a tax cut for G10 producers and consumers. So although the renewed fall in commodity prices is striking, and its near-term effects undoubtedly significant, how it can directly justify a fall in long-term yields and inflation forwards is difficult to see. Nonetheless, long-term bond yields and inflation forwards in the US and Europe have been falling quite dramatically. Since the end of June, 30-year US Treasury yields, which should reflect investors’ expectations for long-term inflation and economic growth, have fallen 50 basis points. And this in spite of the fact that two-year yields, which reflect expectations for the path of official interest rates, have barely changed.

China’s Banks Face Worst Year in Over a Decade - WSJ: —China’s biggest lenders are scrambling to clear rising bad loans from their books, as a faltering economy weighs on loan repayments and sets banks on pace for their worst year since they began listing shares 13 years ago. The pace of profit growth at major lenders from January to June dropped sharply from the first quarter. The sagging performance adds to larger concerns about China’s weakening economy that wreaked turmoil across global markets this week, wiping at least $1 trillion off China’s stock market and sending the Dow Jones Industrial Average to an 18-month low. Industrial & Commercial Bank of China, the nation’s largest lender by assets, said Thursday that its net profit in the first half rose 0.6% to 149.02 billion yuan ($23.27 billion), far below the 7% growth in the same period last year and half the rate of 1.4% in the first quarter. Agricultural Bank of China, the country’s third-biggest bank, posted net profit growth of 0.3% to 104.32 billion yuan, compared with 13% a year ago and 1.3% in the first quarter. Profit at Bank of Communications rose 1.5% to 37.32 billion yuan, compared with a 6% gain a year ago. Bank of China  said Friday its first-half net profit rose 1.1% to 90.75 billion yuan, slowing from 11% growth a year earlier.

Why worries about China make sense - FT.com: One must distinguish between what is worth worrying about and what is not. The decline of the Chinese stock market is in the second category. What is worth worrying about is the scale of the task confronting the Chinese authorities against their apparent inability to deal well with the bursting of a mere stock market bubble. Stock markets have indeed been correcting, with the Chinese market in the lead. Between its peak in June and Tuesday, the Shanghai index fell by 43 per cent. Yet the Chinese stock market remains 50 per cent higher than in early 2014. The implosion of the second Chinese stock market bubble within a decade still seems unfinished. (See charts). The Chinese market is not a normal one. Even more than most markets, this is a casino in which each player hopes to find a “greater fool” on whom to offload overpriced chips before it is too late. Such a market is bound to be extremely volatile. But its vagaries should tell one little about the wider Chinese economy. Nevertheless, events in the Chinese market are of wider significance in two related ways. One is that the Chinese authorities decided to stake substantial resources and even their political authority on their (unsurprisingly unsuccessful) effort to stop the bubble’s collapse. The other is that they must have been driven to do so by concern over the economy. If they are worried enough to bet on such a forlorn hope, the rest of us should worry, too. Nor is this the only way in which the behaviour of the Chinese authorities gives reason for concern. The other was the decision to devalue the renminbi on August 11. In itself this, too, is an unimportant event, with a cumulative devaluation against the US dollar of just 2.8 per cent so far. But it has significant implications. The Chinese authorities want room to slash interest rates, as happened this Tuesday. Again, that underlines their concerns about the health of the economy. Another possible implication is that Beijing might seek a revival of export-led growth. I find this hard to believe, since the global consequences would be devastating. But it is reasonable at least to worry about this destabilising possibility. A last possible implication is that the Chinese authorities are preparing to tolerate capital flight. If so, the US would be hoist by its own petard. Washington has sought capital account liberalisation by China. It might then have to tolerate a destabilising short-term consequence: a weakening renminbi.

China’s policy failings challenge the Fed - would be easy to dismiss the recent extreme turbulence in global financial markets as a dramatic, but ultimately unimportant, manifestation of illiquid markets in the dog days of summer. But it would be complacent to do so. There is something much more important going on, involving doubts about the competence and credibility of Chinese economic policy and the appropriateness of the US Federal Reserve’s monetary strategy. These doubts will need to be resolved before markets will fully stabilise once mor The August turbulence was triggered initially by a renewed collapse in commodity prices. For the most part, this was due to excessive supply in key energy and metals markets, and the sell-off only became extreme when there were panic sales of inventories, and a final unwinding of “commodity carry” trades. This inverse bubble was a commodity market event, not a reflection of weak global economic activity. In fact, taken in isolation, it would probably have been beneficial for world growth, albeit with very uncertain time lags. However, that reckoned without the China factor. Activity growth in China had rebounded slightly following the piecemeal policy easing in April, but the data available so far for August suggest that the growth rate has subsided again to about 6 per cent, roughly 1 per cent below target. Although this is very far from a hard landing, it undermined confidence. Furthermore, while overall Chinese activity was not disastrous, the sectors of the economy that were most important for commodities — real estate, construction and manufacturing — were clearly weaker than the expanding services sectors. China pessimists therefore found enough reason to combine commodity price collapses with a weakening manufacturing sector in the country, and claimed that the “inevitable” Chinese hard landing was at hand.

Claims about China  -- Pay close attention to the 500+ stocks in China that are still frozen. Earlier it was reported virtually all these firms borrowed money with pledged stock near the peak of the market in May and June.  If these reports are true, it is likely that given the length of time these stocks have remained frozen, that these firms would be in technical bankruptcy.  That would be a major blow and cause all kinds of panic so clearly something will be worked out to soften the blow here.  These 500 firms might be the epicenter. That is from Christopher Balding, the piece makes other points of interest as well.

UN: China arms firm sold $20M in weapons to South Sudan: — A U.N. panel of experts said that a major Chinese state-owned arms supplier sold more than $20 million of weapons to South Sudan's government last year, several months into the country's deadly internal conflict. The experts' first-ever report, made public Tuesday, says China North Industries Corp., or Norinco, sold South Sudan's government 100 anti-tank guided missile launchers, 1,200 missiles, about 2,400 grenade launchers, nearly 10,000 automatic rifles and 24 million rounds of various types of ammunition. The report also says South Sudan's military has somehow obtained four attack helicopters since the start of the conflict. It had none before then. South Sudan has been at war since December 2013, when a split within the security forces escalated into a violent rebellion led by Riek Machar. Kiir's ethnic Dinka people are pitted against Machar's Nuer, and the ethnic nature of the violence has alarmed the international community. The U.N. Security Council is now considering a U.S.-drafted resolution that would impose an arms embargo on South Sudan if its government doesn't sign a peace deal within days.

The Chinese economy is slowing down and there can be no denying it - The China slowdown is real and central banks pumping up stock markets with cash and confidence is not going to reverse that situation. At some point, investors from Shanghai to New York, via London, will need to recognise that China is no longer a powerhouse for global growth. Unfortunately, it looks as if the Jackson Hole meeting of central bankers in Wyoming this weekend will be an exercise in denial. Monday’s crash and the worst month for the FTSE 100 since 2012 will be considered bumps on the road that can be massaged away with some positive talk and extra dollops of cheap borrowing. The Bank of England governor, Mark Carney, is intent on raising interest rates next year. His talk at Jackson Hole is expected to be a study in calm with an emphasis on the positives messages from the UK economy, which is growing robustly, in the words of most City economists.At the moment, the spotlight is on the Federal Reserve, which is the first in the queue to start raising rates. The US central bank’s message is much the same. Yes, there will be a short delay to the expected date for a first interest rate increase, but all the signals are still pointing towards a normalisation of global growth, wages, inflation and interest rates. There are other signals to consider, however. A shrug is not the appropriate reaction when Ford says it expects annual car sales in China to decline for the first time in 17 years. Likewise when Volkswagen recently revealed its first slide in deliveries to China in a decade. China is the world’s largest car market and a bellwether for the financial health and confidence of most consumers. Chinese car production in June was down 5.3% compared with the previous month, and sales slumped 6.1% over the same period. Not since December 2008, in the depths of the credit crunch, have the production and sales of passenger cars in China declined simultaneously. That should help convince all central bankers that talking up the market is a policy beyond its sell-by date.

Zombie Factories Stalk the Sputtering Chinese Economy - Miao Leijie loses money on each ton of cement his company produces. But stopping production is not an option.When the plant opened in 2011 to supply the real estate and infrastructure industries in the northern Chinese city of Changzhi, the company raised most of the initial money from banks. Now, Mr. Miao, the factory’s general director, needs to keep churning out cement simply so the company can pay the interest on its loans.  Changzhi and its environs are littered with half-dead cement factories and silent, mothballed plants, an eerie backdrop to the struggling Chinese economy.Like many industrial cities across China, Changzhi, which expanded aggressively during the country’s long investment boom, has too many factories and too little demand. That excess capacity, many economists indicate, will have to be eliminated for the Chinese economy to return to healthy growth.But rather than shut down, Lucheng Zhuoyue and other Changzhi companies are limping along in a kind of march of the undead. To protect jobs and plants, the government and its state-owned banks sometimes keep money-losing businesses on life support by rolling over or restructuring loans, providing fresh credit or offering other aid. While this may seem like an odd business tactic, it is part of a broader strategy to help maintain social stability, a major goal of China’s leadership. Authorities in China’s provinces and cities also back struggling factories just because they are deemed important to the local economy. Similar strategies have been tried before, with little success. In Japan, such businesses, known as “zombie companies,” are blamed for contributing to that country’s two decades of economic stagnation. As China allows its own “zombies” to stalk the economy, the situation is clouding the country’s outlook, making it difficult to predict where growth is headed. If the leadership doesn’t address the underlying problem, the economic weakness could be prolonged.

China local pension funds to start investing $313 billion soon | Reuters: China's local pensions funds will start investing 2 trillion yuan ($313.05 billion) as soon as possible in stocks and other assets, Vice Minister of Human Resources and Social Security You Jun said on Friday. China said last weekend that it would allow pension funds to invest in the stock market for the first time, a move that could potentially channel hundreds of billions of yuan into the country's struggling equity market. Up to 30 percent can be invested in stocks, equity funds and balanced funds. The rest can be invested in convertible bonds, money-market instruments, asset-backed securities, index futures and bond futures in China, as well as major infrastructure projects. Vice Finance Minister Yu Weiping told a briefing that the central government would give preferential tax treatment for local pension investment, while safeguarding the safety of pension funds and pursuing diversified investments. Chinese shares plunged more than 20 percent over the past week despite a series of official measures aimed at supporting the market after an early summer crash.

China cuts interest rates, reserve requirement - China took fresh moves to free up money for its slowing economy, after global investors expressed concerns over Beijing's management of the world's No. 2 economy. The country's central bank said in a statement on Tuesday that it cut interest rates by one-quarter of a percentage point and reduced bank-reserve requirements by one-half of a percentage point. The reserve-rate cut effectively adds 678 billion yuan (about $105.7 billion) to the Chinese economy. The PBOC also dropped a key control on rates for some bank deposits, allowing lenders greater freedom to compete for business. The move comes after days of market turmoil in China and around the world, sparked in part by worries that Beijing won't be able to stem market instability or rekindle slowing growth. China's main stock index fell 7.6% on Tuesday after an 8.5% fall on Monday, bringing it down more than 20% over four trading days. Markets from Tokyo to London to New York also fell on Monday, hitting everything from stocks to currencies to commodities, before stabilizing on Tuesday. In a statement posted on its website, the People's Bank of China said the interest-rate cuts were aimed at reducing borrowing costs for Chinese companies, while the cut to bank-reserve requirements were intended to maintain "ample liquidity" in China's financial system. The Wall Street Journal reported on Sunday that the PBOC was planning to flood the market with liquidity.

Central banks ride to the rescue as China intervenes to buy up stocks -  Global markets have all surged as the world's major central banks reassured nervous investors they would continue to prop up the global economy with further easing measures. European stocks rose on Thursday, joining in a global relief rally after one of the most dovish members of the US Federal Reserve hinted the world's largest central bank would step away from a September interest rate rise. Comments from William Dudley of the New York Fed sparked a wave of buying on Wall Street on Wednesday evening, snapping a six-day losing streak which has spilled over into Asia and Europe. Mr Dudley said there was now a "less compelling case" for the Fed's first interest rate hike in nine years, following turmoil in the the equities markets triggered by concerns of a Chinese slowdown.  But he indicated the Fed was still on course to fire the starting gun on a rise by the end of the year.  Beijing's central bank (PBOC) also reportedly moved to prop up the value of its stock market, ending the worst five days of trading in Chinese stocks since the mid-90s.  Chinese authorities seemed to renege on a previous promise to halt stock market intervention by buying up blue-chip stocks.  The Shanghai Composite swung up by 5.3pc in the late hours of Asian trading while Hong Kong’s Hang Seng China advanced 4.6pc during a week of tumultuous trading.

Taiwan to tap $15.3 billion stocks stabilisation fund -  Taiwan on Tuesday gave the green light for a $15.3 billion fund to stabilise its troubled stock market, after fears of a slowdown in China sent shares diving. Taipei shares posted the island's steepest ever intra-day decline on Monday, hit by a rout in Chinese equities that sparked a panic sell-off in European and US markets. In response, the government will use the National Financial Stabilisation Fund, with its Tw$500billion of firepower, to stabilise the market during times of volatility. Beyond that, executive secretary of the restabilisation fund committee Wu Tang-chieh will be left to decide on how to invest, according to a government statement. "The domestic stock market is affected by poor fundamentals internationally and domestically, leading to a drop in investor confidence," Wu said Tuesday, adding that Taipei stocks have been among the main losers in global bourses this year. Taiwan's economy has been slowing, posting its weakest quarter in three years in the three months to June, as weak global demand and rising competition have hurt exports. Shares rebounded by 3.58 percent Tuesday, boosted by the announcement of government intervention, after plunging 7.49 percent at one point on Monday.

Korea's household credit grows at record pace in Q2 -- Household credit in South Korea increased at the fastest clip ever in the second quarter, data showed Tuesday, further adding to concerns that borrowers will take a blow from a much-awaited rate hike in the United States. Household credit totaled a fresh record 1,130.5 trillion won ($948.4 billion) as of end-June, up 32.2 trillion won from a revised 1,098.3 trillion as of the end of March, according to the data compiled by the Bank of Korea (BOK). The monthly increase also marks the sharpest on-month gain since the BOK began compiling the data in 2002. It is also nearly three times bigger than the gain posted three months earlier. Household credit's quarterly gain tends to be relatively slow in the first quarter, when people borrow less after receiving end-year bonuses. Household credit refers to credit purchases and loans extended by financial institutions, including commercial lenders and mutual savings banks. Of the total, household debt reached 1,071 trillion won, also growing a record 31.7 trillion won from the previous quarter. Credit purchases gained 531.5 billion won on-quarter to 59.5 trillion won, compared with a 1.2 trillion won decline three months earlier, according to the central bank.

BOJ should debate acting if yen rises: Abe adviser - A close adviser to Prime Minister Shinzo Abe said Tuesday that the Bank of Japan should consider additional monetary easing if the yen rises sharply, threatening the "Abenomics" growth plan. "Japan doesn't need to react to every change in stock prices, but if this turmoil causes the yen to strengthen sharply, it probably should consider taking monetary policy measures," Koichi Hamada, a Yale University professor emeritus, told The Wall Street Journal in an interview. He declined to say at what yen level the BOJ should act. Mr. Hamada's remarks indicate a shift in Japan's policy debate. Until a few weeks ago advisers to Mr. Abe were expressing worries that additional easing might weaken the yen too much, causing more pain for low-income households and pensioners by making imported food and necessities more expensive. But the mood changed this week as global markets plummeted. Finance Minister Taro Aso on Tuesday described the yen's rise as "rough." A stronger yen could hurt Japanese exporters, which have enjoyed record profits in the past two-plus years as the currency has weakened dramatically. That would deal an extra blow to Japan's economy, which shrank in the three months through June and has struggled to gain traction due to lackluster exports and consumption. The weak yen is seen as a main achievement of Abenomics, a combination of aggressive monetary easing, flexible fiscal spending and planned structural overhauls.

Japan's Kuroda Denies Existence Of Currency War As China Devalues Yuan To Fresh 4 Year Lows, Injects CNY150bn Liquidity -- The night began much like any other morning in Asia - with pure comedy gold from Japanese leadership with BOJ's Kuroda saying he is "not concerned about currency wars, there is no currency war," adding that he has "no plans for further easing." That coincided with a drift lower in Japanese stocks from the US close - but mots of Asian stock markets were green buoyed by America's victory against malicious sellers for the first time in a week. Meanwhile, in China, margin debt drops to a 7-month lows (but is still up 133% YoY). But as rumor-mongers face death squads and any broker caught not buying with both hands and feet faces prison, it is no surprise that Chinese stocks are higher in the pre-open  but large corporate bond issues are being canceled willy nilly even as China devalues Yuan to fresh 4-year lows (6.4085) and adds CNY150bn liquidity. Well yeah apart from China (directly intervening to devalue), Japan (printing $80bn a month doesn't count), Kazakhstan (devalue 25% or die)...

26 natl universities to abolish humanities, social sciences - The Japan News: Nearly half of the 60 national universities with humanities and social science faculties plan to abolish those departments in the 2016 academic year or later, according to a survey conducted by The Yomiuri Shimbun. Of the 60 universities with humanities and social science faculties, 58 responded to the survey and 26 said they had plans to abolish such faculties or convert them to other fields. . The universities will stop recruiting students for a combined total of at least 1,300 places, mainly in their teacher training faculties. Some of these slots will be allocated to newly established faculties. The survey highlighted the wave of reform sweeping over humanities and social science faculties. The Education, Culture, Sports, Science and Technology Ministry issued a notice to national universities this June calling for their humanities and social science faculties to be abolished or converted to other fields. The faculties it sought to have eliminated or converted included law and economics departments and teacher training faculties, both at the undergraduate and graduate levels.

‘Tokyo could end up being surrounded by Detroits’: Near Japan’s biggest city, abandoned homes dot the hills - Despite a deeply rooted national aversion to waste, discarded homes are spreading across Japan like a blight in a garden. Long-term vacancy rates have climbed significantly higher than in the United States or Europe, and some eight million dwellings are now unoccupied, according to a government count. Nearly half of them have been forsaken completely — neither for sale nor for rent, they simply sit there, in varying states of disrepair. These ghost homes are the most visible sign of human retreat in a country where the population peaked a half-decade ago and is forecast to fall by a third over the next 50 years. The demographic pressure has weighed on the Japanese economy, as a smaller workforce struggles to support a growing proportion of the old, and has prompted intense debate over long-term proposals to boost immigration or encourage women to have more children.For now, though, after decades during which it struggled with overcrowding, Japan is confronting the opposite problem: When a society shrinks, what should be done with the buildings it no longer needs? Many of Japan’s vacant houses have been inherited by people who have no use for them and yet are unable to sell because of a shortage of interested buyers. But demolishing them involves tactful questions about property rights, and about who should pay the costs. The government passed a law this year to promote demolition of the most dilapidated homes, but experts say the tide of newly emptied ones will be hard to stop. Once limited mostly to remote rural communities, it is now spreading through regional cities and the suburbs of major metropolises. Even in the bustling capital, the ratio of unoccupied houses is rising.

Australian dollar drops as 'fear takes over' global markets: The Australian dollar's resilience may be over after it fell to a six-year low on Monday after a Chinese sharemarket rout tipped emerging market currencies into further turmoil. The local currency lost one US cent, falling to US72.3¢ as the Chinese sharemarket plunged a stunning 8.5 per cent and the ASX suffered its worst day since the depths of the global financial crisis. Westpac senior currency strategist Sean Callow said the dollar had finally reached a tipping point and was likely to keep heading down. "There's no magic bullet for halting this sell-off because we've probably reached the stage where the fear takes over and feeds on itself."

Rupee plunges 29 paise to close at 2-year low: Riding on global currency volatility wave, the Rupee on Friday plummeted sharply by 29 paise to close at a fresh two-year low of 65.83 against the US Dollar on high demand for greenback from banks and importers. Heightened fears of a China-driven global economic crisis as well as worries of imminent Fed rate hike predominantly kept intense pressure on the domestic currency. Besides, escalating tensions between South Korea and North Korea and weakness in emerging market currencies weighed on sentiments. A combination of domestic factors like growth constraints in the midst of lack of revival in investment climate as well as weak earnings made a strong case for erosion in the Rupee value, forex dealers said. Heavy offloading in portfolios by foreign investors and global traders also led to the sudden Rupee weakness, they added. While, Dollar continued to trade weak against a basket of other major currencies and slipped to a fresh six-week low, following emergence of confusing signals from the US Federal Reserve meet. At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced sharply lower at 65.73 as against Thursday's closing level of 65.54 at the Interbank Foreign Exchange (Forex) market on strong demand for the American unit as well as tracking early sell-off in local stocks. It kept on descending as trading progressed to hit fresh two-year low of 65.91 in mid-afternoon trade before concluding at 65.83, revealing a sharp loss of 29 paise or 0.44 per cent.

India's Central Bank Pledges To Contain Stock Market, Rupee Losses: India's stock markets saw major losses after opening Monday, joining a list of markets worldwide that are reacting to concerns over China’s economic instability and slowdown. The BSE Sensex and the Nifty, India’s two biggest stock exchanges, crashed nearly 4 percent Monday, and the rupee slumped 1 percent to reach a two-year low against the dollar. As of 2:28 a.m. EDT, the Sensex was trading down 3.65 percent at about 26,370 points, and the Nifty had lost 3.75 percent to reach about 8,000 points. The Indian rupee had fallen about 0.4 percent to about 66.5 rupees against the dollar. However, Reserve Bank of India Governor Raghuram Rajan said Monday that the country was in a better position than many other emerging markets. He said that India’s low inflation and strong economic fundamentals would inspire confidence in investors. He added that the central bank would be ready to tap into its reserves to ease the volatility if necessary. "Many of you watching markets this morning worried about volatility... India is in a good condition. RBI won't hesitate to intervene on rupee," Rajan said, according to NDTV. India's Finance Minister Arun Jaitley also sought to quell worries about India's finances, stating the the uncertainty would have only a transient impact on the country, according to reports.

Indian Markets Remain Volatile as Prime Minister Modi Vows Confidence in Economy -- India’s Prime Minister Narendra Modi remains confident that the country’s economy will remain stable despite a global financial decline triggered by China that caused the South Asian nation’s stock market to crash on Monday, Indian Finance Minister Arun Jaitley said.Jaitley said Modi planned to continue his reform agenda and increase public spending, saying in a meeting between top officials that the problem was “external and not internal,” the Press Trust of India reported.India’s benchmark Sensex bourse plummeted 1,624.51 points — almost 6% — Monday to its lowest level since August 2014 at 25,741.56, while the country’s rupee currency fell to its lowest in 23 months at 66.64 against the U.S. dollar.Jaitley’s statement earlier in the day that the crash was only “transient and temporary” appeared to hold true early Tuesday, with a gain of 1.48% bringing the Sensex to 26,124.83 in opening trade. The rupee was marginally bolstered as well, improving to 66.39 against the dollar. However, another slump in China’s Shanghai Composite all but erased those gains by midday local time.  Except for China, where the Shanghai Composite Index saw a massive drop of 8.5% on Monday followed by a 7.6% decline by close Tuesday, most other Asian markets began to bounce back from heavy losses.“Although we are affected being a global economy, all our parameters are strong,” Jaitley said to reporters Monday evening, adding that currency volatility remains the only area of concern. “Our growth will be maintained.”

Indians cry foul over soaring onion prices - FT.com: Global markets may be see-sawing wildly but in India the price of a key asset class is rocketing: onions, a crucial ingredient for most Indian dishes and one of the country’s most politically sensitive commodities. In the past month, onion prices in the vast Lasalgaon wholesale market in Maharashtra, India’s biggest onion-growing state, surged to a new high of Rs57 per kg, up from Rs25 at the end of July. Retail prices are now averaging about Rs80 per kg, raising fears they could cross the Rs100 per kg mark. High onion prices are a big problem for Prime Minister Narendra Modi and his ruling Bharatiya Janata party, ahead of crucial state legislative assembly elections in Bihar. The BJP is hoping for a decisive election victory in Bihar to reaffirm Mr Modi’s popularity and reinvigorate the government, after a difficult year when many crucial reforms have stalled. But high onion prices could sour the public mood in a state that grows few of its own and depends mostly on supplies from other parts of the country. Onion prices have a politically potent history in India: they were considered a decisive factor in the outcome of two state elections in 1998, and were blamed for the fall of the central government in 1980. Mr Modi’s government has blamed the current price spurt on unseasonal rains during the crucial March to June growing season, which yields about 60 per cent of India’s total annual onion production — and provides supplies that are supposed to last consumers until October or November. But critics believe a powerful clutch of traders who control much of India’s onion supplies are working together to manipulate the market and drive up prices, as a 2012 study sponsored by the Competition Commission of India found they had done on occasion in the past.

India tries to calm jittery investors as markets tumble | Reuters: India's policymakers tried to soothe jittery investors on Monday after domestic shares slid nearly 6 percent and the rupee sank to its lowest since late 2013 following a China-led sell-off across Asia. Central bank governor Raghuram Rajan told a banking conference Asia's third-largest economy was in a good position relative to other countries to withstand the current global markets volatility. "India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, very sizeable base of forex reserves," he said. "We will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee." The rupee fell to as low as 66.74 per dollar on Monday, its lowest since September 2013, as Asian markets reeled under fears of a China-led global economic slowdown. The 30-share Sensex dropped 5.94 percent, its biggest daily percentage fall since Jan. 7, 2009. The index fell to as low as 25,624.72 points at one point, its lowest intraday level since Aug. 11, 2014. Finance Minister Arun Jaitley also downplayed the sell-off, calling it "transient and temporary in nature".

Nomura keeps faith in Indian debt as Rajan rejects quick fixes: This year’s biggest drop in Indian bonds is a buying opportunity for Nomura Holdings Inc as the slump in oil improves the nation’s finances and policymakers stand firm on reforms. “Local assets have come under pressure due to the global turmoil, but once this dissipates investors will come back to view India a very positive story,” said Vivek Rajpal, a Singapore-based rates strategist at the Japanese brokerage. Central bank governor Raghuram Rajan responded to the rout saying he would resist calls to give “booster shots” to markets and India will emerge as an “investment destination of choice” once volatility subsides. The 10-year yield jumped the most in eight months on Monday and the rupee tumbled with stocks as investors fled emerging markets. Moody’s Investors Service said on Tuesday, policies to cut inflation and red tape could help the nation win a debt rating upgrade. The 58% drop in Brent crude in a year is helping curb India’s current-account deficit and inflation, improving the outlook for the world’s fastest-growing major economy. Royal Bank of Scotland Group plc estimates state asset sales will enable the government surpass its goal of narrowing the budget deficit to an eightyear low of 3.9% of gross domestic product (GDP) in the fiscal year ending March 2016.

Devaluation fever spreads to Pakistan with rupee hitting 17-month low - Pakistan's rupee sank to the weakest level since March 2014 as the nation became Asia's latest to devalue its currency in a bid to support exports. The rupee depreciated beyond 104 per US dollar in the interbank market, sliding after a Chinese currency devaluation two weeks ago sparked a regional selloff in emerging-market assets. Vietnam devalued last week, as did Kazakhstan in a switch to a free float. Pakistan had kept its currency at about 102 for six months before allowing this week's retreat. "Regional currencies were devalued so ours also followed the same path," said Kamran Zia, head of foreign exchange at Silkbank Ltd., a lender in Karachi. "There was demand from exporters on the government to devalue," which is why the central bank stopped intervening to support the rupee, he said.

Ringgit Sinks With Shares as Oil Keeps Dropping Amid Stocks Rout - Malaysia’s ringgit led losses in Asia and stocks slumped the most in seven years as oil kept dropping amid an equities rout that’s deterring risk-taking. Brent crude slid 3.6 percent following a 7.3 percent loss last week, putting pressure on the government finances of Malaysia, which derives about 22 percent of its revenue from oil-related sources. The Singapore dollar strengthened beyond 3 to the ringgit for the first time as share gauges from China to Germany sank on concern the world growth outlook is worsening. “The ringgit is still pretty much stuck in the perfect storm,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “The fresh plunge in oil prices is once again triggering all the negative dynamics. There’s also very intent focus on eroding foreign-exchange reserves.” The Malaysian currency tumbled 1.9 percent to 4.2630 a dollar in Kuala Lumpur after earlier sinking to a 17-year low of 4.2640, according to prices from local banks compiled by Bloomberg. That took its drop this month to 10.3 percent, the worst performance among 24 emerging-market exchange rates tracked by Bloomberg after Russia’s ruble. The benchmark stock index retreated 2.7 percent to 1,532.14, the most since 2008. The ringgit has weakened 18 percent in 2015 in Asia’s worst performance as a slide in crude prices coincides with a political scandal involving Prime Minister Najib Razak. Global funds have dumped more than $3 billion of Malaysian equities in 2015, the biggest outflow since 2008, and also cut debt holdings in July.

Malaysian sukuk curve steepens as inflation adds to outflow risk -- Malaysia's Islamic bond investors are fleeing longer-dated sukuk as accelerating inflation adds to the risk of outflows amid a global emerging-markets selloff. The difference in yields between 2025 Shariah-compliant securities and three-year debt widened 14 basis points this year to average 67 in August, the most since May 2014. Data last week showed July's inflation rate was the highest in 11 months, while foreign ownership of bonds in Malaysia fell to the lowest since 2012. Longer-dated borrowing costs will rise further as the Federal Reserve prepares to raise interest rates, CIMB Group Holdings Bhd and Asian Finance Bank Bhd. predict. Offerings of Islamic bonds in Malaysia dropped to a five-year low in 2015 as an 18 per cent plunge in the ringgit and a collapse in oil prices made it hard to gauge earnings prospects. "Investors are shortening their duration ahead of the Fed's rate hike,' said Nik Mukharriz Muhammad, a Kuala Lumpur- based fixed-income analyst at CIMB Investment Bank Bhd, a unit of Malaysia's second-biggest lender by assets. ''The fall in the currency, oil prices and the political concern in the country are also not helping."

Thailand to quicken investments worth nearly $47 billion to lift economy -   Thailand will speed up investment in 17 mega projects worth nearly $47 billion in fiscal years 2015 and 2016, the new transport minister said on Wednesday, as pressure mounts on the military-led government to revitalise a flagging economy. Southeast Asia's second-largest economy is yet to regain momentum more than a year after a coup in May 2014 ended political unrest, with exports and domestic demand persistently sluggish. The government will try to open bids for six dual-track rail projects and a motorway this year, while pushing ahead on four electric train lines, Arkhom Termpittayapaisith, appointed last week in a reshuffled cabinet, told reporters. Investments in all the projects will be worth 1.66 trillion baht ($46.66 billion) - stimulus that will be welcomed by investors at a time when a slowdown in China and turmoil in its markets threaten to knock back global growth. Arkhom said some 40 billion baht approved earlier for road repairs should be disbursed from next month, and helping lift the economy in the second half after it grew 2.9 per cent in the first half. All the ministry's investment plans for both fiscal years are expected to boost growth by one per centage point this year, Arkhom said. The fiscal year runs from October 1 to September 30.

Malaysia, Thailand seek to use their currencies in trade, investment -- The central banks of Malaysia and Thailand agreed on Thursday to promote the greater use of their currencies to settle trade between the two countries, in the latest attempt by emerging economies to reduce their exposure to increasingly volatile global markets. The governors of Bank Negara Malaysia and the Bank of Thailand signed a memorandum of understanding to encourage the use of the Malaysian ringgit and Thai baht by the private sector to settle cross-border trades and direct investment, the banks said in a joint statement. The MOU would "establish a framework that will pave the way for greater financial and economic integration in the ASEAN (Association of Southeast Asian Nations) region," the statement said. The arrangement would reduce the risks of exposure to the volatility of global settlement currencies and also lower transaction costs for businesses, it added.  The deal comes as many emerging economies are facing slowing economic growth, weaker stock markets and depreciating currencies.Indonesia said on Thursday it will unveil a policy package intended to prop up the rupiah, which hit another fresh 17-year low, and boost investment at a time Southeast Asia's largest economy faces its weakest growth in six years.

Rupiah slides past 14,000 per dollar - Jakarta Post: President Joko “Jokowi” Widodo invited Indonesia’s top businessmen on Monday to discuss the country’s economy as the rupiah and the Indonesian stock market fell further amid the deepening of the global market rout. In the meeting held at the Bogor Palace in West Java, Jokowi briefed the businessmen about the country’s economic problems and promised to try to fix them. The President did not specifically address the rout in the local financial markets during the two-hour meeting, which was also attended by the governor of Bank Indonesia (BI). However, State-Owned Enterprises Minister Rini Soemarno was reported to have told state companies to buy back part of their shares to prop up falling prices. The Finance Ministry also announced earlier in the day its plan to buy back treasury notes in an effort to calm investors amid the current financial turmoil. The rupiah passed the significant 14,000-mark against the US dollar for the first time since the 1998 financial crisis on Monday as the Jakarta Composite Index (JCI), the main price indicator on the local stock exchange, lost almost 4 percent to close at 4,163.73 as frenzied trading occurred tracking the heavy selling pressure in other Asian markets.

Oil Price Collapse Triggers Currency Crisis In Emerging Markets - Emerging market currencies are getting slammed by the collapse in commodity prices, a downturn that has accelerated in recent weeks. The health of many middle-income and emerging market economies has been predicated on relatively strong commodity prices. A whole category of countries achieved strong growth by exporting their natural resources. For example, Brazil’s impressive economic expansion since the early 2000s, and the huge number of people that were able to jump into the middle class, was made possible by exporting oil, soy, iron ore, beef, and a variety of other resources. High prices for these goods led to more growth, a strengthening of the currency, and a real estate boom in cities like Rio de Janeiro. The same story unfolded in many other commodity-driven economies, from Latin America, to Africa, to Central and Southeast Asia. However, with commodity prices down dramatically from a year ago, growth in these countries has slowed, and their currencies are sharply weaker than they have been in the past. In fact, the fall of Brent crude below $50 per barrel has sparked a sudden downturn in emerging market currencies across the globe. But it isn’t just oil prices slamming currencies. The worries over the Chinese economy, including the plunge in its main stock market this summer, have raised concerns about the vigor of emerging market economies. Worse yet, China’s surprise devaluation has sent shock waves through currency markets around the world. Other countries now feel pressure to let their currencies depreciate, and if they have adhered to a currency peg up until now, some are being pushed to float. Kazakhstan decided to scrap its currency peg last week, and the tenge promptly lost 23 percent of its value against the dollar. Vietnam also devalued the dong. The devaluations tend to have a cascading effect, with other emerging markets coming under increasing pressure from their competitors.

Emerging central banks step in to curb currency falls - Central bankers across emerging markets are being forced into action to stem falls in their currencies, especially after China allowed its yuan to weaken to four-year lows. A JPMorgan index tracking 22 emerging market currencies has hit successive record lows and losses have spiralled this week, forcing currencies to fresh multi-year and record lows, Until recently, policymakers in the developing world, facing sluggish growth and shrinking exports, were relatively sanguine about currency weakness. Now however most are desperate to prevent volatile swings or excessive declines that could exacerbate capital flight and inflation. The following is a list of measures emerging central banks are taking or debating in order to limit currency weakness:

World is still hooked on cheap money - Central bankers are swooping to the rescue of shaky economies, soothing investor panic for now but highlighting a global addiction to easy money. China stepped in to shore up its flagging economy this week a sharp stock plunge and fears about slowing growth triggered waves of selling across global markets. Authorities cut interest rates -- for the fifth time in just nine months -- and lowered the amount banks need to hold in reserve in a bid to boost borrowing. China isn't alone in its actions. Policymakers in countries that produce nearly half the output in the world's $77 trillion economy are working to stimulate lending and spur growth.  Central banks in Canada, India, Australia, and Norway have cut interest rates this year and most of those countries are expected to ease further. Rates in Switzerland have languished in negative territory since late last year. And policymakers in Europe and Japan are printing money as a tool to support growth. The efforts illustrate cracks in the world economy. Five of the seven biggest economies are in cheap money mode, while the U.S. and the U.K. remain stuck in neutral -- at least for now. The U.S. was on track to raise rates as early as next month, but the problems plaguing China and rest of world may put that off. On Wednesday, president of the New York Federal Reserve William Dudley poured cold water on an imminent rate rise, though more clues could come this week when Fed policymakers gather for their annual retreat in Jackson Hole, Wyoming.

‘No market has been spared’: Global investors reach tipping point amid worst U.S. selloff in years: By Friday, it was clear that global financial markets had reached a tipping point, with the sell-off in emerging markets and commodities swamping U.S. shores. The blue-chip Dow Jones Industrial Average fell into correction territory, proving that not even North American markets are safe from growing worldwide anxiety over slowing global growth, a surprise currency devaluation in China, and the continued slump of oil prices.  The Dow fell 530 points on Friday to cement a 10-per-cent decline since early March. The S&P/TSX composite index declined more than five per cent on the week, bringing the Canadian equity benchmark to its lowest level since February 2014. “No market has been spared this week since slowing global growth has a global impact,” said . Looming fears of a hard landing in China hit Canada particularly hard, driving the selloff in oil prices, along with a bearish report on growing crude inventories that helped push U.S. crude futures below US$40 a barrel for the first time since 2009.  But even as investors fled for safety, there was really nowhere left for them to go: The world has officially run out of places for equity investors to find refuge.

Global Stocks Fall Sharply Amid Concerns About the Chinese Economy - WSJ:  A selloff in global stocks gathered pace Monday after the steepest one-week decline in years for many major markets. European stocks and U.S. stock futures fell sharply as a rout in Chinese shares accelerated, wiping out gains for the year. Oil prices continued to drop, while Treasurys gained as investors sought the relative safety of government bonds. Fears that China’s economy is slowing dramatically have sparked heavy selling around the globe in recent days. Beijing’s unexpected move to devalue its currency two weeks ago raised the alarm that the world’s second-largest economy may be in worse shape than many investors had thought. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown.  The Shanghai Composite sank 8.5%, entering negative territory for 2015, having risen as much as 60% to its June peak. Japan’s Nikkei benchmark tumbled 4.6%.

Investors Race to Escape Risk in Once-Booming Emerging-Market Bonds - The large mutual funds that helped fuel rapid growth in developing countries have begun hastily retreating from those investments, contributing to the recent sharp decline in global markets.In the last week alone, investors pulled $2.5 billion from emerging-market bond funds, the largest withdrawal since January 2014.The world’s fastest-growing economies — led by China — have been propelled by soaring commodity prices, robust currencies and access to cheap loans, primarily through the sale of high-yield, high-risk bonds. But China’s decision to devalue its currency has set off a chain reaction of panicked selling around the world that contributed to the biggest one-week loss on Wall Street since 2011, sending the Dow Jones industrial average into correction territory (10 percent below its recent peak). The index was down 531 points on Friday and nearly 6 percent for the week.The currency devaluation increased concerns that growth in China was slowing and that other countries might follow with their own devaluations. The notion unnerved bond investors, who began to retreat out of fear they would not be repaid. General uneasiness about a global economic slowdown spread to stocks, which many have believed to be overvalued and due for a decline.

Making Sense Of The Sudden Market Plunge -- The global deflationary wave we have been tracking since last fall is picking up steam.  This is the natural and unavoidable aftereffect of a global liquidity bubble brought to you courtesy of the world’s main central banks.  What goes up must come down - and that's especially true for the world's many poorly-constructed financial bubbles, built out of nothing more than gauzy narratives and inflated with hopium. What this means is that the traditional summer lull in financial markets has turned August into an unusually active and interesting month. August, it appears, is the new October. Markets are quite possibly in crash mode right now, although events are unfolding so quickly – currency spikes, equity sell offs, emerging market routs and dislocations, and commodity declines -  that it’s hard to tell for sure.  However, that’s usually the case right before and during big market declines. As we’ve detailed repeatedly, our “markets” no longer resemble markets.  They are so distorted, both by central bank policy and technologically-driven cheating, that they no longer really qualify as legitimate markets.  Therefore we’ve taken to putting double quote marks around the word “”market”” often when we use it.  That’s how bad they’ve become. Where normal markets are a place for legitimate price discovery, todays “”markets”” are a place where computers battle each other over scraps in the blink of an eye, ‘investors’ hinge their decisions based on what the Fed might or might not do next, and rationalizations are trotted out by the media for why inexplicable market price movements make sense. Instead, we view the “”markets”” as increasingly the playgrounds of, by and for the gigantic market-controlling firms whose technology and market information have created one of the most lopsided playing fields in our lifetimes.

From Nigeria to Uganda, Africa central banks running out of options as China devalues --  CURRENCY devaluations from Kazakhstan to China are heaping pressure on African central banks to relinquish control of their exchange rates as they run down reserves faster than any other region.From Nigeria to Uganda, African policy makers are burning through their foreign reserves and tightening monetary policy to prop up their currencies. Thursday’s move by Kazakhstan, central Asia’s largest crude exporter, to abandon its currency peg has intensified speculation that authorities in Africa will devalue or halt intervening in their foreign-exchange markets.“I’m sure African central banks are watching avidly what’s happened in Kazakhstan,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said by phone on Thursday. “It puts increasing pressure on them, especially Angola and Nigeria. Investors are already expecting devaluations in Nigeria and Angola. This just heightens those expectations.”African central banks from South Africa to Kenya have been taking aggressive action this year to bolster their currencies, concerned with inflationary pressure emanating from rising import costs.Commodity-dependent nations such as Zambia and Ghana are struggling to cope with currency declines of more than 20% against the dollar since January.

Africa’s squandered commodity boom erodes U.S. trade promise -- A fresh U.S. trade pact could provide relief to African economies buffeted by the commodities slump but a failure to reform during the boom years has left many countries unable to profit from tariff-free access to the world’s largest market. In an effort to boost trade under the African Growth and Opportunity Act (AGOA), renewed by Congress for a decade in June, representatives from 39 African countries will hold talks with U.S. officials in oil-rich Gabon this week. Under the deal, first signed in 2000, African exports to the United States rose to $26.8 billion by 2013, but more than four-fifths of that was oil. With U.S. demand for petroleum imports falling due to its shale revolution and commodities prices across the board hit by China’s slowdown, the blow to African economies has highlighted their failure to industrialize. The World Bank forecasts GDP growth in sub-Saharan will slow this year to 4.2 percent, down from an average of 6.4 percent during 2002 to 2008. Despite a decade of rapid growth, sub-Saharan Africa’s manufacturing sector remained weak. While exports from the region more than quadrupled to $457 billion in the decade to 2011, manufactured goods made up just $58 billion of that. U.S. officials say that, even with tariff-free access, a range of problems are holding back African exports, from poor transport links to costly electricity, lack of bank credit, corruption and labyrinthine bureaucracy.

What has gone wrong for emerging markets? - FT.com: Emerging markets are in the mire. Their currencies are falling, so are stocks, and commodities — the lifeblood for many EM countries — are in decline. Some currencies, like the Malaysian ringgit and the South African rand, are hitting multiyear lows against the dollar. What has triggered the problem? In the short term, China’s devaluation of the renminbi last week. Some analysts viewed the People’s Bank of China’s decision to change its exchange rate policy as an important step towards market liberalisation. But others concluded it was aimed at weakening the renminbi to counter slowing growth and deflationary pressures. Whatever the reason, the market has been getting jittery about China in the wake of widespread equity sell-offs over the summer and is worried that the slowdown in one of the prime motors of the global economy is worse than feared. The renminbi and Chinese data have become the indicators to watch closely. But emerging market problems are not new. EM equities have been down more than 10 per cent this year, as have EM currencies. So what is eating away at EM longer term? Two things — falling prices in the commodities they produce and export, and expectations of the US raising interest rates. Both factors have been in play throughout 2015, so sentiment towards EM was already negative before the renminbi devaluation.

Emerging markets turmoil: in charts - FT.com: Turmoil across emerging markets has intensified during August and for many veteran fund managers, there is a very real concern that selling pressure will escalate and draw comparisons with past implosions, notably the emerging market crisis of 1998. Here are some charts that show just how bad things have become in local equity and bond markets in the developing world. This has obviously been building for some time, with concerns over individual developing countries such as Brazil and Russia, weaker commodity prices and US Federal Reserve interest rate increases on the horizon. But the trigger for the deepening rout is mounting concerns over China’s economy — a vital driver of emerging markets as a whole. As the charts show, the Shanghai stock market has fallen precipitously this summer, and Beijing this month devalued its currency slightly, exacerbating fears over emerging markets. Yet there are more profound, fundamental problems dogging emerging markets. As the four charts from Capital Economics show, economic growth, household consumption, industrial production and exports in the developing world have all slowed sharply in recent years.  Of course, emerging markets is a blunt concept, and not every country is in bad shape. Morgan Stanley analysts have made a list of the countries it sees as the most vulnerable, based on factors such as dependence on overseas funding, debts metrics, growth fundamentals and exposure to China. Brazil, South Africa and Turkey look the worst, while Indonesia, Russia, Peru, Malaysia, Colombia and Mexico are also vulnerable. Morgan Stanley have also made a handy Venn diagram for further illumination. Drilling down into two of these issues, here are two charts from Barclays and UBS respectively. The first one from Barclays shows which countries are the most dependent on exports to China, while the second one from UBS underscores how there is still plenty of international investor money in emerging bond markets, despite a fierce shake-out in the 2013 “taper tantrum”.

Ratings agencies aren’t doing enough to anticipate market volatility - Roubini - Recent market volatility in emerging and developed economies alike is showing once again how badly ratings agencies and investors can err in assessing countries’ economic and financial vulnerabilities. Ratings agencies wait too long to spot risks and downgrade countries, while investors behave like herds, often ignoring the buildup of risk for too long before shifting gears abruptly and causing exaggerated market swings. Given the nature of such turmoil, an early-warning system for financial tsunamis may be difficult to create. But the world needs one today more than ever. Few people foresaw the subprime crisis of 2008, the risk of default in the euro zone or the current turbulence in financial markets worldwide. Fingers have been pointed at politicians, banks and supranational institutions. But ratings agencies and analysts who misjudged the repayment ability of debtors – including governments – have gotten off too lightly. In principle, credit ratings are based on statistical models of past defaults. In practice, however, with few national defaults having actually occurred, sovereign ratings are often a subjective affair. Analysts at ratings agencies follow developments in the country for which they are responsible and, when necessary, travel there to review the situation. This process means that ratings are often backward-looking, downgrades occur too late and countries are typically rerated based on when analysts visit, rather than when fundamentals change. Moreover, ratings agencies lack the tools to track consistently vital factors such as changes in social inclusion, the country’s ability to innovate and private-sector balance-sheet risk. And yet sovereign ratings matter tremendously. For many investors, credit ratings dictate where and how much they can invest. Ratings affect how much banks are willing to lend, and how much developing countries – and their citizens – must pay to borrow. They inform corporations’ decisions regarding whom to do business with, and on what terms.

Peru central bank tightens forex controls after sol falls to 9-yr low | Reuters: Peru's central bank said Friday that it was tightening reserve requirements on currency derivatives in its latest bid to soften the sol's slide against the dollar after it ended at its weakest level in nine years. The central bank said that it was lowering the limit on currency derivative operations to $250 million per week from $350 million starting Monday. A new monthly limit of $1 billion per month, from the current $1.2 billion per month, would apply as of Sept. 1. The central bank will double a currency reserve requirement on any operations that surpassed those limits, it said. The new measures aim to reduce volatility rooted in short-term speculation by foreign investors, the central bank said in a statement late on Friday. Earlier in the day the central bank sold $270 million in the local spot market to boost the sol . Even so the currency extended its recent losses against the dollar to end at its worst level since 2006.

Brazil Consumer Confidence Hits All-time Low in August -  --Consumer confidence in Brazil declined in August, to the lowest level ever, as the country's sluggish economy shows no signs of recovery. Brazil's main consumer-confidence index was at 80.6 points, down from 82 points in July, the Getulio Vargas Foundation, or FGV, said Tuesday. The index has a 1-to-200-point range, with 100 considered an indicator of neutral sentiment. The level of consumers' confidence reached the lowest level since it started to be compiled in 2005. The low level of confidence takes place as Brazilians remain pessimistic over the economic situation, mainly about inflationary pressures, interest-rate increases, and rising fears over job losses, FGV economists said. Inflation in Brazil is well above the top end of the central bank's 2.5%-to-6.5% target range--annual consumer inflation reached 9.57% in mid-August--while the Selic base interest rate is at 14.25% a year. The country's economy has been failing to regain traction. After expanding just 0.1% last year, economists have projected that Brazil's economy will contract by around 2% this year. The consumer-confidence index polls 2,000 families in Brazil's seven largest cities. It measures their willingness to make purchases of various consumer goods and gauges expectations about employment, income and economic opportunities.

Brazil Jobless Rate Climbs to 8.3%: – Brazil’s unemployment rate rose to 8.3 percent in the second quarter, the Brazilian Institute for Geography and Statistics, or IBGE, said Tuesday. The ranks of the jobless expanded to 8.4 million people during the April-June period. While the number of people with jobs held steady at 92.2 million, IBGE said. The figures are based on data from the National Sample of Households Study, known as PNAD, a new, more rigorous measure of unemployment built on recommendations from the International Labor Organization. The IBGE continues to release statistics derived from the traditional method, which reflects employment conditions in the country’s six largest metropolitan areas: Sao Paulo, Rio de Janeiro, Belo Horizonte, Salvador, Recife and Porto Alegre. As measured by the traditional method, unemployment was 7.5 percent in July. PNAD will become Brazil’s benchmark measure of unemployment by the end of this year.

Brazil real weakens to 3.6 per dollar for 1st time in 12 years -- The Brazilian real slid 1.5 percent late on Tuesday and crossed the psychologically important level of 3.6 per dollar for the first time in more than 12 years as traders worried about a growing political crisis in Latin America's largest economy. The Brazilian currency extended losses even as other emerging market currencies steadied following a decision by the Chinese central bank to cut interest rates.  The real closed Tuesday at 3.6072 per dollar, its weakest level since early 2003.

Brazil central govt posts $2 bln primary budget deficit in July (Reuters) - Brazil's central government posted a primary budget deficit of 7.224 billion reais ($2.04 billion) in July, the third straight monthly gap as the government struggles with plummeting revenues, according to Treasury data released on Thursday. The central government account covers federal ministries, the central bank and social security. July's primary budget balance, which excludes interest payments, was the worst on record for the month and followed a primary deficit of 8.2 billion reais in June. A sharp drop in tax revenues as the economy contracts has forced President Dilma Rousseff to slash the public sector's primary surplus targets for this year and the next two years. Her struggles to rebalance public accounts after years of heavy spending during her first term have raised the probability that the once-promising economy could lose its investment-grade rating next year. In the year through July, the central government has accumulated a deficit of 9.05 billion reais, the Treasury said. The 2015 central government primary surplus target was cut last month to 5.8 billion reais, or the equivalent of only 0.1 percent of gross domestic product, from 55.3 billion reais originally.

Mexico’s Trade Deficit Widens in July to $2.27 Billion - WSJ: Mexico’s trade deficit widened in July as a drop in crude-oil prices continued to weigh on petroleum exports while manufacturing exports grew at a modest pace from a year before. The country registered a trade deficit of $2.27 billion last month, bringing the accumulated shortfall in the first seven months of the year to $6.32 billion, the National Statistics Institute said Thursday. The deficit was wider than the median estimate of $1.44 billion in a Wall Street Journal poll of six economists. It was also wider than the $1 billion deficit registered in July 2014. Overall exports fell 2.6% to $32.8 billion, while imports edged up 1.1% from a year before to $35.07 billion. With the sharp drop in oil prices over the past year and continued production declines, Mexico has become a net importer of petroleum. Petroleum products accounted for $1.04 billion of the July deficit, while the deficit in nonoil goods was $1.23 billion. State oil company Petróleos Mexicanos exported 1.187 million barrels a day of crude oil at an average price of $49.50 per barrel last month, compared with 1.020 million in July 2014 at $94.65 per barrel. Oil prices have continued to fall, with Mexico’s crude this week reaching its lowest level since February 2008. Manufacturing exports rose 2%, led by the auto industry, while exports of agricultural goods rose 2.3% Lower prices of gasoline and other fuels led to a 2.1% drop in petroleum imports, while consumer goods imports fell 3.6%. Imports of producer goods were up 1.9%, as were imports of equipment and machinery. The modest rise in equipment and machinery imports followed a 22% jump in June.

Alberta could be facing largest deficit in three decades -  Alberta could be on track for its largest deficit in nearly three decades as crashing oil prices slam the NDP government coffers. With West Texas Intermediate crude oil sinking to sub-$40 U.S. prices this week, City of Edmonton Chief Economist John Rose said the province is facing a "recessionary situation" with a forecasted negative growth of 1.5 per cent in 2015. Rose said the new lows in oil prices mean the NDP government's previously estimated deficit of $5.4 billion is likely "out the window." "The fly in the ointment is that if low oil prices persist into 2016, that will imply not only a larger deficit than was expected this year but also that the provincial government is going to have to run deficits in more than one year and that becomes very problematic," he said. While Calgary's energy sector is being directly hit by the oil price slump, Edmonton's continued infrastructure momentum will help the city eke out a one per cent economic growth this year, said Rose. However, if the NDP moves to cut spending in order to offset the deficit, Edmonton's major government, health care and post-secondary sectors could take a hit, he said. "If we did see widespread cuts to the public sector in 2016 in order to address the deficit, that will be bad news for the city." At an average of $54 WTI prices, the former PC government projected a $6.4-billion loss in non-renewable resource revenues would prompt a $5-billion deficit this fiscal year, but that was under the expectation that oil prices would rebound in the second half of 2015. Speaking to reporters in Calgary on Tuesday, Premier Rachel Notley refused to speculate on the fall budget figure but acknowledged "our revenues have gone down perhaps even more that what the original Prentice budget had projected."

Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks -- Three weeks ago, when we last looked at the collapse in trade along what may be the most trafficked route involving China, i.e., from Asia to Northern Europe, we noted that while that particular shipping freight rate Europe had crashed some 23% on just one week, there was some good news: at least the Baltic Dry index was still inexplicably rising, and at last check it was hovering just above 1,100.That is no longer the case, and just as with everything else in recent months, the Baltic Dry dead cat bounce is now over, with the BDIY topping out just above 1200 on August 4, and now back in triple digit territory, rapidly sliding back to the reality of recent record lows which a few months ago we suggested hinted that much more is wrong with global trade, and the global economy, than artificially manipulated stock markets would admit. As expected, on Friday, we got confirmation that the BDIY has indeed become a lagging indicator to actual demand, when Reuters reported in its latest weekly update using data from the Shanghai Containerized Freight Index, that key shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday.

World trade suffers biggest fall in 6 years - FT.com: World trade recorded its biggest contraction since the financial crisis in the first half of this year, according to figures that will fuel a debate over whether globalisation has peaked. The volume of global trade fell 0.5 per cent in the three months to June compared with the first quarter, the Netherlands Bureau for Economic Policy Analysis, keepers of the World Trade Monitor, said on Tuesday.  Economists there also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis. Global trade actually rebounded 2 per cent in June, according to the World Trade Monitor but its authors warned that the monthly numbers were volatile and the more revealing pattern lay in the longer term figures. Those numbers built on what has been a grim pattern for global trade in recent years and the unwinding of a decades-old rule that saw trade grow at twice the rate of the global economy as a result of what some have called hyperglobalisation. In the three months to June, global trade grew just 1.1 per cent from the same quarter of 2014, according to the new Dutch figures. The International Monetary Fund expects the global economy to grow 3.5 per cent this year. “We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organisation, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise that estimate down in coming weeks. Much of this year’s slowdown in global trade has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said. The global economy’s “growth engine” had been operating as if it had a mechanical fault for some time with “good growth in some countries offset by weak growth in others”. But there is also clearly a structural shift happening in the global economy, he said, and that means slowing global trade is likely to endure for some time.

Worst decline in world trade in 6yrs – report — The first half of 2015 has seen the worst decline in world trade since the 2009 crisis, according to World Trade Monitor. The data could imply that globalization has reached its peak.  In the first quarter of 2015, the volume of world trade declined by 1.5 percent, while the second quarter saw a 0.5 percent contraction (1.1 percent growth in annual terms), which makes the first six months of the year the worst since the 2009 collapse. Global trade won back two percent in June, but the authors of the research, the Netherlands Bureau for Economic Policy Analysis, warned that the monthly numbers were volatile and suggested looking at the long-term figures. “We have had a miserable first six months of 2015,” chief economist of the WTO Robert Koopman told the FT. The organization had predicted trade would grow 3.3 percent this year, but is likely to downgrade the estimate in the coming weeks. According to Koopman, the downturn in world trade reflects the delay in the recovery of the European economy and the economic slowdown in China.

World trade suffers largest contraction since 2008 crisis - World trade recorded its largest contraction since the 2008 global financial crisis in the first half of this year, according to figures that will feed concerns over the global economy and add fuel to a debate over whether globalisation has peaked. The volume of global trade fell 0.5 per cent in the three months to June, the Netherlands Bureau for Economic Policy Analysis, keepers of the World Trade Monitor, said yesterday. Economists there also revised down their result for the first quarter of the year to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis. Global trade actually rebounded by 2 per cent in the month of June, according to the World Trade Monitor, but its authors warned that the monthly numbers were volatile and that the more revealing pattern lay in the longer-term figures. Those numbers built on what has been a grim pattern for global trade in recent years and the unwinding of a decades-old rule that saw trade reliably grow at twice the rate of the global economy as a result of what some have called an era of hyperglobalisation. In the three months to the end of June global trade grew just 1.1 per cent from the same quarter of 2014, according to the new figures. The International Monetary Fund expects the global economy to grow 3.5 per cent this year. "We have had a miserable first six months of 2015,"

Russia's ruble falls to all time low on China's 'Black Monday' - Fears of a Chinese economic slowdown pushed the Russian ruble into freefall on Monday(August 24) approaching all-time lows. The ruble slipped 3% to 71.32 against the dollar midmorning, a level last seen in late January. Against the euro, the ruble shed 3.75% to 81.71, its weakest level so far this year. The ruble has lost nearly 20% of its value in just one month.  The news came as the price of oil fell slid below a barrel for the first time since March 2009, spelling further trouble for the Putin government which has pursued an economic policy focussed on exploiting fossil fuels.

Ruble Pain Threshold Seen Higher as Oil Slump Ravages Economy -- The Bank of Russia is becoming more comfortable with a weaker ruble as sinking oil prices take their toll on the world’s largest energy exporter, economists said in a Bloomberg survey. The central bank will allow the ruble to weaken to 80 per dollar before selling foreign currency, according to the median estimate of 26 analysts. It will tap reserves to rescue the currency if oil slips to $40 a barrel and stays there through year-end, 19 of 30 economists in the Aug. 24-26 survey said. Faced with Russia’s first recession in six years and the worst currency rout since a 1998 default, the central bank floated the ruble in November, sparking a slide of about a third against the dollar. Its commitment to that decision is being tested as a new round of energy-price weakness feeds into the currency. While that boosts the ruble value of dollar-based oil revenue, it also stokes inflation, curbing purchasing power, a major economic driver. “The central bank doesn’t mind the ruble weakening as the budget painfully needs it to adjust to the low oil price,” Vladimir Miklashevsky, a strategist at Danske Bank, said by e-mail. “It seems the Bank of Russia has become more cautious with use of interventions or policy tightening as those measures haven’t historically brought any relief.” The ruble is the world’s worst-performing currency in the past 12 months, sinking 45 percent, data compiled by Bloomberg show. It’s only once breached 80 per dollar, an all-time low, in intraday trading on Dec. 16.

Finnish exports to Russia down more than 35 percent - Finnish exports to Russia have been declining since 2013, when Russia was still Finland’s largest trading partner. Finnish Customs reported Tuesday that exports to the eastern neighbour had fallen 35 percent in the months up to May this year compared to 2014, reflecting a shrinkage of exports in almost every sector.Customs official said Tuesday that Finnish imports from Russia had declined by 37 percent at the beginning of the year compared to 2014. Meanwhile exports fell by 35 percent. Traditionally Finland’s largest trading partner, Russia now ranks fifth among Finland’s most important export destinations. Germany has overtaken Russia to become the country’s biggest export market. So far this year, exports to Russia have accounted for just 5.5 percent of total Finnish exports. Finnish Customs noted that exports to Russia had been falling since autumn 2013. In October of that year, exports were valued at five billion euros, compared to 2.5 billion at the beginning of this year. Finland currently has a trade deficit with Russia, one that has shrunk in recent years. In 2014 the deficit stood at four billion euros; so far this year, Finland has imported 1.3 billion euros more than it exported to Russia.

Ukraine and Top Creditors Agree to Restructure $18 Billion in Foreign Debt -- Ukraine and its main creditors agreed on Thursday to restructure $18 billion of the country’s foreign debt, in a rare deal between bond funds and a wobbly, emerging-market government.If the deal is approved by the Parliament of Ukraine, it would write off 20 percent of the nation’s foreign debt, helping to avoid a drawn-out, Greek-style negotiation with large bondholders. The terms would also offer financial relief to Ukraine during a deep recession and an armed conflict with pro-Russia separatists.But it leaves unanswered whether lenders not represented in the negotiating committee — including, critically, Russia — would comply with the deal. The committee of creditors backing the proposal represents holders of about half of the debt. Under the proposal, bondholders, including the California-based Franklin Templeton fund, Ukraine’s largest lender, would accept an immediate loss on the principal. The deal would allow Ukraine to delay repayments for four years, though interest rates would rise slightly. The creditors might recoup some losses after 2021 if the country’s economy returns to growth faster than expected.In only three other instances in the last 15 years did creditors agree to reduce principal amounts without a country heading first into default, according to Ukraine’s minister of finance, Natalie A. Jaresko. The previous cases involved Greece, the small Central American nation Belize, and St. Kitts and Nevis, in the Caribbean.“It’s a benchmark for emerging markets” that might serve as a template for other countries bogged down by debt, Ms. Jaresko said on Thursday in a telephone interview. “It is every sovereign’s dream.”

Currency Depreciations Don’t Boost Exports as Much as They Used To -- naked capitalism -- Yves here. This wonky-seeming post has very serious policy implications. The reason that the standard IMF prescription has “worked,” albeit at high cost to citizens, is that in countries facing foreign exchange crises, the one-two remedy of “break corrupt oligarchies” (which the IMF really does try to do) and “cheapen currencies to goose exports” does remedy the foreign exchange crisis, even if it makes workers worse off (via the cost of the crisis itself, and often higher food and fuel costs, since those are often imported and constitute a very high proportion of the budget of poor people, so any increases in price can be devastating).   But if weakening currency prices provides less in the way of export gains in the past, it throws a whole set of standard remedies into question. But it also serves to explain some recent conundrums, such as the widely-noted fact that Greece did not get the export gains it should have from reducing labor costs. And that suggests that Greek “reforms” will be even less productive than expected, but that the alternative of a Grexit is also not as good a remedy as popularly believed either.

Nobody Could Have Predicted, Interest Rates Edition - Paul Krugman - I saw a number of people praising remarks from Charlie Munger declaring himself “flabbergasted” by low interest rates, with a sideswipe at anyone who claims to have had some inkling:  I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted. I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted.  Well, negative rates were a big shock; I had thought they were ruled out by the possibility of holding cash, and hadn’t thought the mechanics through. But this kind of “nobody saw it coming” remark is, if you ask me, a big dodge, an evasion of responsibility.  For sure, nobody saw negative rates coming, and few predicted that rates would stay this low this long. But there were different degrees of wrongness here. Read that WSJ piece, or anything just about everyone on the “Eek! Deficits!” side was saying, and compare it with, say, what I had to say. One reveals a world-view that has been utterly refuted by events; the other looks pretty good in the light of experience.  Pretending that everyone was equally flummoxed may make those who really were clueless feel better, but it’s not the truth.

Is the unthinkable becoming routine? -  BIS - Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark. Such low rates are the most remarkable symptom of a broader malaise in the global economy: the economic expansion is unbalanced, debt burdens and financial risks are still too high, productivity growth too low, and the room for manoeuvre in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal. This malaise has proved exceedingly difficult to understand. The chapter argues that it reflects to a considerable extent the failure to come to grips with financial booms and busts that leave deep and enduring economic scars. In the long term, this runs the risk of entrenching instability and chronic weakness. There is both a domestic and an international dimension to all this. Domestic policy regimes have been too narrowly concerned with stabilising short-term output and inflation and have lost sight of slower-moving but more costly financial booms and busts. And the international monetary and financial system has spread easy monetary and financial conditions in the core economies to other economies through exchange rate and capital flow pressures, furthering the build-up of financial vulnerabilities. Short-term gain risks being bought at the cost of long-term pain.Addressing these deficiencies requires a triple rebalancing in national and international policy frameworks: away from illusory short-term macroeconomic fine-tuning towards medium-term strategies; away from overwhelming attention to near-term output and inflation towards a more systematic response to slower-moving financial cycles; and away from a narrow own-house-in-order doctrine to one that recognises the costly interplay of domestic-focused policies.

Migrants Race North as Hungary Builds a Border Fence - — Roiling everything in its path, a wave of tens of thousands of migrants and refugees — many fleeing wars in Iraq, Syria and Afghanistan — has worked its way up the length of the Balkans in recent days.Like a movable feast of despair, the mass of people has overwhelmed the authorities in one stop after another, from the tiny Greek island of Kos to impoverished Macedonia, which declared a state of emergency last week, and now the train and bus stations of Serbia, as they head north to their ultimate destinations in the richer nations of the European Union.The next link on their route, almost inevitably, are towns like this one on the Hungarian frontier with Serbia. But Hungarian officials say they have a firm, if unwelcoming, answer to the slow-motion tide: a fence. Still under construction, parts of it are already laced across fields and river banks or trace old railway tracks, and it will be as tall as 13 feet in some places, a patchwork intended to send a clear message that the migrants should not expect to move freely. But the fence also stands as a much criticized and a very physical manifestation of the quandary of the migration crisis and the lack of cooperation among European Union nations as they struggle to deal with it. As the chaotic flow through the Balkans has demonstrated, absent coordinated policies, each nation along the path of the migrants has every incentive simply to move them on. The migrants are registered or issued temporary transit papers, but not entered as asylum applicants, ultimately passing the problem to someone else.

Europe’s Insane Plan to Destroy Migrant Boats -  Human smugglers in Libya have moved more than 38,000 people across the Mediterranean Sea since the beginning of 2015, killing as many as 2,000 along the way. But a new plan by the European Union to target smugglers’ vessels may soon make the journey even deadlier. Desperate times may call for desperate measures, and the EU’s plan to systematically “identify, capture and destroy vessels before they are used by traffickers” is case in point. The plan was hatched in emergency talks after as many as 950 migrants died on April 18, fueling promises by EU leaders to “smash the gangs” of traffickers that operate unchecked in Libya. The plan was presented to the United Nations Security Council in New York on Monday by Federica Mogherini, an Italian who is the high representative of the European Union for foreign affairs and security policy. In asking the U.N. Security Council to bless military action against the Libyan-based smuggler rings, she promised that the EU would take full responsibility for “identifying trafficking vessels for destruction before they are filled with migrants.” But the reality is that such a tactic could become a deadly game of Russian roulette, since the traffickers don’t exactly play by the rules.

Greece’s creditors demand casino rights, archaeological sites, selloff of EUR50B of national assets -- Already sold: most of Greece's airports -- for sale: gas transmission, oil refineries, power company, post office, national highways, water company. The creditors also want Greece's government ministers removed from oversight of national assets -- they'll be replaced with managers appointed by the creditors. Why does this matter? First because it makes no sense to sell off valuable assets in the middle of Europe’s worst depression in 70 years. Those industries could generate revenues to help the Greek government rebuild the economy. In fact, the vast majority of the funds raised will go back to the creditors in debt repayments, and to the recapitalisation of Greek banks. So the privatisations aren’t to do with helping Greece. The beneficiaries are corporations from around the world, though eyebrows are particularly being raised at the number of European companies – from German airport operators and phone companies to French railways – who are getting their hands on Greece’s economy. Not to mention the European investment banks and legal firms who are making a fast buck along the way. The self-interest of European governments in forcing these policies on Greece leaves a particularly unpleasant flavour. Most important is the inequality this will entrench in Greek society for decades to come. Of course the fact that the state currently holds these assets is no guarantee of democracy. Clientelism is rife in Greece. But the answer is transparency and democracy, just as German citizens are currently trying to take back energy companies into collective ownership because they see this as a prerequisite for fair pricing and supporting renewable energy.

Stiglitz: “Deep-seatedly wrong” economics is killing Greece - INET -- Bad economic ideas inflict untold human suffering. When they come cloaked in a fog of Orwellian obfuscation, their poison and effects can spread with little hindrance. The public is misled. Power plays are hidden from view.  In Greece, where suicide rates have risen sharply in the wake of austerity measures, people lose hope.  Joseph Stiglitz, who has been following the Greek crisis closely and is recently returned from Athens, sets himself to the task of cutting through the fog. His plain English and fearless use of moral language to expose the ugliness behind economic and political abstractions lend clarity to a situation that is not just bringing a nation to its knees, but threatening to destroy the European project and bring on a future of conflict and hardship.  In discussing Greece’s Third Memorandum of Understanding (MoU) and its draconian terms, Stiglitz observes that the MoU is really a “surrender document” that eclipses the country’s economic sovereignty and ensures that Greece’s depression — already deeper than America’s Great Depression — will get worse. An economy that is seeing youth unemployment reaching up to 60 percent is likely to lose another 5 percent in GDP. That is over and beyond the 25 percent plunge in GDP the country has been hit with since the imposition of austerity measures.  Socially conservative Germans, Stiglitz warns, are doubling down on the discredited notion that austerity policies help economies recover in times of crisis. In reality, the insistence on keeping wages down, stripping away bargaining power from workers, forcing small business owners to pay taxes a year in advance, and cutting pensions will only hamper demand and lead to a deepening spiral of debt. (Stiglitz emphasizes that hardly any of the money loaned to Greece has actually gone to help the Greeks themselves, but rather private-sector creditors – namely German and French banks).

Europe may find itself relying on success of Greece's Tsipras: Europe spent months trying to crush Alexis Tsipras. But now that Greece's leftist prime minister has called a snap election and is seeking a mandate for the tough new bailout program he negotiated with his country's creditors, Europe, oddly enough, may find itself invested in his success. Greece never fails to surprise, and Mr. Tsipras's turbulent eight-month tenure has proved he is rarely predictable. But the man many European leaders once regarded as a populist wrecking ball is now presenting himself as a figure who can deliver pragmatism and stability — and carry out the sort of austerity program he once inveighed angrily against. Tsipras was staking his political life on a bailout deal that includes the kind of taxes and pension cuts he once opposed. "He's taking ownership of it." The latest twist by Mr. Tsipras was met with cautious optimism on Friday by some European commentators even as his surprise move again tossed Greece into political turmoil. On Friday, a faction of hard-line leftists split from Mr. Tsipras's Syriza party and formed a new party, vowing to resist austerity and possibly even lead Greece out of the eurozone. At the same time, analysts cautioned that the new election, and the continuing political maneuverings in Athens, could further complicate and slow implementation of the 86 billion euro bailout program, worth about $98 billion at Friday's exchange rate, signed by Mr. Tsipras in July. An initial progress review by creditors, scheduled for October, may be delayed, which would delay discussions between Greece and its lenders over possible restructuring of the country's crippling sovereign debt.

Eurogroup Chair Dijsselbloem Supports Greek PM's Decision for Elections - “I hope that they are as quick as possible so that the least possible amount of time is wasted,” stated Eurogroup President Jeroen Dijsselboem. “I think the intention of Prime Minister Tsipras is to get a more stable government,” he added, expressing his hope that the Greek people will show their support to the new bailout program. He also stated that Tsipras did not breach any of the agreement terms when he announced his resignation and snap elections. Furthermore, he expressed his belief that Greece will uphold its end of the bargain, even after the election results are announced. A large majority supported the new bailout program in the Greek Parliament and we expect that the support will be even greater after the elections, he added. However, he also stated that he had not been informed about the Greek Prime Minister’s decision to resign or call for elections in the days prior to the official announcement.

European Commission signs three-year ESM stability support programme for Greece -- The European Commission signed the Memorandum of Understanding (MoU) with Greece for a new stability support programme late on Wednesday. The European Stability Mechanism (ESM), Europe’s firewall established in 2012 in response to the global financial crisis, will be able to disburse up to EUR 86 billion in loans over the next three years, provided that Greek authorities implement reforms to address fundamental economic and social challenges, as specified in the MoU. Following months of intense negotiations, the programme will help to lift uncertainty, stabilise the economic and financial situation and will assist Greece in its return to sustainable growth based on sound public finances, enhanced competitiveness, a functioning financial sector, job creation and social cohesion. As provided in Article 13 of the ESM Treaty, the MoU details the reform targets and commitments needed to unlock ESM financing. The disbursement of funds is linked to progress in delivery. Implementation will be monitored by the Commission, in liaison with the European Central Bank and, wherever possible, together with the International Monetary Fund. This will take the form of regular reviews. Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, who signed the MoU on behalf of the Commission, said: “With the support of the programme the Greek authorities have an opportunity to restore mutual trust, financial stability and confidence, which are preconditions for Greek economy to grow again. Now it is important to swiftly implement the agreed reforms. This will allow Greece to restore the competitiveness and to ensure sustainable economic growth.”

SYRIZA’s split sends waves of turbulence to the European Left Through an article at the Spanish newspaper El Pais, the radical part of Podemos in Spain declares full support to the Popular Unity, the new political formation in Greece that came from the split of SYRIZA. It is worth to note that its executives criticize the stance of Podemos leader, Pablo Iglesias, to support Alexis Tsipras, even after his surrender to the representatives of the European Financial Dictatorship. Key parts from the Iskra.gr website which reflects Popular Unity positions: The anti-capitalist Left, the party that has been self-dissolved to join Podemos in which the leading Andalusian Teresa Rodríguez and MEP Miguel Urbán participate, is aligned with the radicals that left SYRIZA, opposing Alexis Tsipras and the Podemos leadership which insists on the unconditional support of the Greek prime minister. The spokesman of the anti-capitalist Left, Raúl Camargo, MP with Podemos in the Madrid Parliament , addressed a call on Saturday in the last session of the summer university to 'defend the Popular Unity, the party that was cut off from SYRIZA' against Tsipras who ended claiming that 'no se puede' (it's not possible). This stream of Podemos calls for return to an electoral program as that of the European elections, more democracy in the party and considers that it is clear that 'by no means will form a coalition with PSOE' (Social Democrats).  Doubts and fears may be reasonable, but when there's a popular mandate, you must fulfill it to the end.

Panagiotis Lafazanis — Tsipras’ nemesis - — A former Communist who loathes to compromise has become the nemesis of Greek Prime Minister Alexis Tsipras. A rebellion by anti-bailout crusader Panagiotis Lafazanis and fellow hardliners drove Tsipras to resign last week and call for elections expected September 20, plunging the debt-burdened nation once more into uncertainty. Lafazanis, 63 and no stranger to political intrigue, promptly quit the ruling Syriza party and formed his own opposition front with 24 far-left lawmakers who also refused to toe the government line on the third multi-billion euro bailout. His Popular Unity group could win more than 5 percent of the vote, according to an opinion poll and political analysts. The desertion of the experienced left-winger and his allies has shaken Syriza, which Tsipras must now rebuild in record time to regain control of Parliament at the polls. More Syriza members said this week they would leave and there is speculation about whether some key lawmakers belonging to the so-called 53-plus group will run on a Syriza ticket. Finance Minister Euclid Tsakalotos is a member of the wing, but Tsipras said Wednesday he would run for election with Syriza.  Tsipras has admitted he was stung by the split with Lafazanis, who is well-respected in the Greek left because of his long political career and resistance during the 1967-1974 military dictatorship. “It’s a sad development but not unexpected,” he said in a television interview late Wednesday. “It’s upsetting because it’s not easy to have people involved in the same struggle suddenly accuse me of the things they used to accuse our enemies of.”

Yanis Varoufakis brands Alexis Tsipras the ‘new De Gaulle’ as election gets ugly -  Greece’s pre-election campaign has turned ugly before it has even officially commenced, with senior figures – including the former finance minister Yanis Varoufakis – rounding on the prime minister, Alexis Tsipras, for his governance of the crisis-plagued country.  Breaking the wary truce since his surprise resignation the day after Greeks voted to reject austerity in a referendum last month, Varoufakis has lashed out at the leftwing leader’s policy choices, saying in an interview in the New Review that Tsipras had decided “to surrender” to the punitive demands of international creditors keeping Athens afloat. Instead of remaining faithful to the anti-austerity platform on which his radical left Syriza party had been elected, the young prime minister had allowed his ego to get the better of him and made a conscious decision to become the “new De Gaulle, or Mitterrand more likely”. In the wake of Tsipras’s unexpected move on Thursday to call early elections, Varoufakis said: “Tsipras made a decision on that night of the referendum not only to surrender to the troika but also to implement the terms of surrender on the basis that it is better that a progressive government implement terms of surrender that it despises than leave it to the local stooges of the troika, who would implement the same terms of surrender with enthusiasm.”

Former Greek FinMin Varoufakis Launches Pan-European Anti-Austerity Political Party -- Varoufakis’ fans get ready! The ex finance minister is preparing to launch a European movement that will develop into a political party. Yanis Varoufakis will push for a Pan-?European network for fight austerity. Instead of running for the upcoming elections, he will put his energy into political action on European level.  Speaking to Late Night Live program of Australian ABC National Radio, Yanis Varoufakis described the elections campaign as “sad and fruitless” and said that he will not be running for Greek parliament in the September elections, as he no longer believes in what Syriza and its leader, Tsipras, are doing.  ‘The party that I served and the leader that I served has decided to change course completely and to espouse an economic policy that makes absolutely no sense, which was imposed upon us. I don’t believe that we should have signed up to it, simply because within a few months the ship is going to hit the rocks again. And we don’t have the right to stand in front of our courageous people who voted no against this program, and propose to them that we implement it, given that we know that it cannot be implemented.” Varoufakis indirectly described Alexis Tsipras as a ‘fool’ saying that Tsipras was like mythicalSisyphus “carrying on pushing the same rock of austerity up the hill, against the laws of economics and against very profound ethical principles.” He added “as a child I considered Sisyphus a fool. I would have simply stopped pushing the rock.”

'Bad bank' path worn by Ireland and Spain looks steep for Greece - (Reuters) - Greece is under growing pressure to take care of banks' problem loans so they are free to lend again, but the depth and complexity of its crisis will make it tough to replicate the comprehensive "bad bank" models set up in Ireland and Spain. Deciding how to deal with more than 100 billion euros ($115 billion) of non-performing loans held by banks is a central part of Greece's recovery plan - and one of the biggest headaches for policymakers. Ireland and Spain's big, state-backed 'bad banks', or asset management companies, bought bad loans from banks at knock-down prices and are managing and selling them on to investors, who can renegotiate terms to claw back as much as possible. Setting up such a structure can be risky, and the Irish and Spanish models have not been trouble-free, but politicians and analysts say they have helped put both eurozone countries on the recovery path. "It is needed (in Greece), but it is not the easiest place to have a bad bank," said Oliver Ellingham, a board member at NAMA, Ireland’s bad bank, and a former executive at BNP Paribas. A senior Greek banker said there was no appetite among the local banks to form a unified vehicle like NAMA, and reservations go wider than that. Greece's deep economic recession, political turbulence, inadequate insolvency laws and problem loans spanning residential mortgages, small businesses and big companies all make carving out non-performing loans (NPLs) difficult and could deter investors from buying them, several restructuring advisers and investors said. As a result, two of the advisers said although a full-scale bad bank would be Greece's best option, officials in Athens and at the European Central Bank in Frankfurt, which now supervises eurozone banks, were likely to opt for more limited plans that would be easier and quicker to implement.

Merkel and Hollande Call For Equal Spread of Refugees Across EU - Angela Merkel and François Hollande on Monday called for a more equal distribution of asylum seekers across the EU, as violent clashes outside a German refugee centre highlighted the rising political tensions over record inflows of migrants into Europe.  “There was an aggressive xenophobic atmosphere which is no way acceptable,” said the German chancellor. “It is disgusting how rightwing extremists and Neo-Nazis have tried to spread dumb messages of hate. But it is also shameful that citizens, some of them with children, have supported the demonstration by going along to it.”  Ms Merkel and Mr Hollande backed the European Commission’s push to revive controversial proposals for all 28 EU countries to sign up to a binding quota agreement, under which newly arrived refugees would be distributed around the bloc. Such a move would to ease the burden on Germany and a handful of other states which currently take a majority of asylum seekers.  Germany expects to receive a record 800,000 refugees this year, more than the entire EU received in 2014 and around 1 per cent of the country’s population.   Ms Merkel and Mr Hollande also called for the full implementation of EU asylum rules — which cover areas such as legal rights and rights to medical and social care — across the bloc.  The German Interior Minister, Thomas de Maiziere, called for "freedom of movement and open borders." More specifically, he added "A European answer to maintain open borders and no controlsin the Schengen region is needed."

Libyan drownings, truck of corpses drive up migrant toll - Reuters: Austria said on Friday 71 refugees, including a baby girl, were found dead in an abandoned freezer truck, while Libya recovered the bodies of 105 migrants washed ashore after their overcrowded boat sank on its way to Europe. Almost 100 more were missing and feared dead. Both tragedies were a result of a renewed surge in migrants fleeing war and poverty that has confronted Europe with its worst refugee crisis since World War Two. The International Organization for Migration said it estimated a third of a million people had crossed the Mediterranean so far this year to wash up in southern Europe. Almost two-thirds had arrived in Greece and most of the rest in Italy. At least 2,636 had perished in the attempt. German Chancellor Angela Merkel said European Union leaders were ready for an emergency meeting, if necessary, to discuss the refugee crisis. The White House urged Europe to crack down on traffickers and ensure that migrants' human rights were protected. In the latest disaster off the coast of North Africa, a vessel packed with an estimated 400 migrants sank on Thursday after leaving Zuwara in Libya. The port is a major launchpad for smugglers exploiting a security vacuum in a country with two rival governments. Lacking navy ships, Libyan officials were searching for survivors with fishing boats and inflatables provided by locals. About 198 people had been rescued by noon, officials said. "The boat was in a bad condition and people died with us," said Ayman Talaal, a Syrian survivor, standing next to his daughter. "We have been forced into this route. It's now called the grave of the Mediterranean Sea."

What do we know about non-bank interconnectedness? - Non-banks are clearly important in the financial system – according to the FSB, global non-bank financial intermediation grew to $75 trillion in 2013, roughly half of banking system assets. But how are they connected to banks, and what risks does this pose? Using a new granular dataset on the exposures of banks to non-banks, we gained some important insights into what these interconnections look like in the UK. Banks’ direct credit exposures to non-banks are currently small, but there is evidence that some non-bank financial institutions have entered the core of the repo network. We found little evidence in our dataset that hedge funds are conducting risky credit intermediation, but other non-bank financial institutions seem to be leveraging up via the repo market.  Interconnectedness between financial institutions can take many forms, as explained in the recently published Quarterly Bulletin article. Banks and non-banks (insurers, hedge funds etc.) may be directly interconnected via credit exposures, e.g. a repo or margin loan, or indirectly interconnected via fire sales and margin calls. Tarullo (2013) explains how both played a role in the financial crisis. We test the following hypotheses about how non-bank interconnectedness might differ from bank interconnectedness:

1. Direct credit exposures of banks to non-banks should be low relative to banks’ capital, given that most of the exposures will be in the form of derivatives and repos, which are heavily collateralised.
2. If the network of UK financial institutions has a ‘core-periphery’ structure (as described in this paper), then the non-banks should all be in the periphery and not in the core, given that they rely on the intermediation services provided by dealers.
3. Hedge funds, if conducting risky credit intermediation via leverage, should be borrowing a lot of money from dealers via repos backed by corporate bonds (as explained by Pozsar et al (2010)).