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

Saturday, August 15, 2015

week ending Aug 15

Overselling the Importance of When the Interest-Rate Rise Begins - WSJ: As the September meeting of the Federal Open Market Committee approaches, all financial eyes and ears seem fixated on one question: Will the Federal Reserve raise interest rates? In my view, the correct image of today’s Fed is of a nickel standing on its edge. And the recent excitement over the Chinese currency doesn’t change that. One side of the coin says “September,” the other side reads “December.” The nickel will fall one way or the other, and probably soon. Nobody knows which way. But unless you are a bond trader betting on the outcome, the direction in which the coin falls doesn’t matter much. The FOMC has come about as close as it ever comes to making a promise—in this case, that the federal-funds rate will “lift off” before the year ends from its longtime 0-25 basis-point range. The FOMC calendar shows three meetings left in 2015: Sept. 16-17, Oct. 27-28, and Dec. 15-16. October is all but ruled out because the Fed issues a forecast and holds a press conference only at every other meeting. For a decision this momentous—the Fed’s first rate hike in more than nine years—a press conference is imperative. It provides the best venue for Chair Janet Yellen to amplify the Fed’s thinking, and to answer questions. Indeed, what Ms. Yellen says at the press conference will probably be more consequential than the interest-rate decision. That leaves September or December. It seems to me a 50-50 bet, but let’s consider the arguments for each date.

All of the G-7 policy makers are virgins when it comes to raising interest rates - Raising interest rates has gone out of fashion. With the last concerted rise in world interest rates nearly a decade ago, the doves have been ruling the roost since the financial crisis. None of the central bankers of the world’s seven top leading industrial countries has any experience of tightening credit in their present jobs. The monetary leaders of the Group of Seven advanced countries — Janet Yellen of the Federal Reserve, Haruhiko Kuroda of the Bank of Japan, Mario Draghi of the European Central Bank (accounting for G-7 members Germany, France and Italy), Mark Carney of the Bank of England and Stephen Poloz of the Bank of Canada — have been in their current posts for a collective 12 years. Not one has raised interest rates in this time. All that may be about to change. Yellen looks like being quickest, with the odds narrowing on a September Fed rate hike after Friday’s monthly nonfarm payroll figures showed a July increase of 215,000 jobs, slightly below market expectations but backing an overall picture of the U.S. economy in robust heath. The rate-setting Federal Open Market Committee has one more set of monthly payrolls before its meeting on Sept. 16-17, when many market participants are penciling in the first rate rise for nine years. The rate of monthly job increases has slowed from 260,000 in May and 231,000 in June, but unemployment was unchanged at 5.3% in July, the lowest since 2008, close to the 5.2% that the Fed has signaled is an effective floor.

How the Fed will tighten — Before the financial crisis, tightening monetary policy was straightforward. The Federal Open Market Committee (FOMC) would announce a rise in the target for the federal funds rate in the overnight interbank lending market, and the open market desk would implement it with a small reduction in the quantity of reserves in the banking system. Matters are no longer so simple. The unconventional policies designed first to avert a financial and economic collapse, and then to spur growth and employment, have left the banking system with reserves that are so abundant that it would be impossible to tighten policy in the conventional manner. So, as the FOMC moves to “normalize” monetary policy after years of extraordinary accommodation – eventually raising the federal funds rate to their projected long-run norm of nearly 4% – how, precisely, will the Fed tighten monetary policy? The answer is that the mechanics will be fundamentally different from previous Fed tightening cycles. While the nature of the prospective policy tools will be familiar to long-time specialists, their use will be radically different. As a result, the chapter on Fed operations in money and banking textbooks (including ours) will once again be substantially amended to explain this new framework to the next generation of students aiming to understand the U.S. central bank. This post summarizes why the Fed’s policy mechanics must change and the basics of how the operating framework will function going forward. For those interested in a more detailed version of this discussion, Fed researchers Ihrig, Meade, and Weinbach recently published an excellent primer that is likely to be a reference for years to come.

Why "The Fed Is In A Bind" - Scotiabank Explains -- The intention of Fed policy over the past 30 years has been to self-correct business cycles into a ‘steadier state’ by easing interest rates into weakness and hiking them into strength. Unfortunately, there is political-asymmetry between easing and hiking which has resulted in the stair-stepping of official interest rates down to the zero lower bound. Interest rates that are held lower than the ‘natural or normal rate’ (discussed in a moment) may have short-term benefits, yet there are longer-term costs that aggregate and eventually need to be addressed. These costs are then typically dealt with by lowering interest rates even farther away from the normal or natural rate. Eventually the Fed ends up worsening the very business cycles they intended to smooth out. The fact that rates today have reached zero means that the day of reckoning is quickly approaching, because monetary policy has reached the practical limits of what it can do. Thus, the multi-decade credit era is coming to an end. Credit-based consumption is unsustainable.  US corporate issuance has broken a new record in four successive years. According to David Stockman, the amount of total credit outstanding (household, corporate, government and financial) has expanded by over $50 trillion in the past 30 years, while GDP has expanded by only $13 trillion.  In addition, while the whole world has gotten significantly more indebted, it also has terrible demographics to contend with.

Deeper yuan devaluation trims U.S. rate hike bets | Reuters: Traders on Wednesday scaled back further their bets that the U.S. Federal Reserve would increase interest rates this year after China devalued its currency for a second day in an effort to help its exporters. Short-term U.S. interest rates markets signaled traders see no more than a 40 percent chance the U.S. central bank would raise rates at its Sept. 16-17 meeting.  Following a solid July jobs reports last Friday, traders had priced in just above a 50-percent probability Fed policymakers would be in favor of raising its target on the federal funds rate from a zero to 0.25 percent range. The surprise move from Beijing dropped the yuan to a four-year low. It roiled financial markets as traders bet a weaker yuan would re-ignite disinflation pressure globally, making it tougher for the U.S. economy to achieve the Fed's 2 percent inflation target, analysts said. "That has made a huge impact on people's thinking. I'm less inclined to believe that the Fed would move in September, but I'm still sticking to it,"

How will the Fed react to contrasting domestic and international developments? - Mohamed El-Erian - Data out of China, Europe and the United States highlight contrasting influences on Fed officials as they prepare for their September policy meeting. Domestic indicators are consistent with a September hike but international indicators are not. That tug of war makes this Fed much harder to predict than its predecessors. From America’s solid retail sales data to a four-week initial joblessness level that has now fallen to lows not seen for over 40 years, the Federal Reserve has an ever stronger domestic case to implement, perhaps as early as September, its first interest rate increase in over 9 years. In doing so, it would embark on a very shallow path for subsequent rate hikes, with a terminal policy rate that is below historic averages.The international case for a September rate hike is much less convincing, confronting US central bankers with a stark contrast. The Chinese economy continues to slow while Europe has yet to establish a sufficiently-solid footing for expansion. With tricky challenges facing several large emerging economies (including Brazil, Russia and Turkey), from a world growth perspective, America is the only big economy possessing a brighter economic future in the immediate period ahead — and even here, growth would continue to fall frustratingly short of “escape velocity.”If the tightening of monetary policy is premature, an excessively strong dollar could amplify the impact of weak foreign demand for US exports. It could also add to global financial fragility, an issue of concern to many countries around the world. In the past, domestic considerations tended to repeatedly dominate international ones at the Fed for two reasons. First, the US economy was relatively “closed” to foreign trade. Second, the mindsets of Fed officials were inclined to minimise international issues, if consider them at all. The current Fed, however, has been evolving when it comes to the mix of domestic and international developments.

The Monetary Policy Advice Process at the New York Fed - NY Fed blog - The Research Group at the New York Fed, like the research divisions at the other regional Feds, is charged with providing advice on monetary policy to the Bank president. In addition, the role of research at this institution is related to two features of the New York Fed: first, the New York Fed president is a voting member of the Federal Open Market Committee (FOMC), and second, the Open Market Desk located at the New York Fed implements the policy decisions of the FOMC. In this post, we provide a brief introduction to the process whereby research economists, collaborating with staff in the Markets Group and the Integrated Policy Analysis [IPA] Group, provide policy advice to the Bank president. Because the FOMC meeting is the focus for monetary policy advice within the Fed, our discussion of the policy process will be organized around the FOMC cycle.

On Why The Economist Should Rule Rules In, Not Out - John Taylor - An old, but forever crucial, question for monetary policy is whether it should be rules-based or purely discretionary. The Economist, in a Free Exchange article this week with the title “Rule It Out,” goes all in for pure discretion, abandoning rules-based strategy. It’s a new view compared to previous articles over the years in the magazine and, more imprtantly, not based on any new facts.  The article’s main mode of argument is to invent and then shoot down straw men.  It argues, for example, that “Algorithms…should not supplant central bankers” even though no proposal out there suggests anything of the kind. It asserts that a rules-based policy is an “unnecessary constraint” on central bank “autonomy,” when experience shows that clear strategies and principles help defend autnomy.  Strangely, it says that sensible flexibility built into rules-based policy demonstraes its “pitfalls” which are then never even mentioned.  In trying to justify discretionary policy the article discusses the Taylor rule in detail, adding a Taylor rule chart cutely labeled “Dropping Stitches;” in doing so it repeats arguments that have been refuted or discounted many times over the years.  It says that “interest rates should be lower than the Taylor rule suggests” because “many economists suspect [the long-term real interest] rate is permanently lower,” and it says that “Estimates of slack are themselves the product of qualitative judgment…” Debates over the long-term rate and the degree of slack are fine to have, but the issues create no more difficulty for rules-based policy than for pure discretion. In fact, a rules-based policy is preferable in this regard because it provides a way to consider the implications of, and to resolve disagreements about, such issues without sweeping them under the rug. A policy rule is not “a recipe for disagreement,” as the article claims, it is a reasonable way to discuss and resolve disagreements.

Don’t Look Now, But Market Inflation Expectations Are Falling - WSJ --Market expectations for U.S. inflation appear to be sagging again. This could complicate the Federal Reserve’s deliberations about raising short-term interest rates as soon as September, though the central bank’s earlier reactions to similar movements suggest that by itself it won’t derail a move. Yields on 10-year Treasury notes have dropped from near 2.5% in mid-June to 2.16% on Friday, a sign investors demand less compensation for expected inflation than a few months ago. In Treasury Inflation-Protected Securities (TIPS) markets, where expectations can be measured more precisely, the compensation that investors demand for expected inflation in five to ten years dropped to 2.01% on Friday, down from 2.25% in late June, according to estimates by Barclays. These premiums are near where they were when the Fed started signaling its second round of bond purchases in 2010 and they are lower than they were when the Fed launched its third round in 2012. Nearer-term measures of inflation compensation in TIPS markets are under 2%. Fed officials have said they want to be reasonably confident that inflation will rise toward 2% before they start raising short-term interest rates. Official measures of inflation have run below the target for more than three years. It is hard to see how falling inflation compensation in bond markets adds to that confidence. Still, the Fed has a complicated relationship with the whole idea of inflation expectations. As a result these bond market measures can’t be extrapolated straight into Fed actions. In theory the central bank places great weight on where investors, households and business believe inflation is heading. Expectations can become a self-fulfilling prophesy. When inflation expectations rise sharply -- as happened in the 1970s -- households and businesses can demand more compensation in anticipation of a move up and push prices up in reality. When the reverse happens and expectations fall, it could become a weight on inflation.

WSJ Survey: Oil and Inflation Are Stubborn Disappointments - The history of oil tycoons is littered with booms and busts—fortunes that swelled and collapsed with unexpected velocity—subject to the vagaries of oil discoveries and the high-stakes game of world diplomacy and international intrigue. Economic forecasters can’t avoid them, either. Ever since oil prices collapsed last fall, the best guess of economists has been that oil prices would gradually firm up. The average of predictions in The Wall Street Journal’s survey of economists has shown that forecasters typically expect prices to rise about $5 every six months. Crude oil prices climbed earlier this year—even briefly surpassing $60 a barrel—only to plunge again over recent weeks as investors contemplated the possibility that there’s simply not enough global demand to support higher prices. As oil prices plunged back below $50 and slid toward $40, it left economists’ forecasts as wrecked as a 1980s oil town in West Texas. At no point in the last 12 months have economists anticipated that oil could drop so low. The missed forecasts of oil prices matter because of how much oil feeds into inflation. As a crude rule of thumb, energy prices make up about 10% of the consumer-price index, so a major drop in oil can cause inflation to fall through the floor. That’s exactly what’s happened and economists didn’t anticipate it. For the past year, they have forecast that the annual rate of change for the consumer-price index would return to slightly above 2% within about a year.

Should Core Inflation Be Measured Differently? - St. Louis Fed -- Economists use price indexes such as the personal consumption expenditures price index (PCEPI) and the consumer price index (CPI) to measure inflation.  Policymakers often focus on “core” inflation, which is based on the price of a subset of the full basket of items that go into the main (often called “headline”) index. Core inflation is meant to represent long-run inflation trends and is relevant to policymakers because it is thought to be a good forecaster of future inflation. However, the way core inflation is currently measured means it might not be as good of an indicator as it could be. How Core Inflation Is Measured A common measure of core inflation is headline less food and energy prices, a measure proposed in a paper by Robert Gordon in 1975. The rationale behind excluding two items that comprise a large portion of the average American's consumption bundle is that food and energy prices were volatile (as can be seen in the chart below) and generally poor predictors of future inflation. At the time, food prices tended to be volatile because of weather, and energy prices depended largely on OPEC. In other words, both items were thought to depend on short-term factors outside of policymakers’ control. Core inflation was thought to be more representative of the long-run inflation trends that central banks are meant to monitor.  However, the factors affecting food prices in the U.S. have changed dramatically since Gordon’s paper was released. As a result, food prices have become less volatile.

Stepping Back from GDP: In the first quarter of 2015, it was suggested that the seasonal adjusting methodology understated economic growth in first quarters. Now in the second quarter of 2015, the scuttlebutt is that the inflation adjustment has overstated economic growth. My position is that the Bureau of Economic Analysis' annualized methodology for determining headline growth magnifies normally insignificant error - and that USA economic growth has really been in a tight range since the end of the Great Recession.   I have a history of bad mouthing GDP - mainly because I see most pundits misusing what it says. One would think that GDP has an direct relationship to Main Street as approximately 2/3rds of the comes from the consumers. But just because total consumption improves, we know the median consumer cannot be contributing much to this increase. The USA economy is being driven by rich consumers - it is that simple. So when people think that rising water lifts all ships - this is not true in the case of GDP. Still GDP is a valid economic measure as long as one realizes that it is measuring only a certain cross-section of the economy. It does not measure stress or conditions on the poor, Joe and Jane Sixpack, or the average person who believes they are middle class. There are several other issues which make GDP irrelevant to the majority of the population - but that is for another post. But the annualizing headline GDP is like riding on a roller coaster. It makes small changes between quarters into HUGE changes, it magnifies error, and most importantly - it presents the wrong conclusions on economic growth. This is a classical mountain-out-of-a-mole hill situation.But when we start looking at GDP year-over-year growth, the rate of economic growth looks more realistic and much less noisy. The blue line in the above graph is GDP without inflation adjustment (and the red line includes the "official" inflation adjustment). Either way we view GDP in year-over-year fashion, year-over-year growth declined from 1Q2015 to 2Q2015. Yet the headlines show economic growth was better in 2Q2015.

Dollar Tumbles As Fed Rate Hike Suddenly Looking Very Uncertain To Goldman, Bank Of America - After China's shocking currency devaluation, which some more conspiratorially-minded observers have concluded was China's retaliation to the west for the IMF's recent snub that pushed back China's evaluation for inclusion into the SDR to some indefinite point in 2016, the only question on everyone's mind is whether the Fed will delay or outright cancel any imminent "data-dependent" rate hikes as a result of the implicit tightening of monetary conditions thanks to China, and the dramatic appreciation of the USD which would not have taken place without China. And while we await the first Fed speaker to hit the public circuit since Monday's night's dramatic event, which is Goldman's NY Fed's Bill Dudley speaking in a few minutes, here is what two of the most influential banks have to say on the topic. First, here is Goldman: All else equal, the unexpected appreciation of the yuan implies downside risks to inflation and an additional tightening of financial conditions that may affect growth--beyond the effects from the sizable appreciation in the dollar before this week. But on balance, the PBOC action marginally lowers the odds of Fed liftoff in September, in our view, and December liftoff remains our call. And here is Bank of America: The effects of a stronger USD may well slow the subsequent pace of rate hikes even if they do not delay liftoff. A stronger dollar is also disinflationary, but Fed officials have been largely unconcerned by weak commodity and import prices to date. The smaller estimated impact on core inflation in the staff’s model — about a 0.1-0.3pp drop following a 10% appreciation — may help explain the Fed’s reaction. We expect a larger and more persistent impact. In addition, Fed officials had cited stabilization of the dollar and energy prices as supporting their view that these disinflationary forces were “transitory.” Today’s market reaction may lead them to reconsider, as stocks, oil prices and inflation expectations all fell. The larger and more sustained these moves, the more likely the FOMC will react.

What China’s Devaluation Means to the U.S. Economy --Markets received a seismic jolt from China on Tuesday as it devalued its currency, the Yuan, by the most in two decades, cutting its daily reference rate by 1.9 percent. The move sparked instant selloffs in stocks, commodities, and emerging market currencies as well as a drop in the yield of the 10-year U.S. Treasury Note, which is trading early this morning at a yield of 2.16 percent.While China announced that the currency devaluation was a one-off move, the prevailing fear in global markets is that it marks a new round in the raging currency wars where countries are now competing to debase their currencies in hopes of making their exports more competitively priced in global markets. The U.S. imports more goods from China than any other country. Through June of this year, the U.S. had imported $226.7 billion in goods from China versus $150.4 billion from Canada and $145.1 billion from Mexico, according to the U.S. Census Bureau. The Federal Reserve has been struggling to avoid importing deflation into the U.S.; this devaluation move now means that Chinese goods flowing into the U.S. just got cheaper and the ability of U.S. exporters to compete in global markets just got a lot harder.According to a Federal Reserve report released on July 17, the rising value of the U.S. Dollar is having a significant negative impact on large U.S. based multinationals. The report noted that “The dollar’s strength likely explains roughly a third of the recent decline in profits earned from foreign subsidiaries” and that “Firms with high foreign sales tend to be larger and account for almost 75 percent of S&P 500 nonfinancial earnings excluding oil and utilities.” As we have reported before, this global currency race to the bottom cannot be solved by central banks. The problem is directly rooted in the unprecedented levels of income and wealth inequality that plague this era. In the U.S., that problem springs directly from Wall Street’s institutionalized wealth transfer system.

U.S. economy on track to grow 0.7 percent in third quarter: Atlanta Fed | Reuters: The U.S. economy is on track to grow 0.7 percent in the third quarter as a rise in retail spending in July was not enough to overcome an expected drop in inventories, the Atlanta Federal Reserve's GDPNow forecast model showed on Thursday. This was weaker than the regional Fed bank's prior estimate on Aug. 6 of a 0.9 percent rise in gross domestic product, which was revised lower from an earlier forecast of a 1.0 percent increase, the Atlanta Fed said on its website. The model forecast the expected decline in inventory investment would shave 2.2 percentage points from third-quarter GDP, more severe than an earlier estimate of a 1.8-point drag. The 0.6 percent pickup in retail sales in July boosted the expected pace of consumer spending in the quarter to 3.1 percent from 2.8 percent. Goldman Sachs economists also trimmed their third-quarter GDP growth view, to 2.2 percent from 2.3 percent. J.P. Morgan economists said on Thursday they held their third-quarter growth forecast at 2.5 percent.

3rd Quarter GDPNow Estimate a Weak 0.7% Despite Retail Sales Jump -- The Retail Sales Upward Revisions will likely add a couple ticks to second quarter GDP, but overall growth still remains very weak. GDP as Reported:

  • 1st Quarter: +0.6%
  • 2nd Quarter: +2.3%

The retail sales revisions may add another 0.2% or so to second quarter, assuming there are no other changes. That's a huge assumption given the history of revisions in nearly every economic number. Those hoping retail sales will give a huge boost third quarter GDP are likely mistaken. The Atlanta Fed GDPNow Forecast for this quarter stands at an anemic 0.7%, down from the initial reading of 1.0% made on August 6.  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 0.7 percent on August 13, down from 0.9 percent on August 6. The previously reported nowcast of 1.0 percent for August 6 was revised down due to a minor adjustment in the method for nowcasting investment in computers and peripherals. Since a week ago, the nowcast for the contribution of inventory investment to third-quarter real GDP growth has declined from -1.8 percentage points to -2.2 percentage points. This decline more than offset an increase in the nowcast of the third-quarter growth rate in real consumer spending from 2.9 percent to 3.1 percent after the release of this morning’s retail sales report from the U.S. Census Bureau.

Even The Fed Admits Recession Looms: Q3 GDP Forecast Slashed To Just 0.7% -- Just as we warned earlier - and Goldman subsequently confirmed - the Q2 "stack'em-high" surge in inventories (which has juiced hype hope that America is back, baby!) has consequences. The Atlanta Fed just released its latest forecast for Q3 GDP growth, lowering it to just 0.7%, citing an inventory drag of -2.2 percentage points. The Fed estimate is now 75% below the street's consensus!! As The Atlanta Fed explains...The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 0.7 percent on August 13, down from 0.9 percent on August 6.The previously reported nowcast of 1.0 percent for August 6 was revised down due to a minor adjustment in the method for nowcasting investment in computers and peripherals. Since a week ago, the nowcast for the contribution of inventory investment to third-quarter real GDP growth has declined from -1.8 percentage points to -2.2 percentage points. This decline more than offset an increase in the nowcast of the third-quarter growth rate in real consumer spending from 2.9 percent to 3.1 percent after the release of this morning’s retail sales report from the U.S. Census Bureau.

U.S. runs $149 billion budget deficit in July - -- The federal government ran a budget deficit of $149 billion in July, the Treasury Department said Wednesday. The shortfall was $55 billion higher than in the same month a year ago. In July, the government spent $375 billion, up $66 billion, or 21%, from last July. Some of the biggest spending increases were for Medicare and education programs. Revenues were $225 billion, up $11 billion, or 5%. Most of the increase was from individual income and payroll taxes. For the fiscal year to date, the deficit is $466 billion, compared to $460 billion in the year-ago period. The government's fiscal year runs from October to September.

The Shrinking Deficit -- From the WSJ: Budget Deficit Totaled $488 Billion For Year Ended July, Down 9% From Year Earlier The U.S. budget deficit rose in July but stood around 9% below its year-earlier level, the Treasury Department said on Wednesday. The budget outlook has improved this year as economic growth has boosted revenues, but outlays were significantly higher in July from a year earlier, in part due to calendar timing differences. The U.S. ran a $149 billion deficit in July, a month in which the government typically runs a deficit...The Congressional Budget Office last week said it expected the U.S. would run a $425 billion deficit for the fiscal year that ends Sept. 30, down more than 12% from its earlier forecast of $486 billion and from the prior year’s $483 billion deficit.  The most recent CBO projection was for the fiscal 2015 budget deficit to be 2.7% of GDP. Right now it looks like fiscal 2015 will be under 2.4% (a significant improvement).

Obama Wants to Spend a Trillion Dollars on New Generation of Nuclear Weapons  -- News organizations love anniversary stories and if for some reason you haven’t heard, it’s the 70th anniversary of when the U.S. dropped two atomic bombs on Japan. The first exploded over Hiroshima on Aug. 6 and the second over Nagasaki on Aug. 9.  Not surprisingly, there’s been a proliferation of print and broadcast stories on the making of the bomb, the politics of the bomb, the dropping of the bomb, the survivors of the bomb—you name it.  Despite all this coverage, however, I didn’t notice any stories that bothered to mention the fact that the Obama administration wants the U.S. government to spend as much as $1 trillion over the next three decades on a new generation of nuclear warheads, bombers, submarines and intercontinental ballistic missiles (ICBMs). At $610 billion, the annual U.S. military budget today is actually higher than it was on average during the Cold War and is more than the combined military budgets of the next seven countries: China, Russia, Saudi Arabia, India and our longtime NATO allies France, Germany and the United Kingdom (UK). It eats up more than half of the U.S. annual discretionary budget.Approximately $60 billion is slated to replace existing nuclear weapons with a suite of new warheads, a task that would be handled by the National Nuclear Security Administration (NNSA), a semi-autonomous agency within the Department of Energy. The NNSA plan specifically calls for building new nuclear material production facilities and consolidating the current stockpile of seven types of warheads into five. The arsenal of tomorrow would consist of three warheads deployed on Air Force and Navy long-range missiles and two types of air-delivered weapons deployed on cruise missiles and bombers.

US Military Uses IMF & World Bank To Launder 85% Of Its Black Budget -- Though transparency was a cause he championed when campaigning for the presidency,President Obama has largely avoided making certain defense costs known to the public. However, when it comes to military appropriations for government spy agencies, we know from Freedom of Information Act requests that the so-called “black budget” is an increasingly massive expenditure subsidized by American taxpayers. The CIA and and NSA alone garnered $52.6 billion in funding in 2013 while the Department of Defense black ops budget for secret military projects exceeds this number. It is estimated to be $58.7 billion for the fiscal year 2015. What is the black budget? Officially, it is the military’s appropriations for “spy satellites, stealth bombers, next-missile-spotting radars, next-gen drones, and ultra-powerful eavesdropping gear.” However, of greater interest to some may be the clandestine nature and full scope of the black budget, which, according to analyst Catherine Austin Fitts, goes far beyond classified appropriations. Based on her research, some of which can be found in her piece “What’s Up With the Black Budget?,” Fitts concludes that the during the last decade, global financial elites have configured an elaborate system that makes most of the military budget unauditable. This is because the real black budget includes money acquired by intelligence groups via narcotics trafficking, predatory lending, and various kinds of other financial fraud. The result of this vast, geopolitically-sanctioned money laundering scheme is that Housing and Urban Devopment and other agencies are used for drug trafficking and securities fraud.  According to Fitts, the scheme allows for at least 85 percent of the U.S. federal budget to remain unaudited. Fitts has been researching this issue since 2001, when she began to believe that a financial coup d’etat was underway. Specifically, she suspected that the banks, corporations, and investors acting in each global region were part of a “global heist,” whereby capital was being sucked out of each country. She was right.

Chalmers Johnson on Garrisoning the Planet -- As distinct from other peoples, most Americans do not recognize -- or do not want to recognize -- that the United States dominates the world through its military power. Due to government secrecy, our citizens are often ignorant of the fact that our garrisons encircle the planet. This vast network of American bases on every continent except Antarctica actually constitutes a new form of empire -- an empire of bases with its own geography not likely to be taught in any high school geography class. Without grasping the dimensions of this globe-girdling Baseworld, one can't begin to understand the size and nature of our imperial aspirations or the degree to which a new kind of militarism is undermining our constitutional order.  Our military deploys well over half a million soldiers, spies, technicians, teachers, dependents, and civilian contractors in other nations. To dominate the oceans and seas of the world, we are creating some thirteen naval task forces built around aircraft carriers whose names sum up our martial heritage.  We operate numerous secret bases outside our territory to monitor what the people of the world, including our own citizens, are saying, faxing, or e-mailing to one another. Our installations abroad bring profits to civilian industries, which design and manufacture weapons for the armed forces or undertake contract services to build and maintain our far-flung outposts. One task of such contractors is to keep uniformed members of the imperium housed in comfortable quarters, well fed, amused, and supplied with enjoyable, affordable vacation facilities. Whole sectors of the American economy have come to rely on the military for sales.

Taking a long view on corporate reform - Larry Summers -- The debate on corporate behavior is, I believe, a very valuable one that gets in a fundamental way at how American capitalism functions. In many aspects, it represents an overdue recognition of basic market principles.  There is also a strong case for regulating aspects of compensation. Matters are not as clear as is often suggested regarding short-term-driven “quarterly capitalism,” and I believe skepticism is appropriate toward arguments that horizons should be lengthened in all cases. A generation ago, Japan’s keiretsu system, which insulated corporate management from share price pressure by tying large companies together, was widely seen as a great Japanese strength; yet even apart from Japan’s manifest macroeconomic difficulties, Japanese companies lacking market discipline have squandered leads in sectors ranging from electronics to automobiles to information technology. Managements of companies that are dissipating the most value, such as General Motors before it needed to be bailed out, have often been the most enthusiastic champions of long-termism. Market participants who willingly place huge valuations on many Silicon Valley companies that lack any profits and have little revenue may be placing too much, not too little, weight on the distant future. That, at least, is the implication of the technology bubbles we have seen. ...

The Outrageous Ascent of CEO Pay - Robert Reich --The Securities and Exchange Commission just ruled that large publicly held corporations must disclose the ratios of the pay of their top CEOs to the pay of their median workers. About time. For the last thirty years almost all incentives operating on American corporations have resulted in lower pay for average workers and higher pay for CEOs and other top executives.  Consider that in 1965, CEOs of America’s largest corporations were paid, on average, 20 times the pay of average workers.  Now, the ratio is over 300 to 1.  Not only has CEO pay exploded, so has the pay of top executives just below them.  The share of corporate income devoted to compensating the five highest-paid executives of large corporations ballooned from an average of 5 percent in 1993 to more than 15 percent by 2005 (the latest data available). Corporations might otherwise have devoted this sizable sum to research and development, additional jobs, higher wages for average workers, or dividends to shareholders – who, not incidentally, are supposed to be the owners of the firm. Corporate apologists say CEOs and other top executives are worth these amounts because their corporations have performed so well over the last three decades that CEOs are like star baseball players or movie stars.  Baloney. Most CEOs haven’t done anything special. The entire stock market surged over this time.  Even if a company’s CEO simply played online solitaire for thirty years, the company’s stock would have ridden the wave.

CEOs Now Officially Have to Tell You How Grossly Overpaid They Are --In an effort to salary-shame absurdly overpaid chief executives, the Securities and Exchange Commission adopted a new rule on Wednesday which will compel CEOs to report the ratio of their yearly earnings to the median salary of its employees. While CEOs of public companies already had to disclose their salaries, the new rule is notable in that it forces the companies to compare these salaries to workers’ pay and confront head-on how fucked up capitalism is. Mashable reports: Companies and their lobbyists had worked hard to amend the rule, arguing that they should be allowed to exclude many foreign workers, who often make low wages. In the end, they mostly failed. Companies will only be able to exclude 5% of their foreign workforce from the calculations. CEO salaries became one of the central rallying cries during the financial crisis, particularly as executives were compensated with millions of dollars despite overseeing crumbling businesses. Highly paid chief executives were often used to illustrate the wealth gap that had only been widened by the country’s economic woes. In 2013, a report from the AFL-CIO found that CEOs of the biggest companies in the U.S. make on average 373 times the salary of a non-managerial employee. In 2012, CEOs’ pay rose 16 percent, compared with employees’ wages, which increased only 2.4 percent. The rule will not officially go into effect until January 1, 2017 and the first ratios won’t have to be reported until 2018, so sit tight for another few years (and then a few centuries more) of extreme financial inequality.

Gang of Transnational Crime Organizations Roll Out Own Encrypted Communication System - Marcy Wheeler - When Michael Chertoff made the case against back doors, he noted that if the government moved to require back doors, it would leave just the bad guys with encrypted communications. I doubt he had the Transnational Crime Organizations on Wall Street in mind when he talked about the bad guys “still not be able to be decrypted.”  But HSBC, JP Morgan Chase, Citi, Deutsche Bank, Goldman Sachs and the other big banks supporting Symphony Communications — a secure cloud based communications system about to roll out — are surely among the world’s most hard-core recidivists, and their crime does untold amount of damage to ordinary people around the globe. Which is why I’m so amused that Elizabeth Warren has made a stink about the imminent rollout of Symphony and whether it will affect banks’ ability to evade what scant law enforcement might be thrown their way. I have [] concerns about how the biggest banks use of this new communications tool will impact compliance and enforcement by the Department of Justice [Warren sent versions of the letter to 6 regulators] at the federal level. My concerns are exacerbated by Symphony’s publicly available descriptions of the new communications system, which appear to put companies on notice — with a wink and a nod — that they can use Symphony to reduce compliance and enforcement concerns. The company’s website boasts that it has special tools to “prevent government spying,” and “there are no backdoors,” and that “Symphony has designed a specific set of procedures to guarantee that data deletion is permanent.”  Warren is right to be concerned. These are serial conspiracists on a global scale, and (as Warren notes elsewhere) they’ve only been caught — to the extent that hand slaps count as being caught — when DOJ found the chat rooms in which they’ve colluded.

Wall Street’s new chat service is deleting problematic messaging - For start-up that says it’s focused on secure messaging, Symphony has been deleting a lot of its own messaging to the public about what it provides for its financial services clients. The firm has been editing out references on its website to data deletion and its ability to help banks keep their data away from the government. The New York Post has previously reported that Symphony deleted a video from its website that bragged its software could help banks avoid billions in fines by making data deletion easier. Continuing its efforts, Symphony has recently deleted a section about data security from its website and additional references that emphasize more privacy via data encryption and permanent data deletion capabilities. These were among the removed comments: “End-to-End Encryption: Symphony is completely private. Your data is 100% protected by encryption keys known only by you, never by us.” “Guaranteed Data Deletion: Symphony has designed a specific set of procedures to guarantee that data deletion is permanent and fully documented.”

Biggest US Dark Pool Busted For Rigging Markets, Engaging In Precisely The Manipulation It Warned Against  - One year ago, in the first ever crack down on market manipulation and rigging in HFT-infested dark pools and ATS venues, the NY AG crushed Barclay's dark pool LX with just one lawsuit alleging the bank had misrepresented and taken advantage of gullible clients to benefit well-paying HFT parasitic scalpers who not only have never "provided liquidity" but merely frontrun whale orders and completely shut down any time the market turns against the prevailing momentum wave, in the process crushing liquidity.  Following the Barclays debacle, the paid defenders of the HFT criminal syndicate scrambled to prove that it was "only" one bad sheep in a herd of well-meaning, tame and well-behaved liquidity providing animals.  A year later, enough time had passed since the Barclays bust that the more gullible elements almost believed these paid defenders of market-rigging. Then the best laid plan of vacuum tubes and men went horribly wrong when at the end of July, none other than the original dark pool, ITG, was busted for using a prop trading silo to frontrun client order flow using an HFT architecture.  And then, earlier today, the WSJ reported that none other than the operator of the biggest dark pool in the US by volume, Credit Suisse and its massive Crossfinder dark pool, "is in talks with regulators to settle allegations of wrongdoing at its “dark pool” with a record fine in the high tens of millions of dollars, according to people familiar with the matter."  From the WSJThe Swiss bank is negotiating a joint settlement with the New York Attorney General and the Securities and Exchange Commission. A deal could come as soon as the next several weeks, though talks could still fall apart, the people said. The settlement under discussion would lead to the largest fine ever levied against an operator of a private trading venue.  The case against Credit Suisse includes allegations that it provided unfair advantages to some traders, violated rules against pricing of stocks and didn’t adequately disclose to investors how CrossFinder works, according to the people familiar with the matter.

Legislation would give SEC more time to go after fraudsters: A Senate Democrat wants to give the Securities and Exchange Commission more time to ferret out fraud in the financial markets. Sen. Jack Reed, D-R.I., introduced a bill on Wednesday that would extend the statute of limitations for the SEC to seek civil monetary penalties from five years to 10 years. The legislation responds to a unanimous 2013 Supreme Court decision, Gabelli v. SEC, which found that the current five-year time limit for the SEC to bring charges begins when the violation occurs, not when it is discovered by the agency. The Gabelli case involved alleged fraud by an investment adviser to a mutual fund in August 2002. The SEC did not file its case until April 2008. The defendant argued that the SEC was too slow on the draw, and the Supreme Court agreed, overturning a lower court decision. The ruling could leave investors vulnerable to financial fraud that involves increasingly complex investment products and elaborate transactions that can be hidden from regulators for years, Mr. Reed asserted. “We cannot allow Wall Street titans to play fast and loose with our securities laws and then run out the clock,” Mr. Reed said in a statement Friday. “This legislation gives the SEC more time to unearth wrongdoing in the financial marketplace, and sends a clear signal that securities law violators are going to need more than a stopwatch if they intend to break the law.”

SEC Admits It’s Not Monitoring Stock Buybacks to Prevent Market Manipulation -- Dave Dayen -- The Securities and Exchange Commission has admitted that it has no ability to enforce the main rule intended to prevent market manipulation when companies buy back their own stock, and has no intention to do so. SEC Chair Mary Jo White made the acknowledgement in a response to Sen. Tammy Baldwin, D-Wisc., who queried the agency about stock buybacks. Baldwin is one of a growing number of politicians — including presidential candidates Hillary Clinton and Bernie Sanders — who are citing buybacks as an example of deliberate financial engineering that bolsters concentration of wealth and keeps working-class wages stagnant. Stock buybacks are an increasingly common practice in which corporations take profits, and instead of investing in facilities, research and development, or boosting worker wages, buy shares of their own stock on the open market, thereby boosting demand and driving up its price. Companies bought back over half a trillion dollars’ worth of their own shares last year. The practice creates short-term rewards for executives who are paid in stock and stock options, and benefit from an increased price. They also make corporate earnings look better by reducing outstanding shares and increasing the commonly reported ratio of earnings-per-share.

The Worst of the Worst of the Worst: New Century and its Economics Shills -- William K. Black -- I have often noted the existence of a primitive tribal taboo shared by virtually all economists against using the “f” word – “fraud.”  I have found a new example that sums up many of the pathologies of economics and economists.  It is an article entitled “Going for Broke: New Century Financial Corporation, 2004-2006.”  Given that New Century was a classic accounting control fraud, the use of the long-discredited gambling metaphor (our “autopsies” of S&L failures refuted it in 1984) demonstrates the crippling power of the taboo.  The three economists who authored the September 2010 article are Augustin Landier (Toulouse School of Economics) David Sraer (Princeton University) David Thesmar (HEC & CEPR) (collectively, “LST”). The Office of the Comptroller of the Currency (OCC) has published a list of the “worst of the worst” – the ten worst lenders in the ten worst markets for nonprime mortgage foreclosures.  The absolute worst lender on that list is New Century.  That makes it the worst of the worst of the worst.  It also makes LST the worst of the worst of the worst economists writing about the fraud epidemics that drove the financial crisis. The LST article is remarkably and inexcusably awful.  The most recent studies by very conservative financial scholars that actually study elite financial frauds have confirmed what we have been explaining for decades.  While LST did not have access to these two recent studies, one of the studies (Piskorski, Seru, and Witkinl) was done on the basis of a New Century data set that the authors shared with other scholars who requested access, including the Jiang study that LST cite. 

Who Are the Biggest Killers in America? The Numbers Will Shock You - Recently, I examined the economic backgrounds of those killed by police this year. I found that between January and May 2015, 95 percent of police killings occurred in neighborhoods with average incomes under $100,000. There were no killings in neighborhoods with incomes of $200,000 or above. I received many responses to this article, but one of the most common was that the wealthy simply don't commit as much street crime. In other words, the rich behave themselves, so the police don't bother them. There is truth to this argument in one dimension: street crime. It has long been consensus among sociologists and economists that high levels of poverty and inequality are associated with various street crimes such as homicide and assault.  However, this doesn't actually mean that the poor and middle class are harming more people, or stealing more of their property, or destroying more of their wealth. It is a little-known fact that the richest Americans not only steal more wealth through white-collar crime, but their crimes also lead to the deaths of more people. Yet despite the destructiveness of rich criminals, our criminal justice system does not respond in the same way it tackles crimes by poorer Americans.

You Don’t Need to Hire Rapacious Private Equity Firms to Get Their Returns -- Yves Smith - A myth that has allowed private equity to persist in its predatory ways is that private equity delivers returns that investors can’t obtain through other investment strategies.  We’ve described the large body of research that demonstrates otherwise. Private equity has conditioned investors to use IRR, a return metric that exaggerates their performance. Average private equity industry performance does not beat the S&P 500, which is a much more flattering metric than smaller-cap indicies that would make for better comparables. Moreover, investors need to be compensated for the illiquidity of private equity and most investors use a rule of thumb of 300 to 400 additional basis points. Even the mighty CalPERS, which has better access to private equity funds than just about any market participant, has failed to meet its private equity performance benchmarks for the last 10, 5, 3, and one years. If CalPERS can’t eke out an adequate risk-adjusted return out of private equity, pray tell who can? The justification for investing in private equity has rested almost entirely on the idea that investors could gain access to the best funds. If they could invest only in top quartile funds, private equity looks like a winner. But that notion has also been roundly debunked. It was once true that top quartile firms stayed in the top quartile, so investors could in theory target them. But top quartile outperistence no longer holds, so investors might as well throw darts at a list of private equity fund managers. Moreover, even in the days when top funds were able to maintain a performance lead over their peers, the also-rans were able to muddy the selection waters. One study found that 77% of the funds were able to claim top quartile status. Oops.

Prime, Subprime, Deep Subprime, Subprime-Like . . . and hold it, my fav "Aspriring Prime" -- The consumer finance industry is awash in labels for lending. Despite the lack of data, and clear analysis, that left certain people (apparently nearly all of Wall Street) surprised about the housing crisis, the lending industry is still defining success for itself. Kevin Wack at American Banker examines the "slippery" definition of subprime, giving examples of Equifax recalibrating the "subprime" and "deep subprime" labels to different places on the credit score range. The result: instantly, the percentage of subprime auto loan originations falls from 36% to 28%. Labels themselves do not predict default risk (we hope the actual underwriting, including credit score, does that work). But labels do matter. Consistent use of problems such as "prime" and "subprime" help government and researchers study trends and make consistent, reliable determinations about markets. They make sure that different regulators are looking at the same group of loans, and they help the public evaluate their credit standing. Maybe this is a project for the Financial Stability Oversight Council, which devoted one-page to consumer protection in its 100-page 2015 report. In what I take as a sign that FSOC should tackle this issue, there is even a heading on "Data Gaps."

Goldman Is Officially A Bank: Bailed Out Hedge Fund Will Allow Muppets To Give Their Savings To Lloyd Blankfein - The last time former Goldman employee and then Treasury Secretary Hank Paulson bailed out the hedge fund known as Goldman Sachs, and its closest peers (but not its biggest fixed income competitor Lehman Brothers of course), even the traditionally confused American public pushed back on the structure of the bailout which converted the Goldman holding company into an FDIC-insured company, which led many to ask: just where are Goldman's deposits?  The answer, of course, was nowhere, so perhaps in anticipation of the logical pushback against its second, upcoming bailout which would see the taxpayer-backed depositor insurance company once again provide trillions in cash to banks as well as the glorified hedge funds such as Goldman, the firm moments ago decided to do something it has never done before:become an actual bank with checking accounts and such. It did so by announcing moments ago it would acquire GE's Capital Bank's online deposit platform, as in online checking accounts, including $8 billion in deposits and $8 billion in brokered CDs, thereby providing Goldman with a virtually costless source of $16 billion in funds. Costless, because under ZIRP, Goldman pays precisely zero interest for the unsecured liability also known as a deposit.  from the PR: Goldman Sachs Bank USA (“GS Bank”) announced today it has entered into an agreement with GE Capital Bank (“GECB”) to acquire GECB’s online deposit platform and assume GECB’s approximately $8 billion in online deposit accounts and $8 billion in brokered certificates of deposit for an expected total of approximately $16 billion of deposits at closing. GS Bank will acquire no financial assets in the transaction other than cash associated with the deposit liabilities. “This transaction achieves greater funding diversification and strengthens the liquidity profile of GS Bank by providing an additional deposit gathering channel.  The establishment of this channel represents the advancement of a key funding objective for the firm,” said Liz Beshel Robinson, Treasurer of The Goldman Sachs Group, Inc.

Out of the frying pan - Goldman Sachs is swapping one too-big-to-fail dilemma for another. The Wall Street firm is buying an online banking platform and $16 billion of deposits from GE Capital. The deal has a number of advantages for Goldman, but carries plenty of risk. From Chief Executive Lloyd Blankfein’s perspective, it’s a smart move. Granted, the amount of deposits being acquired is tiny compared with the firm’s $860 billion of assets. But with $89 billion already on Goldman’s books, the acquisition means deposits will account for 14 percent of liabilities. That’s still less than the 18 percent at rival Morgan Stanley, which has a large wealth management unit. But every little bit helps: Retail deposits are a cheaper form of funding than bonds. And Goldman clearly intends to attract more customers, either organically or with additional acquisitions. The purchase should keep financial watchdogs sweet. They have been pushing for Goldman to expand its deposit base in recent years. That’s because in a crisis bond investors often won’t lend to any companies for a time, whereas only retail banks that are in serious trouble tend to be vulnerable to a run by customers. Financial institutions that are less exposed to capital markets should, therefore, be safer.

Surge in Commercial Real-Estate Prices Stirs Bubble Worries - WSJ: Investors are pushing commercial real-estate prices to record levels in cities around the world, fueling concerns that the global property market is overheating. The valuations of office buildings sold in London, Hong Kong, Osaka and Chicago hit record highs in the second quarter of this year, on a price per square foot basis, and reached post-2009 highs in New York, Los Angeles, Berlin and Sydney, according to industry tracker Real Capital Analytics. Deal activity is soaring as well. The value of U.S. commercial real-estate transactions in the first half of 2015 jumped 36% from a year earlier to $225.1 billion, ahead of the pace set in 2006, according to Real Capital. In Europe, transaction values shot up 37% to €135 billion ($148 billion), the strongest start to a year since 2007. Low interest rates and a flood of cash being pumped into economies by central banks have made commercial real estate look attractive compared with bonds and other assets. Big U.S. investors have bulked up their real-estate holdings, just as buyers from Asia and the Middle East have become more regular fixtures in the market. The surging demand for commercial property has drawn comparisons to the delirious boom of the mid-2000s, which ended in busts that sunk developers from Florida to Ireland. The recovery, which started in 2010, has gained considerable strength in the past year, with growth accelerating at a potentially worrisome rate, analysts said.

Swift Default in Ohio Shows Why Commercial Mortgages Worry Fed - Just outside Columbus, Ohio, the small city of Gahanna found a new backer last year: Wall Street’s $100 billion-a-year securitization machine for commercial mortgages. A $25 million loan from UBS Group AG was quickly scooped up with five dozen others, bundled and sold to pension funds and money managers as bonds with ratings as high as AAA. Within six months, the developer defaulted. The loan’s set to be auctioned on Wednesday, and bondholders are facing potential losses. For analysts and investors that have tracked the rapid growth of commercial-mortgage backed securities since the crisis, the failure is raising questions not just over how the loan could sour so quickly, but whether it’s a harbinger of more widespread pain. “This is a bigger story that can be tied into the performance of loans sold into commercial mortgage-backed securities,” said Richard Hill, a Morgan Stanley analyst who’s been raising concerns that Wall Street is financing increasingly risky property deals. Loosening standards are resulting in “faster defaults than what was observed prior to the financial crisis and potentially higher cumulative losses over time than the market may expect,” he said. Underwriting Standards Banks are selling CMBS at the fastest clip since 2008, thanks in part to a seventh year of near-zero interest rates that have investors lining up for higher-yielding securities. That’s allowing lenders to originate riskier loans that they know they can offload on Wall Street, where the debt is bundled into securities and sold to investors such as mutual funds or pensions. Last month, Federal Reserve Chair Janet Yellen used the central bank’s semiannual report to Congress to warn of the threat of an overheated CMBS market in a still-recovering U.S. economy. “Valuation pressures in commercial real estate are rising as commercial property prices continue to increase rapidly, and underwriting standards at banks and in commercial mortgage-backed securities have been loosening,” the policy makers wrote.

MBA: Mortgage Delinquency and Foreclosure Rates Decrease in Q2 -- From the MBA: Mortgage Delinquencies and Foreclosures Continue to Drop in Second Quarter  The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.30 percent of all loans outstanding at the end of the second quarter of 2015. This was the lowest level since the second quarter of 2007. The delinquency rate decreased 24 basis points from the previous quarter, and 74 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 2.09 percent, down 13 basis points from the first quarter and 40 basis points lower than the same quarter one year ago. This was the lowest foreclosure inventory rate since the fourth quarter of 2007. "Overall delinquency rates and the percentage of loans in foreclosure continued to fall in the second quarter and are at their lowest levels since 2007. Even more telling, nearly every state in the nation reported declining foreclosure inventory rates over the second quarter, reflecting a nationwide housing market recovery and strong job market that provide opportunities for distressed loans to be resolved rather than be put into foreclosure...."As has been the case since the fourth quarter of 2012, New Jersey, New York, and Florida had the highest percentage of loans in foreclosure in the nation. ... "Legacy loans continued to account for the majority of all troubled mortgages. 73 percent of the loans that were seriously delinquent, either more than 90 days delinquent or in the foreclosure process were originated before 2008, even as the overall rate of serious delinquencies for those cohorts decreased."This graph shows the percent of loans delinquent by days past due. The percent of loans 30 and 60 days delinquent are back to normal levels. The 90 day bucket peaked in Q1 2010, and is about 78% of the way back to normal. The percent of loans in the foreclosure process also peaked in 2010 and and is about 75% of the way back to normal.

As Home Prices Rise, the Foreclosure Crisis Continues to Recede  -- Fast-rising home values are raising alarms among some economists that the home-affordability problem is getting out of hand. But there is one happy side effect: The foreclosure crisis is receding into the background. The Mortgage Bankers Association, which represents mortgage lenders, on Thursday said that the foreclosure starts rate was merely 0.4% in the second quarter, 0.05 percentage point lower than the first quarter and on par with the rate seen during the housing boom. The delinquency rate–which includes loans that are past due but not in the foreclosure process–fell 0.24 percentage point to 5.3%, after adjusting for seasonality, its lowest point since the second quarter of 2007. Marina Walsh, MBA’s vice president of industry analysis, attributed the improvement to a strong job market and the broader housing recovery. Though fewer homeowners are falling behind, there are still an abnormally high number of borrowers stuck in the foreclosure process. In the second quarter, 2.09% of loans were in some stage of the foreclosure process, 0.13 percentage point lower than last quarter and 0.4 point lower than a year ago. That rate is still twice as high as those seen at the peak of the boom. As has been the case for years, states that use mainly a judicial foreclosure process, which means typical foreclosures must work their way through the court system, had a higher foreclosure inventory rate than nonjudicial states. Judicial states tend to give more protection and time to delinquent borrowers at the expense of a swift process. New Jersey maintained the highest percent of loans in foreclosure, at 7.31%, followed by New York at 5.31% and Florida at 4.24%. In the meantime, Colorado, North Dakota and Wyoming had foreclosure inventory rates of below 0.7%. California, another boom-bust state but one with a nonjudicial foreclosure process, had an inventory of 0.91%. Overall, 3.41% of loans in judicial states are in the foreclosure process, compared with 1.15% of loans in nonjudicial states.

Fannie and Freddie: REO inventory declined in Q2, Down 33% Year-over-year - Fannie and Freddie reported results last week. Here is some information on Real Estate Owned (REOs). From Fannie Mae: The continued decrease in the number of our seriously delinquent single-family loans has resulted in a reduction in the number of REO acquisitions in the first half of 2015 as compared with the first half of 2014. We continue to manage our REO inventory to appropriately manage costs and maximize sales proceeds. However, we are unable to market and sell a large portion of our inventory, primarily due to occupancy and state or local redemption or confirmation periods, which extends the amount of time it takes to bring our properties to a marketable state and eventually dispose of them. This results in higher foreclosed property expenses, which include costs related to maintaining the property and ensuring that the property is vacant. Additionally, before we market our foreclosed properties, we may choose to repair them in order to maximize the sales price and increase the likelihood that an owner occupant will purchase. Fannie is unable to currently market about 40% of their inventory.  From Freddie Mac:  In recent periods, third-party sales at foreclosure auction have comprised an increasing portion of foreclosure transfers. Third-party sales at foreclosure auction avoid the REO property expenses that we would have otherwise incurred if we held the property in our REO inventory until disposition.  Fannie and Freddie are still working through the backlog of loans made during the housing bubble, mostly in judicial foreclosure states.

Why Risky Borrowers Still Aren’t Getting Mortgages - Fannie Mae, Freddie Mac, the Federal Housing Finance Agency and the Obama administration over the past year have tried mightily to expand mortgage access for riskier borrowers. But despite those efforts, there’s little evidence so far of borrowers with weaker credit making a strong return. On Tuesday and Thursday, Freddie and Fannie released their quarterly earnings reports. Both companies said that the credit scores of loans that they back are actually higher year-to-date than they were last year. Freddie, for example, says that this year through June the weighted average credit score of loans it purchased from lenders was 751–on a scale of 300 to 850–up from 744 in 2014.  The percentage of mortgage borrowers backed by Fannie and Freddie with low credit scores or a low down payment has also risen since mid-2013, even though it has dropped recently with a change in the companies’ business mix. Still, with such an abundance of anecdotes from lenders who say they’re making it easier to get a mortgage, you would expect there to be a more significant change. Problem is, Fannie isn’t the only entity that lenders have to answer to. In the past few years, lenders have been under scrutiny from the Justice Department, Consumer Financial Protection Bureau and dozens of state attorneys general and lawmakers for alleged mistakes and abuses before, during and after the financial crisis. Some lenders think the scrutiny is overzealous and have pulled back from making certain loans as a result.

Did the Mortgage-Fee Cut Help Borrowers? - In January, President Barack Obama announced a major mortgage fee cut for some lower-wealth borrowers. The fee cut brought praise from the real-estate industry and affordable housing advocates but ire from conservatives who thought it would result in riskier mortgages and lower revenues for the cash-strapped agency.  More than half a year from the cut, the number and mix of loans being backed by the Federal Housing Administration have changed markedly. Here’s what happened and how the change affected the mortgage market. At the time, the White House said that the cut would enable 250,000 Americans to buy their first home within the next three years.  Some conservatives, on the other hand, worried that the cut would hurt the FHA’s finances without the big gain Mr. Obama promised. An analysis of the FHA premium cut by Moody’s Analytics’ Mark Zandi performed soon after the announcement estimated the cut would result in 45,000 more home sales in 2015 and 20,000 more single-family home starts. Mr. Zandi also estimated that the FHA’s insurance fund would reach its legally mandated 2% capital ratio by 2018, about a year later than he estimated previously. What’s happened since then? According to research by Andy Winkler, director of housing finance policy at the right-leaning American Action Forum, the number of home buyers has increased, but some of the gains are going to more well-heeled buyers that the administration didn’t intend to target.The fee reduction, for example, made the FHA program more attractive to borrowers with higher credit scores, Mr. Winkler says. The percentage of FHA endorsements where the borrower had a credit score above 680 grew to 45% in the second quarter, up from 41% in the fourth quarter of 2014, he says.

MBA: Mortgage Applications "Flat" in Latest Weekly Survey, Purchase Index up 20% YoY -- From the MBA: Mortgage Applications Flat in Latest MBA Weekly Survey Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 7, 2015. ...The Refinance Index increased 3 percent from the previous week to its highest level since May 2015. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 20 percent higher than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.13 percent, with points decreasing to 0.31 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. Even with the increase in activity, refinance activity is very low. 2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 20% higher than a year ago.

FNC: Residential Property Values increased 5.7% year-over-year in June  - FNC released their June 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.2% from May to June (Composite 100 index, not seasonally adjusted).   The 10 city MSA increased 1.7% in June, the 20-MSA RPI increased 1.6%, and the 30-MSA RPI increased 1.4%. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).  In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The year-over-year (YoY) change was larger in June than in May, with the 100-MSA composite up 5.7% compared to June 2014. The index is still down 15.2% from the peak in 2006 (not inflation adjusted).

Home Prices Soar in Some Metro Areas -  The National Association of Realtors on Tuesday said that home prices in the second quarter rose in 163 out of 176 metro areas, continuing their upward trajectory even as economists warn of looming affordability problems and a limited supply of homes for sale. The median existing single-family home price rose to $229,400 in the second quarter, up 8.2% from a year earlier. That was a slightly faster rate of increase than the 7.1% price rise seen in the first quarter.  Real-estate agents this year reported a hot spring selling season that bled into the summer with dwindling home supply, the return of bidding wars in some cities and trigger-happy buyers eager to get a home loan before a long-expected rise in mortgage rates. Still, NAR’s report had signs that some markets aren’t quite as hot as they were at the beginning of the year. In the second quarter, 34 metro areas reported double-digit annual price gains, compared with 51 that reported such gains in the first quarter. Median prices, especially in smaller metro areas, are heavily affected by the mix of homes put up for sale and don’t necessarily reflect actual changes in the health of those markets. According to NAR, home prices rose the fastest in the stretch of cities extending up the east coast of Florida between Port St. Lucie and Titusville, with the median sales price in those areas rising about 20% from a year earlier. Raleigh and Greensboro, N.C., also saw strong double-digit gains. On the other hand, Cumberland, Md., the metro including Stamford, Conn., and Kingston, N.Y., were among the few cities showing price declines, NAR said.

Renters Spent a Record-High Share of Income on Rent This Spring - : The rental squeeze is getting worse, according to a new report by Zillow, as people are paying the highest-ever percentage of their income on rent. Renters can expect to pay 30.2% of their income on rent, according to a Zillow analysis of rental and mortgage affordability in the second quarter released Thursday. That is the highest percentage ever, said Zillow, which has data going back to 1979. The number is significant in part because it shows rental burdens creeping past 30%, which economists consider an affordable proportion of income for people to pay on rent. Between 1995 and 2000, renters on average spent just over 24% of their incomes on rents. “Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own health care,” said Svenja Gudell, Zillow’s chief economist. Rental affordability worsened in 28 of the 35 metro areas covered by Zillow. It remained especially poor in the New York area and pricey West Coast cities. Los Angeles renters could expect to pay 49% of their incomes in rent. San Francisco wasn’t far behind, with renters paying 47% of their incomes on rent. Even in New York and northern New Jersey–long considered a pricey place to rent–affordability has worsened significantly. Renters in the city historically paid about 25% of their incomes on rent and now pay 41%. In Miami, a city that was long considered affordable but has been dramatically transformed by luxury condos, renters now pay 44.5% of their incomes on rent.

Just Released: Releveraging the Consumer Credit Panel with Two New Charts -- Our Consumer Credit Panel, which is based on data from the Equifax credit reporting agency, first arrived at the New York Fed in 2009, and our very first Quarterly Report on Household Debt and Credit was published in August 2010, five years ago this month. We’ve continued to produce the same report, with very few changes, since the report’s initial release. However, with today’s release of the report for the second quarter of 2015, we’re beginning to make some changes, starting with two new charts that provide granularity on mortgage loan originations. These data are identical to the originations data that we’ve released previously, but we now report origination volume by credit score groups. The new charts’ form will be familiar to those who have seen our earlier work on auto loans or the U.S. Economy in a Snapshot, and will leverage some of the detail that we have in our dataset on new extensions of credit and underwriting standards. Our first new chart, showing the breakout of mortgage originations by credit score, appears below. What is most striking is the post-2006 trend toward lower mortgage origination volume. Overall mortgage lending fell sharply during the financial crisis and, aside from a brief refinancing boom in 2012-13, has not recovered to pre-crisis levels. For example, new originations were $1.3 trillion in 2014, compared with $2.9 trillion in 2005.

2015 2Q Household Debt and Credit Report --The 2Q report is out.  Interestingly, in the second quarter there was a solid jump in mortgage originations, but at the same time, total mortgage debt is declining again, after having stabilized since about 2013.  Total mortgages on consumer credit reports dropped at an annualized rate of almost 3%. I think we are seeing the confluence of several factors.  Originations are growing, but they are still very low.  They are still below even the temporarily higher levels of 2013.  And, obviously, they are much lower than pre-crisis levels.  So, they are having some positive effect on real estate markets, but nothing we would have called bullish before the country lost its mind about this stuff. At the same time, we are seeing the long end of the tail of underwater homeowners coming back into positive equity.  We are also seeing the continued recovery of the labor market, which is associated with more churn - more quits and hires.  And, we also have seen an acceleration downward in homeownership in the last few quarters.  I think all of this adds up to a picture where housing and labor markets are finally reaching a full recovery level where frictions have been reduced.  Homeowners who want to move are moving.  Workers who want to test the market are moving to jobs with more opportunity. But, since so many existing homeowners cannot qualify for mortgages in today's context, these healthy developments have the ironic effect of chilling the single family home market and mortgage credit markets.  I have been preparing for the idea that a bearish market and falling interest rates would be somewhat easy to detect because of apparently predictable signals in the yield curve.  I thought that might happen after mortgages recovered more.  Yet, here we are with long term rates falling, inflation expectations falling, and the Fed signaling that they are tightening...And I can't pull the trigger and go long bonds.  It would just take one meeting, for Yellen to come out and say, "Uncle".  We're backing off.  Don't worry about tightening.  But, we just keep going down this road.  And, it just seems so crazy that this is where we are, I just can't believe that we would take these downside risks.  Surely, they will come to their senses.

NY Fed: Household Debt "Flat" in Q2 2015  - Here is the Q2 report: Household Debt and Credit Report. From the NY Fed: Auto Loans Race Ahead, Foreclosures Plunge, and Overall Household Debt Remains Flat Household debt balances were largely flat in the second quarter of this year, according to the Federal Reserve Bank of New York’s Household Debt and Credit Report. Total indebtedness increased just $2 billion from Q1 2015. Foreclosures hit their lowest point in the 16-year history of the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.  Auto loan originations reached a 10-year high in the second quarter, at $119 billion, supporting a $38 billion increase in the aggregate auto loan balance, which has now passed $1 trillion. The increase in auto loans also drove most of the $67 billion increase in non-housing debt balances. Credit card balances increased, by $19 billion, to $703 billion, while student loan balances remained flat. Mortgage balances and HELOC dropped by $55 billion and $11 billion, respectively.  Here are two graphs from the report: The first graph shows aggregate consumer debt increased slightly in Q2. Household debt peaked in 2008, and bottomed in Q2 2013. The recent increase in debt suggests household (in the aggregate) deleveraging is over although mortgage debt is still declining (foreclosures of legacy loans continue). The second graph shows the percent of debt in delinquency. The percent of delinquent debt is declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red). The overall delinquency rate decreased to 5.6% in Q2, from 5.7% in Q1. There are a number of credit graphs at the NY Fed site.

Near-record sales drive auto loans to sky-high level -  Near record high auto sales, rising prices on new vehicles and low interest rates have combined to help Americans take out almost a trillion dollars in auto loans. Experian Automotive, which tracks auto financing and vehicle purchases, says American's borrowed a record amount in the second quarter, bringing totals to $932 billion. "The automotive loan market is gaining momentum while maintaining remarkable stability. It's a good sign for the economy overall," said Melinda Zabritski, Experian's senior director of automotive finance. In the second quarter, Experian said auto loans increased $92 billion versus the same time a year ago. It is the largest increase in dollars borrowed for any quarter since 2006. Spring is typically when the pace of auto sales pick up, and between March and June of this year, monthly sales rates topped 17 million vehicles twice. Overall, U.S. auto sales are on pace to total 17.26 million vehicles on average per month this year. Meanwhile, the average transaction price or the amount paid at dealerships in July was $31,691 according to auto pricing website TrueCar. Who's borrowing and just as importantly, are those who are taking out auto loans making their payments? Experian says those with subprime or deep subprime credit scores, borrowed just over 20 percent of the money loaned in the second quarter. Meanwhile, those with super prime credit ratings also held a little over 20 percent of the open auto loans in the second quarter.The latest report on auto financing found little change in the percentage of loans that went unpaid.

Total U.S. Auto Lending Surpasses $1 Trillion for First Time - WSJ: Given Americans’ love of cars and debt, it was just a matter of time before zipping past a new mile marker: $1 trillion in auto loans outstanding.With the recession now six years behind in the nation’s rearview mirror, lending for automobiles has sharply accelerated: Around $119 billion in auto loans were originated in the second quarter of this year, a 10-year high, according to figures from the Federal Reserve Bank of New York released Thursday. Auto lending has climbed steadily during the past four years, helping sales of U.S. autos and light trucks completely recover their losses from the recession. In May, consumers purchased vehicles at an annual pace of 17.6 million, the highest since June 2005. Americans have now racked up more than $1 trillion in both auto-loan debt and student-loan debt, which surpassed $1 trillion for the first time in 2013. The overall indebtedness of U.S. borrowers remains lower than before the recession, owing to declines in home-loan and credit-card balances. But with low gas prices, a growing number of jobs, and an aging automotive fleet, many people have found it an opportune time to get a new vehicle. “A lot of the gain we’ve seen is from light trucks, SUVs, cross-overs, minivans and pickup trucks,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio. “Because gasoline prices have come down, it makes it less expensive to run the vehicles that use more fuel” and frees up consumers’ budgets to put toward more cars or higher car loan payments.

13 Democrats Oppose Efforts to Stop Discrimination at Auto Dealers - Alexis Goldstein - An auto dealer charging someone more for a car loan, simply because they’re black or Latino? It’s illegal under federal law. Yet it keeps happening. And 13 Democrats in the House of Representatives voted to block measures aimed at countering this kind of discrimination.  Research has shown that many auto dealers charged black and hispanic borrowers more, giving them higher markups than similarly situated white consumers. In response, the Consumer Financial Protection Bureau (CFPB) issued guidance in 2013 to auto dealers. The guidance outlined how they could better comply with the Equal Credit Opportunity Act (this act makes it illegal for a creditor to discriminate against a borrower based on race, religion, etc). In other words, they told them how best to stop discriminating.   A couple of weeks ago, 47 Republicans and 13 Democrats voted for a bill (HR 1737) that would roll back this guidance, which again, was meant to stop predation and racial (and other) discrimination in car loans. Why did they do this? It’s most likely because auto dealers are a particularly powerful political group. Most members of Congress have auto dealers in their district, and will go to great lengths to address their concerns, even if there concerns are “don’t pay attention to my lending practices!” This is a messaging bill that is meant to have a chilling affect at the CFPB, and discourage them from going hard on auto dealers who discriminate against black and Latino borrowers.

Gas Prices Under $2 Per Gallon Will Be Common Again Soon -- Gas prices have fallen 27 days in a row, according to AAA, hitting a national average of $2.58 for a gallon of regular as of Tuesday. That’s roughly 20¢ cheaper than it was a month ago, and 90¢ less than the average at this time last year.What’s more, analysts are saying that prices will keep on dropping in the weeks and months ahead. “Expectations that the global oil market will remain oversupplied in the near term are keeping downward pressure on the price of crude,” AAA stated on Monday. That downward pressure on crude prices is likely to translate to increasingly cheaper retail prices at the pump.“Barring any major shake-up in the global picture and unexpected refinery problems, GasBuddy expects that the national average will continue dropping into Labor Day and stand some 10-15 cents lower than it stands today,” a GasBuddy post explained.  Such a drop would put the national average at $2.45, maybe $2.40. And prices in many states could dip below $2 per gallon, which was fairly commonplace in early 2015.   In fact, Tom Kloza of the Oil Price Information Service told CNN Money this week  that perhaps 50 gas stations around the country are currently charging under $2 per gallon. And Kloza predicted that by the time we’re into the NFL season this autumn, “There will be thousands, even tens of thousands of stations below $2.”

Retail Sales: July Retail Sales Stage a Comeback - The Census Bureau's Advance Retail Sales Report released this morning shows that seasonally adjusted sales in July increased 0.6% month-over-month and up 2.4% year-over-year. Core Retail Sales (ex Autos) came in at 0.4% MoM and 1.3% YoY. The forecasts were 0.5% for Headline Sales and 0.4% for Core Sales. Today's report shows a welcome improvement over the June data. The chart below is a log-scale snapshot of retail sales since the early 1990s. The two exponential regressions through the data help us to evaluate the long-term trend of this key economic indicator. The year-over-year percent change provides another perspective on the historical trend. Here is the headline series. Here is the year-over-year version of Core Retail Sales. Retail Sales:  The next two charts illustrate retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. Here is the same series year-over-year. Note the highlighted values at the start of the two recessions since the inception of this series in the early 1990s. For a better sense of the reduced volatility of the "Control" series, here is a YoY overlay with the headline retail sales.

Retail Sales increased 0.6% in July  --On a monthly basis, retail sales were up 0.6% from June to July (seasonally adjusted), and sales were up 2.4% from July 2014. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $446.5 billion, an increase of 0.6 percent from the previous month, and up 2.4 percent above July 2014. ... The May 2015 to June 2015 percent change was revised from -0.3 percent to virtually unchanged. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline increased 0.6%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 4.5% on a YoY basis (2.4% for all retail sales including gasoline). The increase in July was above the consensus expectations of a 0.5% increase, and sales in May and June were revised up. A solid report.

US Retail Sales Bounce Back In July - Retail spending in the US jumped 0.6% in July, delivering an encouraging rebound from the previous month’s flat performance. The monthly gain could be noise, of course, but the sight of the year-over-year trend reviving as well suggests that consumer spending may be stabilizing, albeit at a lower level of growth compared with the peaks in recent history. Headline retail sales rose 2.4% for the year through last month, marking the second-highest annual gain in the last six months. No one will confuse 2%-plus growth as strong, but the fact that the trend strengthened a bit implies that consumption isn’t in imminent danger of stumbling. The trend looks considerably brighter, in fact, when we strip out gasoline sales. Retail spending ex-gasoline advanced 4.5% through July, a pace that suggests that consumers remain willing to open their wallets at a healthy if diminished rate. Although the 4.5% ex-gasoline year-over-year increase is at the lower end of the annual range during the past year-and-a-half, the gain leaves little room for arguing that the appetite for consumption is drying up.Today’s upbeat spending report is all the more encouraging when we consider this morning’s constructive news on jobless claims, a key leading indicator for nonfarm payrolls and the economy overall. New filings for unemployment benefits ticked up to a seasonally adjusted 274,000 for the week through August 8, but that’s still close to last month’s dip to a four-decade low of 255,000. More importantly, claims continue to fall on a year-over-year basis, dropping 11% last week vs. a year ago.

Retail Sales Exceed Expectations, Huge Upward Revsions - Retail sales, led once again by autos, beat the Bloomberg Economic Consensus. In addition, prior revisions were all higher.  Big upward revisions underscore a very solid and very important retail sales report. Retail sales rose 0.6 percent in July with June revised to unchanged from an initial reading of minus 0.3 percent and with May revised to a jump of 1.2 percent from 1.0 percent. The revisions to June and May point to an upward revision for second-quarter GDP. Vehicle sales, as expected, were the standout in July, jumping 1.4 percent to nearly reverse June's 1.5 percent slide and nearly matching May's historic 1.9 percent surge. But even outside vehicles, retail sales were strong with the ex-auto reading rising a solid 0.4 percent. Restaurants, in another strong signal of consumer strength, rose an outsized 0.7 percent following June's 0.5 percent gain. These are very strong gains for this component. Excluding both vehicles and gasoline, retail sales rose 0.4 percent, again another solid reading.This likely seals the deal on a September rate hike.

Headline Retail Sales Improved In July 2015.: Overall the rolling averages are now marginally improving. Backward data revisions were downward making this month's data seem slightly better.
Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 0.4% month-over-month, and up 2.9% year-over-year. The reason for the deceleration is that the previous month was so strong.
  • unadjusted sales 3 month rolling year-over-year average growth accelerated 0.5% month-over-month to 2.3% year-over-year.
  • unadjusted sales (but inflation adjusted) up 4.0% year-over-year
  • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
  • in the seasonally adjusted data - department and electronic stores were weak, but mostly everything else was relatively strong..

Retail Sales: Consumers Are Eating Out More, Shopping at Macy’s Less - The quirky U.S. consumer has apparently decided to load up on building supplies, eat and drink at restaurants, forego filling the refrigerator, and snub Macy’s. The Commerce Department reported this morning that retail sales edged up 0.6 percent in July with food services and drinking places growing at 0.7 percent; building materials and garden supply dealers ratcheting 0.7 percent; while grocery store sales were flat and clothing and clothing accessories stores edged up just 0.4 percent. Department store sales were negative at -0.8.Yesterday, Macy’s reported that its second quarter earnings came in at 64 cents per share, a sharp drop from the 80 cents per share it earned in the second quarter of 2014. Revenue was also off, declining to $6.1 billion from $6.27 billion year over year. Macy’s stock dropped 5.06 percent by the close of trading yesterday, despite a late-day rebound in the overall stock market that erased an earlier loss of 277 points.Retail sales for June were revised to flat from the earlier estimate of a drop of 0.3 percent.This morning’s retail sales data, released at 8:30 a.m., one hour before the stock market opened, was being heavily watched as a barometer of whether the Federal Reserve would be able to make the case that the economy was performing well enough for a rate hike in September. The Fed has not lifted its zero bound range for rates since it was set in December 2008 – a torturous 7 years for retirees attempting to live on fixed income investments like U.S. Treasury notes and bonds which have seen their yields cut by 50 percent or more.Consumer spending accounts for approximately 70 percent of the U.S. economy and the monthly retail sales number is closely watched by the Fed as a monetary policy guide.

Lower Electronics-Store Spending May Not Be What You Think - Americans spent more at retailers selling everything from cars to camping gear in July, but they spent less at electronics stores. How can this be when gadget-head consumers are equipped with everything from Fitbits to Beats by Dre headphones? One answer is that websites and general-merchandise stores are stealing sales from traditional electronics purveyors such as Best Buy and the struggling Radio Shack. Another reason is that electronics are getting cheaper. Sales at electronics and appliance stores fell 2.5% from a year earlier in July, according to the Commerce Department’s retail sales report released Thursday. But adjusting for inflation, that’s not a bad result. The price of products sold at those stores was down 6% in June from a year earlier. In fact, since the recession ended in mid-2009, the price of electronics is down 33%, by far the largest decrease of any category tracked by the Commerce Department. Overall prices are up almost 10% from six years ago, as measured by the personal-consumption expenditure price index.The reasons for cheaper electronics are numerous. Technology tends to get cheaper over time, so one-time status symbols such as smartphones and flat-panel TVs are now everyday items. Some would also argue that it’s been a few years since a new must-have item such as the iPad has been rolled out. New innovations tend to be more expensive and prop up overall prices.

Michigan Consumer Sentiment: Fractional Decline from June Final Reading -  The University of Michigan Preliminary Consumer Sentiment for August came in at 92.9, a very slight decrease from the 93.1 June final reading. had forecast 93.5 for the July Preliminary. The Index is at its highest nine month average since 2004. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumer confidence was virtually unchanged in early August from the July reading, marking its highest nine month average since 2004. Renewed strength in personal finances largely offset slight declines in prospects for the national economy and buying conditions. The declines in prospects for the economy probably reflect the expected increases in interest rates, while the eventual but small impacts from falling commodity prices, the devaluation of the renminbi, and a weaker global economy have yet to occur (other than from declines in oil prices). The most important offset to these concerns is that consumption expenditures can be expected to expand at an annual rate of 3.0% in 2015 and 2016, prompting continuing net gains in jobs and incomes. [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 Slips As Business Expectations Collapse To 11-Month Lows - It appears the US Consumer is losing faith. August preliminary UMich Consumer Sentiment slipped from July's 93.1 and missed expectations. This is the 2nd weakest print since November. Longer-term inflation expectations fell back to 2.7% and expectations for household income growth slipped to just 1.6%, but the collapse in business expectations to 11-month lows is the most crucial aspect. The headline was weak... But hope is fading fast... Charts: Bloomberg

Sentiment as a Measure of Health of the Economy; Sentiment Theory vs. Practice -- The University of Michigan consumer sentiment numbers came out today. Sentiment is down again this month, albeit slightly. Yet, confidence remains at a lofty level. Economists claim high sentiment numbers are good news for retail spending. Economists also claim  the high confidence numbers is a reflection on the overall health of the domestic economy. Let's take a look at that theory starting with the Bloomberg Consensus Estimate of the University of Michigan sentiment numbers.  Consumer sentiment is little changed so far this month, at 92.9 for the mid-month August reading vs 93.1 for final July. An early indication on August's consumer sector comes with the current conditions component which is nearly unchanged, at 107.1 vs July's 107.2. This hints at steady strength for consumer spending this month. The expectations component, which offers indications on the employment outlook, slipped 3 tenths to a still solid 83.8. Consumer confidence readings are down from their highs earlier in the year but are still very solid and a reminder that unemployment is low and that the domestic economy is healthy.  Having taken a look at what economists claim, let's investigate the accuracy of those claims.

  1. The idea that spending follows consumer sentiment is proven silliness.
  2. The idea that confidence readings are a sign of a healthy economy are as ridiculous, if not even more ridiculous.

This Wasn't Supposed To Happen: Household Spending Expectations Crash - One of the biggest drivers of the so-called recovery has been the US consumer: that tireless spending horse who through thick, thin, recession and depression is expected to take his entire paycheck, and then some tacking on a few extra dollars of debt, and spend it on worthless trinkets. Sure enough, for the past 8 years, said consumer has done just that and with the help of the endless hopium and Kool-Aid dispensed by the administration (who can forget Tim Geithner's August 2010 op-ed "Welcome to the Recovery"), and by the political and financial propaganda media, spent, spent and then spent some more hoping that "this time it will be different."This all came to a screeching halt earlier today when courtesy of the latest New York Fed Survey of Consumer Expectations, we learned that the US consumer has finally tapped out.  Households reported that they expected to increase their spending by just 3.5% in the next year, a major drop from the 4.3% the month before. This was the lowest reading in series history. Worse, when adjusting for household inflation expectations, which have been relatively flat if modestly declining around 3%, real spending intentions, when adjusted for inflation, just crashed to a barely positive 0.5%, down over 60% from the prior month. This too was the lowest print in series history.

Household Spending Projections Decline Again: Does the Fed Believe Its Own Surveys --Economists in general, but especially those at the Fed, continue to state a belief that the current economic weakness is transitory.  And the near-universal economic forecasts predict increases in consumer spending due to wage increases and low gasoline prices. However, if you ask consumers what they believe they will spend, that answer is in sharp contrast to what economists expect.  As I did in May, I downloaded household spending projections from New York Fed’s Survey of Consumer Expectations. Here is a chart from the downloaded data. Let's take a look.

  • Consumers at the low end of projection (those living paycheck to paycheck, forecast a mere 0.62% increase in their spending, down from 1.28% last month.
  • The median forecast is 3.46%, down from 4.29% last month.
  • The high end forecast is 9.01%, down down from 9.62% last month.
The absolute numbers are not that important because month-to-month numbers swing a bit. Yet it's easy to see a change starting late last year in the median and low projections. The high end projections have been in stead decline for longer.  These trends are very recessionary looking, but the Fed does not believe its own surveys.

Wholesale Trade August 11, 2015: A build in auto inventories as well as for machinery drove wholesale inventories up a much higher-than-expected 0.9 percent in June. Sales at the wholesale level rose only 0.1 percent in the month, in turn driving the stock-to-sales ratio up 1 notch to a less-than-lean 1.30. This ratio was at 1.19 in June last year. A rise in inventories relative to sales can be a negative signal for future employment and production, but the build in this case is centered in autos and machinery where final sales have been solid, especially for autos.  Wholesale inventories were expected to ease to a 0.4 percent gain in data for June vs May's outsized gain of 0.8 percent. Inventories in the wholesale sector had look bloated earlier in the year but have since stabilized, with the stock-to-sales ratio steady in May at 1.29.

June 2015 Wholesale Sales Remain In Contraction But Still Is the Best Results So Far this Year The headlines say wholesale sales expanded marginally year-over-year with inventory levels remaining at levels associated with recessions. The best way to look at this series may be the unadjusted data three month rolling averages which marginally accelerated after ten months of deceleration. This report is not excellent but far better than seen so far this year. Note that Econintersect analysis is year-over-year - the analysis is based on the change from one year ago. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 6.4% month-over-month.
  • unadjusted sales year-over-year growth is down 0.5% year-over-year
  • unadjusted sales (but inflation adjusted) down 2.1% year-over-year
  • the 3 month rolling average of unadjusted sales accelerated 0.3% month-over-month, and down 6.4% year-over-year. There has been a general deceleration trend since late 2014.
  • unadjusted inventories up 5.4% year-over-year (accelerated 0.1% month-over-month), inventory-to-sales ratio is 1.22 which is historically is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

  • sales up 0.1% month-over-month, down 3.8% (last month was reported down 3.8%) year-over-year
  • inventories up 0.9% month-over-month, inventory-to-sales ratios were 1.19 one year ago - and are now 1.30.

Recession Imminent As Wholesale Inventories Surge, Sales Disappoint - The ratio of wholesale inventories-to-sales pushed back up to 1.3 - its highest since the recession and is flashing an enormous red flag for an imminent recesion in America, with the automative industry the biggest factor in this. A bigger-than-expeted 0.9% surge in inventories (biggest since April 2014) was accompanied by a considerably slower than expected 0.1% growth in sales (weakest since March) suggest that 'field of dreams' corporate planning remains in place. Most crucially, as The Atlanta Fed warns, "lower inventory investment will subtract 1.7ppt from Q3 real GDP growth." The higher Q2 'build' the worst Q3 will be - though we are sure economists will extrapolate Q2 growth no matter what... Charts: Bloomberg

US business stockpiles jump in June - (AP) — U.S. businesses boosted their stockpiles in June by the largest amount in more than two years. Businesses increased their stockpiles by 0.8 percent in June, the biggest increase since January 2013, the Commerce Department reported Thursday. Economists are hoping that strong gains in employment over the past year will help boost consumer spending in the months ahead, encouraging businesses to keep building their inventories. If consumer demand doesn't rise, businesses could start cutting back on restocking, which would be a drag on the economy Sales rose a modest 0.2 percent. After seven months of declines, sales have now risen for four straight months. In a separate report Thursday, the government said that retail sales posted a solid gain of 0.6 percent in June. The overall economy grew at an annual rate of 2.3 percent in the April-June quarter after meager growth of 0.6 percent in the first quarter. On the basis of the strong inventories jump in June, many economists revised up their estimate for second quarter growth. Analysts at JPMorgan boosted their estimate for second quarter growth to 3.4 percent, up from a previous 3.2 percent. While higher inventories could mean less economic growth in the future, JPMorgan analysts said they were keeping their third quarter growth estimate unchanged at 2.5 percent for now. But analysts at Wells Fargo said in a research note that "a slower pace of inventory accumulation in the second half could become a significant headwind" for the economy.

Strong U.S. inventories signal upward revision to second-quarter growth -  U.S. business inventories in June posted their largest gain in 2-1/2 years as sales rose marginally, the latest sign that second-quarter economic growth could be revised higher. The Commerce Department said on Thursday that business inventories increased 0.8 percent, the biggest gain since January 2013, after an unrevised 0.3 percent rise in May. Economists polled by Reuters had forecast inventories rising only 0.3 percent in June. Inventories are a key component of gross domestic product. Retail inventories excluding autos, which go into the calculation of GDP, jumped 0.7 percent in June, the largest rise since November 2013. May's retail inventories excluding autos were revised up to show a 0.3 percent increase instead of a 0.1 percent gain. June's rise in retail sales excluding automobiles was larger than the government had estimated in its advance second-quarter GDP report published last month. In that report, the government said inventories made no contribution to the second-quarter GDP annualized growth pace of 2.3 percent. But the solid increase in the June data and upward revisions to the May data suggest inventories contributed to GDP growth in the last quarter. June factory inventories were stronger than the government had estimated in the advance GDP report.

US Producer Price Index rose 0.2% in July vs up 0.1% expected: U.S. producer prices rose for a third straight month in July, but inflation pressures remain benign against the backdrop of lower oil prices and a strong dollar. The Labor Department said on Friday its producer price index for final demand increased 0.2 percent last month after increasing 0.4 percent in June. An increase of 0.4 percent in services prices, which offset a fall of 0.1 percent in the cost of goods, accounted for the increase in the PPI last month.  In the 12 months through July, the PPI fell 0.8 percent after declining 0.7 percent in June. It was the sixth straight 12-month decrease in the index.

U.S. Producer Prices Rise for Third-Straight Month in July - WSJ: A gauge of U.S. business prices rose for the third straight month in July, a sign inflation has stabilized following months of historically weak readings. The producer-price index, which measures the prices companies receive for goods and services, rose a seasonally adjusted 0.2% in July after climbing 0.4% in June, the Labor Department said Friday. Core prices, which strip out volatile energy and food components, were up 0.3% last month. Economists surveyed by The Wall Street Journal had forecast overall and core producer prices would climb 0.1%. While stronger than expected, the index suggests that inflation has steadied but isn’t strengthening. Overall producer prices were down 0.8% in July from a year earlier, while core prices were up only 0.6%. “Pricing pressures remain quite minimal right now,” said Chad Moutray, chief economist at the National Association of Manufacturers. Producer prices and other inflation gauges have broadly declined over the past year due to cheaper oil, a stronger dollar and soft global demand. Reinforcing those trends, China earlier this week devalued its currency—making Chinese goods cheaper in the U.S.—and oil prices hit a multiyear low in early trading Friday. July’s latest inflation figures reflected a divide between stronger prices for services and weaker prices for goods. In July, producer prices for services rose 0.4% while goods declined 0.1%. Prices for energy and food both fell.

Producer Price Index Remains Negative Year-over-Year -  Today's release of the July Producer Price Index (PPI) for Final Demand came in at 0.2% month-over-month seasonally adjusted. That follows the previous month's 0.4% increase. Core Final Demand (less food and energy) came in at 0.3% month-over-month following a 0.3% change the month before. The forecasts were for 0.1% headline and 0.1% core. The year-over-year change in seasonally adjusted Final Demand is -0.8%, down from last month's -0.7% but off its record low of -1.3% in April. Here is the summary of the news release on Finished Goods: The Producer Price Index for final demand advanced 0.2 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.4 percent in June and 0.5 percent in May. On an unadjusted basis, the final demand index moved down 0.8 percent for the 12 months ended in July, the sixth straight 12-month decline.  In July, the increase in the final demand index can be traced to prices for final demand services, which climbed 0.4 percent. In contrast, the index for final demand goods edged down 0.1 percent. More… The Headline Finished Goods for July came in at -0.1% MoM but is down -2.5% YoY. Core Finished Goods were up 0.1% MoM and 2.2% YoY. Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. The plunge since mid-2014 in headline PPI is, of course, energy related -- now off its interim low set in April. Core PPI has remained relatively stable since early 2014.

July 2015 Producer Prices Year-over-Year Deflation Marginally Increases: The Producer Price Index year-over-year deflation continued - and deflation marginaly grew over last month. The intermediate processing continues to show a large deflation in the supply chain. The PPI represents inflation pressure (or lack thereof) that migrates into consumer price. The BLS reported that the headline Producer Price Index (PPI) finished goods prices (now called final demand prices) year-over-year inflation rate moved from -0.7% to -0.8%. In the following graph, one can see the relationship between the year-over-year change in crude good index and the finish goods index. When the crude goods growth falls under finish goods - it usually drags finished goods lower.   Removing food and energy (core PPI) was originally done to remove the noise from the index, however the usefulness in the twenty-first century is questionable except in certain specific circumstance. Econintersect has shown how pricing change moves from the PPI to the Consumer Price Index (CPI). This YoY change implies that the CPI, should continue to come in well below 1.0% YoY.

Producer Prices Rise More Than Expected; Rent Increases Trump Energy Drag - Across the board, Producer Prices printed hotter than expected. PPI ex food and energy rose 0.3% MoM - the biggest jump since November, however, Final Demand PPI YoY remains negative for the 7th month in a row. According to the BLS, in July, the increase in the final demand index can be traced to prices for final demand services, which climbed 0.4 percent. In contrast, the index for final demand goods edged down 0.1 percent. Most notably, however, over 40% of the July increase in the index for final demand services is attributable to prices for guestroom rental, which jumped 9.9%: is the Fed about the realize, with a 5 year delay, the epic rental bubble they have blown?  The bottom line - there is enough here for the doves and the hawks, though the headline data definitely gives The Fed ammo to hike in September.

Update: Framing Lumber Prices down Year-over-year --Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.  The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).   Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand).  In 2015, even with the pickup in U.S. housing starts, prices are down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts. Overall the decline in prices is probably due to more supply, and less demand from China. This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through July 2015 (via NAHB), and 2) CME framing futures. Right now Random Lengths prices are down about 14% from a year ago, and CME futures are down around 24% year-over-year.

Import and Export Prices August 13, 2015: Cross-border deflationary pressures were, unfortunately, very evident in July with import prices falling a very steep 0.9 percent and with export prices down 0.2 percent. Petroleum prices, down 5.9 percent in the month, pulled down import prices the most in July though prices excluding petroleum were still weak, down 0.3 percent following June's 0.2 percent drop. Year-on-year, this reading is down 2.8 percent vs minus 10.4 percent for total import prices. Export prices fell 0.2 percent in July following June's 0.3 percent decline. Prices for industrial supplies, reflecting the decline in petroleum, were especially weak in the month and more than offset a 0.8 percent bounce higher for agricultural goods. Year-on-year, export prices are down 6.1 percent. A look at finished goods, whether on the import or export side, shows a run of minus signs for both the monthly readings and the year-on-year readings. This report highlights the risk of deflation which, given this month's ongoing decline in the price of oil, remains a stubborn obstacle for Federal Reserve policy.

Import and Export Price Year-over-Year Deflation Continues in July 2015. Fuel Prices Down But Agriculture Up. --Trade prices continue to deflate year-over-year - and the largest 1-month drop since a 3.2% decline in January Import oilprices were down 5.7% month-over-month, but export agricultural prices increased 0.8%.

  • with import prices down 0.9% month-over-month, down 10.4% year-over-year;
  • and export prices down 0.2% month-over-month, down 6.1% year-over-year..

There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships. Econintersect follows this series to adjust data for inflation.

Steel industry decries Chinese currency devaluation: The U.S. steel industry and other manufacturers decried China's move to devalue its currency, which makes Chinese steel and other exports artificially cheaper. "This action is further illustration of the Chinese government's active role in manipulating the value of its currency to promote Chinese exports," American Iron and Steel Institute President and Chief Executive Officer Thomas Gibson said. "China has consistently intervened directly in foreign exchange markets to control the value of the yuan versus the U.S. dollar to make their exports more competitive and impose new barriers to imports. Our government must address the massive damage that China’s undervalued currency is causing to our nation’s manufacturing sector, especially the steel industry." Gibson said the U.S. government should officially declare China to be a currency manipulator. Steelmakers around the world have criticized China, which they have blamed for having as much half of the world's steelmaking overcapacity. Overcapacity has bedeviled the steel industry, depressing prices and leading steelmakers to dump steel at below-fair value prices on foreign shores.  An industry report by E&Y estimated 10 to 15 percent of steelmaking capacity worldwide would have to be idled or shut down over the next few years, just to restore prices to a profitable level for the industry. As many of 300 million tons might need to be taken offline over the next decade.

Rail Week Ending 08 August 2015: Continued Decline of One Year Rolling Average --Week 31 of 2015 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction. This analysis is looking for clues in the rail data to show the direction of economic activity - and is not necessarily looking for clues of profitability of the railroads. The weekly data is fairly noisy, and the best way to view it is to look at the rolling averages which are in contraction for over three months. The following chart is for railcar counts (not including intermodal). A summary of the data from the AAR:For this week, total U.S. weekly rail traffic was 562,884 carloads and intermodal units, down 0.9 percent compared with the same week last year. Total carloads for the week ending Aug. 8, 2015 were 288,460 carloads, down 4.4 percent compared with the same week in 2014, while U.S. weekly intermodal volume was 274,424 containers and trailers, up 3.1 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 14.2 percent to 9,117 carloads; farm products, up 8.4 percent to 16,854 carloads; and grain, up 1.5 percent to 21,587 carloads. Commodity groups that posted decreases compared with the same week in 2014 included: petroleum and petroleum products, down 17.7 percent to 13,826 carloads; metallic ores and metals, down 10 percent to 23,387 carloads; and coal, down 7.1 percent to 105,965 carloads.For the first 31 weeks of 2015, U.S. railroads reported cumulative volume of 8,595,439 carloads, down 4.2 percent from the same point last year; and 8,211,341 intermodal units, up 2.5 percent from last year. Total combined U.S. traffic for the first 31 weeks of 2015 was 16,806,780 carloads and intermodal units, a decrease of 1 percent compared with this point last year.

Trainwreck? US Freight Carloads Collapse, Flash Recession Warning --Trainwreck? Rail traffic fell in July from a year ago as WSJ reports an increase in container volumes couldn’t offset a steep decline in oil and coal shipments according to the Association of American Railroads. Despite almost constant reassurance that plunging oil prices are 'unequivocally good" for America, AAR analysts warn "railroads are overexposed, relative to the economy in general, to the energy sector," adding that traffic data indiates "growth is slow and the recovery could be threatened by an interest-rate increase by the Fed."We have seen this kind of slide before...As The Wall Street Journal reports, Rail traffic fell in July from a year ago as an increase in container volumes couldn’t offset a steep decline in oil and coal shipments, the Association of American Railroads said in its monthly report Friday. The number of carloads carrying oil and petroleum products dropped 13.6% from a year ago to 67,909 last month, while coal volumes sank 12.5%. Container shipments rose 3.8% to 1.2 million. Traffic overall fell 1.8% to 2.7 million, the association said. Oil-train shipments have tumbled this year, hurt by plunging prices for crude and concerns about the safety of transporting petroleum by rail.That, plus declining demand for coal from power plants and overseas buyers, has hit railroad operators’ earnings.

July industrial production: a solid start to Q3 -- Like retail sales earlier this week, industrial production rose strongly, also mainly on the back of motor vehicles. The overall index is still just shy of its all-time high set last autumn: Below are the three main component groups - manufacturing, mining, and utilities: Manufacturing is the largest sector, so the big increase there overwhelmed the decrease in utilities. Mining, of course, has suffered as part of the Oil patch, but had a little rebound in July. Industrial production is basically the King of Coincident Indicators. The NBER historically has almost always dated the beginning and end of recessions as of the date industrial production turns. To put this in a longer term context, as shown in the below graph, the recent downturn wasn't enough to set off recession alarm bells: Not a perfect report, but a solid one. The pessimists will point out how much the increase relies on autos, and seasonal issues with retooling, but since motor vehicles are the second most important sector after housing, the increase remains real and important. This with retail sales earlier this week and the employment report last week have gotten the 3rd Quarter off to a good start.

US Industrial Output In July Rises The Most In 8 Months - Industrial activity posted a solid rebound in July, according to this morning’supdate from the Federal Reserve. Production increased 0.6% last month, marking a robust acceleration from the flat-to-sluggish readings that have prevailed this year. July’s surprisingly strong rebound, in fact, is the biggest monthly gain since last November. Meanwhile, the year-over-year pace in industrial output registered its first improvement in 2015. Output increased 1.3% last month vs. the year-earlier level. That’s still a weak trend, but the fact that the rate of growth inched higher after June’s tepid 1.1% annual gain hints at the possibility that the recent deceleration in growth has run its course. Much depends on whether we’ll see continued progress in the next round of industrial data, but for the moment the outlook is slightly brighter. Today’s news follows yesterday’s upbeat numbers on retail sales for July, which revealed that consumer spending also popped 0.6% last month—a healthy rebound after June’s flat performance. The latest reports offer support for arguing that recession risk is still low, although it’s not obvious that growth is set to heat up. Yesterday’s third-quarter GDP estimate from the Atlanta Fed was revised down to a miserly 0.7% advance from 0.9% previously. By comparison, Q2 GDP increased 2.3%. There’s still a long way to go for Q3 data and so the bank’s weak GDP estimate may rise in future updates. Some analysts are already assuming as much. “The big July increase in industrial production is further proof that the US economy is expanding at an above-trend pace in mid-2015, after a weak start to the year tied to bad weather and the West Coast ports labor dispute,” advised PNC’s chief economist Stuart Hoffman in a research note this morning. “Economic growth in the last three quarters of this year should be about 3 percent at an annual rate.”

Industrial Production Jumps on Surge in Auto Production; Revisions and Seasonal Adjustments in Play -- Industrial production numbers for July, released today, beat the Bloomberg Consensus Estimate of 0.4% by 0.2 percentage points.  However, June industrial production was revised lower by 0.2 percentage points from 0.3% to 0.1%. Moreover, June manufacturing was revised to -0.3% from an initial reading of 0.0%.  A 10.6 percent surge in motor vehicle production gave a very significant lift to industrial production which rose 0.6 percent in July. The manufacturing component, which has been flat all year, jumped 0.8 percent. Excluding vehicles, however, manufacturing rose only 0.1 percent. The lack of strength here is the result of business equipment which edged only 0.1 percent higher after declining 0.2 percent in June. The rise in production drove capacity utilization up 3 tenths to 78.0 percent which is where it was back in April. Capacity utilization for manufacturing rose 5 tenths to 76.2 percent. The two non-manufacturing components are mixed. Production at utilities, due to July's cool weather, fell 1.0 percent with capacity utilization down 8 tenths to 79.1 percent, while mining production rose 0.2 percent with capacity utilization down 1 tenth to 84.4 percent.  Weak foreign demand and weakness in the energy sector may be hurting much of the industrial sector but these factors are not at play in the domestic auto industry. The readings in today's report are mixed but the headline gain, driven by the convincing strength for autos, is an eye catcher and will certainly be ammunition for the hawks at next month's FOMC meeting.

July 2015 Industrial Production: Improved But Data Is Mixed --The headlines say seasonally adjusted Industrial Production (IP) improved (the manufacturing portion of this index was up strongly month-over-month) - but the headline year-over-year growth weaker.

  • Headline seasonally adjusted Industrial Production (IP) increased 0.6% month-over-month and up 1.3% year-over-year.
  • Econintersect's analysis using the unadjusted data is that IP growth accelerated 0.2% month-over-month, and is up 1.6% year-over-year.
  • The unadjusted year-over-year rate of growth decelerated 0.1% from last month using a three month rolling average, and is up 1.9% year-over-year.

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was up this month (up 1.5% year-over-year), mining up 0.2% (down 2.0% year-over-year), and utilities were down 1.5% (up 4.6% year-over-year). Note that utilities are 9.8% of the industrial production index, whilst mining is 15.9%.  Unadjusted Industrial Production year-over-year growth for the past 2 years has been between 2% and 4% - it is currently 1.7%. It is interesting that the unadjusted data is giving a smooth trend line. Economic downturns have been signaled by only watching the manufacturing portion of Industrial Production. Historically manufacturing year-over-year growth has been negative when a recession is imminent. This index is not indicating a recession is imminent.

The Big Four Economic Indicators: An Upturn in Industrial Production - According to the Federal Reserve: Industrial production increased 0.6 percent in July after moving up 0.1 percent in June. In July, manufacturing output advanced 0.8 percent primarily because of an increase in motor vehicle assemblies. The output of motor vehicles and parts jumped 10.6 percent, and production elsewhere in manufacturing edged up 0.1 percent. The index for mining rose 0.2 percent, while the index for utilities fell 1.0 percent. At 107.5 percent of its 2012 average, total industrial production in July was 1.3 percent above its year-earlier level. (The comparison base year for industrial production was advanced to 2012 in the annual revision to the statistics published on July 21, 2015.) Capacity utilization for the industrial sector increased 0.3 percentage point in July to 78.0 percent, a rate that is 2.1 percentage points below its long-run (1972–2014) average. [Source] In some respects, Industrial Production is the least useful of the Big Four economic indicators. It's a hodge-podge of underlying index components and subject to major revisions, which undercuts its value as a near-term indicator of economic health. As a long-term indicator, it needs two key adjustments to correlate with economic reality. First, it should be adjusted for inflation using some sort of deflator relevant to production. Second, it should be population-adjusted. The chart below is another way to look at Industrial Production over the long haul. It uses the Producer Price Index for All Commodities as the deflator and Census Bureau's mid-month population estimates to adjust for population growth. We've indexed the adjusted series so that 2012=100.

Industrial Production Rises Most Since November After Significant Downward Revisions --- Thanks to some considerable negative downward revisions, Industrial Production In July rose 0.6% (double expectations of a 0.3% rise) - the biggest MoM rise since November. However, year-over-year IP growth is flat at 1.3% - hovering at its weakest since the last recession. We previously noted the surge in auto inventories-to-sales (Motor Vehicle IP rose 10.6% MoM), which likely spurred this false dawn in IP, however, it is the rise in oil drilling - the first time since September - that raises an eyebrow as entirely unsustainable amid collapsing prices. Thanks to the revisions, July looks awesome...But YoY growth is flat at its weakest sicne the recession... Of course, economists are rapidly extrapolating thisgrowth to support Fed rate hikes... missing the outlier-ness. We await next month's downward revisions. Charts: Bloomberg

Manufacturing Job Loss: Trade, Not Productivity, Is the Culprit - The United States lost 5 million manufacturing jobs between January 2000 and December 2014. There is a widespread misperception that rapid productivity growth is the primary cause of continuing manufacturing job losses over the past 15 years. Instead, as this report shows, job losses can be traced to growing trade deficits in manufacturing products prior to the Great Recession and then the massive output collapse during the Great Recession.  Specifically, between 2000 and 2007, growing trade deficits in manufactured goods led to the loss of 3.6 million manufacturing jobs in that period. Between 2007 and 2009, the massive collapse in overall U.S. output hit manufacturing particularly hard (real manufacturing output fell 10.3 percent between 2007 and 2009). This collapse was followed by the slowest recovery in domestic manufacturing output in more than 60 years. Reasonably strong GDP growth over the past five years has not been sufficient to counter these trends; only about 900,000 of the 2.3 million manufacturing jobs lost during the Great Recession have been recovered. In addition, resurgence of the U.S. trade deficit in manufactured goods since 2009 has hurt the recovery of manufacturing output and employment. In short, the collapse in demand during the Great Recession and ensuing glacial recovery was responsible for most or all of the 1.4 million net manufacturing jobs lost between 2007 and 2014. Between 2007 and 2014, productivity growth slowed noticeably, and manufacturing output experienced no net, real growth.

China Mess, Yuan Devaluation Spread to the US - Wolf Richter - China’s auto market, which had been the single most important element in the convoluted growth story of GM and other global automakers, was getting battered even before the yuan devaluation. But now elements coagulate into a toxic mix. Sales of passenger vehicles in July dropped 6.6% from a year ago, to 1.27 million, according to the China Association of Automobile Manufacturers, a 17-month low, after they’d already fallen 3.4% in June, and after they’d relentlessly trended down since late last year. This debacle happened even though automakers had cut prices and heaped incentives on the market to stem the decline. GM and VW started it, and it has now turned into a price war. GM’s sales through its joint ventures fell 4% in July year-over-year, to 229,175 vehicles. Despite falling sales and ballooning price cuts, GM remains, at least in its press release, optimistic about sales and profit margins in China, its second largest market,  Ford’s sales through its Chinese joint ventures plunged 6% year-over-year, its third monthly decline in a row, to 77,100 vehicles. Unlike GM, it’s publically worried: “Longer term, we’re still very bullish on China,” But the company would move to lower output in China if there is a “prolonged period of recessions.”

Ford moves commercial truck production to Ohio from Mexico - (Reuters) - Ford Motor Co (F.N) on Wednesday will start building its medium-duty F-650 and F-750 commercial trucks at a Cleveland-area plant, moving production out of Mexico for the first time. The shift to the 41-year-old plant in Avon Lake, Ohio means that about 1,000 workers represented by the United Auto Workers union will keep their jobs, Jimmy Settles, UAW vice president, said in a statement issued by the company. There are about 1,400 workers at the Avon Lake complex. Ford is currently in negotiations with the UAW for a new national contract affecting about 52,300 workers. Just before those talks began last month, Ford announced it would move production of small cars Focus and C-Max from a plant in Wayne, Michigan. Ford has not confirmed UAW comments that the production is shifting to Mexico. "Working with our partners in the UAW, we found a way to make the costs competitive enough to bring production of a whole new generation of work trucks to Ohio,” said Joe Hinrichs, Ford president of North America and South America. The commercial trucks from 2000 until earlier this year were built by a joint venture of Ford and Navistar International Corp (NAV.N) called Blue Diamond in Escobedo, Mexico.

Cheap energy is reviving manufacturing in America's industrial heartland -- Until a few years ago, the prevailing conventional wisdom viewed America's manufacturing sector in secular decline, unable to compete with lower-cost production platforms in Mexico and China. The data seemed to bear this out. Between 2000 and 2010, the number of manufacturing jobs in the United States dropped by a third, a decline of more than 5.8 million. But since 2010, manufacturing companies have added more than one million workers. Similarly, the value of production from America's factories has jumped from $1.7 trillion in 2010 to $2.1 trillion last year and now accounts for 12 percent of our gross domestic product (GDP). There are several explanations for this rebound in U.S. manufacturing activity. Labor costs have been rising rapidly in Mexico and China, as well as other export-oriented Asian economies, while American companies have boosted productivity faster than their competitors abroad. But the most important factor in America's industrial renaissance has been cheap and abundant energy, a result of the "fracking boom" that started about six years ago and has boosted America's oil and natural gas output by 70 percent. Consequently, the average cost to manufacture goods in the United States is now only about five percent higher than in China and 10 to 20 percent lower than in major European economies. According the Boston Consulting Group, by 2018 production costs in America will be three percent cheaper than in China.

Alphabet: Less Than Meets the Eye -- The reorganization of Google into Alphabet means … well, not very much, at least for now. Instead of everything being inside one big corporation called Google, now there will be a bunch of corporations (one of them called Google) all owned by a holding company called Alphabet. “Holding company,” in this case, means that Alphabet will have no operations of its own: it will be a corporation that simply owns all the other corporations. This is supposed to have something to do with making the company “cleaner and more accountable,” “empowering great entrepreneurs and companies,” “improving transparency and oversight,” blah blah blah. In itself, however, it does none of this. There is no substantive difference between a corporation with a bunch of divisions and a corporation fully owning a bunch of other corporations. In both cases, the CEO at the top of the pyramid has complete control over everything that happens within the entire structure, and is accountable to no one except the board and shareholders of the top-level corporation. As for transparency, there’s no rule saying that any corporation has to release audited financials, or have audited financials in the first place, or publish any financials at all (except for tax filings, which are not public). The rules requiring disclosures only apply to publicly traded corporations, and in the new structure, there is still exactly one of these: Alphabet, which still owns everything.

 NFIB: Small Business Optimism Index increased in July From the National Federation of Independent Business (NFIB): NFIB Small Business Optimism Index increased 1.3 points in July The Small Business Optimism Index rose 1.3 points to 95.4. After giving up over 4 points in June, the Index clawed back 1.3 points in July, a familiar theme now, which has produced the most grudging gains in the Index’s history – and still not above the 42 year average of 98. ... Job creation was flat in July. On balance, owners added a net 0.05 workers per firm in recent months, better than June’s -0.01 reading, but still close to the zero line. This graph shows the small business optimism index since 1986. The index increased to 95.4 in July from 94.1 in June.

Americans Who See Economic Deterioration Outnumber Optimists By 50% -- Almost 50% more Americans believe the US economy is getting worse than are optimistic about the future. Gallup's latest economic survey shows the economic outlook among Americans at its weakest since September 2014. The economic outlook component averaged -18, as 39% of  Americans said the economy is getting better while 57% said it is getting worse. The Economic Confidence Index entered positive territory in late December, for the first time since Daily tracking began in 2008. It dropped below zero in mid-February, and has not been in positive territory since mid-March. The index's rise and subsequent decline has been linked to falling, and then rising, gas prices. The index has averaged -11 or lower since the week ending July 5, 2015. Lower scores in July were largely attributed to economic events abroad -- including the Greek debt crisis -- and the impact they had on domestic stock prices. Source: Gallup

Unemployment Report Shows Little Change From Previous Month -- The July employment report shows almost the same results as last month.  The unemployment rate remained the same, 5.3%.  The labor participation rate also did not change from the 62.6% low.  More people dropped out of the labor force than became employed.  While 144,000 dropped out of the labor force, only 101 thousand more became employed.  A month of this sort of statistic wouldn't matter, yet month after month we see the growing size of labor force drop out and the labor participation rate remains depressed.This low of a labor participation rate has not seen since October 1977 when women and minorities were still were kept out of the labor force extensively. The report almost looks dead pool, there is so little change from the previous month.  Those employed bumped up by 101,000 this month. This is within the margin of error yet with the other statistics. From a year ago, the employed has increased by 2.439 million. Those unemployed decreased by -33,000 to stand at 8,266,000. From a year ago the unemployed has decreased by -1.382 million. Below is the month change in unemployed and as we can see, this number typically has wild swings from month to month. Those not in the labor force increased by 144,000 to 93,770,000. The below graph is the monthly change of the not in the labor force ranks. Those not in the labor force has increased by 1,795,000 in the past year. The labor participation rate stayed at 62.6%, which is no change from last month and a low not seen since October 1977. Below is a graph of the labor participation rate for those between the ages of 25 to 54. The rate is 80.7%, -0.1 percentage point from last month and a value not seen since September 1984, (discounting times past the great recession when the American work experience collapsed). The labor participation rate cannot be explained away by retiring baby boomers as these are prime working years.The civilian labor force, which consists of the employed and the officially unemployed, increased by 69 thousand this month. The civilian labor force has grown by 1,058,000 over the past year.  New workers enter the labor force every day from increased population inside the United States and immigration, both legal and illegal.  The small annual figure implies people are dropping out of the labor force.

July 2015 Employment -- Just a quick review of employment. Flows into and out of employment are now at levels that correspond to previous labor market peaks, when the unemployment rate was 4% to 4.5%. Flows between unemployed and not in labor force are still elevated - signaling an unemployment rate closer to 6%. We are well into a full-employment labor market, with an appended group of marginal workers. I wonder how much of this marginal worker problem would disappear if mortgage levels began to expand again, leading to homebuilding. The construction unemployment rate has fallen back to full-employment levels, but the total amount of construction employment remains about 0.5% to 1% below the level that it was in any previous expansion period. That just happens to match the difference between the unemployment rate levels implied by flows. Have we kept the construction market so dysfunctional for so long that construction workers identify as marginalized workers now instead of as unemployed construction workers? In effect, our wage growth is going to landlords instead of to construction workers. I know I'm a broken record on this stuff, but it is amazing to me that with all the concern over wages and marginalized workers, there isn't an uproar about the lack of mortgage funding and building. Is there a single presidential candidate who dares to even give rhetorical support to mortgage expansion and homebuilding? Nothing is so pro-cyclical and "bubble" prone as public political opinions.

The job market is improving, but low labor force participation is still holding us back --Jared Bernstein --Something odd is happening in the U.S. job market. The rate of unemployment is falling, and doing so pretty quickly (see first figure), to levels approaching the Federal Reserve’s estimate of full employment. That is, the Fed says full employment corresponds to a jobless rate of 5.1 percent and the unemployment rate last month clocked in at 5.3 percent.  Underemployment (aka “U6”), a broader measure of slack which counts involuntary part-timers (who want, but can’t find, more hours of work), has been falling even faster than the topline rate. Job growth is trucking along at a nice clip too, with employers adding about 240,000 jobs per month on net over the past year.  So why is the damn labor force participation rate (LFPR) stuck in the mud? And why aren’t we seeing much in terms of wage growth? On the first point, the LFPR—the share of the population working or looking for work—topped out at around 66 percent before the recession and was last seen stuck at 62.6 percent, the lowest it’s been since the late 1970s. That’s partly a benign function of the aging workforce, as we baby-boomers age out of our working years. But there’s also a far less benign cause: persistently weak labor market demand that’s led a bunch of working-age people to sit out the job market. One way to see this is to take the retirees out of the picture, as economist Elise Gould does in this post. The share of employed prime-age workers (those between the ages of 25 and 54) is climbing back to its pre-recession level, but it’s still only about halfway there. Low labor force participation can make the unemployment rate a less reliable indicator than it otherwise would be. If you’re out of the labor force, you’re not counted as unemployed (because you’re not, by definition, looking for work). But if you’re one of those people who could get pulled back into the job market if you saw some welcoming opportunities, then you ought to be counted as contributing to the slack.

The Government's a Drag on Employment - The jobs recovery of the past five years looks a lot like the early and middle stages of the recoveries from the previous two recessions, I wrote Friday. Here's the chart that inspired this observation: The employment rebound that began in 2003 ended early, and the one that began in 1991 went on and on, but in terms of the rate of increase those two recoveries and the current one look quite similar, especially in comparison with earlier, stronger recoveries.  When you just look at private-sector jobs, which accounted for 85 percent of total nonfarm jobs in July, the story isn't all that different.The main difference between this and the first chart is that the current recovery looks a even more like the long 1990s recovery and less like the short-lived 2000s rebound.  The government-jobs picture is another matter entirely.  One interesting thing here is that with each successive recovery, government-employment growth has been a little slower. And of course the really interesting thing is that, over the course of the current recovery, government employment has actually declined.  Most of the decline was in state and local government employment, although federal government employment is down a little, too. The Bureau of Labor Statistics's payroll employment numbers don't include uniformed military. And yes, Employees of the CIA, NSA, et al also are excluded.    For uniformed military there is at least an annual accounting from the Department of Defense. It shows declines since 2010 but modest ones -- there were 1.34 million men and women in uniform in September 2014 and 1.43 million in September 2010. Over the course of the 1990s, by comparison, the number of uniformed military fell from 2 million to just under 1.4 million. Factor that in, and government employment actually grew much more slowly during the 1990s recovery than during the 2000s one.

More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes --This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, and the "less than 5 weeks", "6 to 14 weeks" and "15 to 26 weeks" are all close to normal levels. The long term unemployed is less than 1.4% of the labor force, however the number (and percent) of long term unemployed remains elevated. Unemployment by Education This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".  This graph shows total construction employment as reported by the BLS (not just residential). Since construction employment bottomed in January 2011, construction payrolls have increased by 951 thousand. Construction employment is still far below the bubble peak - and below the level in the late '90s. Diffusion Indexes The BLS diffusion index for total private employment was at 64.4 in July, up from 60.6 in June. For manufacturing, the diffusion index was at 57.5, up from 52.5 in June. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. Above 60 is very good.

Jobs for all–the impossible dream? -- My friend Matt Bruenig does consistently great stuff, but I have to object to his recent critique of the idea of a Job Guarantee (often called the government as an Employer of Last Resort, or ‘ELR’). I want to walk through his arguments, point by point. This explainer by the illustrious Randy Wray provides background on the entire idea, including the macroeconomics of ELR, while Matt and I mostly stick to the mechanics. He starts well, noting it isn’t the 1930s and you can’t put people to work by just handing them a shovel. Jobs require capital, quite true. I’d go further, jobs require capitalized organizations with plans. Call them public enterprises. Decide what sort of work ought to be done and set up assorted enterprises to tackle different jobs. They would provide public services and construct and maintain public facilities. They would supplement the efforts of state and local governments that in many cases fail to do what ought to be done, sometimes for lack of capability. They would utilize workers with a wide variety of skills. And they would be organized to handle more fluid ebbs and flows of employees. Matt fears the supply of labor for such purposes as too variable to staff permanent organizations in continual operation. It seems to me that jobs could be provided in six month stretches, with the opportunity to re-up. Some employees would be permanent, and paid commensurately. Work could focus on a sequence of one-off projects. With higher private employment and fewer ELR applicants, projects could proceed more slowly, or be postponed. Just because a project isn’t essential doesn’t mean it would not be worthwhile. Some applicants will have more skills than others, and some work will require more or less in the way of skill. There is already a lot of ‘churning’ in the labor market (people moving between jobs greatly outnumber those in and out of work). Business firms cope with it.

BLS: Jobs Openings decreased to 5.2 million in June -- From the BLS: Job Openings and Labor Turnover Summary The number of job openings was little changed at 5.2 million on the last business day of June, the U.S. Bureau of Labor Statistics reported today. The number of hires and separations were little changed at 5.2 and 4.9 million, respectively. ...Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.7 million quits in June, little changed from May. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000.  Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for June, the most recent employment report was for July.

U.S. Job Openings in June Fall a Bit From Record Highs - The number of job openings in the U.S. fell slightly in June but remained at a level suggesting strong demand for workers. Job openings slipped to 5.25 million in June, down from a record 5.36 million in May, according to the Labor Department’s Job Openings and Labor Turnover Survey, known as Jolts. Hires climbed to the highest level of the year at 5.12 million and the number of Americans voluntarily quitting their jobs climbed to 2.75 million from 2.73 million the prior month. The number of voluntary quits tends to rise when people are confident about job prospects. Another 1.79 million people were laid off or discharged in June, down from 1.66 million in May. “In other words, labor demand is still rising very rapidly, and is hugely elevated relative to the unemployment rate,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients. The main jobs report, out earlier this month, showed the unemployment rate at 5.3% in July and June. Nonfarm payrolls rose a seasonally adjusted 215,000 in July and 231,000 the prior month. The initial employment situation report only shows net job gains or losses, while the Jolts report offers additional details on the total number of hires, openings and separations. Both reports are closely followed by officials at the Federal Reserve. Chairwoman Janet Yellen has said the rate of voluntary quitting is a key gauge of workers’ confidence in the economy. When the economy is stronger, workers are more likely to quit their jobs because it’s easier to find something elsewhere. In recent months, the number of quits has held fairly steady and a gap between job openings and hires has opened, a mismatch that suggests employers haven’t been able to find workers with the desired skills at the salary on offer.

Job Openings Data Suggest the Economy is Chugging Along, Albeit Slowly -- So far this year, job growth has been steady as the economy has continued to slowly chug along. This morning’s Job Openings and Labor Turnover Survey (JOLTS) report supports that story and rounds out our knowledge of the employment situation for June. In June, the number of unemployed fell to 8.3 million. While this is an improvement, the number of job openings also fell, which caused the job-seekers-to-job-openings ratio to stay put at 1.6-to-1. This ratio has been declining steadily from its high of 6.8-to-1 in July 2009, but it has been stuck at 1.6 for the past three months, as shown in the figure below. The job-seekers ratio is currently much higher than its low-point of 1.1 in 2000, indicating that there is still a lot of slack in the labor market. In a tighter labor market, this ratio would be closer to 1-to-1 or less, as there would be more job opportunities available for each job seeker.  One piece of good news in June’s JOLTs report was the hires rate, which ticked back up to 3.7 percent, where it was at the end of 2014 before languishing at 3.6 percent for the first half of 2015. Though this improvement is a welcome sign, the hires rate still remains below its pre-recession level. In order to see a full recovery in the labor market, we need hiring to accelerate. The figure below shows the hires rate in trend, as well as the quits rate and the layoff rate.

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

Weekly Initial Unemployment Claims increased to 274,000, 4-Week Average Lowest since 2000 -- The DOL reported: In the week ending August 8, the advance figure for seasonally adjusted initial claims was 274,000, an increase of 5,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 270,000 to 269,000. The 4-week moving average was 266,250, a decrease of 1,750 from the previous week's revised average. This is the lowest level for this average since April 15, 2000 when it was 266,250. The previous week's average was revised down by 250 from 268,250 to 268,000.  There were no special factors impacting this week's initial claims.   The previous week was revised down by 1,000. The following graph shows the 4-week moving average of weekly claims since 1971.

Initial Jobless Claims Average Hits New 42 Year Low - What Happens Next? - Consider... Zero Interest Rate Policy and a 42-year low in the 4-week average initial jobless claims data... one of these things is not like the other... Charts - Bloomberg

Withholding Tax Collections Have Collapsed But Unemployment Claims Are Still At Record Lows - My weekly updates on Initial Unemployment Claims have been a broken record for many months. This week is nothing new. It was another record low. The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 270,000. The Wall Street economist crowd consensus guess was almost right on the mark this week, at 271,000. We focus on the trend of the actual data Instead of the seasonally manipulated headline number expectations game. Facts tend to be more useful than the economic establishment’s favored fictitious numbers. Actual claims based on state by state filings were 225,090, which is another record low for this calendar week. It continues a nearly uninterrupted string of record lows that began in September 2013. But there’s a conundrum inherent in these numbers, because withholding tax collections have collapsed in recent weeks. How can that be, and what does it portend? The Department of Labor (DoL) reports the unmanipulated numbers that state unemployment offices actually count and report each week.   I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Pro- Federal Cash Flows report. The year to year growth rate in withholding taxes in real time is now running +1.9% in nominal terms. That continues the downswing that took place in July and in real terms is now near zero or lower, depending on what the reality is on wage and salary inflation.

2Q2015 (Preliminary): Headline Productivity Improves, Costs Down.: A simple summary of the headlines for this release is that the growth of productivity exceeded the growth of costs (headline quarter-over-quarter analysis). The year-over-year analysis says the opposite. I personally do not understand why anyone would look at the data in this series as the trends are changed from release to release. Note that in this quarter's release, productivity, unit labor costs, and related measures in the business and nonfarm business sectors were subject to revision going back to 2010, due to revisions in source data including output, compensation, and hours. The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity was up 0.3% year-over-year, and unit labor costs were up 2.1% year-over-year. Bottom line: the year-over-year data is saying that costs are still rising faster than productivity. Although one could argue that productivity improvement must be cost effective, it is not true that all cost improvement are productivity improvements. [read more on this statement] Further, the productivity being measured is "capital productivity" - not "labor productivity". [read more on this statement here] Even though a decrease in productivity to the BLS could be considered an increase in productivity to an industrial engineer, this methodology does track recessions. [The current levels are well above recession territory. Please note that the following graphs are for a sub-group of the report nonfarm > business. Business sector real productivity is barely growing (see graph below).

Labor Productivity Grows By Just 1.3% in Q2 2015 -- The BLS Productivity & Costs report for Q2 2015 shows labor productivity increased 1.3% annualized.  Output increased 2.8% and hours worked increased 1.5%.  Unit Labor costs increased only 0.5% in Q2 2015.  The reason labor productivity rose was because economic output grew more than worker hours.  Both Q4 2014 and Q1 2015 showed decreases in labor productivity.  The result means productivity is below the long term 2.2% average and implies businesses will have to hire more people to expand.  Below is a graph of the quarterly change in labor productivity.The basic equation for labor productivity is: Q/L , where Q is the total output of industry and L stands for labor.  Output can be thought of what is produced from the fruits of labor.  Examples would be the cars which come off the assembly line and burgers & fries being served up at McDonald's.  Here is the BLS labor productivity formula: Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors, and unpaid family workers.  L, or Labor, is measured in hours only.  Nonfarm Business Output directly correlates to real GDP, minus the government, farms,all of those nonprofits and our infamous, often illegal nannies and gardeners, and equivalent rent of owner occupied properties.   The output, or Q, is about 74% of real GDP reported.  Farms, if you can believe this, only represent about 1% of output.   Labor productivity is reported as annualized figures and both indexes are normalized to the year 2009.  The main productivity numbers above are all business, no farms, where labor costs have a high ratio, about 60%, to output.  These productivity statistics are referred to as nonfarm business. From Q2 2014, a year ago, annual productivity increased 0.3%, output increased 2.8%, and hours worked rose by 2.6%.  That is very sluggish productivity growth, yet due to the soaring productivity post Great recession, odds are workers are being treated better and not worked to death for the same pay.  Labor productivity changes from a year ago is shown in the below graph.

Productivity Remains Weak; Spotlight on Retail Store and Trucking; Are Productivity Measurements Accurate? -- Economists expected bounce in productivity, and got one, but it was a bit weaker than than the Bloomberg Consensus Estimate of 1.6%.  A bounce back for output gave first-quarter productivity a lift, up a quarter-to-quarter 1.3 percent vs a revised decline of 1.1 percent in the first quarter. The bounce in output also held down unit labor costs which rose 0.5 percent vs 2.3 percent in the first quarter. Output in the second quarter rose 2.8 percent vs a depressed 0.5 percent in the first quarter. Compensation rose 1.8 percent, up from 1.1 percent in the first quarter, while hours worked were little changed, up 1.5 percent vs 1.6 in the first quarter. Looking at year-on-year rates, growth in productivity is very slight at only plus 0.3 percent while costs do show some pressure, up 2.1 percent in a reading, along with the rise in compensation, that will be welcome by Federal Reserve officials who are hoping that gains in wages will help offset weakness in commodity costs and help give inflation a needed boost.

Productivity Dry Spell Looks Worse in Latest Report -- The dry spell of productivity in this economic expansion is even worse than previously thought, according to new data released Tuesday. The average annual rate of productivity growth from 2007 to 2014 was revised down to 1.3% per year from the prior estimate of 1.4%, the Labor Department said Tuesday. This is well below the long-term rate of 2.2% per year from 1947 to 2014. Productivity in 2013 was especially weak, revised down to unchanged from the prior estimate of a 0.9% gain. Productivity even dipped below zero for three quarters in 2013. That hadn’t been seen since 1982. Former Fed chairman Alan Greenspan said Monday that weak productivity is the most serious problem that confronts the U.S. Federal Reserve Chairwoman Janet Yellen has also called productivity since the recession “disappointing,” even before the downward revisions.

The Future of Work: Why Wages Aren't Keeping Up: One of the more puzzling and damaging features of the American labor market in the last few decades has been the failure of real (i.e. inflation-adjusted) wages and benefits to keep up with the increase in productivity. ... The custom is to think of value added in a corporation (or in the economy as a whole) as just the sum of the return to labor and the return to capital. But that is not quite right. There is a third component which I will call “monopoly rent” or, better still, just “rent.” ...The suggestion I want to make is that one important reason for the failure of real wages to keep up with productivity is that the division of rent in industry has been shifting against the labor side for several decades. This is a hard hypothesis to test in the absence of direct measurement. But the decay of unions and collective bargaining, the explicit hardening of business attitudes, the popularity of right-to-work laws, and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all point in the same direction: the share of wages in national value added may have fallen because the social bargaining power of labor has diminished. ...Now I would like to connect this hypothesis with another change taking place in the labor market..., the casualization of labor. The proportion of part-time workers has been rising... So are the numbers of workers on fixed-term contracts and independent contractors... Casual workers have little or no effective claim to the rent component of any firm’s value added... If the division of corporate rents has indeed been shifting against labor, an increasingly casual work force will find it very hard to reverse that trend.

Wage Growth Meme In Tatters As Unit Labor Cost Growth Tumbles, Huge Downward Revisions --Instead of an exuberant 6.7% surge in Q1 unit labor costs, heralded by any and all mainstream economists and talking heads as proof that long-awaited wage growth is here, the historical revision slashes it to a mere 2.3% increase, which followed by Q2's dismal 0.5% increase - the weakest since Q3 2014, suggests wage growth in America is anything but robust. Nonfarm productivity also missed expectations, rising just 1.3% QoQ, a very modest rebound after two quarters of declines.

US labour market weakening | Bill Mitchell – The Federal Reserve Bank of America has been publishing a new indicator – the Labor Market Conditions Index (LMCI) – which is derived from a statistical analysis of 19 individual labour market measures since October 2014. It is now being watched by those who want to be the first to predict a rise in US official interest rates. If the latest data from the LMCI is a guide to potential interest rate movements then they won’t be rising any time soon. I updated my gross flows database today and also the job openings and quits database. The gross flows analysis suggests that while there has been improvement in the US labour market in the last year, in recent months that improvement is slowing. . The index is derived from a “dynamic factor model”, which extracts common variations from the individual indicators used as the raw data – which include measures of Unemployment and underemployment, employment, working hours, wage movements, vacancy rates, hiring, layoffs, and quits and measures of consumer and business confidence. Dynamic Factor Models are increasingly being used in macroeconomics where economists have a huge number of variables of interest but the number of observations for each of the variables (time series) are fairly short. By combining many data series the sample becomes large and the so-called degrees of freedom problem that plagues regression-based time series modelling is overcome. The 19 individual labor market measures do not impact equally on the movement of the LMCI. The “most strongly related” are the unemployment rate, private payroll employment, the “composite help-wanted index, the insured unemployment rate, the quit rate, and persons working part-time for economic reasons”.   The resulting short-run changes in the LMCI are “assumed to summarize overall labor market conditions”. .The following graph (constructed at FRED) shows the full span of the LMCI from August 1976 to July 2015. The shaded areas show official US recessions.

The Labor Market Conditions Index as a leading indicator  -Via Naked Capitalism, Bill Mitchell writes that the Fed's "Labor Market Conditions Index is Weakening."  As usual, I hate the present progressive tense, since there is nothing about the index that forecasts what it itself will do over the coming months. Further, since it is still positive, labor market conditions are still above trend - just much less so than last year.  But the Index itself turns out to be a useful addition to the forecasting toolbox. The LMCI is based on 19 components.  Click on the link above if you want further information on its makeup.  What is important to me is that it has a 40 year history of signaling a turn in the economy. Here is the entire history of the index: Here's what the data behind the Index shows: (1) the index has with one exception (1981's double-dip) always failed to make a new high for at least 12 months before the next recession, sometimes much longer than that; and (2) the index has always dropped below 0 and stayed negative for 6 months or somewhat more before the onset of the next recession. Here is the Index over the last 5 years: The Index made its cycle high at the beginning of 2012. It made a secondary high in early 2014. But it has not turned consistently negative. The Index become more valuable when it is teamed with two other measures: the YoY% growth in nonfarm payrolls, and interest rates. As shown in the graph below, the LMCI consistently leads the YoY% growth in jobs by 6 - 12 months, but YoY job growth (red) is a much smoother measure:

By Devaluing Its Currency, China Exports Its Unemployment --On Tuesday, China announced the largest one-day devaluation of its currency in more than two decades.  By choosing to devalue its currency, Chinese officials are trying to solve their domestic economic problems—including a massive property bubble, a collapsing stock market, and a slowing domestic economy—by exporting unemployment to the rest of the world. The United States, which is the largest single market for China’s exports, will be hardest hit by the devaluation of the yuan. Manufacturing, which was already reeling from the 20 percent rise in the value of the dollar against major currencies in the last 19 months, can expect to see even faster growth in imports from China. The devaluation of the yuan (also known as the renminbi) will subsidize Chinese exports, and act like a tax on U.S. exports to China, and to every country where we compete with China, which is already the largest exporter in the world. It will provide rocket fuel for their exports, transmitting unemployment from China directly to the United States and other major consumers of imports from China. Already in 2015, the U.S. manufacturing trade deficit has increased 22 percent, which will continue to hold back the recovery in U.S. manufacturing, which has experienced no real growth in output since 2007. The Chinese devaluation highlights the importance of including restrictions on currency manipulation in trade and investment deals like the proposed Trans-Pacific Partnership (TPP), which includes a number of well-known currency manipulators. Millions of jobs are at stake if a clause to prohibit currency manipulation is not included in the core of this “twenty-first century trade agreement.” This devaluation by China, which is not a member of the TPP, will raise pressure on other known currency manipulators that are in the agreement—such as Japan, Malaysia, and Singapore—to devalue their currencies, which could more than offset any benefits obtained under the terms of the TPP.

These U.S. States Could See Job Losses from China’s Devaluation -- According to a March report from FactSet, “companies in the S&P 500 in aggregate generate about 10 percent of sales from the Asia Pacific region, most of which comes from China and Japan.” Some U.S. companies, however, derive a far greater percentage of their sales from China. According to Sue Chang, a MarketWatch reporter using data from FactSet, 52 percent of Yum! Brands sales come from China while 40 percent of Micron Technology’s are derived from China. A slowdown in economic growth in China could also see individual U.S. states licking their wounds as well. The following statistics come from the US-China Business Council:

  • Forty-two states experienced at least triple-digit export growth to China since 2005, and five states saw export growth of more than 500 percent over the same period.
  • China was among the top three export markets for 39 states in 2014. That includes states that are not usually associated with strong China trade ties, including Minnesota, Michigan, New York, Alabama, Ohio, and South Carolina.
  • In 2014, thirty-one states exported more than $1 billion to China.

The chart above shows the U.S. states that could be most dramatically impacted should China’s economic slump worsen. Washington state saw its exports to China grow from $3.3 billion in 2005 to a whopping $15.3 billion in 2014. Washington state’s major exports to China include transportation equipment, forestry products, computers and electronics, primary metal manufacturing, mineral and ores. In the span of one decade, the state’s exports to China grew by 365 percent versus its export growth rate to the rest of the globe of 148 percent.

Why American Teens Aren't Working Summer Jobs Anymore - This was supposed to be a better year for teenagers to land summer jobs, and July has always been the peak month for such positions. Things haven't worked out that way, according to the Labor Department's latest jobs report. On an unadjusted basis — which is probably fairer given the question is seasonal jobs — there was a 1.2 million increase in teen employment last month compared with the average for the school months of January through May. That was close to last year's tally, yet well below all but two years since the 1950s. Worse yet, at 41.3 percent, the July labor force participation rate of teens was the lowest for the month in the post-World War II period. The teenage summer job has been going the way of telephone booths and the cassette tape for decades. The length of the downward trend has been masked by the fact that it's hard to tease apart teen summer jobs from teen employment more generally. Looking at the jump in the labor-force participation of teens in July over the average for the school months, it's clear that summer jobs peaked in the mid-1960s and have been sliding since. What gives?

  • 1. This generation is lazy Or, as Northeastern University labor economist Alicia Modestino puts it: "Some teens are doing other stuff" like coding camp, foreign travel or beaching it.
  • 2. Typical teen jobs are drying up. "Think Blockbuster," said Modestino. The movie rental stores employed a lot of teenagers, but have been crushed by competition from Netflix Inc. and on-demand video.
  • 3. Teens face competition. Modestino and other labor economists believe that the single-biggest explanation for the decline is that teenagers face stiff competition for what were once summer jobs from other workers, especially immigrants.

Who May Get a Boost From New Overtime Rules - The Obama administration’s move to expand overtime eligibility has the potential to impact millions of workers. And women, who are disproportionately concentrated in low-wage jobs, make up the majority of those who may stand to gain. A new analysis by the left-leaning Institute for Women’s Policy Research and Moms Rising found that 3.2 million women are newly covered by proposed changes to overtime rules, compared with 2.7 million men. But based on current work habits, men could take a greater share of the additional income, the study found. The “newly covered” category is based on the proposal’s updated threshold under which most full-time salaried workers would be eligible to earn time-and-a-half pay for working more than 40 hours per week. The threshold would be increased to $970, or $50,440 annually. That level is about the 40thpercentile of weekly earnings for salaried workers. The Labor Department takes comments on proposed changes through early September. The current threshold is $23,660, or $455 a week. The institute’s analysis refers to all eligible workers, including ones who do not currently work overtime.  Currently exempt single mothers and women of color in particular stand to gain, according to the institute’s analysis. It finds 44% of currently exempt single mothers would be covered, compared with 32% of married mothers and 39% of single childless women. The likely newly covered single mothers also start out with the lowest base pay, earning $707 per week compared with married mothers’ $744 and single women’s $719.

6.9 Million Women Would Directly Benefit from Raising the Overtime Salary Threshold to $50,440 - Because their pay tends to be lower than men’s, women are especially likely to benefit from the Department of Labor’s proposed change to the rules governing overtime pay, which would require all salaried workers earning less than $50,440 a year in 2016 to be automatically entitled to time-and-a-half pay if they work more than 40 hours in a week. Currently, only workers paid a salary of $23,660 or less have this guarantee—workers paid more than $23,660 can be denied overtime pay under the current rules if their primary job duty is determined to be “executive, administrative, or professional.” As the figure above shows, only 2.8 million salaried women earn less than the current overtime salary threshold of $23,660. Under the new rule, an additional 6.9 million women will have automatic overtime pay coverage, including 2.4 million women with children under the age of 18. Raising the overtime salary threshold to $50,440 will bring the total number of women eligible for overtime based on their salary alone to 9.8 million (or nearly 40 percent of the entire salaried female workforce). More than one-third of these women (3.4 million, or 13 percent of the entire salaried female workforce) have children.

Capitalists, Arise: We Need to Deal With Income Inequality - I’M scared. The billionaire hedge funder Paul Tudor Jones is scared. My friend Ken Langone, a founder of the Home Depot, is scared. So are many other chief executives. Not of Al Qaeda, or the vicious Islamic State or some other evolving radical group from the Middle East, Africa or Asia. We are afraid where income inequality will lead.For the top 20 percent of Americans, life is pretty good.But 40 percent are broke. Every year they spend more than they have.While so many people are struggling, even those on the higher end of the middle class have relatively little after paying the bills: on average, some $1,300 a month. One leaky roof and they’re in trouble.If inequality is not addressed, the income gap will most likely be resolved in one of two ways: by major social unrest or through oppressive taxes, such as the 80 percent tax rate on income over $500,000 suggested by Thomas Piketty, the French economist and author of the best-selling book “Capital in the Twenty-First Century.”We are creating a caste system from which it’s almost impossible to escape, except for the few with exceptional brains, athletic skills or luck. That’s why I’m scared. We risk losing the capitalist engine that brought us great economic success and our way of life.

Another downside of recession: Career criminals - How costly are recessions? To answer that question, analysts often calculate the lost GDP due to the higher levels of unemployment and idle capital during economic slumps. For example, during the Great Recession, the Dallas Fed estimates the loss was between $6 trillion and $14 trillion, or $50,000 to $120,000 for every person in the U.S. However, the economic costs of recessions encompass far more than simply the goods and services that could have been produced, but weren't. They also include the psychological costs of being unable to provide for one's family, health costs due to increased stress, drug problems, higher suicide rates, family conflict and so on. Evidence also shows that new entrants into the labor market during recessions have a lower lifetime earnings trajectory than those who enter during better times.  That may explain new research results showing that young people who leave school during recessions have a much higher chance of becoming career criminals. Why does this happen? Of course, one reason is the higher unemployment rates and diminished job prospects that occur during recessions. But "feedback effects" can also reinforce the choice to engage in crime. First, as the researchers Brian Bell, Anna Bindler and Stephen Machin noted, involvement in crime may lead to an increase in "criminal knowhow" that raises the "expected net benefit of crime" -- the difference between the expected gain and the chance of getting caught. This makes it more likely that an individual will choose to commit a crime.

Chicago police detained thousands of black Americans at interrogation facility - At least 3,500 Americans have been detained inside a Chicago police warehouse described by some of its arrestees as a secretive interrogation facility, newly uncovered records reveal. Of the thousands held in the facility known as Homan Square over a decade, 82% were black. Only three received documented visits from an attorney, according to a cache of documents obtained when the Guardian sued the police.  Despite repeated denials from the Chicago police department that the warehouse is a secretive, off-the-books anomaly, the Homan Square files begin to show how the city’s most vulnerable people get lost in its criminal justice system. People held at Homan Square have been subsequently charged with everything from “drinking alcohol on the public way” to murder. But the scale of the detentions – and the racial disparity therein – raises the prospect of major civil-rights violations.  Documents indicate the detainees are a group of disproportionately minority citizens, many accused of low-level drug crimes, faced with incriminating themselves before their arrests appeared in a booking system by which their families and attorneys might find them.The Chicago police department has maintained – even as the Guardian reported stories of people being shackled and held for hours or even days, all without legal access – that the warehouse is not a secret facility so much as an undercover police base operating in plain sight. “There are always records of anyone who is arrested by CPD, and this is no different at Homan Square,” the police asserted in a March statement. But an independent Guardian analysis of arrestees’ records, obtained through the Freedom of Information Act, shows that Homan Square is far from normal:

The Resurrection of America's Slums -- Half a century after President Lyndon B. Johnson declared a war on poverty, the number of Americans living in slums is rising at an extraordinary pace. The number of people living in high-poverty areas—defined as census tracts where 40 percent or more of families have income levels below the federal poverty threshold—nearly doubled between 2000 and 2013, to 13.8 million from 7.2 million, according to a new analysis of census data by Paul Jargowsky, a public-policy professor at Rutgers University-Camden and a fellow at The Century Foundation. That’s the highest number of Americans living in high-poverty neighborhoods ever recorded.  The development is worrying, especially since the number of people living in high-poverty areas fell 25 percent, to 7.2 million from 9.6 million, between 1990 and 2000. Back then, concentrated poverty was declining in part because the economy was booming. The Earned Income Tax Credit boosted the take-home pay for many poor families. (Studies have shown the EITC also creates a feeling of social inclusion and citizenship among low-income earners.) The unemployment rate fell as low as 3.8 percent, and the first minimum wage increases in a decade made it easier for families to get by.  As newly middle-class minorities moved to inner suburbs, though, the mostly white residents of those suburbs moved further away, buying up the McMansions that were being built at a rapid pace. This acceleration of white flight was especially problematic in Rust Belt towns that didn’t experience the economic boom of the mid-2000s. They were watching manufacturing and jobs move overseas.

Food Banks Struggle to Meet Surprising Demand (AP) -- Food banks across the country are seeing a rising demand for free groceries despite the growing economy, leading some charities to reduce the amount of food they offer each family. U.S. food banks are expected to give away about 4 billion pounds of food this year, more than double the amount provided a decade ago, according to Feeding America, the nation's primary food bank network. The group gave away 3.8 billion in 2013. While reliance on food banks exploded when the economy tanked in 2008, groups said demand continues to rise year after year, leaving them scrambling to find more food. "We get lines of people every day, starting at 6:30 in the morning," The drop in food stamp rolls by nearly 2.5 million people from recession levels could be contributing to the food bank demand, he said, because people who no longer qualify for the government aid may still not earn enough to pay their bills. According to the U.S. Labor Department, wages and salaries rose only 0.2 percent in the second quarter of the year. Feeding America spokesman Ross Fraser said a recent study by his organization estimated that 46 million people sought food assistance at least once in 2014. Feeding America, which coordinates large food donations for 199 food banks nationwide, has seen donations of food and money to the Chicago-based organization climb from $598 million in 2008 to $2.1 billion in 2014. The group coordinates donations from larger retailers, like Walmart, while local food banks also seek food from smaller businesses and buy groceries with donated money.

US DOJ: It's unconstitutional to prohibit the homeless from sleeping outside - Banning the homeless from sleeping outside when they have nowhere else to sleep is unconstitutional, argues the United States Department of Justice in a statement of interest filed regarding a Boise, Idaho court case about an anti-camping ordinance. According to the DOJ, such ordinances may violet the US Constitution's Eighth Amendment, prohibiting cruel and unusual punishment. From the DOJ filingWhen adequate shelter space exists, individuals have a choice about whether or not to sleep in public. However, when adequate shelter space does not exist, there is no meaningful distinction between the status of being homeless and the conduct of sleeping in public. Sleeping is a life-sustaining activity—i.e., it must occur at some time in some place. If a person literally has nowhere else to go, then enforcement of the anti-camping ordinance against that person criminalizes her for being homeless.

Puerto Rico: Is its minimum wage the culprit? - Puerto Rico today faces a serious debt crisis, recently defaulting on a bond payment. The proximate cause is a slowdown in economic growth since the mid-2000s, which has reduced tax revenues, and a declining labor market, where employment growth has been mostly in the red since 2007. There are many explanations for the economic downturn and the resulting fiscal crisis, but some commentators have incorrectly blamed the island’s high minimum wage. To be sure, the federal minimum wage—which has applied to Puerto Rico since 1983—is much more binding there than it is on the mainland. Because hourly wages are substantially lower in Puerto Rico compared to the U.S. mainland, the federal minimum wage policy affects more of the workforce there. In 2014, for example, the federal minimum wage stood at 77 percent of the median hourly wage in Puerto Rico, compared to 42 percent in the United States. For comparability with existing estimates, if we consider wages of full time workers only, these figures are approximately 70 percent in Puerto Rico and 38 percent in the United States, respectively. Finally, the minimum wage stands at 56 percent of the wage earned by production workers in manufacturing, compared to 38 percent in the United States. Clearly, the Puerto Rico’s minimum wage exceeds the cautious rule-of-thumb of 50 percent of median wage of full-time workers suggested by one of us in previous work. But does that make it a probable culprit for the island’s current debt and economic troubles? The short answer is: not very likely …

Pain of Puerto Rico’s Debt Crisis Is Weighing on the Little Guy, Too - Puerto Rico officials now say the government cannot afford to pay its $72 billion in debt. And last week, the government defaulted on a bond payment for the first time since the island came under the jurisdiction of the United States nearly 117 years ago.More indebted than any American state by some measures, Puerto Rico sold its bonds far and wide, to everyone from wealthy Midwesterners to New York hedge funds. But more than 20 percent of the government debt is owned locally. And as values have plunged, some of the most intense pain is being felt by the tens of thousands of Puerto Ricans who bet much of their savings on the bonds.“These are doctors, stay-at-home moms, teachers, older people, young people,” said Jeffrey B. Kaplan, a Miami lawyer whose firm represents more than 150 Puerto Rico bond investors. “And now they have all their eggs in one basket.”How so many ordinary Puerto Ricans came to shoulder such a large share of the island’s debt can be explained by a confluence of factors: a local government desperate to borrow money, banks collecting fees for selling the bonds, and brokers encouraging residents to buy them.Even some of the riskier debt, which previous administrations had difficulty selling to investors in the rest of the United States, found a home in the investment accounts of ordinary Puerto Ricans, according to former finance officials.It was not just residents who were loading up on the bonds. The island’s 116 credit unions, which serve many poor and rural communities, also became big buyers after local regulators allowed these small lenders to take more risks with their investments.

U.S. Births increased in 2014 - This provisional data for 2014 was released in June and shows a possible impact of the great recession ... and recovery.From the National Center for Health Statistics: Births: Preliminary Data for 2014. The NCHS reports: The 2014 preliminary number of U.S. births was 3,985,924, an increase of 1% from 2013. ... The general fertility rate was 62.9 births per 1,000 women aged 15–44, up 1% from 2013, and the first increase in the fertility rate since 2007. Here is a long term graph of annual U.S. births through 2014 ...Births had declined for five consecutive years prior to increasing in 2013. Births are about 7.7% below the peak in 2007 (births in 2007 were at the all time high - even higher than during the "baby boom"). I suspect certain segments of the population were under stress before the recession started - like construction workers - and even more families were in distress in 2008 through 2012. And this led to fewer babies. Notice that the number of births started declining a number of years before the Great Depression started. Many families in the 1920s were under severe stress long before the economy collapsed. By 1933 births were down by almost 23% from the early '20s levels. Of course economic distress isn't the only reason births decline - look at the huge decline following the baby boom that was driven by demographics. But it is not surprising that the number of births slow or decline during tough economic times - but that is over now.

Sesame Street Teaches Poor Kids: Educational TV Isn't for You Anymore: For more than four decades, the television show Sesame Street has existed to teach children lessons. Today’s lesson is that people without disposable household income are in an inferior position and should be happy to receive secondhand goods. The original purpose of Sesame Street was to provide uplifting educational programming to the widest possible audience of young children. Yesterday, the Sesame Workshop, the nonprofit that produces the program, announced that for the next five years, new episodes will not run on the nonprofit, over-the-air Public Broadcasting Service, but will be distributed through HBO, a premium cable channel owned by the for-profit Time Warner media megacorporation. In the press release, Sesame Workshop CEO Jeffrey Dunn described the arrangement as “a true winning public-private partnership model.” What does this winning model entail? It entails removing public goods and services from the commons, to repackage them as luxury products for affluent consumers.  Now Sesame Street will be restricted to a network that reaches less than one-third of American households. According to the announcement, with the money it gets from HBO, Sesame Street “will be able to produce almost twice as much new content as previous seasons.” And poor kids won’t be able to see any of it.

Private schools for the ultra-rich keep popping up across the country - This past weekend the Los Angeles Times published a piece about recent or planned expansions and luxury level upgrades at a number of elite private schools, many located in rather exclusive neighborhoods of the city.  Hancock Park’s Marlborough School, the paper reported, tore down a number of neighborhood homes to “add an Olympic sized aquatics center, fitness facility and expanded athletic field,” while West Hollywood’s Center for Early Education (a school so known for its power-broker parents that it has acquired the less-than-flattering moniker the Center for Early Networking) is now attempting to raise between $50 and $75 million for campus upgrades.  Before you say, “Only in L.A.” and move on, know this is not simply a West Coast phenomenon. In New York City, a combination of ambitious parent fundraising and a city bond program is also inspiring an arms race of new amenities at the city’s independent educational facilities. Consider the prestigious Brearley School. The school bought three tenements, and will be building itself a new lower school, complete with a state-of-the-art science department, auditorium, and gym.  Neighborhood pushback to these changes is often fierce. Increased traffic is frequently a concern in Los Angeles, while in New York there are screams about the loss of residential real estate.  Something barely analyzed in any of the articles discussing these debates? That private-school building sprees and the tuition increases accompany them—to close to $40,000 for the Los Angeles independent schools and to $45,000 (and sometimes more) in New York City—aren’t merely symptomatic of the widening chasm between the rich and the rest of us. They also reveal fault lines between what you might describe as the comfortably upper middle class to lower upper classes, and the super-duper rich.

Teacher Shortages Spur a Nationwide Hiring Scramble (Credentials Optional) - In a stark about-face from just a few years ago, school districts have gone from handing out pink slips to scrambling to hire teachers.Across the country, districts are struggling with shortages of teachers, particularly in math, science and special education — a result of the layoffs of the recession years combined with an improving economy in which fewer people are training to be teachers.At the same time, a growing number of English-language learners are entering public schools, yet it is increasingly difficult to find bilingual teachers. So schools are looking for applicants everywhere they can — whether out of state or out of country — and wooing candidates earlier and quicker.Some are even asking prospective teachers to train on the job, hiring novices still studying for their teaching credentials, with little, if any, classroom experience. Louisville, Ky.; Nashville; Oklahoma City; and Providence, R.I., are among the large urban school districts having trouble finding teachers, according to the Council of the Great City Schools, which represents large urban districts. Just one month before the opening of classes, Charlotte, N.C., was desperately trying to fill 200 vacancies.Nationwide, many teachers were laid off during the recession, but the situation was particularly acute in California, which lost 82,000 jobs in schools from 2008 to 2012, according to Labor Department figures. This academic year, districts have to fill 21,500 slots, according to estimates from the California Department of Education, while the state is issuing fewer than 15,000 new teaching credentials a year.

Under siege, for-profit colleges cry foul over new federal rules -- After trying for years to tighten the rules on for-profit colleges, the Department of Education finally enacted regulations on the industry this summer. But the fight’s not over. A month after new rules went into effect, the department faces continuing push-back from the colleges, and Republican lawmakers as well. ITT Technical Institute is a for-profit institute in Boise, Idaho. It is headquartered in Indiana. Chris Butler Idaho Statesman i The regulations require for-profit colleges, such as prominent names like the University of Phoenix and ITT Tech, to prove that students can find “gainful employment” after finishing school. The intent is to separate credible programs from those that weigh students down with significant debt for degrees that end up being worth little. Colleges are now asked to show that the average student’s annual loan payment is not more than 20 percent of the student’s discretionary income after graduation. If the schools don’t meet the standard, they risk losing their federal financial aid. Public and private nonprofit colleges are not required to prove that their students meet such a standard. For the Education Department and others that have spent years fighting to implement the regulations, it’s an important step toward cracking down on an industry that has been criticized for taking advantage of students. “It’s a big issue,” said Rep. Rosa DeLauro, D-Conn. “They wind up in serious economic difficulty. With high debt, they default. They don’t come out with a meaningful education or degree or certificate that allows them to be gainfully employed.”

Hillary Clinton 2016: She readies student loan reform rollout - POLITICO: After the dust settles from the Republican debate and before she breaks from the campaign trail for her Hamptons vacation, Hillary Clinton on Monday will roll out what is expected to be the most detailed and costly plank of her campaign: her policy proposals for student loan reform. “This will be the big ticket item,” a source with knowledge of her rollout said, noting that in terms of her federal budgetary priorities, her plan for student loans will involve the largest investment. The source said the hope was to create a “mandate to act on college affordability” and generate enthusiasm for the campaign around a galvanizing issue for young voters. The announcement is expected to be made at a campaign stop in New Hampshire. As part of her plan, Clinton is expected to unveil a federal-state partnership to increase funding for public colleges and universities, several sources said. The proposal is expected to create an incentive system for states to increase their investments in higher education — a commitment to increasing public college funding would trigger further investment from the federal government, reducing tuition overall and, more specifically, the portion financed by the student. One comparison that has been made is to President Barack Obama’s Race to the Top initiative, an almost $5 billion Education Department grant unveiled in 2009 for public schools, which creates incentives for how to deliver quality education. Clinton is also expected to announce a proposal aimed at easing the financial burden for students who attend historically black colleges, a campaign source said. Her advisers have also discussed creating a bill of rights for student loan carriers and risk-sharing for colleges, which means schools could be penalized when students default or can’t repay their loans.

Hillary Clinton Proposes Debt-Free Tuition at Public Colleges - WSJ: — Hillary Clinton is proposing an expansive program aimed at enabling students to attend public colleges and universities without taking on loans for tuition, her attempt to address a source of anxiety for American families while advancing one of the left’s most sweeping new ideas. The plan—dubbed the “New College Compact” and estimated to cost $350 billion over 10 years—would fundamentally reshape the federal government’s role in higher education by offering new federal money, but with strings attached. States would have to increase their own spending on higher education, and universities would be required to control spending, though the Democratic presidential front-runner hasn’t yet worked out details. Families still would be required to contribute, but students wouldn’t have to take out loans to attend public schools. The proposal, to be unveiled in New Hampshire on Monday, carries particular political weight for a campaign working to keep young voters in the Democratic coalition in the post- Obama era. Information about it will be a key element of campaigning on college campuses this fall. And it answers a demand from the most liberal Democrats that candidates take on the spiraling cost of higher education, giving Mrs. Clinton ammunition as she battles a surging Sen. Bernie Sanders, who is attracting support from many liberals in the party.

Hillary Clinton's $350 billion plan to kill college debt -- Hillary Clinton on Monday rolled out a sweeping higher education plan — a $350 billion proposal that would help millions pay for college and reduce interest rates for people with student loans.  The plan, which would change the way a large swath of Americans pay for college, borrows ideas from the left and the right and even expands a program enacted by her husband. It includes ideas already being discussed in Congress and for which groundwork has been laid by the Obama administration. The proposal, dubbed the New College Compact, is unlikely to win over many in the GOP because the $350 billion over 10 years would come from cutting tax deductions for the wealthiest Americans. Clinton discussed the plan, a litmus test of sorts for progressives, at a campaign stop Monday in New Hampshire. “No family and no student should have to borrow to pay tuition at a public college or university,” Clinton said at Exeter High School. “And everyone who has student debt should be able to finance it at lower rates.”And at a stop in Iowa later in the week, Clinton will offer additional proposals intended to help nontraditional students — such as those who are already parents — complete their degrees, the campaign said. And the plan’s rollout is timed to coincide with college students heading back to school, potentially luring a voting bloc critical for President Barack Obama that Clinton needs to court as well.

Rubio's Higher-Ed Plan Beats Clinton's - On Monday, Hillary Clinton rolled out her proposal to make college more affordable, which aims to allow students to pursue a “loan-free” education at public colleges and universities. The plan, which offers federal incentives to states which guarantee their students a debt-free education, is hideously complex. It also does not address the central problems in America’s higher-education system. In contrast, Senator Marco Rubio, a Republican presidential candidate from Florida, has sponsored a number of bills that would enable students to take advantage of Massive Online Open Courses (MOOCs), publicize information about graduation rates and potential earnings at different institutions, and make it easier for individual lenders to invest in students so that they would be able to avoid taking out college loans. Clinton proposes to offer states $175 billion in grants in exchange for the no-loans promise. (The total cost of her plan is $350 billion.) Accepting the grants would require states to devote more of their budgets to higher education, which in theory would bring down tuition.

Infographic Of The Day: The End For For-Profit Universities? --Most people likely think of for-profit higher education as a relatively new invention. But that’s far from the truth. Let us look at the history of commercial colleges in the U.S. and their murky future.

Student Loan Delinquencies Jump As Crisis Spreads: The share of Americans behind on their student loan payments jumped over the past year despite the improving economy, new data released Thursday show. About 11.5 percent of outstanding student debt was at least 90 days late or in default as of June 30, up from around 10.9 percent at the same time last year, according to the Federal Reserve Bank of New York. The New York Fed estimates that nearly one in four borrowers whose loans have come due are severely delinquent, or double the published rate, because nearly half of student debt doesn't presently require a monthly payment. By contrast, the share of total household debt in distress fell to 3.98 percent, New York Fed data show. The figure hasn't been below 4 percent since 2007. At roughly $136 billion, the total amount of student debt that's severely delinquent or in default is more than all other distressed non-mortgage debt combined, a reversal from last year, New York Fed data show. Non-mortgage debt carried by households includes auto loans, credit cards, home equity lines of credit and other personal loans. The increase in student debt woe comes despite a growing U.S. economy that's adding jobs and raising workers' wages. Student debt pain also is spreading despite a significant jump in the number of borrowers enrolled in generous government programs that allow them to make payments on their federal student loans based on their earnings, and high-level attention from the White House to fix what President Barack Obama described in 2013 as a "crisis in terms of college affordability and student debt."

How One Hedge Fund Is Betting Against The $1.2 Trillion Student Loan Bubble --On Monday, we got some color on Hillary Clinton’s $350 billion plan to make college more affordable. Students and former students across the country owe more than $1.2 trillion in college loans, and as Bill Ackman so eloquently put it earlier this year, "there’s no way they’re going to pay it back." Of course there are some other folks who understand how quickly the situation is deteriorating. Chief among them are Moody’s and Fitch and a few sell-side strategists who are having quite a bit of trouble figuring out how to incorporate the various IBR plans being promoted by the Obama administration into their ratings models.These worries showed up earlier this year when Moody’s put billions in student loan-backed ABS on review for downgrade. Many of the deals in question are sponsored by loan servicer Navient, which was spun off from Sallie Mae in 2014.  Now, one Boston-based hedge fund is building a short position on what it says is "runaway inflation in post-secondary education" by shorting the likes of Navient and other names tied to to the student loan bubble.Here’s Bloomberg with more: FlowPoint Capital Partners, the $15 million hedge fund co-founded by Charles Trafton, is betting against companies such as student-loan servicer Navient Corp. to profit from what it calls a college bubble bursting in slow motion. The Boston-based firm is building positions against stocks of textbook publishers, student lenders and real estate companies that focus on college housing, Trafton said in an interview. Changes in the more than $1 trillion student loan market could hurt companies such as Navient, Sallie Mae and Nelnet Inc., according to a July investor letter from the firm.

The College Bubble 2.0 - On Monday, we got some color on Hillary Clinton’s $350 billion plan to make college more affordable.  As we recently noted, students and former students across the country owe more than $1.2 trillion in college loans - doled out by our government in the name of helping high school graduates further their education, and as Bill Ackman so eloquently put it earlier this year, "there’s no way they’re going to pay it back." But at this point, extra funding is backfiring. Half of young graduates are either unemployed or only working part-time, which is a startling sign that the jig is up. In conjunction with the poor economy, new technology, developing markets killing jobs, and the massive increase in applicants with degrees, the value of college degrees is drastically falling in the economy of today. College is in a bubble, and it is going to pop soon... The following video should open a few more eyes to the startling crisis facing today's young adults and the American higher education system... *  *  * And as we recently noted, one hedge fund is attempting to take advantage of that, hoping for the next "Big Short." These worries showed up earlier this year when Moody’s put billions in student loan-backed ABS on review for downgrade. Many of the deals in question are sponsored by loan servicer Navient, which was spun off from Sallie Mae in 2014.  Now, one Boston-based hedge fund is building a short position on what it says is "runaway inflation in post-secondary education" by shorting the likes of Navient and other names tied to to the student loan bubble. Here’s Bloomberg with more:

The Pension Crisis at Public Universities - While massive state- and city-pension debts across the country have gotten anxious scrutiny from lawmakers and the public, their effect on public universities and colleges has gone largely unnoticed. But an independent board that oversees state and local accounting standards nationwide has recently put into effect new rules, requiring more disclosure of how much the government owes to universities’ retirees. And these requirements are likely to draw back the curtain on huge liabilities that could drag colleges’ balance sheets—which have been slowly improving since the recession—back into the red. Experts warn that the pension problem could foil the institutions’ promises to contain their costs, and instead result in continued upswings in tuition despite the fewer courses, programs, and services offered—especially at public universities. It also partially explains why such institutions are increasingly turning toward adjuncts.

Leading Pension Consultant PCA Shills for Private Equity Firms in CalPERS/CalSTRS Carry Fee Row  -Yves Smith - One of the remarkable elements of the private equity industry is the ludicrous things incumbents are willing to say to defend a bad status quo.  The latest example is a memo from a leading pension consulting firm, Pension Consulting Alliance (PCA). It weighs in on the row over the fact that most private equity limited partners, and in particular the giant public pension funds CalPERS and CalSTRS, have no idea what they’ve been paying in the share of profits pervasively mislabeled as “carry fees”.* These fees just happen to be the largest fees investors in private equity incur, unless they have the bad fortune to have invested in really lousy funds.   PCA defends the failure of limited partners to report on “carry fees” while trying to wrap itself in the mantle of being pro-transparency. What is particularly disturbing about the PCA memo (embedded at the end of the post) is that it not only makes multiple misrepresentations, but it also echoes the talking points made by a private equity industry mouthpiece. The reason the latter is troubling is that PCA holds itself forth as being fee of conflicts of interest, that it works only for investors and does not market or manage funds.

California pension funds lose $5 billion on fossil fuels — report - California’s huge public pension funds, CalPERS and the California State Teachers’ Retirement System, have lost more than $5 billion on their fossil fuel investments at a time when some legislators are urging the funds to dump their coal company stocks. An analysis from the environmental group found that the two pension funds lost $5.2 billion from June 2014 through June of this year on companies that produce coal, oil and natural gas. And many of those stocks have plunged even further since then, driven down by sinking oil and coal prices. “It’s important to see that fossil fuels in general, and coal in particular, are risky bets for the pension system,” said Brett Fleishman, senior analyst with, which promotes fossil fuel divestment as a way to fight climate change. “When folks are saying divestment is risky, we can say, ‘Well, not divesting is risky.’” A bill from state Senate President Pro Tem Kevin de León, SB185, would direct both funds to divest from companies that get at least half of their revenue from mining coal for power plants. The bill does, however, contain an escape clause. The California Public Employees’ Retirement System and the state teachers’ pension system could keep their coal investments if selling them off would violate their “fiduciary responsibilities” — in other words, produce a huge loss.

Our Bloomberg OpEd on Public Pensions’ Failure to Stand Up to Private Equity Stealing and Other Abuses -- Yves Smith - I didn’t realize Bloomberg was running it today! It’s called How to Make Private Equity Honest. We argue that public pension funds have done such a lousy job of negotiating and overseeing private equity investments that they should lose their accredited investor status if they don’t shape up pronto.  Here’s the opening: The people who manage some of the country’s largest public pension funds — money that ensures the retirements of teachers, police officers, firefighters and other state employees — say they want government regulators to help them avoid getting ripped off when they invest in private equity firms. Instead, regulators should push them to do a better job of monitoring the investments on their own.In a letter last month to Securities and Exchange Commission Chair Mary Jo White, 11 state treasurers, plus the New York state and New York City comptrollers, asked for “better disclosure” of expenses at private equity firms, which typically generate returns by buying companies, restructuring them and selling them at higher prices. The officials’ complaint: The firms have been levying all sorts of suspicious fees without their knowledge, effectively siphoning money away from future retirees. The accusations are well-founded…. Read the rest here. Enjoy!

Argument: more health insurance does not lower cost - This morning on Washington Journal was a discussion with Marogt Sanger-Katz of the NYT Upshot blog.   She wrote a post: No, Giving More People Health Insurance Doesn’t Save Money.  It’s a controversial title for sure, but there is some interesting points that I know are often mentioned on a few email lists I’m on for my profession.  Let me just say I’m am a bit cautious of her writing after listening to her answer regarding why the nation did not get a single payer system in her interview this morning.  She was correct there was not the political will, but she suggested that it was due to a lack of interest/drive on the part of the people.  She states most of the people do not want single payer.  My understanding is that is was more the politicians involved namely President Obama and the congressional dem leadership that flat shut down any talk of single payer and then the Medicare option.  Ms. Sanger-Katz did not mention this at all.   Here is the clip:  In her article however, she does mention the issue of “number to treat”.  This is a big issue in health care and has been ignored generally.  When the move was on to control costs, medicine began to promote prevention, only it was not prevention by means of better food, better life environment via a reduction in the risks of life (security of housing, income, aging).  If you think about it, to promote better food requires going up against our industrialized food system.  To promote a better life environment would mean going up against the entire economic model we have been deriving policy from that has lead to the life people are living today.

50 hospitals charge uninsured more than 10 times cost of care, study finds - The Washington Post: Fifty hospitals in the United States are charging uninsured consumers more than 10 times the actual cost of patient care, according to research published Monday. All but one of the facilities are owned by for-profit entities and the largest number of hospitals — 20 — are in Florida. For the most part, researchers said, the hospitals with the highest markups are not in pricey neighborhoods or big cities, where the market might explain the higher prices. Topping the list is North Okaloosa Medical Center, a 110-bed facility in the Florida Panhandle about an hour outside of Pensacola. Uninsured patients are charged 12.6 times the actual cost of patient care. Community Health Systems operates 25 of the hospitals on the list. Hospital Corporation of America operates 14 others. “They are price-gouging because they can,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health, co-author of the study in Health Affairs. “They are marking up the prices because no one is telling them they can’t.”

Clinical Trial Transparency Effort Encounters Deafening Silence in US Launch; Agnotology or Anechoic Effect? -- AllTrials is a UK based organization that advocates for registration and public reporting of all clinical trials.  AllTrials explains the reasons for this simply:  Clinical trials are the best way we have of testing whether a medicine is safe and effective. They can involve thousands of people, patients and healthy volunteers, and take years to complete. Results from around half of all clinical trials remain hidden  Trials with negative results are twice as likely to remain unreported as those with positive results. This means that people who make decisions about medicines don’t have full information about the benefit and risks of treatments we use every day. Read our 8 page briefing note on missing trials here. Thousands of clinical trials have never been publicly registered. The contributions of hundreds of thousands of patients are unused and unusable Patients volunteer for clinical trials because they expect that what was found in the trial will be of use to doctors who make decisions about treatments and to researchers who are studying the condition. Trial participants have told us that the culture of secrecy around clinical trial reporting is a betrayal of their trust. Read their words here. AllTrials has garnered considerable support in the UK.  But now, AllTrials has come to America.  And it perhaps should not be a surprise that its advent on this side of the pond generated essentially no notice, particularly, no notice in the US mainstream media or in US scholarly health care and medical journals.  

Saturated fats in meat and dairy not as bad for health as previously thought, study finds - The saturated fats found in meat and dairy produce are not as bad for health as previously believed, a study has found. However, the scientists who conducted the research have warned against reaching for the butter dish. A major study into the health implications of dietary fats has failed to find a link between food containing saturated fats, such as eggs, chocolate and cream, and an increased risk of dying from heart disease, stroke or type-2 diabetes. The study nevertheless did find that industrially-produced “trans-fats” made from hydrogenated oils, and once used in margarine, snack foods and packaged baked foods such as some cakes and crisps, are linked with a greater risk of death from coronary heart disease. The latest findings, published in the British Medical Journal, appear to confirm the growing realisation that the prevailing health advice for the past half century to cut down on foods that are rich in saturated fats such as butter and cheese may have been misguided. The study, carried out in Canada by Russell de Souza of McMaster University in Hamilton, Ontario, and colleagues found no association between saturated fats and ill health, but did find a link with the consumption of foods containing trans-fats, such as margarine.

The Teflon Toxin: DuPont and the Chemistry of Deception - Called a “surfactant” because it reduces the surface tension of water, the slippery, stable compound was eventually used in hundreds of products, including Gore-Tex and other waterproof clothing; coatings for eye glasses and tennis rackets; stain-proof coatings for carpets and furniture; fire-fighting foam; fast food wrappers; microwave popcorn bags; bicycle lubricants; satellite components; ski wax; communications cables; and pizza boxes. Concerns about the safety of Teflon, C8, and other long-chain perfluorinated chemicals first came to wide public attention more than a decade ago, but the story of DuPont’s long involvement with C8 has never been fully told. Over the past 15 years, as lawyers have been waging an epic legal battle — culminating as the first of approximately 3,500 personal injury claims comes to trial in September — a long trail of documents has emerged that casts new light on C8, DuPont, and the fitful attempts of the Environmental Protection Agency to deal with a threat to public health. This story is based on many of those documents, which until they were entered into evidence for these trials had been hidden away in DuPont’s files. Among them are write-ups of experiments on rats, dogs, and rabbits showing that C8 was associated with a wide range of health problems that sometimes killed the lab animals. Many thousands of pages of expert testimony and depositions have been prepared by attorneys for the plaintiffs. And through the process of legal discovery they have uncovered hundreds of internal communications revealing that DuPont employees for many years suspected that C8 was harmful and yet continued to use it, putting the company’s workers and the people who lived near its plants at risk.

Infectious Diseases Like It Hot: How Climate Change Helps Cholera and Salmonella Outbreaks - Every year, about one million Americans and tens of millions of people worldwide suffer the debilitating effects of salmonella poisoning, episodes sometimes serious enough for hospitalization. Cholera, while rare in the United States, has been increasing steadily in other countries for the last decade, with up to 5 million cases annually, and poses a real threat after natural disasters. For the two bacteria that cause these gastrointestinal diseases, and possibly for other infectious agents like malaria, global warming presents a real opportunity. They like it hot.In recent years, atmospheric climate change has prompted a growing number of extreme weather events, including heat waves, prolonged drought, heavy precipitation, and superstorms, which, in turn, have encouraged shifts in the delicate balance of the planet’s ecosystems. These weather events, which already kill tens of thousands of people annually, also indirectly encourage the spread of infections when food and water become contaminated, a scenario that almost certainly will increase the prevalence of such infections as salmonella and cholera. Moreover, human migration and the loss of health infrastructure, as well as malnutrition caused by food insecurity, could make humans more susceptible to infections. All of these could exacerbate the spread of infectious diseases if global warming continues unabated.

IOC rules out viral testing of Rio's Olympic waters: (AP) — The International Olympic Committee ruled out conducting viral tests of Rio de Janeiro's sewage-laden waterways ahead of the 2016 games, a top official said Wednesday, despite an Associated Press study showing dangerously high levels of disease-causing viruses at all aquatic venues, with experts saying athletes are almost certain to be exposed to pathogens. Speaking at a news conference dominated by questions about Rio's sewage pollution problem, Olympic Games Executive Director Christophe Dubi said the IOC will be sticking to World Health Organization guidelines recommending only bacterial testing. The AP's independent analysis of water quality showed high levels of viruses and, in some cases, bacteria from human sewage in all of Rio's Olympic and Paralympic water venues, including the Rodrigo de Freitas Lagoon, where rowing will take place, the Guanabara Bay, where the sailing competition are to be held, and at Copacabana Beach where distance swimming events will take place. In two separate emailed statements following the AP's July 30 publication about its study, the World Health Organization said it was advising the International Olympic Committee "to widen the scientific base of indicators to include viruses." However, in an emailed statement Monday, the organization backpedaled and said that "WHO has not and will not issue an 'official recommendation' on viral testing."

Toxic blue-green algae pose increasing threat to nation's drinking, recreational water - A report concludes that blooms of toxic cyanobacteria, or blue-green algae, are a poorly monitored and underappreciated risk to recreational and drinking water quality in the United States, and may increasingly pose a global health threat. Several factors are contributing to the concern. Temperatures and carbon dioxide levels have risen, many rivers have been dammed worldwide, and wastewater nutrients or agricultural fertilizers in various situations can cause problems in rivers, lakes and reservoirs. No testing for cyanobacteria is mandated by state or federal drinking water regulators, according to scientists from Oregon State University, nor is reporting required of disease outbreaks associated with algal blooms. But changes in climate and land use, and even increasing toxicity of the bacteria themselves, may force greater attention to this issue in the future, the researchers said. An analysis outlining the broad scope of the problem has been published in Current Environmental Health Reports, by scientists from OSU and the University of North Carolina. The work was supported by the U.S. Geological Survey and the National Science Foundation. The researchers also noted that problems with these toxins reach their peak during the heat of summer - as they are doing right now.

New Tick Disease on the Rise: There’s a new tick disease that seems to be spreading throughout the northeastern states, and if it follows the path of Lyme disease, it may become prominent everywhere before long. Borrelia miyamotoi wasn’t even known before 2013, but the number of devastating infections borne by ticks seems to have no end. Researchers call the infection BMD for short, and it is critical to be aware of because almost all cases in a recent study were contracted in July and August, when Lyme disease isn’t as prevalent. That’s because BMD is carried by larval-stage ticks that have been infected by their mothers. Lyme is contracted by ticks at a later stage in life, often from contact with rodents and deer. Larval-stage ticks were not previously thought to carry diseases. BMD is also important to know about now because if you visit a physician after a tick bite and have severe headache and/or flu-like symptoms, a Lyme test won’t reveal the presence of the disease, which can be even more devastating left untreated than Lyme. Testing for BMD may not reveal its presence until it has been in your body for at least five days.A case series report was published online in June in the journal Annals of Internal Medicine. Patients were often very ill, with an acute headache, flu-like symptoms, rash, fever and chills. About a fourth of them ended up in hospitals. They often mimicked having a tick-borne disease called anaplasmosis. There is no specific test for BMD, but it can be detected using polymerase chain reaction techniques looking for the specific DNA of the disease.

Beekeepers try to keep bees — and livelihoods — from going extinct - Over the past decade, billions of bees have been lost to colony collapse disorder, an umbrella term for factors thought to be killing honeybees in droves and threatening the nation’s food supply. Amid the die-off, beekeepers have been going to extraordinary lengths to save both their bees and their livelihoods. That effort may finally be paying off. New data from the Agriculture Department show the number of managed honeybee colonies is on the rise, climbing to 2.7 million nationally in 2014, the highest in 20 years. Bees are still dying at unacceptable rates, especially in Florida, Oklahoma and several states bordering the Great Lakes, according to the Bee Informed Partnership, a research collaborative supported by the USDA. Last month, Ohio State University’s Honey Bee Update noted that losses among the state’s beekeepers over the past winter were as high as 80 percent. Oregon has taken less of a hit. Researchers say innovative beekeepers will be critical to helping bees bounce back. “People ask me, ‘The bees are going to be extinct soon?’ ” said Ramesh Sagili, principal investigator at the Oregon State University Honey Bee Lab. “I’m not worried about bees being extinct here. I’m worried about beekeepers being extinct.”

Scotland Bans the Growing of Genetically Modified Crops --In an effort to protect its “clean, green status,” Scotland will prohibit the growing of genetically modified (GM) crops. Rural Affairs Secretary Richard Lochhead (the country’s minister for the environment, food and rural affairs) said in a statement on Sunday that Scotland is taking advantage of new European Union rules that allow its member countries to opt out of growing EU-authorized GM crops, including GM-maize (corn) and six other GM crops that are awaiting authorization. “Scotland is known around the world for our beautiful natural environment—and banning growing genetically modified crops will protect and further enhance our clean, green status,” Lochhead said. “There is no evidence of significant demand for GM products by Scottish consumers and I am concerned that allowing GM crops to be grown in Scotland would damage our clean and green brand, thereby gambling with the future of our £14 billion food and drink sector.”  GM crops (also known as GMOs) are living organisms whose genetic material has been artificially altered in labs, making it resistant against pests, herbicides, pesticides and even browning in apples. Despite claims from manufacturers and many in the scientific community that these products are safe and would help feed the world’s growing population, the topic is fraught with contention due to environmental and health concerns.

How the Midwest’s Corn Farms Are Cooking the Planet -- I've been thinking a lot recently about how fertilizer from the Midwest's big corn farms seeps into streams and causes trouble—fouling water supplies in Columbus, Toledo, Des Moines, and 60 other towns in Iowa, and generating a Connecticut-sized dead zone at the heart of the continental United States' most productive fishery, the Gulf of Mexico.  But there's another way the Corn Belt's fertilizer habit damages a common resource: by releasing nitrous oxide (N2O), a greenhouse gas with nearly 300 times the heat-trapping power of carbon dioxide. Scientists had been undercounting nitrous oxide emission in the Corn Belt by about 25 gigagrams annually—the equivalent of about 1.6 million cars on the road. It turns out that the region's farms are likely generating much more nitrous oxide than scientists previously thought, according to a new peer-reviewed study by a team of researchers from the University of Minnesota, Yale, and the US Department of Agriculture. Scientists had assumed that most nitrous oxide emissions from farming occurred at the soil level—some of the nitrogen fertilizer applied onto farmland vaporizes into nitrous oxide. But as citizens of Des Moines, Columbus, and the Gulf coast know well, nitrogen fertilizer doesn't stay in soil; a portion of it leaches into streams. And some of that escaped nitrogen, too, transforms into nitrous oxide.To measure how much, the team, led by University of Minnesota researcher Pete Turner measured N2O emissions at 19 streams over a two-year period in ag-intensive southeastern Minnesota. They found that standard greenhouse gas emission measures, such as those used by the Intergovernmental Panel on Climate Change (IPCC), have been undercounting these "riverine" emission sources by a factor of nine; and overall N2O emissions from the area are underestimated by about 40 percent.

A Once-Flourishing Pima Cotton Industry Withers in an Arid California - Up and down the San Joaquin Valley, vast fields that once grew cotton lie fallow, remnants of a boom and bust fueled by a worldwide demand for premium T-shirts and linens.Farmers here have fallowed acres of Pima cotton by the thousands, threatening the region’s unlikely reign as the world’s biggest producer of the specialty cotton, also called Supima.Environmentalists say that farmers should never have bet so heavily on a thirsty cash crop in this dry swath of central California — particularly a crop used for luxury clothing, as opposed to food.  As recently as 2011, American farmers planted a near-record 306,000 acres of Pima cotton, almost all of that in the San Joaquin Valley, consuming an estimated 249 billion gallons of water. That’s enough to meet the average yearly water needs of about 1.9 million households. But now, with reservoirs nearly dry, farmers in California’s hardest-hit districts have no surface water to irrigate their crops. At the same time, cotton prices have slumped, hurt by a global glut. Farmers may harvest as little as 100,000 acres of Pima cotton in California this year, according to the latest forecasts.

In California, Millions of ‘Shade Balls’ Combat a Nagging Drought - Facing a long-term water crisis, officials concerned with preserving a reservoir in Los Angeles hatched a plan: They would combat four years of drought with 96 million plastic balls.On Monday, Mayor Eric Garcetti said that the dark balls would help block sunlight and UV rays that promote algae growth, which would help keep the city’s drinking water safe. Officials also said the balls would help slow the rate of evaporation, which drains the water supply of about 300 million gallons a year. The balls cost $0.36 each and are part of a $34.5 million initiative to protect the water supply. In a video posted on Monday to Facebook,, an official is heard saying, “2, 1 … Shade balls away!” A moment later, the remaining balls skitter down a slope, heading for the reservoir.The Los Angeles Reservoir, which holds 3.3 billion gallons, or enough water to supply the city for up to three weeks, joins three other reservoirs already covered in the shade balls, officials said. They are also being used in nearby areas. In the video below, officials from the Las Virgenes Municipal Water District released a batch of the balls into a reservoir in June.

Who’s Behind the 96 Million ‘Shade Balls’ That Just Rolled Into L.A.’s Reservoirs? --  The shade balls of Los Angeles are 4 inches in diameter, hollow, polyethylene orbs made by XavierC, of Glendora, Calif.; Artisan Screen Process, of Azuza, Calif.; and Orange Products, of Allentown, Penn. The Los Angeles Department of Water and Power has now dumped 96 million balls into local reservoirs to reduce evaporation and block sunlight from encouraging algae growth and toxic chemical reactions. The balls are coated with a chemical that blocks ultraviolet light and helps the spheres last as long as 25 years. Las Virgenes, north of L.A., now uses shade balls, too.These are not your average Chuck E. Cheese’s ball-pit numbers. They’re hermetically sealed, with water inside them as ballast, lest when the wind picks up “they’ll blow out, and you’ll be chasing them down the road,” says Sydney Chase, president of XavierC. You could drink the ballast—don’t want nonpotable water leaking into the reservoirs. Chase is a 30-year veteran of manufacturing who left a $300,000 job to start XavierC. She sold her house to raise the capital to seed the company. “Either I’m going to end up under an overpass, or this is going to take off,” she recalls thinking.  Chase calls her product “conservation balls,” because they can help keep reservoirs intact and clean. They’re also seeing use on the tailing ponds where miners store contaminated water, to keep birds away from toxic agents, and in wastewater treatment facilities, to keep odors at bay. They cost about 36¢ each to make. Chase declined to talk about XavierC’s financial performance.

California Farmers Fight Drought By Using More Water -- Perhaps you think the human condition could not be more absurd. If you think it could not be worse, I offer you the NPR story The Twisty Logic Of The Drought: Grow Thirsty Crops To Dig Deeper Wells. We've all heard reports about how California is running out of water, but there is water in California, tons of it deep underground in the Central Valley aquifer, the big underground pool that everyone shares. And there's a race on to get what's left. Mark Watte is a farmer in Tulare, Calif. We're driving across his 3,000 acres of beautiful cotton and black-eyed peas and corn. Watte is a very organized guy. There is a lot to do these days. Watte relies on the Central Valley aquifer to water his crops. And the water level in the aquifer is dropping 10 feet a week in some places. This is a pump that's - it should be producing water. It's not. Let's see if there's any water in it. Watte picks up a rock and tosses it down the pipe. Oh, was that - was there water? That was water, yeah. So there's water down there, but the pump that was here wouldn't reach that water anymore. We have to deepen it. Watte is putting in eight new wells - total cost - almost $2 million. He is locked in an expensive race in the Central Valley to see who can afford to drill deep enough to get to the precious water in the aquifer.  A lot of people have already lost this race, like Karen Hendrickson.  It's been a year.  Hendrickson lives in Porterville, Calif., 30 minutes west of Mark Watte's farms. People on the east side of town have no water. They rely on relief stations like this one in the parking lot of a church. It has portable showers and sinks and hands out bottles of drinking water.

How California Is Winning the Drought - FOR California, there hasn’t ever been a summer quite like the summer of 2015. The state and its 39 million residents are about to enter the fifth year of a drought. It has been the driest four-year period in California history — and the hottest, too.Yet by almost every measure except precipitation, California is doing fine. Not just fine: California is doing fabulously.In 2014, the state’s economy grew 27 percent faster than the country’s economy as a whole — the state has grown faster than the nation every year of the drought.California has won back every job lost in the Great Recession and set new employment records. In the past year, California created 462,000 jobs — nearly 9,000 a week. No other state came close.The drought has inspired no Dust Bowl-style exodus. California’s population has grown faster even as the drought has deepened.More than half the fruits and vegetables grown in the United States come from California farms, and last year, the third growing season of the drought, both farm employment and farm revenue increased slightly.Amid all the nervous news, the most important California drought story is the one we aren’t noticing. California is weathering the drought with remarkable resilience, because the state has been getting ready for this drought for the past 20 years.

California wildfire grows as crews work to protect communities - Reuters: A wildfire running rampant through drought-parched vegetation in northern California grew by several thousand acres overnight into Wednesday, as firefighters worked to stop the flames from spreading toward communities. The so-called Jerusalem Fire, which was sparked on Sunday, has grown to cover 16,500 acres (6,677 hectares) of dry and rural ranch land north of Napa Valley wine country and is only 6 percent contained, the California Department of Forestry and Fire Protection said. The fire has displaced about 150 people and threatens at least 50 more houses and ranches, department spokesman Steve Swindle said. He said that while the burn area is sparsely populated, firefighters were working to keep flames from spreading south and threatening the communities around Lake Berryessa. Overnight, firefighters merged part of the fire's northeastern edge with a southwestern stretch of a behemoth 69,636-acre (28,180 hectare) blaze nearby known as the Rocky Fire, as a way of burning through combustible vegetation, Swindle said. "There is a lot of unburned fuel between those two fires," he said. Letting the vegetation burn through between the two fires will create a safe zone, Swindle said.

As California’s Wildfires Continue To Grow, Inmates Take On Much Of The Work - Northern California is burning: the Rocky Fire has charred nearly 70,000 acres west of Clearlake, while the Jerusalem Fire has grown to more than 14,000 acres, forcing the evacuation of 150 homes near Napa. The two fires are emblematic of a season that has been marked by a seemingly endless succession of fires, stoked by an unprecedented drought that has turned the California countryside into a tinder box of dry and dying vegetation. But the fires are also emblematic of something else: the state’s dependence on inmates to help battle wildfires wherever they occur. Since the 1940s, California has depended on the cheap labor of volunteer inmates to help control wildfires — it boasts the largest inmate firefighting program in the country, with around 4,000 inmate firefighters. But just as climate change is threatening longer, more extreme fire seasons, the state is looking at ways to cut back its unconstitutionally overcrowded prison populations. That leaves state officials in a peculiar position — will prison reforms drain the state of its cheap fire fighting labor, just when climate change means it’ll need it most? Fire protection in California is hugely dependent on the inmate firefighter program, run jointly by the California Department of Corrections and Rehabilitation (CDCR) and the California Department of Forestry and Fire Protection (Cal Fire). In total, the state has about 10,000 firefighters on the ground combating wildfire — which means that almost half of the firefighters in California are inmate firefighters. Unlike civilian volunteer firefighters with Cal Fire, who make minimum wage for their work ($9 an hour in California), inmates are paid $1 an hour when they are on the lines fighting fires. When they’re not actually battling fires, but are working in camp or training, the prisoners make anywhere from $1.45 to $3.90 a day. That’s paltry pay by civilian standards, but Cessa told ThinkProgress that “it’s good money for prison standards.”

Drought Draws Natural Disaster Declaration From Feds --  Drought across the region prompted the U.S. Department of Agriculture to designate counties in Idaho, eastern Washington and Oregon, and even parts of Montana, as natural disaster areas. In a release, U.S. Secretary of Agriculture Tom Vilsack said he and President Obama want to ensure that “agriculture remains a bright spot in the nation’s economy” despite the drought. The natural disaster declaration gives farmers and ranchers access to low interest emergency loans. The payments will help cover agricultural losses associated with the drought. Farmers and rancher have eight months to apply for the program. In February, similar drought declarations were made in four of Oregon’s southernmost counties along with most of California.

In Puerto Rico, Water Has Been Cut Off - When it comes to droughts in the U.S., California makes all the news. But the territory right now where the drought is worse—and where the people are suffering most—is Puerto Rico. I know, because I’m on a 4-day working vacation in the capital city of San Juan, and have witnessed the subsequent water shortages and cutoffs. The island’s rain deficits have occurred since 2013, but got really bad starting in March, when El Nino’s currents produced a mild hurricane season.  This has continued throughout the summer, with San Juan receiving only 4 centimeters of rain during July, normally a wet month, and the Carraizo reservoir receiving 20 inches less than is normal for this time of year. As a result, over half of Puerto Rico is suffering severe drought, and the drought for over a quarter of this territory is extreme. The government, with its $73 billion debt and recent bond default, has made the problem of drying rivers, lakes, and reservoirs worse through neglect. The inadequate water capacity results from not dredging existing reservoirs or building new dams, and from aging infrastructure that leaks water. As a result, Boricuas are suffering, with over 400,000 people going several months without regular water. Residents have been told not to make frivolous use of water—such as for car washing, personal pools, or sidewalk cleaning—and oftentimes they can’t use it for basic necessities like showers and flushing toilets. This overwhelmingly includes those in the San Juan metropolitan area, where the drought has been the worst.

El Niño May Bring Record Heat, and Rain for California - This year’s El Niño weather pattern could be the most powerful on record, federal forecasters said, while warning that the effects of the weather system are never certain. “We’re predicting this El Niño could be among the strongest El Niños in the historical record,” said Mike Halpert, the deputy director of the Climate Prediction Center for the National Oceanic and Atmospheric Administration, in a teleconference with reporters. This year’s El Niño is already the second strongest for this time of year in more than 60 years of record-keeping, he said. El Niño, which begins with warmer-than-usual water temperatures in the Eastern Pacific, can affect weather around the world — in the United States, it can bring heavy winter precipitation in California and across the South. El Niño events have also been linked to droughts in Australia and India, more numerous hurricanes in the Pacific Ocean (but fewer in the Atlantic), and a warmer planet over all.  The current El Niño, along with unusual warming in the Northern Pacific, will produce what is “very likely to be the warmest year on record,” Daniel Swain, a Ph.D. candidate at Stanford who runs the respected California Weather Blog, said in an interview. The federal forecasters announced a greater than 90 percent chance that El Niño would continue all winter for the Northern Hemisphere. The likelihood that the effects will last into early spring is 85 percent, up from last month’s prediction of 80 percent.

How This El Niño Is And Isn’t Like 1997 -- It was the winter of 1997-1998 when the granddaddy of El Niños — the one by which all other El Niños are judged — vaulted the climate term to household name status. Basically, it was the “polar vortex” of the late ‘90s. So it’s no wonder that it is the touchstone event that people think of when they hear that name. And naturally, as the current El Niño event has gained steam, the comparisons to 1997 have been increasingly bandied about. The most recent came this week in the form of an image from the National Oceanic and Atmospheric Administration that compares satellite shots of warm Pacific Ocean waters — a hallmark of El Niño — from this June to November 1997, when that El Niño hit its peak. On the one hand, the two are comparable given that 1997 was the strongest El Niño on record and, at the moment, the best science indicates that the current event could match or rival that one — at least in terms of ocean temperatures. But on the other hand, each El Niño event is its own beast, the product of conditions in the ocean and atmosphere, of climate and weather that are unique in that particular place and time. In the, albeit very short, modern record of El Niños, “we cannot find a single El Niño event that tracked like another El Niño event,” Michelle L’Heureux, a forecaster with NOAA’s Climate Prediction Center, said. Forecasters like L’Heureux cringe at comparisons because there’s no guarantee the impacts of one El Niño will be just like that of a previous one, even if they look broadly similar. And it’s those impacts — like potential rains in drought-stricken California — that most really care about. El Niño isa shift in the background state of the climate brought about by the sloshing of warm ocean water from its normal home in the western tropical Pacific over to the east. That redistribution affects how and where ocean heat is emitted into the atmosphere, which can alter the normal patterns of winds and stormy weather in the region.

A Powerful El Niño in 2015 Threatens a Massive Coral Reef Die-off - Key Points:

  • A powerful El Niño event continues to strengthen in the Pacific Ocean. During El Niño the poleward transport of warm surface water out of the tropics slows down dramatically and generally results in anomalous short-term heating of the tropical ocean - home to the world's coral reefs).
  • Because of the long-term warming of the oceans by industrial emission of greenhouse gases, the temporary surge in tropical sea surface temperatures associated with El Niño now threatens large-scale coral bleaching episodes - times when the maximum summer water temperatures become so warm that coral die in large numbers.
  • The powerful El Niño now forming, combined with the ongoing ocean warming, suggests that we are likely to see a mass coral bleaching episode that approaches, or exceeds, the worldwide bleaching that came with the Super El Niño years of 1982/1983 and 1997/1998. The 1997/1998 Super El Niño saw 16% of the world's coral bleach, the largest die-off ever observed, and some of this coral has never recovered.

Panama Canal to limit ship draft due to drought - BBC News: The Panama Canal Authority says it will temporarily cut the draft of ships allowed through because of drought caused by El Nino. From 8 September, the maximum draft - or depth in the water - will be cut to 39ft (11.89m), which may affect up to 20% of traffic. A similar restriction was imposed for the same reason in 1998. The authorities say a further cut could be imposed on 16 September if the situation does not improve. The authority has taken the action because water levels in the Gatun and Alhajuela lakes has reduced as a result of the El Nino weather phenomenon. The current draft limit is 39.5ft, which will be cut to 39ft on 8 September and then potentially to 38.5ft on 16 September. Shipping companies had been warned the cuts could be coming.

Australians Survived a 13-Year Drought by Going Low-Tech - If you think California’s four-year drought is apocalyptic, try 13 years. That’s how long southeastern Australia suffered through bone-dry times. But it survived. When the so-called Millennium Drought ended in 2009, residents of Melbourne, Australia’s second-largest city, were using half the amount of water they had when it began. A group of researchers from the University of California, Irvine, set out to investigate how Melbourne, a city of 4.3 million people, dramatically cut water consumption, and whether the city’s experience might hold lessons for California and other drought-stricken regions. The short answer? Salvation came from a $2,000 rainwater tank rather than a $6 billion desalinization plant. As the Millennium Drought dragged on, authorities approved the construction of costly infrastructure projects similar to those now being considered in California, including that expensive desalinization plant. But the researchers found that conservation and recycling were the keys that got Melbourne through year after rainless year.

Texas power demand breaks record again in heat wave | Reuters: The Texas power grid operator said electric demand hit another record high on Monday as consumers cranked up their air conditioners to escape a brutal heat wave. Demand reached a record 69,783 megawatts on Monday, topping the previous records of 68,912 MW set on Aug. 6 and 68,459 MW on Aug. 5, the Electric Reliability Council of Texas (ERCOT) said in a statement. ERCOT is the grid operator for most of the state. Before the latest heat wave, the grid's previous peak demand was 68,305 MW set on Aug. 3, 2011. One MW is enough to power about 200 homes during periods of peak demand. "Demand is expected to remain high until temperatures begin to break at the end of the week," said Dan Woodfin, ERCOT director of System Operations. Temperatures in Houston, the biggest city in Texas, have topped 100 degrees Fahrenheit (38 Celsius) since Sunday and were expected to remain at or around triple digits Fahrenheit through Saturday, Aug. 15, according to weather forecaster "Our focus continues to be on ensuring we maintain overall reliability and protect the grid, while having sufficient generation in place to meet demand," he said.

Central and eastern Europe simmering in historic heat wave --Central and eastern Europe are in the grips of a record-breaking heat wave, that may persist for at least another week to ten days. A number of locations in Germany set all-time highs last Friday and more records are likely to fall over the coming days, particularly in eastern Europe. The heat wave commenced late last week. On Friday, Weather Underground meteorologist Bob Henson reported Berlin was among more than 100 towns and cities in Germany that tied or broke all-time record highs. Berlin hit 102 degrees (38.9 Celsius) breaking its previous hottest temperature of 101.5 degrees (38.6 Celsius). On Saturday the core of the heat shifted east into Poland, where Warsaw registered its hottest August temperature ever recorded of 97.9 degrees, passing the previous record of 97.5 degrees (36.4 Celsius), AccuWeather reported. Through today, Warsaw has reached at least 90 degrees (32 Celsius) on seven straight days, AccuWeather said. A massive heat dome or upper level ridge of high pressure – which is more or less stationary over central and eastern Europe – is responsible for the spell of scorching heat. Its intensity may wane some during the middle of the week before reloading next weekend. (see graphics)

Deadly Heat Waves Sweep the Globe  --This summer is undoubtedly one for the record books. Brutal heat has literally melted roads, ignited forest fires and affected millions around the planet. Extreme weather has scorched the Middle East, Asia, Europe and the U.S, as weather experts predict that this year will surpass last year as the hottest in recorded history. Death tolls are currently climbing in Egypt as temperatures soar to 114 degrees Fahrenheit. The Associated Press reported that more than 60 people—mostly elderly—have died from the heat and high humidity. An additional 581 people have been hospitalized for heat exhaustion.  Earlier this week, Iran hit a sweltering 164 degrees—just a few degrees shy of the highest ever record heat index. Pakistan’s devastating heat wave in June killed 1,233 and hospitalized more than 1,900 due to dehydration, heat stroke and other heat-related illnesses. In neighboring India, 2,500 people succumbed to heat a month earlier. Japan is experiencing heat-related deaths in 29 out of its 47 prefectures, with Tokyo currently experiencing an “unprecedented” streak of temperatures over 95 degrees, according to Elsewhere in Asia, Chinese weather authorities have issued heat wave alerts as some parts of the country experienced temperatures in the triple digits. “This July 2015 was the warmest July on record for Spain, Italy, Switzerland and Austria,” Dr. Jeff Masters, Weather Underground’s director of meteorology, told the website.Eastern Europe is also seeing temperatures up to the mid-90s, when highs around 75 are more common this time of year, AccuWeather wrote. And Poland is also experiencing the mass extinction of one very unsuspecting victim: IKEA meatballs. Although summer is coming to an end, many parts of the U.S. will still be baking in the sun’s rays. Some Los Angelenos, for instance, will feel temperatures in the 100s this week, the Los Angeles Times reported, about 10 degrees above average for this time of year.

Hottest July On Record Keeps 2015 On Track To Crush 2014 For Hottest Year --NASA reports this was the hottest July on record. So we are now in “bet the mortgage” territory that 2015 will be the hottest year in NASA’s 125-year temperature record.  In fact, 2015 is likely to crush the previous record — 2014 — probably by a wide margin, especially since one of the strongest El Niños in 50 years is adding to the strong underlying global warming trend.  Climate expert Dr. John Abraham updated this NASA chart to show how the first seven months of 2015 compares to the annual temperatures of previous years:  The gap between 2015 and all other years in that chart will grow since NOAA and many others project the current El Niño will keep growing stronger for many months. The soaring ocean temperatures in the central and eastern equatorial Pacific, which are characteristic of an El Niño, just keep climbing. As the journal Nature reports, this El Niño “could be [the] strongest on record.” It is projected to peak in the winter and last into the spring of 2016.  If the 2015-2016 El Niño does rival the 1997-1998 super El Niño, then just as 1998 crushed 1997 temperatures, we may see 2016 beat all the records set in 2015.

2015 global temperatures are right in line with climate model predictions - In an earlier post, I wrote about some research that compared ocean temperature measurements to climate model predictions. It turns out, the models have done a great job estimating the increase in ocean heat although they have slightly under-predicted the change. What about other components of the Earth’s climate? For instance, how have the models done at predicting the changes in air temperatures? With recent data now available, we can make an assessment. I communicated with NASA GISS director Dr. Gavin Schmidt, who provided the following data. The graph shows the latest computer model simulations (from the CMIP project), which were used as input to the IPCC, along with five different temperature datasets. The comparison to be made is of the heavy dashed line (annotated in the graph just below the solid black line) and the colored lines. The heavy dashed line is the average predicted temperature including updated influences from a decrease in solar energy, human emitted heat-reflecting particles, and volcanic effects. The dashed line is slightly above the colored markers in recent years, but the results are quite close. Furthermore, this year’s temperature to date is running hotter than 2014. To date, 2015 is almost exactly at the predicted mean value from the models. Importantly, the measured temperatures are well within the spread of the model predictions.

Extreme Heat Leads To Deaths, Protests In The Middle East  -- At least 21 people have died and 66 more have been hospitalized as a major heat wave engulfs Egypt and much of the rest of the Middle East.  High humidity levels and temperatures as high as 116.6°F made conditions deadly for Egyptians in Cairo, Marsa Matruh province, and Qena province. All of those who died were over 60, according to Al Jazeera — an age group that’s among the most vulnerable to heat waves.  “There is a big rise in temperature compared with previous years. But the problem is the humidity which is affecting people more,” health ministry spokesman Hossam Abdel Ghaffar told Al Jazeera. “Long exposure under the sun is a killer.” Egypt isn’t the only country suffering from extreme heat in recent weeks. Last month, higher than average temperatures also hit Turkey, and 100 people who tried to escape the heat by swimming in pools and lakes ended up drowning.  In Basra, Iraq, temperatures this week are supposed to stay steady around 123°F, the Guardian reports. Temperatures in the country are so high that on Thursday, the Iraqi government implemented a four-day holiday so that residents wouldn’t have to go to work in the heat. Last week, Iraqi citizens protested power outages that have made dealing with the extreme heat more difficult — in some regions, the BBC reports, it’s common to only have power for a few hours each day.  “All of the people we spoke to here say they want to see an end to rampant corruption, they want the return of basic services, they want electricity, they want to have air conditioning at a time when Iraq is experiencing a blazingly hot record heatwave and they want to have clean water,”

Why More Conflict Is Inevitable In The Middle East - We all know how sectarian, religious and political differences have thrown many Middle Eastern countries into chaos and armed conflict. But there is a deeper factor at play which deserves greater recognition: severe water scarcity. This scarcity will not be addressed overnight, no matter who ends up prevailing in those conflicts. As such, the region will very likely continue to suffer from significant turmoil for many years to come. Using satellite data, scientists from the University of California (Irvine), NASA and the National Center for Atmospheric Research found that large parts of the arid Middle East region saw a dramatic loss of freshwater reserves over a seven-year period starting in 2003. This is shown in the following map:  Parts of Turkey, Syria, Iraq and Iran along the Tigris and Euphrates river basins lost some 144 cubic kilometers of total stored freshwater – almost the total amount of water in the Dead Sea. The scientists attributed the majority of this loss to pumping from underground reservoirs. Indeed, Syria and Iraq are facing severe water availability issues, compounded by the fact that the majority of their renewable water resources comes from other countries. As such, the Euphrates River – which has sustained Mesopotamian civilization from its very start – is critically important for them. However, rampant demand, wasteful government policies, intensive agriculture, pesticides and industrial use have all substantially reduced both the quality and the quantity of water available. According to a Chatham House study, this overexploitation has curtailed the flow of the Euphrates from Turkey to downstream countries by at least 40% since 1972.

Study Links Polluted Air in China to 1.6 Million Deaths a Year - Outdoor air pollution contributes to the deaths of an estimated 1.6 million people in China every year, or about 4,400 people a day, according to a newly released scientific paper.The paper maps the geographic sources of China’s toxic air and concludes that much of the smog that routinely shrouds Beijing comes from emissions in a distant industrial zone, a finding that may complicate the government’s efforts to clean up the capital city’s air in time for the 2022 Winter Olympics.The authors are members of Berkeley Earth, a research organization based in Berkeley, Calif., that uses statistical techniques to analyze environmental issues. The paper has been accepted for publication in the peer-reviewed scientific journal PLOS One, according to the organization. According to the data presented in the paper, about three-eighths of the Chinese population breathe air that would be rated “unhealthy” by United States standards. The most dangerous of the pollutants studied were fine airborne particles less than 2.5 microns in diameter, which can find their way deep into human lungs, be absorbed into the bloodstream and cause a host of health problems, including asthma, strokes, lung cancer and heart attacks.The organization is well known for a study that reviewed the concerns of people who reject established climate science and found that the rise in global average temperatures has been caused “almost entirely” by human activity.

Yes, Mr. President, We Remade Our Atlas to Reflect Shrinking Ice - Unveiling his most aggressive plan yet to combat climate change, President Obama on Monday referenced recent dramatic changes that National Geographic made to its atlas because of melting sea ice."Shrinking ice caps forced National Geographic to make the biggest change in its atlas since the Soviet Union broke apart," Obama said during a speech at the White House. (Watch a video of his speech.) He's right. The shrinking of the Arctic ice sheet in the 10th edition of the National Geographic Atlas of the World is one of the most striking changes in the publication's history. After the publication of the atlas in September 2014, the ice has melted even further, notes National Geographic Geographer Juan José Valdés. "The end of Arctic summer is still several weeks away, and it's still too early to say if another record will be broken. But one need only look at the maps derived from satellite imagery to see the impact of global warming," he says.

By 2100, Earth Will Have an Entirely Different Ocean - The ocean is in the midst of a radical, manmade change. It can seem kind of crazy that one of the most immense properties on Earth—the ocean washes over 71 percent of the planet—could be completely transformed by a swarm of comparatively tiny, fleshy mammals. But humans are indeed remaking the ocean, in almost every conceivable way. The ocean we know today—that billions swim, fish, float, and surf in—that vast planetary body of water will be of an entirely different character by the end of the century. While it’s changing in different ways and to different degrees in different places, it’s a single, huge, interconnected system. Trash dumped in Oregon can end up in the great Pacific Garbage Patch. Pollution from China drifts overseas into North America. All of our carbon emissions end up partially absorbed by oceans everywhere—your actions in Sheboygan, USA have affected, in some minute way, the future of the seas in Bangladesh. That’s the thing about climate change.  It’s not just that the ocean absorbing more heat than at any point over the last 10,000 years, and that its levels rising. It’s also becoming more acidic. Its very chemical composition is changing. Ecosystems will be reordered, currents altered. To the billions who live closest to it, it will be more hostile. Coastal flooding will threaten cities, Arctic passageways will open new trade routes, and fishermen who depend on the seas will scramble keep up with the shifting aquatic biomes., “the oceans will look something out of a post-apocalyptic Hollywood flick. We are talking about the depletion of fish populations by overfishing, the massive die-off of much other sea life due to water pollution and ocean acidification, the destruction of coral reefs by the twin impacts of ocean acidification and bleaching by increasingly warm ocean waters.”

How to make sense of ‘alarming’ sea level forecasts -- You may have read recent reports about huge changes in sea level, inspired by new research from James Hansen, NASA’s former Chief Climate Scientist, at Columbia University. Sea level rise represents one of the most worrying aspects of global warming, potentially displacing millions of people along coasts, low river valleys, deltas and islands. The Intergovernmental Panel on Climate Change, the UN’s scientific climate body, forecasts rises of approximately 40 to 60 cm by 2100. But other studies have found much greater rises are likely.  Hansen and 16 co-authors found that with warming of 2C sea levels could rise by several metres. Hansen’s study was published in the open-access journal Atmospheric Chemistry and Physics Discussion, and has not as yet been peer-reviewed. It received much media coverage for its “alarmist” findings. So how should we make sense of these dire forecasts? According the to the IPCC sea level rise has accelerated from 0.05 cm each year during 1700-1900 to 0.32 cm each year during 1993-2010. Over the next century the IPCC expects an average rise of 0.2 to 0.8 cm each year. The collapse of the West Antarctic ice sheet would add several tens of centimetres to the total.  The IPCC report adds that “it is very likely that there will be a significant increase in the occurrence of future sea level extremes” and “it is virtually certain that global mean sea level rise will continue for many centuries beyond 2100, with the amount of rise dependent on future emissions”. The IPCC estimates stand in sharp contrast to projections made by some climate scientists, in particular James Hansen who pointed out in 2007 and in his and his colleagues' latest study of the effects of ocean warming on the ice sheets. The IPCC reports did not take into account rates of dynamic ice sheet breakdown, despite satellite gravity measurements reported in the peer-reviewed literature by other scientists. In Greenland, ice loss reached around 280 gigatonnes of ice each year during 2003-2013, whereas in Antarctica the loss reached around 180 gigatonnes of ice each year during the same period. Both ice sheets appear to be undrgoing accelerated rates of ice melt, as shown in the diagrams.

The reality of global warming: We’re all frogs in a pot of slowly boiling water: In 2009, global leaders agreed to try not to let the world warm more than 2 degrees Celsius above pre-industrial times. This is sometimes seen as a rule of thumb for keeping on the right side of climate change, within “safe” territory. But that’s not at all how scientists meant it, Professor Camille Parmesan, an expert in biodiversity at the University of Plymouth in the United Kingdom said. Climate risks don’t begin at 2C, she said; it’s more like where they go from high to intolerably high. The planet has already warmed by about 0.8C (1.7 Fahrenheit) since the late-19th century. Some of the world’s most iconic places are also the most vulnerable, and they are already feeling the effects. “We’re already seeing contraction of species in the most sensitive ecosystems, such as those dependent on sea ice or those living on mountain tops,” she said. “We’re also seeing declines in some tropical systems, such as coral reefs, and the valuable services they provide for fish nurseries, tourism and protection from coastal flooding.” And that’s just the beginning. “At more than 2C, we wouldn’t just face losing the most sensitive species but some common ones, too,” Parmesan said. “So it wouldn’t just be the polar bear and the Mountain Pika, but other species living in lowland and temperate habitats that aren’t necessarily at risk right now. ”But against this backdrop, the world’s carbon emissions have continued to rise and the task of staying below 2C looms ever larger. Global leaders will meet again in Paris in December to agree on a plan for how to get ourselves on a pathway to achieving 2C in the long term. But suppose that doesn’t happen. Climate models tell us that if carbon emissions stay very high, global temperatures could reach 4C above pre-industrial temperatures by the end of the century, perhaps even rising to 5C. And unless emissions cease altogether after that, temperatures will continue to rise long past the end of the century. And that would mean a world unlike anything we as humans have ever known.

Fifteen states push to block new EPA carbon emission rules: Fifteen state attorneys general petitioned a federal court in Washington on Thursday to block new U.S. rules to curb carbon emissions from power plants, in the first of several expected legal challenges to the Obama administration measure. States that oppose the Environmental Protection Agency’s Clean Power Plan filed for the stay in the U.S. Court of Appeals for the D.C. Circuit. The states asked for a ruling by Sept. 8, one year before they need to submit compliance plans to the EPA.“This rule is the most far-reaching energy regulation in the nation’s history, and the EPA simply does not have the legal authority to carry it out,” West Virginia Attorney General Patrick Morrisey said. The Obama administration unveiled the final version of the Clean Power Plan on Aug. 3. It aims to lower emissions from the country’s power plants by 32 percent below 2005 levels by 2030. President Barack Obama called the rule the biggest action the United States had taken to date to address climate change. Under the proposal, each state needs to submit a plan to the EPA detailing how it intends to meet the target the agency set for it. States, particularly those that have relied on coal for electricity, have argued the EPA has overstepped its regulatory authority.

What Is The Real Price Of Obama's CO2 Plans? - On August 3rd President Obama made a speech* detailing his plans to decarbonize the US electrical power generation sector. While the legality of this move has been challenged in certain quarters, in this post I want to focus on the technical details and competence of the President and his advisors at the Environmental Protection Agency (EPA). Let me begin by focusing on what the main target is:to reduce carbon dioxide emissions by 32 percent from 2005 levels by 2030…So what does a 32% reduction in CO2 emissions mean in practical terms for US power generation and CO2 emissions? A good starting point is to look at the electricity generation mix and how it has changed since 2005 (Figure 1).  The key observations are as follows:

1) Electricity generation (i.e. electricity consumption) has been flat since 2005.
2) Fossil fuel based generation, coal + natural gas, has been flat to falling slowly3) Coal fired generation has declined to be replaced by natural gas4) Hydro and nuclear combined make up 26% and have been flat since 20055) Other renewables (wind, solar, biomass etc) have increased from 2 to 7% since 2005

Figures 2 and 3 show how the generation mix has evolved from 2005 to 2014: Put simply, the key trend is substitution of coal by natural gas and other renewables. The CO2 intensity of coal is 2.13 pounds of CO2 per KWh and natural gas 1.21 pounds of CO2 per KWh (data from DOE-EIA). Hence the substitution of coal by natural gas reduces CO2 emissions quite significantly. DOE-EIA has already documented this achievement, which is founded on the fracking revolution and the ‘drill baby drill’ mantra (Figure 4). The DOE-EIA report (Figure 4) reiterates my key observations above but puts some hard numbers on them:

2005 electric power emissions = 2417 million tons (Mt)
2005-2013 lower demand = 402 Mt reduction (16.6% reduction)2005-2013 substitution of coal with gas = 212 Mt reduction (8.8% reduction)2005-2013 addition of low carbon sources i.e. other renewables = 150 Mt reduction (6.2% reduction)

Thus the reductions already achieved = 31.6%. Job already done?!

Two degree climate target not possible without 'negative emissions', scientists warn -- All of our options for keeping warming below 2C above pre-industrial temperatures now involve capturing carbon dioxide and storing it underground - a technology that doesn't yet exist on a large scale, according to new research.The study , published today in Nature Communications, argues that 'negative emissions' alone, in the absence of conventional mitigation, are unlikely to achieve the 2C goal. And in all but the most optimistic cases, staying below 2C requires capturing and storing carbon in amounts that exceed the capabilities of current technology, say the researchers. For any given temperature target, there is a finite amount of carbon that can be burned before the chances of staying below that target become minimal. This is known as a carbon budget. In its latest report, the Intergovernmental Panel on Climate Change (IPCC) said that to have a reasonable chance of staying below 2C, total emissions from all human activity must not exceed 1,000bn tonnes of carbon (or gigatonnes of carbon, GtC).The world is currently not on course to meet this target and there are two options for how to get ourselves back on track, says today's paper.The first is to produce fewer emissions, which means burning fewer fossil fuels. This is what's commonly referred to as conventional mitigation.The other is to capture fossil fuel emissions before they enter the atmosphere, or to suck them directly out of the air - a technique known as carbon dioxide removal. A third possibility sometimes proposed is to artificially engineering parts of the climate system, such as the oceans, to take up more carbon. Collectively, the new paper calls these "negative emissions" technologies.

Stop burning fossil fuels now: there is no CO2 'technofix', scientists warn  -- German researchers have demonstrated once again that the best way to limit climate change is to stop burning fossil fuels now. In a “thought experiment” they tried another option: the future dramatic removal of huge volumes of carbon dioxide from the atmosphere. This would, they concluded, return the atmosphere to the greenhouse gas concentrations that existed for most of human history – but it wouldn’t save the oceans. That is, the oceans would stay warmer, and more acidic, for thousands of years, and the consequences for marine life could be catastrophic. The research, published in Nature Climate Change today delivers yet another demonstration that there is so far no feasible “technofix” that would allow humans to go on mining and drilling for coal, oil and gas (known as the “business as usual” scenario), and then geoengineer a solution when climate change becomes calamitous. Sabine Mathesius and colleagues decided to model what could be done with an as-yet-unproven technology called carbon dioxide removal. One example would be to grow huge numbers of trees, burn them, trap the carbon dioxide, compress it and bury it somewhere. They calculated that it might plausibly be possible to remove carbon dioxide from the atmosphere at the rate of 90bn tons a year. This is twice what is spilled into the air from factory chimneys and motor exhausts right now. The scientists hypothesised a world that went on burning fossil fuels at an accelerating rate – and then adopted an as-yet-unproven high technology carbon dioxide removal technique. “Interestingly, it turns out that after ‘business as usual’ until 2150, even taking such enormous amounts of CO2 from the atmosphere wouldn’t help the deep ocean that much - after the acidified water has been transported by large-scale ocean circulation to great depths, it is out of reach for many centuries, no matter how much CO2 is removed from the atmosphere,”

21 Youths File Landmark Climate Lawsuit Against Federal Government  -- On International Youth Day yesterday, 21 young people from across the U.S. filed a landmark constitutional climate change lawsuit against the federal government in the U.S. District Court for the District of Oregon. Also acting as a plaintiff is world-renowned climate scientist Dr. James E. Hansen, serving as guardian for future generations, Hansen’s granddaughter and Earth Guardians, representing young citizen beneficiaries of the public trust. The complaint asserts that, in causing climate change, the federal government has violated the youngest generation’s constitutional rights to life, liberty, property and has failed to protect essential public trust resources. The complaint alleges the federal government is violating the youth’s constitutional rights by promoting the development and use of fossil fuels. The federal government has known for decades that fossil fuels are destroying the climate system. No less important than in the civil rights cases, plaintiffs seek a court order requiring the President to immediately implement a national plan to decrease atmospheric concentrations of carbon dioxide to a safe level: 350 ppm by the year 2100.  In describing the case, one of the teenage plaintiffs and Youth Director of Earth Guardians, Xiuhtezcatl Tonatiuh Martinez, stated: “The federal government has known for decades that CO2 pollution from burning fossil fuels was causing global warming and dangerous climate change. It also knew that continuing to burn fossil fuels would destabilize our climate system, significantly harming my generation and generations to come. Despite knowing these dangers, defendants did nothing to prevent this harm. In fact, my government increased the concentration of CO2 in the atmosphere to levels it knew were unsafe.”

Muslim Leaders Insist They Have A Religious Duty To Act On Climate Change -- Prominent Muslim leaders are putting the final touches on a new statement on climate change, hoping to issue a sweeping call to protect the planet and insist that followers of Islam have a religious duty to help the environment. The declaration is set to be unveiled at the end of a two-day climate change-themed symposium being held next week in Istanbul, Turkey. Participants include Islamic scholars, policy makers, academics, and Muslim activists as well as representatives from the United Nations — all organized by Islamic Relief Worldwide, the Islamic Forum for Ecology and Environmental Sciences, and GreenFaith. “Islam teaches us: ‘Man is simply a steward holding whatever is on Earth in trust,’” said Sheikh Shaban Ramadhan Mubaje, Uganda’s grand mufti, according to email about the conference from the Climate Action Network (CAN). “Therefore man should ensure that we do everything possible to protect for this and future generations in order to leave this world a better place than we found it.” The final document, scheduled for release next Tuesday, will ask leaders at madrasas and mosques to articulate the Islamic impetus for helping curb the effects of global warming. It will also challenge wealthy countries to “drastically reduce their greenhouse gas emissions as well as to support vulnerable communities, both in addressing the impacts of climate change and in harnessing renewable energy,” according to an email from CAN.

World population likely to surpass 11 billion by end of century --Today at the 2015 Joint Statistical Meetings in Seattle, John R. Wilmoth, director of the United Nations Population Division of the Department of Economic and Social Affairs, had a startling report to present to a session on demographic forecasting: The world's population will increase from the 7.3 billion people of today to 9.7 billion in 2050 and 11.2 billion by 2100. Population growth will persist unless there are unprecedented fertility declines in the areas of sub-Saharan Africa that are still undergoing rapid population growth. Though population projections can never be exact, the report estimates with 95 percent confidence that the total will be somewhere between 9.5 billion and 13.3 billion by 2100. The UN put the probability that world population growth will end within this century at 23 percent. These staggering numbers have important policy implications for national governments. Resource scarcity and pollution; maternal and child mortality; unemployment, low wages and poverty; lagging investments in health, education and infrastructure; political unrest and crime, noted Wilmoth, will all need to be considered. The primary driver of global population growth is a projected increase in the population of Africa. The continent's current population of 1.2 billion people is expected to rise to between 3.4 billion and 5.6 billion people by the end of the century. The continent's population growth is due to persistent high levels of fertility and the recent slowdown in the rate of fertility decline, notes a statement on the report.

The end of the Malthusian nightmare - For the past 200 years the global population has risen explosively. There were 1bn humans in 1850. There are 7.3bn today. Ever since the Industrial Revolution, humanity has lived in quiet dread that somewhere there is a limit, and the Malthusian horsemen of plague, starvation and war will one day punish our effrontery. Demographic change is easy to miss, because it happens slowly, but we stand on the cusp of a profound change in the human condition. New projections from the UN suggest that, within just a few decades, we could secure a future of stable global population.  To be clear, the forecasts do not show an imminent end to population growth — far from it. The global population is growing steadily and it has the momentum of an elephant on an ice rink. The UN’s medium-variant projection shows a rise to 9.7bn people in 2050 and 11.2bn by 2100. But what both recent data and short-term forecasts also show is a dramatic slide in fertility rates. People everywhere are having fewer babies. If the trend continues — and such trends are always in doubt — then, decades further down the line, the global population will flatten out. The UN says there is a 23 per cent chance of that happening by 2100. The extent of the plunge in childbearing is startling. Eighty-three countries containing 46 per cent of the world’s population — including every single country in Europe — now have fertility below replacement rate of about 2.1 births per woman. Another 46 per cent live in countries where the birth rate has fallen sharply. In 48 countries the population will decline between now and 2050. That leaves just 9 per cent of the world’s population, almost all in Africa, living in nations with pre-industrial fertility rates of five or six children per woman. But even in Africa fertility is starting to dip. In a decade, the UN reckons, there will be just three countries with a fertility rate higher than five: Mali, Niger and Somalia. In three decades, it projects only Niger will be higher than four.

Pentagon prepares for century of climate emergencies and oil wars --  The US Army is preparing for a new era of war for oil. While energy has always played a role in military conflicts, US military experts believe the geopolitics of energy, land and water is increasingly central to who rules, or ruins, the world. Two research documents published in recent months by the US Army reveal the military establishment’s latest thinking in startlingly frank terms. The research not only lends credence to environmental warnings about how climate change will fuel political instability, but also vindicates concerns about how looming resource shortages could destabilise the global economy. In June the US Army published its report to the Department of Defence (DoD), outlining a new energy security strategy. Future US Army operations, it says, will be shaped by “increased urbanisation, rising populations, young adult unemployment, and a growing middle class that drive resource competition”. The report also flags up “climate change, rapid technology proliferation and shifts in centres of economic activity” as major forces of change: “Global resource constraints will also undermine the integrity of the Army’s supply chain… We can no longer assume unimpeded access to the energy, water, land, and other resources required to train, sustain, and deploy a globally responsive Army.”

Study finds price of wind energy in US at an all-time low, averaging under 2.5 cent/kWh: Wind energy pricing is at an all-time low, according to a new report released by the U.S. Department of Energy and prepared by Lawrence Berkeley National Laboratory (Berkeley Lab). The prices offered by wind projects to utility purchasers averaged under 2.5¢/kWh for projects negotiating contracts in 2014, spurring demand for wind energy.  Key findings from the U.S. Department of Energy's latest "Wind Technologies Market Report" include:

  • Wind is a credible source of new electricity generation in the United States. Wind power capacity additions in the United States rebounded in 2014, with $8.3 billion invested in 4.9 gigawatts (GW) of new capacity additions. Wind power has comprised 33% of all new U.S. electric capacity additions since 2007. Wind power currently meets almost 5% of the nation's electricity demand, and represents more than 12% of total electricity generation in nine states, and more than 20% in three states.
  • Turbine scaling is enhancing wind project performance. Since 1998-99, the average nameplate capacity of wind turbines installed in the United States has increased by 172% (to 1.9 MW in 2014), the average turbine hub height has increased by 48% (to 83 meters), and the average rotor diameter has increased by 108% (to 99 meters).
  • Low wind turbine pricing continues to push down installed project costs. Wind turbine prices have fallen 20% to 40% from their highs back in 2008, and these declines are pushing project-level costs down. Wind projects built in 2014 had an average installed cost of $1,710/kW, down almost $600/kW from the peak in 2009 and 2010.
  • Wind energy prices have reached all-time lows, improving the economic competitiveness of wind. Lower wind turbine prices and installed project costs, along with improvements in expected capacity factors, are enabling aggressive wind power pricing. After topping out at nearly 7¢/kWh in 2009, the average levelized long-term price from wind power sales agreements signed in 2014 fell to just 2.35¢/kWh—the lowest-ever average price in the U.S. market, though admittedly focused on a sample of projects that largely hail from the lowest-priced central region of the country.

Carbon Emissions Falling Fast as Wind and Solar Replace Fossil Fuels  -- European Union (EU) data shows that once countries adopt measures to reduce greenhouse gases (GHGs), they often exceed their targets—and this finding is backed up by figures released this week in a statement by the United Nations Framework Convention on Climate Change (UNFCCC). The Convention’s statistics show that the 37 industrialized countries (plus the EU) that signed up in 1997 to the Kyoto Protocol—the original international treaty on combating global warming—have frequently exceeded their promised GHG cuts by a large margin.  The UNFCCC statement says, “This is a powerful demonstration that climate change agreements not only work, but can drive even higher ambition over time.” “The successful completion of the Kyoto Protocol’s first commitment period can serve as a beacon for governments as they work towards a new, universal climate change agreement in Paris, in December this year.” In the EU, the leading countries for making savings are Germany, Sweden, France, Italy and Spain, which account for two-thirds of the total savings on the continent. But most of the 28 countries in the bloc are also making progress towards the EU’s own target of producing 20 percent of all its energy needs from renewables by 2020. It has already reached 15 percent. Part of the EU plan to prevent any of the 28 member states backsliding on agreed targets to reduce GHGs is to measure every two years the effect of various policies to achieve the reductions.

Solar Energy Storage is Worse Than Nuclear Spillage  Storing solar energy in a battery in Spain is more criminal than spilling radioactive waste. That’s the implied message written between the lines of a recently drafted law poised for fast-track approval by the government of Spain. Proposed fines for residential and SME use of solar energy self-consumption will be as high as €60 million ($67.7 million).  Speaking recently to PV Tech, Union Espanola Fotovoltaico (UNEF), the PV Association of Spain, stated that “this would be the only self-consumption law in the world created only to prohibit the development of self-consumption.” UNEF added that Spain’s new law is “retroactive” because if projects do not fit within the new parameters they will become illegal, even if already legally approved. Specifically, the new law requires that the owner and consumer must be the same person, and installations may no longer exceed 100 kW. Infringements will be treated very seriously, resulting in the maximum fines of up to €60 million ($67.7 million). This amount is twice as high as the penalty for causing a leak of radioactive waste in Spain, currently set at €30 million ($33.85 million). The new levy on solar energy self-consumption from a grid-connected owner’s storage unit will have a seriously negative impact on the solar installation payback period. SMEs using self-consumption are expected to have a lengthening of payback time from four to seven years. PV Tech also notes that taxation on “residential self-consumption of solar energy in Spain could increase payback time from around 16 years to 31 years.”

U.S. Revises Tariffs and Duties on Chinese Solar Imports.  The U.S. revised some taxes on solar products from certain companies in China to help thwart dumping amid a renewable-energy spat between the two nations.  Some units of Yingli Green Energy Holding Co., the second-largest solar manufacturer, received the lowest so-called anti-dumping rate, 0.79 percent. The rate for another group of companies including Canadian Solar Inc., JinkoSolar Holding Co. and some other Yingli units was set at 9.67 percent. Other companies will pay 239 percent. “Economically counterproductive tariffs have artificially made solar panel prices in the U.S. the most expensive in the world,” Shah said. CASE was formed to represent most of the U.S. solar industry against the petition. The Commerce Department also set anti-subsidy rates for most companies at 20.94 percent. In a preliminary review released in January, the agency recommended reducing the combined anti-dumping/anti-subsidy duties on most Chinese solar manufacturers to about 18 percent from 31 percent. Import duties may slow the growth of the U.S. solar industry, Jigar Shah, president of the Coalition for Affordable Solar Energy, said in an e-mailed statement.  “Economically counterproductive tariffs have artificially made solar panel prices in the U.S. the most expensive in the world,”

Wind Could Replace Coal as Nation’s Primary Generation Source - The National Renewable Energy Laboratory (NREL) recently released data showing that the Capacity Factor (CF) for wind power can reach 65% which is comparable to that of fossil fuel based generation. While the headlines aren’t as sexy as Tesla's 'Ludicrous mode', the transformative implications for climate change dwarf Elon Musk's latest accomplishment.  Increasing a generator's CF can increase its value in a variety of ways including: reduced cost of energy, improved transmission line utilization, and often, reducing stress on the grid by providing more power at times of peak demand.  It will also likely reduce the amount of storage and natural gas needed to manage the grid under scenarios of high renewables penetration.  Implicitly, NREL's new report positions wind to become a dominant and possibly the primary source of electricity in the US.  CF is the ratio of a generator's average power output over a year period to its nameplate rating.  A CF of 100% would indicate that it was always on and operating at its full rated power.  Simply stated, higher capacity factor means a given size generator will produce more energy over the year.  CF sets a lower bound on the amount of time a generator operates.  If a generator is not operating at its full nameplate rating all of the time then it will produce power for a percentage of time that exceeds its CF. *

Coal is choking India’s cities, economy and the world’s climate: India’s unquenchable thirst for coal is bad news for the nation’s health, balance sheet and the world’s climate. That’s the key message from the latest piece of research published by the New Climate Economy team, who say the country needs to aggressively diversify its energy mix. Coal accounts for 44% of India’s total energy consumption, with biomass and oil taking a 22% share each. With a fast growing population and more than 300 million still without electricity, politicians have long championed coal as a cheap and practical solution to their energy needs. But the rise in coal’s share from 33% in 1990 to 44% in 2012 comes at a price – economically and in the lungs of city dwellers. The statistics tell a bleak story. The world’s top four polluted cities are in India. 15 of the world’s top 30 cities with high levels of ambient air pollution are in India.  In 2010, an estimated 630,000 premature deaths were associated with air pollution linked to the burning of fossil fuels. “One recent estimate suggests that the price of coal in India needs to at least double if it is to fully reflect the health and other damages associated with coal use,” says the study. The costs of importing the coal, oil and gas the country needs are also wreaking havoc on the economy, write the study’s authors.

Wastewater spill from Colorado gold mine triples in volume: EPA | Reuters: Some 3 million gallons of toxic wastewater, triple previous estimates, have poured from a defunct Colorado gold mine into local streams since a team of Environmental Protection Agency workers accidentally triggered the spill last week, EPA officials said on Sunday. The discharge, containing high concentrations of heavy metals such as arsenic, mercury and lead, was continuing to flow at the rate of 500 gallons per minute on Sunday, four days after the spill began at the Gold King Mine, the EPA said. An unspecified number of residents living downstream of the spill who draw their drinking supplies from their private wells have reported water discoloration, but there has been no immediate evidence of harm to human health, livestock or wildlife, EPA officials told reporters in a telephone conference call. Still, residents were advised to avoid drinking or bathing in water drawn from wells in the vicinity, and the government was arranging to supply water to homes and businesses in need.EPA previously estimated 1 million gallons of wastewater had been released since Wednesday, but on Sunday the agency revised that up to 3 million gallons, based on measurements taken at a U.S. Geological Survey stream gauge.

Abandoned Mine Has Leaked 3 Million Gallons Of Toxic Water Into A Colorado River - Three million gallons of bright orange wastewater has spilled from an abandoned mine in Colorado, after Environmental Protection Agency efforts to contain the mine’s toxic water went awry last week.  According to the EPA’s onsite coordinator, a team was working to “investigate and address contamination” at a nearby mine when they unexpectedly triggered the spill from the Gold King Mine, which is still pumping 500 gallons of contaminated water per minute into the Animas River, near Silverton, Colorado. The EPA has been trying for years to get some areas around Silverton declared a Superfund site — a designation which would direct federal funds toward cleanup — but the agency has been met with local resistance. The mountains of Colorado are riddled with more than 23,000 abandoned mines, according to the Colorado Geological Survey, and prior to 1977, mining companies could just walk away from the sites, leaving behind dangerous situations.  “It was known that there was a pool of water back in the [Gold King] mine, and EPA had a plan to remove that water and treat it, you know, slowly. But things didn’t go quite the way they planned and there was a lot more water in there then they thought, and it just kind of burst out of the mine,” Peter Butler with the Animas River Stakeholders Group told local NPR affiliate KUNC.  According to the the EPA, the previous contamination meant that water in the river was already “likely toxic to all trout species, with the exception of brook trout. Brook trout living in this reach… are likely stressed much of the year.” The EPA’s initial response underestimated — by two million gallons — how much water was going to be released, and critics said the agency was trying to suggest that the additional toxins weren’t a big deal.  Environmental groups called foul on this response, saying that just because animal populations are already affected does not mean that increased toxins aren’t a serious problem.

EPA says 3 million gallons of contaminated water released into Animas River - — Officials from the Environmental Protection Agency said Sunday that the Gold King Mine discharged an estimated 3 million gallons of contaminated water, three times the previous estimate. The mine continues to discharge 500 gallons per minute, EPA Region 8 administrator Shaun McGrath said in a teleconference call Sunday afternoon, but the polluted water is being contained and treated in four ponds at the site of the spill near Silverton, Colo. According to preliminary testing data the EPA released Sunday, arsenic levels measured in the Animas River in the Durango area peaked at 300 times the normal level, and lead peaked at 3,500 times the normal level. Officials said those levels dropped significantly after the plume of contamination moved downstream. Both metals pose a significant danger to humans in high concentrations. “Yes, those numbers are high and they seem scary,” . “But it’s not just a matter of toxicity of the chemicals, it’s a matter of exposure.” She said the period of time those concentrations remain in one area is short. However, McGrath said the EPA is looking at the possibility of long-term damage related to toxic metals falling out of suspension as the plume slowly moved along the river. “Sediment does settle,” McGrath said. “It settles down to the bottom of the river bed.” McGrath said future runoff from storms will kick that toxic sediment back into the water, which means there will need to be long-term monitoring.

Navajos to sue EPA over cleanup - The president of the Navajo Nation said Sunday that he intends to sue for “every dollar it spends cleaning up this mess” after Environmental Protection Agency employees accidentally released at least 3 million gallons of wastewater, including potentially harmful metals, into a river that breached the sovereign nation’s borders this weekend. The orange plume of wastewater, which slowly crawled down the San Juan River after gushing out of a Colorado mine on Friday, has already forced many reservation residents in New Mexico and Utah to cease watering their crops and livestock, shut down at least two drinking water wells and required them to avoid the river entirely, said Rick Abasta, communications director for Navajo tribal leadership. The nation on Sunday also took steps to formally declare a state of emergency for the reservation, warning of potential environmental and other damage. The declaration was waiting for the president’s signature as of Sunday evening. “The EPA was right in the middle of the disaster and we intend to make sure the Navajo Nation recovers every dollar it spends cleaning up this mess and every dollar it loses as a result of injuries to our precious Navajo natural resources,” president Russell Begaye said in a news release. “I have instructed Navajo Nation Department of Justice to take immediate action against the EPA to the fullest extent of the law to protect Navajo families and resources,” he added.

Colorado Governor Drinks Water From Animas River After Historic Mine Waste Spill --Colorado Gov. John Hickenlooper was at the Animas River in Durango, Colorado yesterday, dealing with the ongoing chaos of the acid-mine pollution caused by the U.S. Environmental Protection Agency’s (EPA) mistake at the Gold Strike Mine that turned the river a ghoulish orange-yellow color. Gov. Hickenlooper—always a media showboat—decided he was going to drink water out of the Animas River to prove a point that it was safe and as reported by the Durango Herald newspaper he did just that. The Durango Herald also reported that Gov. Hickenlooper used an iodine tablet in the river water to kill bacteria. However, as a river advocate in Colorado, I would like to assert that Colorado’s rivers and streams are a dangerous concoction of pollution including waste from livestock, wildlife, human sewage treatment plants as well as acid-mine drainage and other nasty toxins and so the Governor’s behavior—while very media worthy—should not be repeated by the public. As the story reports, the EPA so far refuses to “open” the river to public recreation and rightly so. Acid mine drainage can be invisible as can many pollutants in our nation’s lakes, rivers and streams. Gov. Hickenlooper became famous in 2011 for telling a U.S. Senate Subcommittee that he drank Halliburton’s “green” fracking fluid, a behavior that got him the nickname, “Frackenlooper.”

Sludge From Colorado Mine Spill Heads Down River to New Mexico - — A plume of orange-ish muck from million-gallon mine waste spill in Colorado was headed down river to New Mexico, prompting communities along the water route to take precautions until the sludge passes. Officials emphasized that there was no threat to drinking water from the spill. But downstream water agencies were warned to avoid Animas River water until the plume passes, said David Ostrander, director of the EPA's emergency response program in Denver. The U.S. Environmental Protection Agency said that a cleanup team was working with heavy equipment Wednesday to secure an entrance to the Gold King Mine in southwest Colorado. Workers instead released an estimated 1 million gallons of mine waste into Cement Creek."The project was intended to pump and treat the water and reduce metals pollution flowing out of the mine," agency spokesman Rich Mylott said in a statement. The creek runs into the Animas, which then flows into the San Juan River in New Mexico and joins the Colorado River in Utah. Officials weren't sure how long it would take the plume to dissipate, Ostrander said. The acidic sludge is made of heavy metal and soil, which could irritate the skin, he said. The EPA was testing the plume to see which metals were released. Previous contamination from the mine sent iron, aluminum, cadmium, zinc and copper into the water, said Peter Butler, co-coordinator of the Animas River Stakeholders Group.

Massive Mine Waste Spill Reaches New Mexico  --Just days after workers with the Environmental Protection Agency (EPA) accidentally spilled a million gallons of toxic mine waste into a Colorado waterway, the free-flowing sludge that turned portions of the state’s Animas River orange reached New Mexico, where health and wildlife officials say they were not alerted to any impending contamination. As the cities of Aztec and Bloomfield scrambled to cut off the river’s access to water treatment plants, they criticized the EPA for what they said was a lackluster effort in providing warnings or answers about the spill. The contaminants seeping into the river—at a rate of 548 gallons per minute—include arsenic, copper, zinc, lead, aluminum and cadmium.  The Animas flows into the San Juan River in New Mexico, which in turn joins the Colorado River in Utah’s Lake Powell. Workers unleashed the waste while using heavy machinery to investigate toxic materials at Colorado’s non-functioning Gold King Mine. But the accident, while “unexpected” by EPA’s admission, is a reminder that defunct mines still heavy with contaminates exist throughout the West. The Associated Press writes: Experts estimate there are 55,000 such abandoned mines from Colorado to Idaho to California and federal and state authorities have struggled to clean them for decades. The federal government says 40 percent of the headwaters of Western waterways have been contaminated from mine runoff.

The Latest: Emergency declared over Colorado mine spill - Colorado Gov. John Hickenlooper has issued a disaster declaration after millions of gallons of contaminated water spilled from a mine into the Animas River and was making its way to Lake Powell in Utah. The declaration on Monday releases $500,000 to assist businesses and towns affected by the 3-million-gallon spill that contains heavy metals including lead and arsenic. It also helps pay for water quality sampling by the state, assessing impacts on fish and wildlife, and any possible cleanup. Hickenlooper directed state agencies to seek federal funds or low-interest loans to help entities affected by the spill. The U.S. Environmental Protection Agency has yet to say if the metals pose a threat to human health, frustrating residents in Colorado and downstream in New Mexico and Utah. On Wednesday, an EPA-supervised cleanup crew accidentally breached a debris dam that had formed inside Colorado’s Gold King Mine, which has been inactive since 1923.

Navajo Nation Vows To Hold EPA Accountable As Colorado River Poisoner Identified -- Having admitted responsibility for the poisoning of Colorado's Animus River, reports The EPA has now been forced to admit that there was 3 milion gallons of toxic wastewater - triple their previous estimates. While EPA leadership held a press conference yesterday taking responsibility, it appears they are pointing the blame finger at the contractor, who they have now chosen to identify as Missouri-based Environmental Restoration which is one of the largest EPA emergency cleanup contractors. It is the main provider for the EPA’s emergency cleanup and rapid response needs in the region that covers Colorado, as well as in several other parts of the country - awarded $381 million in federal contracts since 2007. As the river slowly returns to normal (on the surface), TheNavajo Nation, with many residents along the river, declared a state of emergency this week, vowing to hold the EPA fully responsible for its spill, and have demanded that the EPA provide the affected tribes with water until the river is once again usable. The agency has been diverting the ongoing release into two newly built settling ponds where the waste was being treated with chemicals to lower its acidity and to filter out dissolved solids before being discharged to Cement Creek. The federal unit has also set up a website to provide constant updates on the situation.  And now The EPA appears to be trying to distance itself from the actual event. As The Wall Street Journal reports, the previously unnamed contractor involved in the spil has now been identified (by the EPA) as Missouri-based Environmental Restoration LLC... The EPA, which was overseeing the servicing of the mine, had previously said an unnamed outside contractor was using heavy equipment when it accidentally triggered a breach in the abandoned Gold King Mine, letting out wastewater that had built up inside it. “Environmental Restoration LLC was working at the direction at EPA in consultation with the Colorado Division of Reclamation, Mining and Safety,” an EPA official said on Wednesday.

Ranchers, farmers look for alternative water sources after Gold King Mine spill - — With the Animas and San Juan rivers still off limits, local ranchers and farmers are looking for alternative ways to get water for their livestock and crops. Restrictions on the rivers were put into effect after toxic metals flowed from a mine north of Silverton, Colo., into the Animas River and then into the San Juan River. In response to the situation, officials with the Shiprock Chapter started hauling water to residents who need it for their livestock. Melvin Jones, an equipment operator at the chapter house, delivered water Monday and Tuesday to residents in Shiprock. “There are quite a few people on the list right now, so we’ll probably be hauling water all week and into next week,” he said. On Tuesday, he delivered water in a 1,000-gallon tank to Sarah Frank’s residence in southeast Shiprock. As Jones filled her large storage tank with water, Frank removed lids from three steel drums and an assortment of plastic containers to hold the remainder of the water. Frank’s residence is less than 10 miles south of the river, which was the main source of water for her 30 sheep and 13 lambs. “They really drink water when the grass is dry,” she said.

The Outdated Law That Helped Lead To The Massive Mine Spill In Colorado --  This week, a river running through Colorado turned orange after Environmental Protection Agency workers accidentally broke through a dam at an abandoned mine site, spilling 3 million gallons of lead and arsenic-laden mine waste into the Animas River. The spill was a major disaster — it caused lead levels in the river to spike to nearly 12,000 times higher than the EPA-accepted safe mark, and arsenic levels to rise to 26 times higher than the EPA recommends. The spill prompted New Mexico’s governor to issue a state of emergency, and the Navajo Nation, which depends heavily on the river, is considering suing the EPA.  The EPA has taken full responsibility for the spill, but some groups are hoping the spill brings attention to an over-a-century-old law that has helped contribute to the large number of abandoned mines that still need cleaning up today. As Al Jazeera reports, there are about 2,700 abandoned hard rock mines in the United States that still need cleaning up.  New laws have mandated that new mines get cleaned up, but these old mines are regulated under the General Mining Law of 1872, which allows mining companies to avoid paying royalties for the minerals they mine and doesn’t contain provisions for environmental protections. These abandoned mines have polluted water before — both through drainage of contaminants and through major spills like the one that affected the Animas River.

Be Afraid: Japan Is About To Do Something That's Never Been Done Before -- When the words "mothballed", "nuclear", and "never been done before" are seen together with Japan in a sentence, the world should be paying attention... As TEPCO officials face criminal charges over the lack of preparedness with regard Fukushima, and The IAEA Report assigns considerable blame to the Japanese culture of "over-confidence & complacency," Bloomberg reports, Japan is about to do something that’s never been done before: Restart a fleet of mothballed nuclear reactors. The first reactor to meet new safety standards could come online as early as next week. Japan is reviving its nuclear industry four years after all its plants were shut for safety checks following the earthquake and tsunami that wrecked the Fukushima Dai-Ichi station north of Tokyo, causing radiation leaks that forced the evacuation of 160,000 people. Mothballed reactors have been turned back on in other parts of the world, though not on this scale -- 25 of Japan’s 43 reactors have applied for restart permits. One lesson learned elsewhere is that the process rarely goes smoothly. Of 14 reactors that resumed operations after four years offline, all had emergency shutdowns and technical failures, according to data from the World Nuclear Association, an industry group.

Japan raises warning level on volcano 50 km from just-restarted nuclear plant - The Japan Times: The Meteorological Agency said Saturday that Mount Sakurajima in Kagoshima Prefecture, 50 km from a just-restarted nuclear plant, is showing signs of increased volcanic activity and that nearby residents should prepare to evacuate. In line with the move, the Kagoshima municipal government issued an evacuation advisory to the residents of three districts on the island where the volcano is located. Sakurajima is one of Japan’s most active volcanoes and erupts almost constantly. But a larger than usual eruption could be in the offing, an official at the weather agency said. “There is the danger that stones could rain down on areas near the mountain’s base, so we are warning residents of those areas to be ready to evacuate if needed,” the official added. The agency also said it had raised the warning level on the peak, 990 km southwest of Tokyo, to an unprecedented 4, for prepare to evacuate, from 3. Japan on Tuesday restarted a reactor at the Sendai nuclear plant, some 50 km from Sakurajima. It is the first reactor to be restarted under new safety standards put in place after the 2011 Fukushima disaster.

Unapproved coal ash dump will cost "green" company $230,000 in state fine - — Sonoco, a global packaging corporation that emphasizes environmental stewardship, has been hit with a $230,000 fine for operating an unapproved coal ash dump near its headquarters in eastern South Carolina. The state fine is one of the heaviest issued by the S.C. Department of Health and Environmental Control during the past decade, records show. And it is being levied as concerns rise about the environmental impacts of coal ash disposal areas across the country. Coal ash contains an array of toxins, including arsenic and metals that can make water unsafe to drink if the materials leak out of disposal areas. Utilities across South Carolina are scrambling to clean up the messes left by decades of burning coal. In this case, Sonoco for years used coal to supply electricity at its business in Hartsville, about an hour’s drive east of Columbia in Darlington County. But DHEC says Sonoco violated the state’s solid waste policy law by piling up waste coal ash on the ground near the plant. The ash pile is about 35 feet high and is on a 14-acre site. The company has since 2013 replaced coal with biomass, considered a less polluting source of energy.

How This Giant Coal Company Games The System To Undercut Its Competitors And Shortchange Taxpayers -- The Obama Administration and a group of lawmakers recently took the first steps in more than thirty years toward reforming the federal government’s coal program. Standing in their way, however, is a giant new coal company with a business model that depends on bending the rules, dodging royalty payments, and spending big to win powerful political allies. Most Americans have never heard of Cloud Peak Energy, the third largest coal company in the United States. A 2009 spinoff of the British-Australian mining company Rio Tinto, Cloud Peak only owns three mines, but these mines are among the biggest in the United States. All three are on taxpayer-owned public lands in the Powder River Basin in Montana and Wyoming, where strip-mining costs are low, production is high, and federal policies are favorable. In recent months, Cloud Peak has emerged as the most vocal critic of the Obama Administration’s efforts to modernize the federal coal program. The company argued that a proposal to prevent selling coal to its own subsidiaries is “completely unjustified and is a thinly veiled effort to inhibit the mining of federal coal,” and attempting to orchestrate an elaborate campaign to block it. Cloud Peak’s assertions about the proposal’s financial impacts have been so extreme that even Peabody Energy, the world’s largest coal company, downplayed Cloud Peak’s claims to analysts and investors. Cloud Peak has also distinguished itself in recent months by claiming to stand on stronger financial footing than its biggest rivals, with CEO Colin Marshall predicting an almost 700 percent increase in coal exports and an increased share of the domestic power generation market for Powder River Basin.

Protesters Press Secluded G7 Leaders on Harmful Policies, from Crippling Austerity to Dirty Coal | Democracy Now! - video & transcript - As leaders of the seven wealthy democracies known as the Group of Seven hold talks in a secluded castle in Germany, thousands of protesters have been met with 20,000 police in the largest security operation in the history of Bavaria. Issues on the G7 agenda include climate change, a $10.4 billion bailout package for Greece, and more austerity measures. We are joined by three guests: Gawain Kripke of Oxfam America, which just published the new report, "Let Them Eat Coal"; Eric LeCompte of the Jubilee USA Network; and former banker Nomi Prins, author of "All the Presidents’ Bankers."

Humanity exceeds nature's budget for 2015: In less than eight months, humanity has used up nature's budget for the entire year, according to data from Global Footprint Network. Earth Overshoot Day - this year falling on August 13 - marks the date when humanity's annual demands on nature exceed what Earth can regenerate in that year, and has moved up from early October in 2000. "We are ever deepening our understanding of how crucial nature's services are to our own well-being, prosperity and happiness, and to our very survival," said Marco Lambertini, Director General, WWF International. "We must continue to shift from being irresponsible exploiters to being careful stewards of nature's values and good managers of her essential, finite resources," said Lambertini. The costs of ecological overspending are becoming more evident by the day, in the form of deforestation, drought, freshwater scarcity, soil erosion, biodiversity loss and the buildup of carbon dioxide in the atmosphere. Carbon sequestration makes up more than half of the demand on nature.

What Is Nature Worth to You? -  Assigning a monetary value to environmental harm is notoriously tricky. There is, after all, no market for intact ecosystems or endangered species. We don’t reveal how much we value these things in a consumer context, as goods or services for which we will or won’t pay a certain amount. Instead, we value them for their mere existence. And it is not obvious how to put a price tag on that.In an attempt to do so, economists and policy makers often rely on a technique called “contingent valuation,” which amounts to asking individuals survey questions about their willingness to pay to protect natural resources. The values generated by contingent valuation studies are frequently used to inform public policy and litigation. (If the government had gone to trial with BP, it most likely would have relied on such studies to argue for a large judgment against the company.)Contingent valuation has always aroused skepticism. Oil companies, unsurprisingly, have criticized the technique. But many economists have also been skeptical, worrying that hypothetical questions posed to ordinary citizens may not really capture their genuine sense of environmental value. Even the Obama administration seems to discount contingent valuation, choosing to exclude data from this technique in 2014 when issuing a new rule to reduce the number of fish killed by power plants.Do we respond to contingent valuation studies the way we respond to all other known classes of economic decisions? Or do we behave differently when environmental value is involved?To find out, we conducted a study, just published in the journal PLOS One, that compared, at a neurological level, how people responded in both situations.

‘Net Energy’ Deficit Preventing Economic Growth  -- Our economy is a networked system. I have illustrated it as being similar to a child’s building toy. Ever-larger structures can be built by adding more businesses and consumers, and by using resources of various kinds to produce an increasing quantity of goods and services. There is no overall direction to the system, so the system is said to be “self-organizing.” The economy operates within a finite world, so at some point, a problem of diminishing returns develops. In other words, it takes more and more effort (human labor and use of resources) to produce a given quantity of oil or food, or fresh water, or other desirable products. The problem of slowing economic growth is very closely related to the question: How can the limits we are reaching be expected to play out in a finite world? Many people imagine that we will “run out” of some necessary resource, such as oil, but I see the situation differently. Let me explain a few issues that may not be obvious. Our economy is like a pump that works increasingly slowly over time, as diminishing returns and other adverse influences affect its operation. Eventually, it is likely to stop. As nearly as I can tell, the way economic growth occurs (and stops taking place) is as summarized in Figure 3.  Let me explain some of the pieces of the problem that give rise to the slowing economic growth pump, and the difficulties it encounters as it slows down.  “Promises,” such as government pension programs for the elderly, and promises to repair existing roads, tend to get bigger and bigger over time.  At least partly because of growing “promises,” it is very difficult for an economy to shrink in size without collapsing.  The over-arching problem as we reach diminishing returns is that workers become less and less efficient at producing desired end products.If workers get paid for their work, the logical result of diminishing returns is that after a point, workers should get paid less, because what they are producing as an end product is diminishing in quantity. Workers may be making more intermediate products (such as desalination plants or fracking sand), but these are not the end products people want (such as fresh water, electricity, or oil). When civilizations collapsed in the past, a major cause was diminishing returns leading to declining wages for non-elite workers.

Bill backs control - Star Beacon - State legislators and a growing consortium of county and township officials seek stronger local control over injection wells, and a bill currently being drafted in the state House could be the key. Last year, almost 1.1 million barrels of frackwater were dumped in Ashtabula County injection wells, the majority of which came from outside Ohio. That’s up 42 percent from 2013, and in the top 10 in 2014 for frackwater dumping in the state. “Horizontal drilling — fracking — is coming to Ohio and we need to get out in front of it,” . State Rep. Sean O’Brien, D-Bazetta, ranking member of the state House Energy and Natural Resources Committee, attended a public forum on injection well concerns in July at the county courthouse, along with state Rep. John Patterson, D-Jefferson. Patterson said much of the testimony given then became food for thought for legislators. O’Brien said the input could lead to some “common sense precautions” appearing in the new bill. Local township officials have said community control over injection well activity was “stripped” in 2004, and handed to the state Department of Natural Resources.  They said the department — which also manages all state parks and wildlife areas and has banned injection well activity there — has not been acting in state residents’ best interests. “They banned it there ... why is it fine for your residential community?” Dominic Marchese, Johnston Township trustee, said in July.“It’s ludicrous to me that the state and legislators have given ODNR ... the sole regulation of natural gas and extraction waste,” said Jodi Stoyak, Liberty Township trustee, in July. “To me, that’s a conflict of interest.”

State panel upholds suspension of injection well - — A state panel has upheld the Ohio Department of Natural Resources' decision to suspend operations at a Trumbull County injection well following seismic activity near the site last year. The Ohio Oil and Gas Commission decision, released Wednesday afternoon, noted the earlier suspension orders for American Water Management Services' Weathersfield Township facility were not "unlawful and/or unreasonable." "It is clear that the division has regulatory authority over injection operations," commissioners wrote. "It is also clear that the division is taking a proactive approach to developing a meaningful regulatory program relative to injection-induced seismicity." The company has 30 days to appeal the decision, through Franklin County Common Pleas Court. AWMS invested $5 million-plus and spent more than two years seeking the appropriate permits, drilling and preparing two injections wells in Weathersfield Township. Those wells began operating last year, one injecting into a shallower formation, one in a deeper one. A few months later, seismic activity occurred in the vicinity, with a magnitude 1.7 event in late July and 2.1 about 30 days later. In September, the state ordered the company to cease injections at the wells, pending further investigation. According to documents, evidence "did not reveal any citizen complaints or property damage associated with these events. Nonetheless, the division was concerned with the escalating trend relative to these events and believed that continued injections ... could result in additional and more intense seismic events."

Husted rules against fracking ban charter amendments: — Secretary of State Jon Husted ruled today that fracking-ban charter proposals in Athens, Fulton and Medina counties cannot appear on the ballot. As part of his decision, Husted, a Republican, found that the proposed provisions in each of the charters relating to oil and gas exploration represented an attempt to circumvent state law in a manner the courts have already found to be in violation of the Ohio Constitution. Supporters of an proposed fracking ban in Youngstown – already defeated four previous times on the ballot – are gathering signatures to put it on the city’s ballot in the Nov. 3 election. Husted’s decision would impact the local effort.

Ohio counties can’t vote to ban fracking, Husted rules - Columbus Dispatch: Residents of three counties won’t be voting this November on whether to allow fracking, based on a ruling Thursday by Ohio Secretary of State Jon Husted. In a letter to the boards of elections in Athens, Fulton and Medina counties, Husted said that the courts already had decided this issue, and that only the state has the authority to regulate oil and gas activity in Ohio. All three counties had planned to have questions on their ballots this November asking residents whether to amend their county charters to ban fracking inside their borders. The secretary of state’s office received protests against those petitions, Husted said in his letter, which prompted him to rule on whether the measures could be allowed on the ballots. Joanne Prisley, who asked Husted’s office to review whether the Athens County measure was legal, said she did not believe a charter amendment was a good government decision. “We don’t want our water supply to be tainted, but they were trying to put a non-fracking law into charter government. You don’t do it that way,” Prisley said. “It would change the authority of the county commissioners.” Tish O’Dell, a Broadview Heights resident and Ohio organizer with the Community Environmental Legal Defense Fund — the organization behind the 160-some bans that have passed in the United States — said Husted’s decision is disheartening. “If one secretary of state, who is obviously representing the best interests of the oil and gas industry, can keep the people’s attempt to alter and reform their government off the ballot, then exactly how are people ever supposed to alter their government?” O’Dell said.

Secretary of State agrees with charter protest, rejects proposal for November ballot -- After over seven weeks of legal wrangling, a proposal for the November ballot to turn Athens County into a charter government has been rejected by Ohio Secretary of State Jon Husted. In a release sent shortly before 6 p.m. Thursday, Husted's office announced he had rejected charter proposals for the ballot in Athens, Medina, and Fulton counties. As part of his decision, Husted found that the proposed provisions in each of the charters relating to oil and gas exploration represented an attempt to circumvent state law in a manner Ohio courts have already found to be in violation of the state Constitution, the release said. “The issue of whether local communities can get around state laws on fracking has already been litigated,” Husted said in the release. “Allowing these proposals to proceed will only serve a false promise that wastes taxpayer's time and money and will eventually end in sending the charters to certain death in the courts.” Under the Ohio Revised Code, the secretary of state, in his role as the chief elections officer, is required to determine the validity of both the proposal and the petitions submitted and rule on whether or not the petition should qualify for the ballot, the release continued. Husted said in the release that the proposed ballot initiatives fail to properly establish an “alternative form of county government” as prescribed by Section 301 and 302 of the Ohio Revised Code. “Having carefully reviewed the law, court decisions and the materials submitted in connection with the protests, I find that the… petitions violate… provisions of statutory and Ohio constitutional law,” wrote Husted to Athens County's elections board and board of commissioners.

Underneath Ohio - International Business Times -- In the past decade, U.S. oil and gas production has exploded thanks to advances in fracking technologies and the discoveries of large oil and gas deposits in shale formations, including the Utica and the Marcellus, which run underneath Ohio and other Eastern states. Shale gas production alone surged nearly 800 percent from 2007 to 2013, from about 1.3 trillion cubic feet to 11.4 trillion cubic feet, the U.S. Energy Information Administration found in its most recent estimates. Shale production has helped position the U.S. as the world’s largest producer of both crude and natural gas -- even beating out Russia in 2014. This year, a global oversupply of oil caused prices to plunge and has slowed new production, but the fracking wave is expected to roll for decades. In Ohio, the industry is pressing ahead with billions of dollars in investments for pipelines and natural gas compressor stations despite the temporary lapse in new drilling. As shale production spreads into new communities, more citizens and policymakers are forced to choose between two competing narratives: fracking as an economic godsend whose downsides are being hyped by anti-business agitators, and fracking as a threat to health and environment. Many of the Neiders’ neighbors have welcomed the surge of shale drilling in Carroll and surrounding counties. In an area where farms, schools and hospitals supply the bulk of employment, the energy boom delivered an unexpected boost in the midst of the recent economic downturn. Landowners earning generous royalty checks for leasing to fracking operators are renovating their homes, paying off debt and buying new farming equipment. Municipalities are repairing roads and upgrading equipment. Ohio regulators insist their stringent rules and frequent monitoring efforts have limited harmful air emissions and potential groundwater contamination from fracking and related activities, including wastewater disposal wells. Industry groups say producers are safely developing the fossil fuel reserves, and they note that research on fracking’s environmental and public health impact is still early.

Utica: Drillers take hits from stock prices -- Thanks to low commodity prices, drillers and investors in the oil and gas industry have taken several negative hits, and those hits are certainly visible when it comes to drillers in the Utica Shale formation. On Friday during a second-quarter earnings call, Magnum Hunter Resources Corp. CEO Gary Evans explained that there is a dramatic prices difference in oil and gas when compared to last year. At the beginning of November last year, oil as was priced around $80 per barrel, and now it is nearly half that. Natural gas has dropped almost a full dollar, sitting at $3.71 per million BTU’s last November to $2.81 per million BTU’s. Evans stated the following: Those of us in the energy sector are dealing with much lower commodity prices throughout our business that is causing all of us to change our business plans.While it seems risky, some analysts are actually encouraging investors to take calculate gambles and invest in stock while prices are so low. According to the Columbus Business First, many have hope that the price of natural gas will rebound due to overseas export opportunities, along with “more use for electricity generation to make up for lost coal-based production.” The Columbus Business First took a closer look at commodity prices and how stock prices are impacting companies operating Ohio. “The numbers are stark: The top 5 public companies, based on 2014 drilling permits, recorded price highs in August and September 2014, a few months before oil and gas prices fell. Each company’s low has fallen in July and August 2015.” The rankings are as followed:

What is going on in the Marcellus? -- While Pennsylvania Governor Tom Wolf is trying with all hit might to hang on to his proposed budget plan and the state’s economic future in natural gas, it is hard to ignore rumors about natural gas selling for only 60 cents per thousand cubic feet (MCF). According to Penn State Marcellus Center for Outreach and Researcher Director Tom Murphy, there is really no specific price at which operators in the Marcellus Shale formation, or any other shale in the U.S., would stop drilling. Typically, conversations regarding the price of natural gas revolve around it still being viable below $2.00 per MCF. While the sale of natural gas at 60 cents per MCF has never happened, and certainly isn’t a reality in Pennsylvania, natural gas selling at $1.25 per MCF is and has been for several months. Murphy commented on the current status of companies drilling in the Marcellus and the market: Most companies that are drilling in Marcellus right now, if not all companies, would tell you that the price environment that they are experiencing is a very difficult market for them to be operating right now.Like several others, Murphy has watched the number of rigs operating in Pennsylvania decline. He did note that despite the falling rig count, production has still risen year-over-year, which can be credited to new drilling technologies and techniques. Murphy also credited the production growth to better qualified people in the oilfields and the high flow rates of the Utica Shale formation. As reported by 90.5 WESA, “Marcellus Shale wells are expected to produce gas for 25 to 50 years but about half of that gas comes out of the wellhead in the first two to three years, creating a parabolic production curve that slowly tapers to nothing according to Murphy.” As more pipelines are constructed across Pennsylvania, natural gas production will continue to increase. The pipelines will allow “drillers to more easily get their gas to market.”

PennEast pipeline project moving forward with route changes - A new pipeline to bring natural gas from the Marcellus Shale to customers in Pennsylvania and New Jersey is moving forward. On Tuesday, the first-year anniversary of the date PennEast Pipeline Co. officially announced the project, representatives from the company met with The Citizens’ Voice for an editorial board. Since then, the company has been in the pre-filing phase with the Federal Energy Regulatory Commission, which includes doing studies, seeking public input and fine-tuning the pipeline route. The company expects to file a formal application in September with the commission, which approves, regulates and inspects pipelines. The new pipeline would connect with the Auburn natural gas gathering line belonging to UGI Energy Services LLC — which is a partner in PennEast — at the Transco interstate pipeline hub in Dallas Township. The Auburn line brings gas from wells in Susquehanna and Wyoming counties to the Transco pipeline. “When we looked at the project (PennEast), we said this is a natural extension of Auburn,” PennEast project manager Anthony Cox said. Asked how much of the gas would be exported, Cox replied, “None.” Customers for the gas, besides UGI Energy Services LLC, include the independent PPL spinoff Talen Energy Marketing LLC; Consolidated Edison; the New Jersey Natural Gas Co. and South Jersey Gas Co.

Case against PennEast pipeline places anti-fracking sentiment over science ... - - Hopewell Township recently voted to bar construction of a natural gas pipeline planned to connect with the network of previously existing pipelines bringing the carbon-friendly, inexpensive fuel from fracked sites in the gas-rich Marcellus shale deposits of Pennsylvania.  The "leaders" there adopted the propaganda often associated with the "fractavist" fringe groups whose pressure was intense enough to cause New York Gov. Andrew Cuomo to ban fracking in his state. Anti-fracking sentiment runs high in certain areas in and adjoining the Marcellus shale region. However, no matter what the anti-fracking demonstrations purport, the opposition is based not on science nor health, but ideology. Anything that they perceive to be promoting ongoing fossil fuel use will be condemned as being dangerous, unhealthy or any outrageous assertion that they pull out of their hats. Despite a documented lack of evidence of water contamination, and a recent EPA report confirming that inconvenient fact, the Hopewell Township opponents brought up that myth (along with the nonsensical asthma threat). While the EPA report did try to cover all bases by acknowledging their lack of an ability to see into the future regarding any possible adverse environmental (i.e., water) impact of a pipeline, the empirical evidence of the absence of any such heretofore seems highly probative. Look, a scenario where aliens descend from an unknown planet and damage a natural gas pipeline can also not be predicted. But all those fracked wells in all those states without detectable water contamination should count for something.

Pipelines to lucrative Midwest markets welcomed by shale gas drillers -- Shale gas producers staring down a supply glut that has pushed prices to record lows in Appalachia are getting their first look at relief. Several long-awaited pipeline projects are coming online over the next few months that should start increasing the prices some Marcellus and Utica shale drillers get for their gas as it finds paths to more lucrative markets in the Midwest. “They’ve been held captive to these lower prices in Appalachia with no other place to take their gas,” said Teri Viswanath, a natural gas analyst at BNP Paribas in New York. “The continued cycle of new takeaway projects will accelerate a price increase.” With high supplies and not enough demand to consume it all here, selling gas in Appalachia has meant taking a deep discount. The spot price on the Dominion South trading point in Southwestern Pennsylvania hit 71 cents per million British thermal units on July 2, which Viswanath said was a record low. By last week it rebounded to $1.35, but that was less than half the price garnered at the Chicago Citygate trading point, $2.89. Producers who cannot get their gas on the few lines leading from Pennsylvania to Chicago don’t get that better price.

Midwest now ships more crude than it receives -- The Midwest has become a net shipper of crude oil, reports the Energy Information Administration (EIA). Due to increased rail shipments and pipeline reversals, the Midwest region now ships out more crude oil than it receives. Without these rail movements, according to the EIA, the Midwest would still be a net recipient. Beginning in the first few months of 2013, the Midwest began shipping more oil than it was receiving, which was occurring on an annual basis during 2014. According to the most recent Petroleum Supply Monthly report, which contains data through May 2015, an average of 1.7 million barrels per day shipped out of the Midwest during the first five months of this year. Of this amount, 638,000 barrels per day were hauled by rail. Volumes of crude-by-rail shipments from the Midwest to the East Coast began to increase in 2012 as production in the Bakken ramped up. From 2011 to 2013, the largest volumes were being transported by rail from the Midwest to the Gulf Coast. During the second half of 2013, though, these shipments began to slow as less Bakken crude was shipped south because of pipelines in the Permian Basin of West Texas and New Mexico were built, expanded or reversed to take Permian crude to Gulf Coast refineries. As less Midwest crude was shipped to the Gulf, more was being transported to the East and West Coasts as production steadily increased. Between 2010 and mid-2012, pipeline shipments coming from the Midwest remained flat at about 225,000 barrels per day. It wasn’t until the flow of the Seaway Pipeline was reversed that the volumes of crude shipped via pipeline increased. The Seaway, which transports crude from the Cushing, Oklahoma storage hub to the Gulf Coast, was expanded and TransCanada’s Gulf Coast Pipeline was brought online, increasing pipeline shipments out of the Midwest. By May 2015, pipeline shipments reached 1.3 million barrels per day, the highest level since the EIA began recording pipeline shipment data in 1986.

Mammoth Cave Park sees pipeline threat - Pushing a toxic mixture of natural gas liquids through an aging pipeline near Mammoth Cave National Park threatens the world-famous cave’s unique and fragile ecological systems, the National Park Service is warning. “The National Park Service is concerned about the potential for a catastrophic failure of the ... pipeline” within areas designed to protect endangered cave shrimp and other rare park resources, park superintendent Sarah Craighead wrote recently in a letter to federal energy regulators. The pipeline is 70 years old and was designed to carry a different product, natural gas, said Bobby Carson, chief of science and resource management for the park. “It’s been underground for a while” and may not be safe for carrying the liquids, which if spilled could damage the park’s rare natural resources, including a variety of endangered species, he said in an interview this week. The proposal by Kinder Morgan to convert part of its subsidiary Tennessee Gas Pipeline Co. operations from carrying natural gas to moving natural gas liquids has stirred controversy all year along a 256-mile path through Kentucky, with citizen groups, environmental organizations and some local officials objecting. Many have asked for a full environmental study rather than the less extensive review now underway. While the proposal has had the backing of the Kentucky Oil and Gas Association, the Federal Energy Regulatory Commission has collected nearly 300 written comments for its environmental review, many of them critical.

Judge bars pipeline surveyors from W.Va. couple's property — A judge has ruled that the developer of a proposed natural gas pipeline can’t survey a West Virginia couple’s property without their permission. Monroe County Circuit Court Judge Robert Irons ruled Wednesday that Mountain Valley Pipeline failed to establish that the project would provide sufficient public use to justify entering private property without an owner’s permission. Irons issued an injunction sought by Bryan and Doris McCurdy of Greenville, multiple media outlets reported. The McCurdys were represented by lawyers from Appalachian Mountain Advocates. Mountain Valley Pipeline spokeswoman Natalie Cox said the company will review the judge’s order. “While we respect the court’s bench ruling today, we will review the written order once it is received and consider our options going forward,” Cox said. Mountain Valley wants to build a 300-mile pipeline that would transport natural gas from Wetzel County to another pipeline in Pittsylvania County, Virginia.

BP's main crude unit at Whiting shut for at least a month - sources - – Heavy damage to the largest crude distillation unit at BP Plc’s 413,500-barrel-per-day (bpd) Whiting, Indiana, refinery will require at least a month to repair, sources familiar with the refinery’s plans said on Tuesday. The sources stressed that the time frame for the CDU’s restart was preliminary and may change. “I would expect longer rather than shorter,” one of the sources said. Piping inside the 240,000 bpd CDU, called Pipestill 12, which processes heavy sour oil crude, was damaged in a malfunction on Saturday. BP spokesman Scott Dean declined to discuss operations at the oil major’s largest refinery in the United States. News on the length of the unit’s outage was fiercely sought after by refined products and crude traders because of the impact the loss of production at the refinery could have on prices.  The Whiting crude unit outage was said to contribute to U.S. crude’s fall of $1.88, or more than 4 percent, to $43.08 a barrel, the lowest settlement since March 2009, and about $1 above the 2015 contract low on March 18.

Oil industry, hoping to drill in the Gulf, says it would enrich Florida -  Florida would be showered with thousands of jobs and billions of dollars of tax revenue over the next two decades if the federal government would quit standing in the way of energy exploration, the oil industry claims. The lure of jobs and money is part of a pitch to Congress to open much of the eastern Gulf of Mexico to rigs, just five years after the massive Deepwater Horizon oil spill. A former economist for the U.S. Energy Department and even some drilling boosters say the industry’s projections of jobs and revenue are greatly inflated. But the lobbying is making headway. The Senate energy committee on July 30 approved a bill that would shrink the no-drill buffer zone along Florida’s West Coast from 125 miles to 50 miles. The relentless pressure to drill is mounting despite relatively low oil prices and a surge in domestic production. For long term, the industry sees a chance to gain access to deposits known to exist under the Gulf and across the southern peninsula.Florida would gain 183,000 jobs by 2035, and the state economy would get a $440 billion boost from 2016 to 2035 if the federal government adopted “pro-development policies,” according to a report commissioned by the American Petroleum Institute, a powerful lobby in Washington.

Louisiana Town Gets A Win Over Plans To Frack In Wetlands  -- A Louisiana district court judge on Monday threw out — at least temporarily — a permit for fracking exploration in wetlands about an hour outside New Orleans.  The judge ruled that a division of the Department of Conservation failed to adequately consider the environmental impacts of the permit, including the implications of a nearby fault line. The Department of Natural Resources (DNR) will have to reevaluate the permit application for Helis Oil and Gas.  “They didn’t go through the environmental impact analysis that we said they had to do,” said Lisa Jordan, deputy director of the Tulane Environmental Law Clinic and the attorney representing Abita Springs on the case.  Jordan told ThinkProgress the environmental review of the permit was “boilerplate” and did not truly evaluate the potential costs of contamination to fresh water in the area. Abita Springs, a place known for its pristine water and that’s home to Abita Brewing Company, is located in St. Tammany Parish. Jordan said the DNR usually rubber-stamps permits like these. Abita Springs, as well as the parish and a community group, have been fighting the plan to frack there for over a year. There are currently other ongoing legal actions. One suit, which claims the permit violates local zoning laws, has resulted in a cease and desist order. The town of Abita Springs has also sued the Army Corps of Engineers for failing to hold adequate public meetings. There will be a hearing on that issue in October. Both the state and the Army Corps must grant approvals for drilling in wetlands to occur.

Texas man left permanently disabled from burns after fracking causes water well to explode: suit -- A Texas family suffered serious burns and injuries after a water well exploded because it was contaminated from a nearby fracking operation, according to a lawsuit filed in Dallas County Court.  Cody Murray, the 38-year-old husband of the family of four, sued EOG Resources, Fairway Resources LLC and three Fairway subsidiaries last week, according to Courthouse News Service. The lawsuit states that Murray suffered severe burns on his arms, upper back, neck, forehead and nose along with “significant neurological damage” — leaving him permanently disfigured and disabled. Murray’s father, wife, and 4-year-old daughter were also injured in the explosion.  Murray and his father went to the water well on his ranch in Perrin on August 2, 2014, to see why pressurized water was spraying inside it. “At the flip of the switch, Cody heard a ‘whooshing’ sound, which he instantly recognized from his work in the oil and gas industry, and instinctively picked his father up and physically threw him back and away from the entryway to the pump house,” the complaint states.“In that instant, a giant fireball erupted from the pump house, burning Cody and Jim, who were at the entrance to the pump house, as well as [Cody’s wife] Ashley and [daughter] A.M., who were approximately 20 feet away.” The lawsuit alleges that natural gas drilling near Murrays’ property caused his water well to become contaminated with methane, which resulted in the explosion. Two gas wells are about 1,000 feet northeast of the Murrays’ well.

Low Oil Prices Pose Threat to Texas Fracking Bonanza - — No place in Texas produces more oil than Karnes County, but suddenly the roaring economy here is cooling fast, chilled by the plunging price of crude.Workers who migrated from far and wide to find work here, chasing newfound oil riches, are being laid off, deserting their recreational vehicle parks and going home. Hay farmers who became instant millionaires on royalty checks for their land have suddenly fallen behind on payments for new tractors they bought when cash was flowing. Scores of mobile steel tanks and portable toilets used at the ubiquitous wells are stacked, unused, along county roads. “Everybody is waiting for doomsday,”  “Everything was good, and everybody was getting these big checks, and everybody waited for their land to be leased, and then it all came to a screeching halt around the beginning of the year.” Record production in the United States, along with a drilling frenzy in Iraq and Saudi Arabia, as well as the prospect that Iranian oil will again flood world markets, have spooked traders into abandoning their positions. What’s more, the very productivity here in the heart of the Eagle Ford shale fields, and the efforts by the oil companies to make them increasingly efficient, are contributing to the glut as well. The plunge has rippled far beyond the markets, sending the economy here and across the entire oil patch into turmoil. Nowhere is the sharp turn in fortunes as evident as in places like Karnes County and other parts of Texas, North Dakota, Louisiana, Colorado, Pennsylvania, Arkansas and Ohio that had little oil or natural gas production until drillers figured out how to tap into hard shale rocks deep underground.  “People didn’t have to work anymore,” . “Now they’ll have to work or panhandle if the oil price doesn’t go back up.”

Craddick blasts Obama for energy policy, awaits real debate from candidates -- Texas Railroad Commissioner Christi Craddick is livid with the current administration’s oversight of the energy industry, and wants real, fruitful debate from presidential candidates on the issue. “If pricing pressures from OPEC were not enough, the pain felt in the oil field today is the direct result of political decisions and bureaucratic policies made in places like the Environmental Protection Agency, Bureau of Land Management and Fish and Wildlife Service,” Craddick stated in a recent editorial published by Forbes. “For far too long we have let others determine our energy fate. If our nation is going to make measurable strides toward energy independence, now is the time to act. As presidential candidates kick-off the debate season, voters have a right to ask: What is your plan to responsibly develop America’s energy potential?” The Chairman noted that the oil and gas industry employs roughly 10 million Americans, and in states like Texas, energy is the lifeblood of a healthy economy. Craddick stated that Texas provides a good model for the whole nation to follow. “[The Railroad Commission of Texas] regulates more than 265,000 active oil and gas wells, 270,000 pipeline miles and hydraulic fracturing,” Craddick elaborated. “Through our day-to-day, on-the-ground regulation of the industry, the successful and safe production of oil and gas is achieved, allowing Texas to drive the American energy industry’s leading role in world markets.”

Shell discharged 163 tons worth of toxic gas at Deer Park facility - Last Sunday morning, over 300,000 pounds worth of toxic gas was accidentally released into the air at the Deer Park Shell Oil facility. According to reports from the Texas Commission on Environmental Quality (TCEQ), the emission hazard in Southeastern Texas was occurred at approximately 10:40 am at the Shell Deer Park site. Operating personnel discovered the leak roughly 15 minutes later. The Houston Chronicle reported that 326,166 pounds of butadiene escaped through an open valve on a spherical tank between 10:40 am and 11:35 am. “This release is huge,” stated Sierra Club of Texas chemist Neil Carman to the Chronicle. “Even 10 percent of 326,000 is big for butadiene.” Carman, who was also a former power plant inspector for the TCEQ, said that butadiene is a known human carcinogen. However, he noted that its molecular structure allows it to dissipate quickly in the hot summer air. The chemical is commonly expelled in car exhaust, but Carman said the quantity in the Shell incident was concerning. The U.S. Environmental Protection Agency states that long-term exposure to butadiene is linked to increased risks of cardiovascular disease and leukemia. Shell spokesperson Ray Fisher said the company is investigating the cause of the release. Meanwhile, data from nearby monitors did not exceed TCEQ odor or health-based screening levels during the incident.

Fracking could become 2016 Colorado ballot issue -Environmentalists and the energy industry have fought decisive battles over fracking in New York, Oklahoma and Texas, but the outcome is unclear in Colorado, where the issue could go to a ballot fight in the 2016 election. A task force convened by Colorado Gov. John Hickenlooper tried to find a compromise over who should regulate the industry — the state or local government — and to what extent. Fracking critics were bitterly disappointed when the panel suggested leaving regulatory power in state hands and avoided recommending specific health, environmental and safety rules. “I think the fossil fuels industry won,” said Karen Dike, a member of Coloradans Against Fracking. Dike and others won't say whether they plan to put measures that would restrict fracking on the 2016 ballot. Frank McNulty, a Republican former state lawmaker who sponsored a pro-industry ballot measure in 2014, expects fracking opponents to turn to voters next year. Opponents won a victory in New York, where regulators formalized a statewide fracking ban on June 29. In May, the industry prevailed in Texas and Oklahoma.

Montana panel to consider drilling buffer zones near homes  — Montana regulators were expected to decide Wednesday whether they should follow neighboring energy-producing states in creating buffer zones that set a minimum distance between homes and oil and gas drilling sites. The state Board of Oil and Gas Conservation is set to take up the issue of drilling setbacks at its meeting in Billings. If it decides to pursue a statewide rule, requirements such as distance and exceptions would be developed at a later date, administrator Jim Halvorson said. At a hearing in June, farmers and landowners told the board they wanted the setbacks to protect them against possible spills, fires, groundwater contamination, noise and trash from active well sites. Oil and gas companies oppose buffer zones, which exist in states such as Wyoming, North Dakota and Colorado.

Timeline of 180k gallon brine spill questioned --  Last week, large volumes of saltwater were spilled in the northwest corner of North Dakota due to a broken pipeline, reports the North Dakota Department of Health. The spill occurred about seven miles northwest of Crosby in Divide County, releasing over 4,000 barrels, or over roughly 179,000 gallons, of brine water. According to the Williston Herald, Oklahoma-based Samson Resources reported the spill last Wednesday and has since recovered approximately 9,500 gallons since the incident, which had occurred around 3:30 p.m. The timeline of the spill, however, has been brought into question. The Environmental Protection Agency states that this water is usually extremely toxic to the environment and contains radioactive material and heavy metals. The water is many times saltier than sea water and the toxic substances can be extremely damaging to the environment and public health if released onto the surface. As reported by the Herald, Divide County Emergency Services and 911 Coordinator Jody Gunlock disagrees with state official’s estimates of when the spill actually occurred. “It was apparent from the dead vegetation that this spill started earlier than August 5, the reported date of the incident and there was also some oil that leaked,”  . In a statement, the company said, “We have notified the appropriate regulatory authorities and landowners and are taking all appropriate action to address this situation.” Field inspectors with the Health Department are no longer on-site but have tested nearby waters for contamination.

Helms: Bakken core still profitable - North Dakota Department of Mineral Resources Director Lynn Helms, the state’s top oil regulator, says drilling is still very profitable in the Bakken’s core of Dunn, McKenzie, Mountrail and Williams counties. As reported by the Williston Herald, Lynn Helms said these core counties were home to more than half of last Thursday’s 73 active drilling rigs. Despite the current average breakeven wellhead price hovering around $31 per barrel of oil, not far below the West Texas Intermediate price of about $45 per barrel, companies are still able to produce at a profit. Helms told the Herald, “We are in the mode where we are just sustaining production,” adding that the current “turnaround cost” is about $65 per barrel. Production is remaining at a steady 1.2 million barrels per day even though rig counts and oil prices have declined sharply since late last year. Helms attributes this to oil producers and service companies figuring out how to maintain production levels by reducing costs and increasing recovery efficiencies. Helms also attested to company’s improved drilling abilities, allowing for about 24 wells to be drilled per year compared to the 10 wells in 2010. Drilling at faster rates and with fewer rigs has prompted state officials to consider the possibility that the currently low rig count will be able to maintain production levels, if not increase them. He said, “With the current drilling rate, the inventory could last two years. The current rig count with the efficiency of the rigs is capable of doing that.”

Bakken crude: Could pipelines replace the need for oil-by-rail? -- The transportation of Bakken crude is beginning to shift away from the railways and into pipelines as production levels off in the wake of last year’s price collapse and more oil and gas pipelines are brought online.  Rusty Braziel, analyst with RBN Energy, explained, “Since 2012 a combination of rail and pipeline has given Bakken producers ample crude takeaway capacity, but pipelines alone have not had sufficient capacity on their own.” Though, as production maintains a consistent rate, pipeline capacity is beginning to catch up. Braziel added, “By 2017 there should be enough pipelines to carry all North Dakota’s crude to market.” Last week Continental Resources reported that it now ships over two-thirds of its Bakken crude by pipeline, reports Reuters. In the second quarter 2015, the company, North Dakota’s second-largest producer, pushed approximately 160,000 barrels of crude per day through Kinder Morgan owned pipelines. For comparison, it shipped nearly all of its oil by train in 2014. During a conference call, Continental CFO John Hart said, “Approximately 70 percent of our Bakken production is now delivered to market via pipeline.” Director of RBN Energy Analytics Sandy Fielden said, “As soon as price differentials – especially between domestic benchmark West Texas Intermediate (WTI) and international benchmark Brent – narrowed, then barrels shifted back to pipelines to take advantage of their cheaper tariff rates. Yet significant crude volumes continued to be transported to market from North Dakota by rail because pipeline capacity could not handle the demand.”

Pipelines Are Safer Than Rail in the Transportation of Oil and Gas -- Determining how to best transport oil and gas in the future is of critical importance, especially considering that the consumption of these products will likely continue to rise. The stalling of pipeline projects such as Keystone XL has contributed to a sharp rise in the amount of oil and gas being transported by rail. This has prompted the question, which is safer for transporting oil and gas—pipelines or rail? Our new study examines this question using Canadian data compiled between the years 2003 to 2013. The study found that in this period pipelines experienced 1,226 occurrences and rail experienced 296 occurrences moving similar oil and gas commodities.  When taking into consideration the amount of product moved, overall, pipelines experienced 0.049 occurrences per Mboe, while rail experienced 0.227 occurrences per Mboe, making both rail and pipelines are quite safe. However, one is safer and these results suggest that rail is just over 4.5 times more likely to experience an occurrence per Mboe of hydrocarbon transported.    Also examined were data on how many accidents actually result in the releases of product, finding that 84 percent of pipeline occurrences and 73 percent of rail occurrences result in product being released. However, these high numbers don’t necessarily tell the whole story. Over 70 percent of all pipeline occurrences result in spills less than 1m3 or approximately 264 gallons. Only roughly 2 percent of spills result in large spills of more than 1000m3. And the study found that less than 1 percent of pipeline occurrences result in environmental damage.

Pipeline affects property values and mortgages - - In 2013, Boulder Weekly reported the impact of oil and gas extraction on real estate values has found homes near activity or as far away as 2.48 miles can lose between 4 percent and 15 percent of their market value. Home values in places with increased environmental awareness could drop by 20 percent or be rendered nearly worthless because no one will buy them due to their proximity to oil/gas activity. Conversations for Responsible Economic Development reports the loss in property value for homeowners impacted by the Pepco Pipeline in Maryland was 11 percent the first year. Homeowners along the BP Inland Corporation Pipeline in Ohio experienced a 25 percent reduction in property value. The loss of property value is greater in areas that have experienced explosions, spills and contamination. The loss of property value due to a natural gas pipeline is found in the 2014 Court of Appeals of the State of California in the case of Gaviota Holdings LLC vs. Chicago Title Insurance Company. The Santa Barbara County property was sold and the title to the property did not disclose an easement for a pipeline to transport gas. The respondent was awarded $1.51 million for the decline in property value.  The losses in real estate are also exacerbated by the impact that fracking oil and gas development is having on the primary and secondary mortgage markets.

10 Years Later: Fracking and the Halliburton Loophole -- Ten years ago, President George W. Bush signed the Energy Policy Act of 2005. The giant energy bill included massive giveaways for the fossil fuel, nuclear and ethanol industries and provided only token incentives for renewables and improved energy efficiency. But the most infamous piece of the law was what is now commonly known as the “Halliburton Loophole,” an egregious regulatory exemption that ushered in the disastrous era of widespread oil and gas fracking that currently grips our nation. Fracking has exploded in the last decade. More than 270,000 wells have been fracked in 25 states throughout the nation. More than 10 million Americans live within a mile of a fracking site. This means that 10 million Americans—and truly many more—have been placed directly in harm’s way. Hundreds of peer-reviewed studies have connected fracking to serious human health effects, including cancer, asthma and birth defects.For this we can thank the Energy Policy Act of 2005, the law that holds the Halliburton Loophole. Named after Dick Cheney and the notorious corporation he led before becoming vice president, the law (championed by Cheney and disgraced Enron founder Kenneth Lay, among others) explicitly exempted fracking operations from key provisions of the Safe Drinking Water Act. These exemptions from one of America’s most fundamental environmental protection laws provided the oil and gas industry the immunity it required to develop a highly polluting process on a grand national scale.

Shell seeks modified permit for Arctic offshore drilling — With a key safety vessel repaired and in northern waters, Royal Dutch Shell PLC has applied to amend its federal exploratory drilling permit to allow drilling into oil-bearing rock in the Arctic Ocean off Alaska’s northwest coast. Shell last month received permission to begin some drilling at two sites in the Chukchi Sea but was banned from digging into petroleum zones roughly 8,000 feet below the ocean floor. The federal Bureau of Safety and Environmental Enforcement limited the permit then because equipment was not on hand to handle a possible well blowout. The equipment is on the Fennica, a leased Finnish icebreaker that suffered hull damage July 3 as it left Dutch Harbor, a port in the Aleutians Islands. Arctic offshore drilling is strongly opposed by environmental groups that say industrial activity will harm polar bears, Pacific walrus, ice seals and threatened whales already vulnerable from climate warming and shrinking summer sea ice. They also say that drilling in U.S. Arctic waters, which the government estimates holds 26 billion barrels of recoverable oil, will delay a transition to renewable energy. The Fennica’s main job for Shell is to carry and maneuver a capping stack, a roughly 30-foot device that can be lowered over a wellhead to act like a spigot to stop a blowout. For Shell to drill into oil-bearing rock, the Bureau of Safety and Environmental Enforcement requires that the capping stack be pre-staged and available for use within 24 hours.

Obama unleashes drilling rigs while fighting global warming - Is President Barack Obama trying to have it both ways? Obama is playing the roles of both climate change warrior and driller-in-chief: At the same time he hails the campaign against climate change he announced last week, he’s opening the Arctic and Atlantic oceans to drilling and is on track to lease massive amounts of coal in the West. Renowned climate scientist James Hansen said he’s planning to write an analysis of the president’s global warming policies “probably entitled ‘Delusions at 1600 Pennsylvania Avenue,’ or something like that.” Hansen, who is NASA’s former lead climate scientist and is now at Columbia University, co-authored a controversial study published last month raising the possibility that global warming could result in a 10-foot sea level rise in the next five decades and inundate coastal cities. Former U.S. Secretary of the Interior Bruce Babbitt said in an interview that Obama’s climate record is mixed. “They are in fact subsidizing the production of coal on federal land and oil and gas. And that really is not good,” said Babbitt, who served under President Bill Clinton. He said Obama has “remarkable achievements” _ including the Clean Power Plan announced last week to limit carbon emissions from power plants, vehicle fuel efficiency standards and a climate agreement with China _ that are focused on limiting demand for planet-warming fossil fuels. But Babbitt sees a reluctance to address the supply of fossil fuels.

Capping oil well blowouts within 24 hours too expensive, says Ottawa -- The federal government says it is agreeing to an offshore drilling plan that would allow up to 21 days to bring in capping technology for a subsea well blowout, because requiring a shorter response time would be too expensive for Shell Canada Ltd. Meanwhile, the most recent U.S. ruling in Alaska — where Shell wants to conduct an exploratory drilling project — requires a capping stack to be on hand for a blowout within 24 hours. Nova Scotia environmentalists are questioning why the Canadian Environmental Assessment Agency has signed off on a plan that allows between 12 and 21 days for the multinational company to bring a vessel and a capping system to the Shelburne Basin offshore site, about 250 kilometres off the southwestern coast of Nova Scotia. Approval of Shell's plan for exploratory drilling in the Shelburne Basin is up to the Canada-Nova Scotia Offshore Petroleum Board. The board says it is taking the environmental assessment into account, but won't make a decision on whether to give the company the green light until later this year. However, the board's chief executive, Stuart Pinks, says the type conditions off the coast Alaska that require a capping system close at hand simply don't exist in Nova Scotia. "The drilling season is very short in Alaska, is very short because of ice," Pinks told CBC Radio's Information Morning. "If there was an event to occur in Alaska, there's a very short time period to get a capping stack on location and deployed before the ice moves in."

Oil spill drill set for pipelines in Straits of Mackinac — A massive exercise is in the works that would test a company’s ability to respond to a spill from oil pipelines under the Straits of Mackinac (MAK’-ih-naw). The Grand Rapids Press reports that the drill funded by Canada-based Enbridge Inc. will take place in late September and involve federal, state and local agencies. Hundreds of responders will participate, as will boats, helicopters, drones, underwater vehicles and other equipment. The exercise on the pipelines run by Enbridge has been planned for roughly a year. The pipelines have drawn concerns from environmentalists, but Enbridge says they’re safe. U.S. Coast Guard contingency preparedness specialist Steve Keck says the drill will be “huge,” and will also evaluate Enbridge’s Detroit-based contractor for spill response. The Straits connect Lake Michigan and Lake Huron.

“Gas Taxes and Oil Subsidies: Time for Reform” -- Should we root for prices to go up, down, or stay the same? The economic effects of falling oil prices are negative overall for oil-exporting countries, of course, and positive for oil-importing countries. The US is now surprisingly close to energy self-sufficiency, so that the macroeconomic effects roughly net out to zero. But what about effects that are not directly economic? If we care about environmental and other externalities, should we want oil prices to go up or down? Up, because that will discourage oil consumption? Or down because that will discourage oil production? The answer is that countries should seek to do both: lower the price paid to oil producers and raise the price paid by oil consumers. How? By cutting subsidies to oil and refined products or raising taxes on them. Many emerging market countries have taken advantage of the last year of falling oil prices to implement such reforms. The US should do it too.  Congress continues to shamefully evade its responsibility to fund the Federal Highway Trust Fund. On July 30 it punted with a 3-month stop-gap measure, the 35th time since 2009 that it has kicked the gas-can down the road! There is little disagreement that the nation’s roads and bridges are crumbling and that the national transportation infrastructure requires a renewal of spending on investment and maintenance. The reason for the repeated failure to put the highway fund on a sound basis for the longer term is the question of how to pay for it. The obvious answer is, in part, an increase in America’s gasoline taxes, as economists have long urged. The federal gas tax has been stuck at 18.4 cents a gallon since 1993, the lowest among advanced countries. Ideally the tax rate would be put on a gradually rising future path.

U.S. shale firms slide deep into the red on low oil prices – North America’s leading independent oil and gas producers reported large losses in the second quarter despite cutting costs and increasing output. Ten of the largest independent oil and gas producers in the United States reported total losses of almost $15 billion between April and June, compared with profits of almost $3.5 billion a year earlier. Three more independents remained profitable, but reported net income of only $66 million, down from more than $1 billion in the second quarter of 2014. Of the 13 companies in the sample, 11 had increased production compared with the prior year, in some cases by 30 percent or more. Most firms reported they had been able to reduce the average cost of drilling and completing each well by about 20 percent compared with the end of 2014. Average output per well has been boosted by pulling rigs back to the most consistently productive areas of the major shale plays. And the time needed to drill each well, stimulate it by pressure pumping and fix the wellhead equipment has been cut sharply by getting crews to focus on drilling the same formations over and over again.

Chevron Takes Harder Punch From Low Oil – WSJ -  A year ago, Chevron was booking the most profit per barrel among the world’s biggest oil companies, with its sights set on generating more cash than larger rivals Exxon Mobil Corp. and Royal Dutch Shell. Today Chevron has slipped hard, as the drop in oil prices combined with its own ambitious expansion have weighed heavily on its earnings. The company’s stock price has underperformed Exxon and Shell over the past year—during which oil prices fell sharply—after besting its two bigger competitors during the previous five years. Chevron’s stock price, which rose 2.5% on Monday to $85.89, is down 32% for the past year, compared with a 20% drop at Exxon. Chevron’s $571 million profit in the second quarter was just 10% of its haul a year earlier. Had Chevron not booked a gain for selling a stake in an Australian refiner, the company would have posted a quarterly loss for the first time in almost 20 years. Excluding asset sales and noncash impairments, Chevron earned $1.8 billion, or 97 cents a share. Exxon and other oil powerhouses have struggled to tame costs and deliver complex projects on time in recent years, but none has bet more on massive energy developments than Chevron. And as its cash flow sinks, the company is hitting snags with a suite of new, multibillion-dollar projects, aimed at boosting its oil and gas output by roughly 20% within two years—a much larger increase than its rivals have pursued.

EOG Resources reports small profit, but down 99 percent from last year - EOG Resources posted a $5.3 million net profit for the second quarter that is 99 percent less than the large $706 million gain from the same period last year before oil prices plummeted. The North American shale giant’s small profit is still a step forward from the nearly $160 million reported in the first quarter of the year. EOG’s $2.47 billion in second-quarter revenues dipped sharply from $4.19 billion during the same time last year. EOG said it is maintaining oil production guidance for 2015 and reducing its capital spending guidance by another $200 million because of improved cost efficiencies. The company said it is refraining from growing oil production into an over-supplied market, even though the CEO said it is now set up to profit in a $50 per barrel oil environment. “The company is generating good returns in all our key assets with $50 oil. Our goal is to continue our progress and remain the industry leader in capital returns.” While Thomas said EOG is doing well in Texas’ Eagle Ford Shale, he specifically highlighted the performance in North Dakota’s Bakken Shale. EOG increased its net resource potential in the Bakken and Three Forks plays from 400 million barrels of oil equivalent to 1 billion barrels of oil equivalent and grew its total net wells from 580 to 1,540.

Dune Energy claims Chapter 11: Louisiana oil fields fetch $19 million dollars - With crude oil prices dropping to their lowest since 2009, is it any surprise to see so many oil and gas assets changing hands as companies seek Chapter 11 bankruptcy protection? Dune Energy is one of the many companies striving to survive the current crude oil market lows, filing this past March. Other companies include: Sabine Oil & Gas Corp., American Eagle Energy Corp. Milagro Oil & Gas and BPZ Resources. As reported by the Wall Street Journal, “The Houston-based, energy company filed for Chapter 11 protection in U.S. Bankruptcy Court in Austin, Texas, listing assets of $229.5 million and debts of $144.2 million. Senior lenders are owed $39 million, while second-lien lenders are owed nearly $68 million. As a condition of a $10 million bankruptcy loan, Dune’s senior lenders are requiring that the company put itself up for auction.” Dune sought out potential merger partners without much success. They were only able to locate one interested party: Eos Petro. The deal didn’t sit well with everyone.  One of Dune’s investors, Thomas Whatley, filed a lawsuit aimed at killing the deal because the price was too low. The lawsuit ultimately proved unnecessary as Eos was unable to secure the financing. The failed merger left Dune with few attractive options to pay off debts and investors. The next plausible step in their Chapter 11 obligations, was to sell off assets. As reported by OilVoice, White Marlin Oil and Gas paid $19 million dollars for Dune Energy assets after a contentious auction with accusations flung at Chevron and Enervest Energy that their demands scared off potential higher bidders. The accusations remain unfounded.

California Pension Funds Lost More Than $5 Billion From Fossil Fuel Holdings  --A new report released yesterday from Trillium Asset Management found that California’s public pension funds, CalPERS and CalSTRS, incurred a massive loss of more than $5 billion in the last year alone from their holdings in the top 200 fossil fuel companies. The funds, combined, incurred a loss of $840 million from stock investments in the world’s largest coal companies. Together, the two influential and enormous pension funds represent a total of nearly 2.6 million members in the state.   A new report released yesterday from Trillium Asset Management found that California’s public pension funds, CalPERS and CalSTRS, incurred a massive loss of more than $5 billion in the last year alone from their holdings in the top 200 fossil fuel companies. This report comes as S.B. 185, a bill to divest CalPERS and CalSTRS from coal, awaits a vote in the Assembly. The bill has already jumped major hurdles through the State Senate and an Assembly Policy Committee. If passed through the Assembly, the bill will make its way to the desk of Gov. Jerry Brown, where he will will either affirm California’s position as a climate leader, or fail to take climate action he has acknowledged as necessary. “This is a material loss of money, which directly impacts the strength of the pension fund,” said Matthew Patsky, CEO of Trillium Asset Management. “Fossil fuel stocks are volatile investments. Investors and fiduciaries should take this moment to reassess their financial involvement in carbon pollution, climate disruption and the financial risk fossil fuels plays in their portfolio.” Just last week, Bloomberg News reported that CalPERS lost $40 million in market value from investments in a single oil company.

Cheap Debt Vanishes for U.S. Junk Issuers in Oil's Cruel Summer - The weakest corporate borrowers are finding the days of free-flowing credit quickly evaporating. The $39.6 billion of junk-rated bonds and loans issued since July is the least since the summer of 2008, according to data compiled by Bloomberg. For those that are coming to market, many are paying up or struggling to find buyers at terms they can stomach. Appetite for energy companies, in particular, has vanished just as they need to refinance big credit lines they took out when oil was more than twice its current price. "The weaker guys got spoiled, the market was buying anything and everything and taking the price. But the market has changed, and the turning point was the commodity cycle.” Natural-gas compressor Exterran Holdings Inc. said in July that it was withdrawing a $400 million note sale that would have paid down debt, and WPX Energy Inc. sweetened terms on a $1 billion bond deal that is being used to finance an acquisition. The timing couldn’t be worse for drilling companies that until now have been selling bonds to help forestall a cash crunch. With banks set for semiannual re-evaluations of energy-company credit lines, many of which will come in October, issuers may find access to debt markets throttled. The loans are based on the value of producing reserves.

Oil Majors’ $60 Billion Cuts Don’t Go Far Enough as Crude Slides - The $60 billion of oil-industry spending cuts this year aren't likely to be enough to meet sacrosanct dividend commitments as crude languishes near a six-year low. The world’s biggest producers will need to trim investments by a further $26 billion, according to Jefferies Group LLC. Capital spending will have to fall 10 percent next year, Banco Santander SA says. Oil companies are bracing for “lower for longer” prices as a global supply glut persists, dragging crude to the lowest close since March 2009 in New York on Tuesday. Royal Dutch Shell Plc, which has reduced spending 20 percent this year, has “more levers to pull” should the market weaken further, according to Chief Executive Officer Ben Van Beurden. The tightening means international producers such as Shell and Chevron Corp. can break even at a lower crude price -- about $10 lower than before they started cuts last year, according to Jefferies analyst Jason Gammel. Oil companies are bracing for “lower for longer” prices Still, they’ll need Brent at $82 a barrel next year to balance cash flow from operations with investments, he said. Santander’s Jason Kenney puts the breakeven level at $70, about $20 above current prices. That gap is reflected in energy stocks, which are among the world’s worst performers this year.

Why an Oil Glut May Lead to a New World of Energy -- ExxonMobil and Chevron, the top two U.S. oil producers, announced their worst quarterly returns in many years.  Exxon, America’s largest oil company and normally one of its most profitable, reported a 52% drop in earnings for the second quarter of 2015.  Chevron suffered an even deeper plunge, with net income falling 90% from the second quarter of 2014.  In response, both companies have cut spending on exploration and production (“upstream” operations, in oil industry lingo).  Chevron also announced plans to eliminate 1,500 jobs. Painful as the short-term consequences of the current price rout may be, the long-term ones are likely to prove far more significant.  To conserve funds and ensure continuing profitability, the major companies are cancelling or postponing investments in new production ventures, especially complex, costly projects like the exploitation of Canadian tar sands and deep-offshore fields that only turn a profit when oil is selling at $80 to $100 or more per barrel. According to Wood Mackenzie, an oil-industry consultancy, the top firms have already shelved $200 billion worth of spending on new projects, including 46 major oil and natural gas ventures containing an estimated 20 billion barrels of oil or its equivalent.  Most of these are in Canada’s Athabasca tar sands (also called oil sands) or in deep waters off the west coast of Africa.  Royal Dutch Shell has postponed its Bonga South West project, a proposed $12 billion development in the Atlantic Ocean off the coast of Nigeria, while the French company Total has delayed a final investment decision on Zinia 2, a field it had planned to exploit off the coast of Angola.  “The upstream industry is winding back its investment in big pre-final investment decision developments as fast as it can,” Wood Mackenziereported in July.

Exclusive: Hillary Clinton State Department Emails, Mexico Energy Reform and the Revolving Door - Steve Horn - Emails released on July 31 by the U.S. State Department reveal more about the origins of energy reform efforts in Mexico. The State Department released them as part of the once-a-month rolling release schedule for emails generated by former U.S. Secretary of State Hillary Clinton, now a Democratic presidential candidate. Originally stored on a private server, with Clinton and her closest advisors using the server and private accounts, the emails confirm Clinton’s State Department helped to break state-owned company Pemex‘s (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create. The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio.

Move to Allow U.S. Oil Exports Accelerates - WSJ: Big voices in the oil industry and Congress now support a move that would have been unthinkable not long ago: opening the U.S. oil industry to exports. The U.S. has long pushed for liberalized trade, with U.S.-produced crude being the biggest exception since the shock of the 1973 Arab oil embargo led Congress to ban oil exports under nearly all circumstances. The only other U.S. products banned under the same regulations are a type of tree found in Western North America called Western red cedar and live horses for slaughter shipped by sea. The House now looks likely to vote as early as September to lift the oil-export ban, with Senate action anticipated early next year, which would mark a milestone few saw coming. “Go back seven years, you would not have imagined that there would be a debate about U.S. exporting oil,” said Daniel Yergin, vice chairman of research firm IHS.   But while freely exporting U.S. oil may come as a shock to some Americans, it probably won’t cause much of an economic stir, especially with global oil prices hovering below $50 a barrel.  Thanks to the fracking revolution, the U.S. is no longer the energy-dependent nation it was for most of the past 50 years. Oil production since 2007 has shot up more than 80% to 9.5 million barrels a day. The U.S. still imports a lot of oil, but the share of petroleumfrom foreign sources, 27%, is at its lowest level since 1985, according to the U.S. Energy Information Administration.   More than a dozen oil companies, including Continental Resources Inc., ConocoPhillips and Marathon Oil, and several top lawmakers, including Sen. Lisa Murkowski (R., Alaska) and House Speaker John Boehner (R., Ohio), contend that allowing unfettered domestic oil exports would eliminate market distortions and streamline U.S. petroleum production. The Obama administration hasn’t taken a public position on the issue.

This Week In Energy: Depressed Oil Market Still Sees Production Gains -- Second quarter earnings have largely reflected the depressed market conditions, with revenues down by significant margins across the board. From the oil majors on down to the small drillers, the second quarter of 2015 was a disappointing one. At the same time, oil drillers are still managing to post production gains, surprising energy analysts that have been predicting declines up until now. Part of the reason is the fact that projects have been in the pipeline for quite a while, coming to fruition only recently. That adds more capacity to company portfolios.  Still, oil companies are finding more and more ways to squeeze out efficiencies, such as drilling more wells per rig. Anadarko, Devon Energy and Whiting Petroleum all reported impressive production figures, as drilling efficiencies allowed them to actually boost production, even in a depressed marketplace. Devon Energy reported that it succeeded in increasing production by 30 percent in the second quarter compared to the same quarter in 2014. Even more boldly, Pioneer Natural Resources, on the back of its 10 percent gain in production in the second quarter, said that it is planning on adding two rigs per month between now and the end of 2015.  The Permian Basin in West Texas remains one of the few bright spots compared to other shale basins in North America. Drilling there is still profitable, with low costs and existing infrastructure. A series of pipelines have come online in West Texas over the past year, eliminating the discount that Permian oil traded at compared to the WTI benchmark. The Wall Street Journal notes that RSP Permian, a Permian driller, successfully sold new equity, a sign that investors are still keen on drillers in the basin. RSP sought to raise funds to complete acquisitions and the company raised $157.5 million by selling new stock this week. There is a lot of speculation about when and to what extent lenders and equity investors will pull out of the shale sector, but RSP’s successful offering demonstrates that there is still an appetite for shale companies among investors.

EIA lowers 2015, 2016 U.S. crude oil production forecasts – The U.S. government on Tuesday lowered both its 2015 and 2016 U.S. crude oil production forecasts as a 60-percent rout in benchmark prices since last summer weighs on shale output. In its short term energy outlook, the U.S. Energy Information Administration lowered its 2015 U.S. crude oil production growth forecast to 650,000 barrels per day (bpd) from 750,000 bpd, and also expanded the expected production decline for 2016 to 400,000 bpd from 150,000 bpd previously. “While U.S. crude oil production this year is expected to be 100,000 barrels per day less than previously forecast, oil output is still on track to be the highest since 1972,” EIA Administrator Adam Sieminski said in a statement. Meanwhile, it left its 2015 U.S. oil demand growth forecast unchanged at 400,000 bpd from last month, and raised its 2016 demand growth forecast to 190,000 bpd from 130,000 bpd previously. The move comes as benchmark prices have collapsed on the back of a global glut and waning demand. On Tuesday, U.S. crude futures were trading at session lows and near 2015 lows. The production adjustments come after the EIA forecast on Monday that U.S. oil production from the largest shale plays was set to deepen declines for a fifth consecutive month in September..

The Louisiana Offshore Oil Port rising to meet the needs of crude oil storage - Currently, LOOP has 60 million barrels underground capacity, and once construction is finished, their final above ground storage will be 10.1 million barrels. According to Don Briggs, president of the Louisiana Oil & Gas Association,of low oil prices and will benefit the state of Louisiana. As reported by The Associated Press, published on, Briggs said, “What drives a lot of this new storage — not just here, but in other parts of the world — is the fact that oil prices are so low. When you have cheaper oil prices, it’s a good time to be able to buy, but it doesn’t do you any good to buy if you don’t have a place to put it.” The new oil tanks are meant to meet this increasing demand for storage. Not all oil storage centers are created equal, especially when it comes to price. Increased demand has led to increasing monthly prices per barrel. With oil prices already hitting alarming lows, companies are struggling to minimize their costs. Enter LOOP, which is already one of the largest oil trading and distribution facilities in the US. Their affordable prices make them the obvious choice for companies looking to store a surplus of crude oil domestically. As reported by the Advocate, “It’s all part of the bizarre oilscape, where the glut of domestic oil has made storage space a valuable commodity. Here’s why: Futures contracts for oil are selling for about $10 a barrel more than the current price. For example, the contract for oil to be delivered in April 2016 is nearly $58 a barrel. The U.S. benchmark price has been under $50.” What this means is that as long as storage facilities offer cheap rent, it literally makes “cents” to store crude oil for future sale at higher prices.

Have We Reached A Bottom For Oil Prices? - Bouncing off of four-month lows, oil prices rose a bit on August 10, as WTI tried to climb back to $45 per barrel and Brent jumped above $50. The slight uptick was due to data showing that China’s oil imports so far this year are up 10 percent from a year earlier. That supported the notion that demand is rising and could (very slowly) start to soak up extra supply. However, don’t get too excited just yet – analysts say that China’s oil imports are temporarily elevated as the government seeks to capitalize off of low crude prices for its strategic petroleum reserve. Seizing on the opportunity to buy up oil on the cheap, once the stockpile build is achieved, China’s oil demand could level off.  Moreover, China announced a surprise devaluation of its currency, the yuan, on August 11. The move could provide fresh worries over its oil demand because a weaker currency would make oil more expensive. The devaluation by the central bank was intended to keep growth humming along, but for oil markets, it is a negative.  Meanwhile, OPEC announced that its production levels have hit a three-year high as Iran managed to boost output. The oil cartel produced 31.5 million barrels per day in July, or an increase of 100,700 barrels per day over the previous month’s total. Iran posted a gain of 32,300 barrels per day, reaching 2.86 million barrels per day. That was the highest tally for the Islamic Republic in over three years. Iraq also saw its output jump by 45,700 barrels per day to 4.1 million barrels per day. The production gains throw up new bearish signals for oil, although the increases in output are relatively small. And as oil prices have dropped to fresh lows, they have hit resistance at a very similar threshold for the second time this year (~$44 for WTI and $45-$52 for Brent), and the markets have demonstrated a reluctance to trade oil any lower, perhaps expecting oil prices can’t fall any further than where they are currently at.

Oil Prices Are Near Six-Year Lows Amid Supply Glut - Oil prices are now near a six-year low, moving down earlier today to about $44 a barrel. Friday’s decline came on the back of an upbeat jobs report, which strengthened the dollar, lowering oil prices. The fall has been precipitous: Only a year ago, crude oil was more than $100 a barrel.  The slide has prompted fears the market may be oversupplied with oil. In some sense, the story is the same as when oil prices first started falling last summer: one of increased supply, paired with a slow recovery (America) and a slowdown (China) in oil-guzzling economies. But there’s another story: Amid the glut and falling prices, Saudi Arabia, one of the world’s top oil producers, reported in June its highest level of crude oil output on record. OPEC, the cartel of oil-producing countries, made a gamble to keep production steady in a high-stakes game of chicken with the U.S. shale-oil industry—a gamble that’s projected to result in trillions of dollars in revenue losses for the oil industry over the next several years. A report from the Saudi central bank suggests while non-OPEC producers are not losing in the price war, more patience is needed from OPEC producers. But the effort to hurt other producers may be backfiring: Saudi Arabia is facing huge budget deficits this year due to low oil prices—the government has started dipping into its reserves and the deficit for 2015 is expected to be 20 percent of gross domestic product. Analysts say U.S. oil producers need to cut production by 500,000 barrels a day to bring supply levels down to boost prices. If not, some analysts are now predicting that oil could briefly hit $30 a barrel before the price war ends.

U.S. crude ends at 6-yr low on China devaluation, OPEC data (Reuters) - U.S. crude settled at a more than six-year low on Tuesday after China's currency devaluation raised questions about oil demand in the No. 2 consumer and a new OPEC estimate showed non-member producers are likely to keep output high despite low prices. A BP refinery outage in Whiting, Indiana, that could last at least a month, idling some 240,000 barrels per day of crude distillation, also weighed on oil prices, traders said. U.S. crude fell $1.88, or more than 4 percent, to$43.08 a barrel, its lowest settlement since March 2009, and about $1 above the 2015 contract low on March 18. Brent fell $1.23, or 2.4 percent, to $49.18 a barrel, paring more than half of its gains in a rally on Monday. The market continued to weaken in post-settlement trade after the American Petroleum Institute (API), an industry group, reported a smaller-than-expected drawdown in U.S. crude inventories last week.  China devalued its yuan currency by nearly 2 percent after a run of poor economic data, guiding the currency to a near three-year low. The Organization of the Petroleum Exporting Countries projected that crude supplies from countries outside the group will rise by 90,000 bpd this year, a sign that crude's price collapse was taking longer than expected to hit U.S. shale drillers and other competing sources.

Posted price of crude oil hits lowest mark since 2009 - — Consumers will be thrilled to see the price of a gallon of regular gasoline drop even more in the next several months, but that’s not good news for the oil industry. Karr Ingham, a petroleum economist in Amarillo, said the posted price of a barrel of Texas Intermediate Crude has dropped about 60 percent since June 2014 when it was right around $104. It’s been a roller coaster ride since then with the price per barrel dropping farther on Tuesday to $39.75, the first time the price has been below $40 since March 2009. The posted price, he explained, is the set price a company is willing to sell its oil or other commodities. Traditionally reported prices by media outlets come from the New York Mercantile Exchange where prices are speculative and typically about $3 more than the posted price. Ingham agreed the oil industry is in a sort of Catch 22 predicament where it is obligated to continue pulling crude out of the ground, but by doing so they flood an already saturated market that already doesn’t have enough demand. Some have “foolishly or naively” suggested the industry come together and reduce the amount of daily production, but that’s not how the market functions in North America. “The market forces moves in one direction or another,” he said of the supply and demand theory. “It’s only in other places like Saudi Arabia and most OPEC countries and most other (oil) producing countries, frankly, that is very centrally managed and government managed. In those places, they can decide to turn the spigot up or down or what have you, and not always with the best outcomes, of course.”

Are The Saudis Winning? US Crude Production Slows To Lowest In 3 Months -- US crude production declined 0.74% last week to its lowest level since May 15th. US crude inventories dropped for the 4th week of the last 5, but considerably less than expected.  And inventories dropped again...  Charts: Bloomberg

Oil market adjustment is about more than just shale (Reuters) – U.S. shale oil production amounted to just 5 million barrels per day (bpd) at the end of 2014, less than 6 percent of world production and consumption. Despite the shale sector’s small market share, it has disrupted the entire oil industry because it emerged in the middle of the cost curve and has accounted for more than half of the increase in global supplies since 2010. Between 2010 and 2014, shale output rose by 4 million bpd, accounting for more than half of the 7 million bpd increase in global liquids production over the same period, according to the U.S. Energy Information Administration (EIA). Shale is more expensive to produce than oil from the giant conventional fields of the Middle East but cheaper than deepwater megaprojects and competes directly against the North Sea and Canada’s oil sands. Shale’s competitiveness on price and fast growth have scrambled the plans for every other participant in the oil industry. Megaprojects developed by the major international companies must now be benchmarked at prices of just $70 or even $50 a barrel rather than the $80-$100 which underpinned planning assumptions until a year ago. Middle East exporters, accustomed to spending profits of more than $50 per barrel on social programs, must now adjust to far smaller revenues. And high-cost producers in the North Sea, Alberta, Latin America, Africa and frontier exploration areas are struggling just to survive.

Crude Oil Price Slips as Inventory Dips Less than Expected - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 1.7 million barrels last week, maintaining a total U.S. commercial crude inventory of 453.6 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 847,000 barrels in the week ending August 7. For the same period, analysts surveyed by Platts had estimated a decrease of 1.9 million barrels in crude inventories. The API also reported that gasoline inventories increased by 117,000 barrels and that distillate stockpiles rose by 2.2 million barrels. Total gasoline inventories decreased by 1.3 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 over 9.6 million barrels a day for the past four weeks, up by 6.6% compared with the same period a year ago. Recent oil market status reports from OPEC, the International Energy Agency (IEA), and the EIA’s own update to its Short-Term Energy Outlook indicate that supply continues to exceed demand, but that demand is growing globally and supply is beginning to slow in the United States, particularly. OPEC supply remains high and could rise even more, depending on whether the Iran nuclear agreement is approved and sanctions against Iran are lifted.

Oil Inventory to Stay High in 2016, Even With Greater Demand - Don’t expect oil prices to rise next year. As a matter of fact, they may fall. The International Energy Agency (IEA), in its monthly forecast for August, laid out a case for greater supply, which will face enough demand so that the oil price trend will not be alleviated: From the driller in the Bakken to the motorist at the pump, oil market players are adjusting to a world of lower prices. Our latest forecast shows stronger-than-anticipated demand and non-OPEC supply growth swinging into contraction next year. While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 – suggesting global inventories will pile up further. OPEC traditionally controls the world’s supply, and to some extent sets prices. Its leverage has dropped, and will continue to do so: But OPEC only accounts for a bit more than half of the annual increase in world oil supply. While non-OPEC output growth has sunk from its heights of 2014, supply in July was still running 1.2 mb/d on a year earlier thanks to hefty investment made previously However, OPEC’s activity cannot be discounted, particularly as nations and large oil companies outside the organization may find oil prices too low to keep up exploration. Part of the trigger is not just oil but refinery activity: Global refinery runs reached a record 80.6 mb/d in July, 3.2 mb/d up on a year earlier, but fissures are showing. High distillate stocks have pushed cracks in Singapore down to their lowest level since 2009 and prompted run cuts in Asia. Elsewhere, especially in the US, still-soaring gasoline cracks supported high margins and throughput.In sum, oil prices are more likely to sit at $50 than race back to $100.

Baker Hughes oil rig count rises again, up 2: U.S. crude oil closed higher on Friday after oilfield services firm Baker Hughes reported its oil rig count rose for a fourth straight week. The number of rigs drilling for oil in the United States rose by 2 from the previous week, bringing the total to 672. Drillers had 1,589 rigs online at this time last year. U.S. crude was closed up 27 cents, or 0.6 percent, at $42.50 a barrel, after hitting an intraday low of $41.35, its lowest since March 4, 2009. The lowest U.S. crude price in the aftermath of the financial crisis occurred on January, 2009, when WTI dipped to $33.20 per barrel, falling 77 percent fall from it peak near $147 in July, 2008. Brent crude traded at $48.90, down 30 cents and some way off its 2015-low of $45.19 reached in January. The front-month September Brent contract expires on Friday. U.S. benchmark crude steadied earlier on Friday after falling to its lowest in almost 6½ years as huge stockpiles and refinery shutdowns heightened concerns about global oversupply. Oil had already tumbled more than 3 percent on Thursday, driven by a report that stocks at Cushing, Oklahoma, the delivery point for U.S. crude futures, rose more than 1.3 million barrels in the week to Aug. 11.

Permian Basin dominates rig counts -- Despite being halved in the past year, the Permian Basin’s rig count heads the upswing with more rigs than any other US region. It’s been a rough year for rig counts in every shale play across the country, and the Permian Basin has been no exception. In the past 12 months, capped August 7 2015, the Basin suffered a loss of rigs, accounting for more than half of its oil and gas rigs. Despite the heavy toll of the global oil slump, Market Realist reports that, of the 670 US rigs in operation, Baker Hughes found that Permian Basin is home to 252—a staggering number compared to the 79 rigs in the Eagle Ford Shale and 72 in the Williston Basin. The Basin’s sharp decline in rig counts, and thus dwindling drilling activity, is likely to weigh down production growth. There is hope, however, that if growth in Permian rig counts continues its pattern, production growth will follow suit.

Why U.S. rig counts are rising even as oil plunges to new lows -  Is OPEC winning its price war with U.S. shale-oil producers? U.S. production has started to slow, but the number of rigs drilling for crude oil has ticked up in recent weeks, ending months of steep declines, just as oil futures took another hit. What gives? Data through Aug. 7, 2015 “The recent increase in rig counts is due to prices two months ago. There’s always a lag between price changes and drilling activity,” explained James Williams, economist at WTRG Economics. “With the recent drop in prices, we’ll probably see some pressure on rig counts to slack off again.” On Friday, oil-services firm Baker Hughes said the number of U.S. oil rigs rose for a fourth straight week. There were a total of 672 rigs as of Friday, up two from a week ago. The number of rigs bottomed at 628 in late June, ending months of steep declines. Still, the number of rigs is down 917 from this time last year. Oil began a plunge in mid-2014, driving the price of West Texas Intermediate futures on Nymex to less than $44 a barrel by March of this year from a high in June 2014 of around $107 a barrel.The global supply glut that triggered the selloff last year hasn’t gone away. That glut is in part a product of a massive rise in U.S. shale-oil production over the last half-decade. And while U.S. production has fallen, it hasn’t declined as quickly as many had anticipated. That is partly because technological improvements allow frackers to get more oil out of fewer wells with less expense. “Costs are down, rig efficiency is up, and they’re drilling in places where they get more wells,”  So, what does it all mean for Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries?  Despite the recent uptick in rig counts, major shale regions, with the exception of the Permian Basin, are on track to see production fall from last year. “So that’s a validation of the OPEC strategy if you want, but it didn’t validate it as much as they had hoped,”

Why Crude Oil's Carnage Has Only Just Begun - "Summer is when refineries are all running hard, so actual demand for crude is as good as it gets,” notes Citi's Seth Kleinman, London-based head of energy strategy, but U.S. crude futures have lost 30 percent since the start of June, set for the biggest drop since the West Texas Intermediate crude contract started trading in 1983. That beats the summer plunges during the global financial crisis of 2008, the Asian economic slump in 1998 and the global supply glut of 1986. As Bloomberg reports, if crude’s slump back to a six-year low looks bad, it’s even worse when you reflect that summer is supposed to be peak season for oil. OPEC’s biggest members are pumping near record levels to defend their market share and U.S. production is withstanding the collapse in prices and drilling. The oil market is still clearly oversupplied and “it will get more so as refiners go into maintenance,” Kleinman said. * Perhaps last night's flash crash is a sign of things to come...

 Oil Futures Signal Weak Prices Could Last Years - WSJ: The oil market is signaling that prices could stay lower for longer, delivering a fresh blow to hard-hit energy exploration-and-production companies. Benchmark U.S. oil futures for September delivery are nearing the six-year low hit in March. But contracts for delivery in later years have taken an even bigger hit, with prices for 2016 and 2017 already trading below their March lows. That indicates that investors, traders and oil companies see the global glut of crude oil persisting beyond this year. Companies making long-term investment decisions rely on the prices of futures contracts one or more years in advance. Producers trade futures and options contracts for coming years to lock in prices for the oil they plan to sell in those years.A number of U.S. shale-oil producers say they can profitably increase production if prices rise above $65 a barrel. On Friday, front-month oil prices fell 79 cents, or 1.8%, to $43.87 a barrel, while futures for delivery in December 2016 settled at $51.88 a barrel. The most expensive benchmark oil-futures contracts, which were dated for delivery in 2022 and 2023, settled at $63.26 a barrel. For many producers, such as Diamondback Energy Inc. and Marathon Oil Corp., later-dated contracts are now too cheap to justify locking in prices. That means producers are likely to enter 2016 with fewer price hedges on the books than usual, if they have any at all.Companies without price protection in 2016 could be forced to cut back further on new drilling if prices remain below their break-even costs. “I think it’s a fair assessment that just about nobody is putting on hedges at this point,”

OPEC says cheap oil taking longer to subdue rival suppliers - – OPEC on Tuesday raised its forecast of oil supplies from non-member countries in 2015, a sign that crude’s price collapse is taking longer than expected to hit U.S. shale drillers and other competing sources. In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) forecast no extra demand for its crude oil this year despite faster global growth in consumption, because of higher-than-expected production from the United States and other countries outside the group. Oil is trading below $50 a barrel, close to its 2015 low after an 18 percent drop in July. But OPEC has refused to cut output, seeking to recover market share by slowing higher-cost production in the United States and elsewhere that had been encouraged by OPEC’s prior policy of keeping prices near $100. Earlier this year, OPEC slashed its prediction of non-OPEC supply for 2015, expecting lower prices to prompt a slowdown. But on Tuesday, it raised the forecast by about 90,000 barrels per day (bpd), following a 220,000-bpd increase in last month’s report. “U.S. onshore production from unconventional sources is currently expected to decline marginally in the second half of 2015 through year-end, while U.S. offshore production is expected to grow due to project start-ups,” OPEC said. “Recent developments in the upstream as well as renewed oil price volatility have made forecasting non-OPEC supply more challenging.”

OPEC Supply Reaches 3-Year High as Iran Pumps Most Since ’12 -  OPEC pumped the most crude last month in more than three years as Iran restored output to the highest level since international sanctions were strengthened in 2012. The Organization of Petroleum Exporting Countries, responsible for 40 percent of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, the group said in its monthly market report, citing external sources. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year. Oil prices slumped to a six-month low below $50 a barrel in London last week as rising OPEC supplies, resilient U.S. production and concerns over Chinese demand prolong a global glut. Iran may further expand output after reaching an accord with world powers on July 14 that will ease sanctions on oil exports later this year in return for curbs on its nuclear activity. “Iran has been rising slowly but surely for a while now,” . “It doesn’t need foreign investment to revamp existing infrastructure and prepare fields, resulting in the small increases you can see now. But the bulk of the increase is expected once it becomes clear sanctions will definitely be lifted.”

From Currency Wars To Oil Wars - OPEC Ups Production To 3 Year Highs As Iran Output Surges -- As China takes the currency wars to the next level, so OPEC, not to be outdone, rotates the oil war volume to 11. As Bloomberg reports, OPEC pumped the most crude last month in more than three years as Iran restored output to the highest level since international sanctions were strengthened in 2012. The response - as one would expect - is a plunge in crude prices, erasing all the ridiculous algo-driven gains of yesterday, pushing WTI back on the verge of a $42 handle. As Bloomberg reports, The Organization of Petroleum Exporting Countries, responsible for 40 percent of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, the group said in its monthly market report, citing external sources. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year. Iran may further expand output after reaching an accord with world powers on July 14 that will ease sanctions on oil exports later this year in return for curbs on its nuclear activity. “Iran has been rising slowly but surely for a while now,” . “It doesn’t need foreign investment to revamp existing infrastructure and prepare fields, resulting in the small increases you can see now. But the bulk of the increase is expected once it becomes clear sanctions will definitely be lifted.” Iran increased output by 32,300 barrels a day in July to 2.86 million a day, the highest since June 2012, according to data OPEC compiles from “secondary sources” such as media agencies and international institutions. Sanctions to deter the nation’s nuclear research took effect in July that year.

Oil Trades Under $42 To 6 Year Lows, Gundlach Sees "Terrifying Geopolitical Consequences" Looming -- For the first time since March 2009, the front-month WTI crude futures contract has traded with a $41 handle.  As it draws ever nearer the 2009 lows, we are reminded of the ominous warnings that DoubleLine's Jeff Gundlach issued in January. - "I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying." As we previously discussed in January, in a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone... Gundlach is right historically... Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

Crude Prices Seen Staying Below $70 a Barrel Over The Next Year - WSJ: As U.S. crude prices hit a six-year low Thursday, a survey of 10 investment banks by The Wall Street Journal showed increasing pessimism about the outlook for oil. The average forecast of 10 banks surveyed this month was for oil prices to stay below $70 a barrel until late next year. They expect Brent crude, the international price benchmark, to average $58 a barrel this year, down from the forecast of $62 a barrel in May’s survey. For U.S. oil, the average forecast of the banks was $54.50 a barrel this year and $63.40 in 2016. Both grades of crude were trading at more than $100 a barrel a little over a year ago. “The heart of the matter is simple: There is too much oil,” said Michael Wittner, global head of oil research at Société Générale, one of the banks surveyed. “We are now forecasting significantly more global oversupply than previously, in both 2015 and 2016, which will continue to weigh on prices.” On Thursday, U.S. crude for September delivery fell $1.07 a barrel, or 2.5%, to $42.23 on the New York Mercantile Exchange, slipping below the low for the year set Tuesday and its lowest close since March 3, 2009. Brent crude fell 44 cents a barrel, or 0.9%, to $49.22. Oil’s price plunge since June 2014 has come amid a persistent glut of crude, increased concerns over an economic slowdown in China, and fears that Iran’s recent rapprochement with the West will unlock new barrels of crude onto the oversupplied market. These factors promise more cheap fuel for consumers and businesses around the world, while providing an extra headache for some central bankers worried about lower inflation, and for oil-producing economies from Russia to Canada.

Saudi Oil Strategy: Brilliant Or Suicide? -- IN the last quarter of 2014, in the face of possible oversupply, Saudi Arabia abandoned its traditional role as the global oil market’s swing producer and therefore it role as unofficial guarantor of existing ($100+ per barrel) prices. In October, Saudi sources first prepared the market with statements that the country would be comfortable with oil prices as low as $80 per barrel for “a year or two.” At the November OPEC meeting, the Saudi oil minister, Ali Al-Naimi, publicly announced Saudi Arabia would allow market forces to set prices. Parallel with this shift, Saudi officials expressed confidence in their country’s financial wherewithal to withstand the repercussions of lower oil prices. The Saudis obviously miscalculated the degree to which their shift would negatively impact oil prices. The average price of Brent, the global benchmark, fell below the Saudis’ $80 floor in November, fell to $62.34 in December, then fell below $50 in February. Prices rebounded to $60 for a few months, before falling once again below $50. Plunging oil prices have substantially reduced Saudi revenues. With Brent prices averaging roughly $100 per barrel in 2014, Saudi oil exports of 6.31 million barrels per day would have generated roughly $631 million in revenues daily. In the first quarter, with Brent prices averaging $53.92, the same output would have generated roughly $340 million daily, $291 million less per day than oil at $100 per barrel. The Saudis have attempted to mitigate the revenue shortfall through increased production, ramping up output from 9.6 million barrels per day in the fourth quarter of 2014 to an eye-popping 10.5 million barrels per day in June. The revenue from increased production, however, is overwhelmed by the collapse of prices, which has ripped a substantial hole in the Saudi budget. In December 2014, the Saudi government approved spending $229 billion in 2015, resulting in an estimated deficit of $39 billion, or some 5 percent of GDP. As mid-year 2015 approached, the IMF estimated the budget deficit would equal approximately 20 percent of Saudi GDP. The Financial Times quoted analysts as estimating the Saudi budget deficit in 2015 at $130 billion. Even with massive deficit spending, the IMF estimated GDP growth would slow from 3.6 percent in 2014 to 3.3 percent in 2015, and then just 2.7 percent in 2016.

Global oil supply grows at ‘breakneck speed’, says IEA - The global oil glut will persist well into 2016, the world’s leading energy body said on Wednesday, even as the collapse in prices is pushing up demand at the fastest pace in five years. The International Energy Agency, the west’s oil watchdog, said global oil supplies are still growing at “breakneck speed” and outstripped consumption in the second quarter by 3m barrels a day, the most since 1998. “While a rebalancing has clearly begun, the process is likely to be prolonged,” the IEA said in its closely watched monthly oil market report. “Global inventories will pile up further,” it said, adding that demand will not cut into the surplus until late 2016 at the earliest. Oil’s plunge to below $50 a barrel from a high of $115 a barrel in June last year threw the budgets of oil exporting countries into disarray, rocked the financial markets and forced the world’s biggest energy companies to tear up their investment plans. The oil industry is hunkering down for an extended period of depressed prices and has adopted the “lower for longer” mantra, the IEA said. While output growth from countries outside the Opec oil producers’ cartel has shrunk from 2014 highs and contributed to the 600,000 barrels a day fall in global supply to 96.6m b/d in July, non-Opec output growth is still running at about 1.2m b/d above 2014 levels so far this year. The agency said this was due to big investments in US shale and other supplies made previously. Although non-Opec supply growth will weaken by the end of this year it will not contract until 2016 when the IEA expects a 200,000 b/d drop to 57.9m b/d, led by lower supplies from the US.

OPEC and world oil supplies -- There’s been a remarkable surge in world oil production over the last year. And the United States is only part of the story. World oil production basically stagnated over most of the last decade. From January 2005 to April of last year, daily production of crude oil and condensate increased by less than half a million barrels annually. But over the last 12 months, the figure is up 3.1 mb/d.   The surge in U.S. shale production, dramatic as it has been, accounts for only a little over a third of that increase. I hope to say more about the prospects for U.S. production in a subsequent post. Canada also made a noticeable contribution to the world total; I discussed reasons why Canadian oil production would increase despite the falling price of West Texas Intermediate last March. But the really astonishing change over the last year has been OPEC production. OPEC production was virtually the same in April of last year as it had been at the beginning of 2005. But it is up 1.3 mb/d over the last 12 months.And the story of increased OPEC production is not, as many people seem to assume, that the Saudis have opened the floodgates in an effort to discipline North American competitors. Saudi production is not up much from where it stood a year ago. A much bigger story is Iraq, where the ambitious new projects that the country has been pursuing for some time are finally showing some impressive results. Iranian production is also up, and significant increases could lie ahead as sanctions are lifted. Libya is still a very unstable place, but slightly less so than in the spring of last year, and that is another reason why OPEC production today is higher than it was a year ago.  Here’s a longer-term perspective on what’s been happening in OPEC. The sanctions on Iran and turmoil in places like Libya and Iraq were important factors in the overall stagnation of OPEC production over the last decade. If Iraq, Iran and Libya can return to some kind of normalcy, we could soon see an additional million barrels/day increase from those three countries. And if the precarious status quo in other troubled areas such as Nigeria can be maintained, that would mean that the surge in OPEC production has only begun.

Oil market rebalancing has begun, will take time: IEA - World oil demand is growing at its fastest pace in five years thanks to rebounding economic growth and low prices, but global oversupply is so great that it will last through 2016, the West’s energy watchdog said on Wednesday. The International Energy Agency (IEA) said oil supply was continuing to grow “at a breakneck pace” but U.S. oil producers were beginning to suffer from low oil prices and output was “likely to take a hit soon”. “While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 – suggesting global inventories will pile up further,” the IEA said in its monthly report. The agency, which advises the world’s biggest economies on energy policy, raised sharply its estimates for world oil demand growth this year and in 2016. Higher demand would push up the need for oil from producers in the Organization of the Petroleum Exporting Countries. The IEA increased its forecast of demand for OPEC crude oil plus stocks in 2016 by 600,000 barrels per day (bpd) to 30.8 million bpd. It also raised its forecast for demand for OPEC crude this year by 200,000 bpd to 29.5 million bpd.

IEA: At Least Another Year Before Oil Markets Rebalance -- World liquids demand will be huge in 2015 because of low oil prices. That’s the good news. The bad news is that the demand surge hasn’t really begun yet and over-supply will dominate the market through 2016. This is what I predicted Monday in my post “When Will Oil Prices Turn Around?” and what I reported yesterday based on the EIA STEO report. In its August Oil Market Report (OMR), the IEA revised 2nd quarter 2015 demand upward 370,000 bpd from its July estimate but also revised supply upward by 140,000 bpd. Total liquids supply is 96.53 million bpd and demand is 93.5 million bpd (Figure 1). The production surplus for the 2nd quarter of 2015 was 3.03 million bpd, 230,000 bpd lower than the agency’s July estimate (Figure 2).  IEA stated that demand for the rest of 2015 will be “the biggest growth spurt in five years and a dramatic uptick on a demand increase of just 0.7 mb/d in 2014.” Consumption will likely increase 1.6 million bpd. The agency went on to say that supply continues to grow at 2.7 million bpd. IEA further suggests that the long-anticipated decline in world production will probably be most pronounced in the second half of 2015 and into 2016 “with the US hardest hit. “ The message is clear. The world continues to have an over-supply problem that is slowly improving but it will take another year before the market comes into balance.

Oil Stable Despite IEA Warning That Supply Glut Will Persist Well Into 2016 -Oil prices are oscillating higher and lower this morning (likely helped by the collapsing dollar) despite a report from The IEA that the global oil glut will persist well into 2016. As The FT reports, global oil supplies are still growing at 'breakneck speed' and outstripped consumption in the second quarter by 3m barrels a day, the most since 1998, rather ominously concluding, "while a rebalancing has clearly begun, the process is likely to be prolonged." As The FT reports, The oil industry is hunkering down for an extended period of depressed prices and have adopted the “lower for longer” mantra, the IEA said. “Global inventories will pile up further,” it said, adding that demand will not cut into the surplus until late 2016 at the earliest.“Even with the slowdown in non- Opec production and higher demand growth, a sizeable surplus remains,” the IEA said. The outlook does not include higher Iranian output should sanctions be lifted....“If the oversupply persists it becomes much more important to understand how much storage is available,” said Jamie Webster, analyst at IHS Energy. “There is not an infinite amount. Unfortunately the total volume of tankage available is an opaque topic for some key regions.” The IEA said the hundreds of billions of dollars of investment cuts by energy companies will eventually help rebalance the market.  But if demand continues as it has done this year, the situation will become “increasingly sensitive”, the IEA added.

One oil chart that says it all, plus some others - Izabella Kaminska -- From the IEA’s Oil Market Report released on Wednesday: We’re heading towards 2008 levels on Opec production, with Iran crude still to hit properly and non-Opec supplies running strong. Small wonder this is happening to WTI:  Yet, in the Game of Oil Charts, it’s the House of Opec which may be getting an edge of the House of Shale. Compare and contrast the top chart with the following: But, as ever, the really interesting thing here isn’t who wins the output wars but on what terms they do so. Whether US shale producers end up bowing to Opec, or not, matters little compared to the importance of the signal being sent to the international community and the world of power politics. America can and will stand alone if it needs to, and is prepared to do so whenever the tribute demanded by oil suppliers gets excessive. At the same time, America (and the West) has no problem maintaining Opec as its primary low-cost producer but only if it’s on terms that are are reasonable and acceptable. Consequently, Opec may win the battle to remain the world’s primary supplier. But it won’t necessarily win the battle to remain a beneficiary of the US’ exorbitant privilege. Turns out there are limits to how far exorbitant privilege can be recycled through the system to US supplier states.  Which generally means the message to Opec from the US is: we appreciate your services but don’t push your luck.

Iran oil output could jump sharply post-sanctions - IEA | Reuters: Iran could raise its oil output by as much as 730,000 barrels per day (bpd) from current levels fairly quickly after sanctions are removed, the International Energy Agency said on Wednesday. The West's energy watchdog estimated that Iranian oilfields, which pumped around 2.87 million bpd in July, could increase production to between 3.4 million and 3.6 million bpd within months of sanctions being lifted. "While significantly higher production is unlikely before next year, oil held in floating storage – at the highest level since sanctions were tightened in mid-2012 - could start to reach international markets before then," the IEA said in a monthly report. Iranian Oil Minister Bijan Zanganeh has said Iran expects to raise oil output by 500,000 bpd as soon as sanctions are lifted and by a million bpd within months. Iran’s July production figures were 50,000 bpd higher than in June, the IEA said. The report by the Paris-based IEA suggested any increase in output would probably be more modest than Iranian estimates, and said the Islamic Republic would require massive investment to raise output capacity. Iran has said it hopes to secure nearly $200 billion worth of oil and gas projects with foreign partners by 2020.

Treasury Prepares to Teach Foreign Investors the Rules for Investing in Iran - The U.S. Treasury Department is cautiously preparing for the lifting of economic sanctions on Iran, but is insistent that foreign companies don’t jump the gun. Treasury, under the nuclear agreement signed with Tehran last month, is preparing to roll back layers of U.S., European Union and United Nations sanctions imposed on Iran over the past decade. But U.S. officials are emphatic that foreign governments and firms not start investing in Iran until it follows through on the commitments it made in Vienna to roll back its nuclear program.Iran’s commitments include mothballing thousands of centrifuge machines, reducing its stockpile of nuclear fuel and reconfiguring a heavy-water reactor capable of producing weapons-usable plutonium. “We need to keep everyone onside,” said a senior Treasury official working on Iran. “We want to make sure they’re not tripping over themselves to get in before Iran has actually taken the steps it agreed to under the deal.” U.S. officials estimate that it will take Iran until around mid-2016 to implement the steps it agreed to as part of the nuclear deal. At that stage, the international sanctions on the country will begin to be rolled back. Congress also needs to approve the deal, and is scheduled to vote in mid-September. Treasury officials have said unwinding the sanctions, and explaining the process, will be extremely complicated and require extensive engagement with foreign firms and governments.

Oil price slump pushes Saudi Arabia to fund raise with $US5.3b bonds sale: Saudi Arabia could raise up to 20 billion riyals ($5.33 billion) from bonds on Monday, opening its sale to commercial banks for the first time since it returned to the debt market last month to fill a budget gap caused by falling global oil prices. Debt-averse Saudi Arabia, the world's top oil exporter, sold bonds last month for the first time since 2007 and plans more sales to help fill a budget deficit which the International Monetary Fund estimates at $US150 billion this year. Last month's 15 billion riyals worth of notes were sold only to quasi-government funds, but commercial banks will now be included. The banks were briefed two weeks ago by the central bank, the Saudi Arabian Monetary Agency (SAMA), on its plans. While no firm figure has been disclosed for Monday's sale, several Saudi-based sources at banks or government bodies told Reuters the total value was expected to be between 15 billion and 20 billion riyals, in tranches issued for five, seven and ten years. SAMA could not be reached for comment. The sources spoke on condition of anonymity as the information was not public. The five-year tranche is expected to be priced to yield between 33 and 38 basis points more than the equivalent US Treasuries, while the 10-year tranche would yield between 45 and 50 bps over US Treasuries, two of the sources said. One of the sources, at a government entity, also said the seven-year portion would yield between 38 and 44 bps more than U.S. Treasuries. Further debt issuance is planned by the Saudi government on a monthly basis to the end of the year, although estimates vary as to the total amount of debt the authorities will sell.

Low Oil Prices Destroy Financial Power of Saudi Arabia -- A sharp decline in global oil prices has seriously damaged the financial power of Saudi Arabia. According to different estimates, the deficit of the country’s budget may reach up to 20 percent of GDP.  The decrease in oil revenues forced Saudi Arabia to issue government bonds worth 20 billion riyals ($5.3 billion) for the second time over this summer. In June, the country issued bonds worth 15 billion riyals ($4 billion). According to Bloomberg, this year Saud Arabia sold its first bonds since 2007. The kingdom may raise a total of $27 billion by the end of the year, Dmitry Postolenko, a portfolio manager for asset management company Kapital, pointed out. Saudi Arabia is in need of money after oil prices halved, the analyst said. "In 2015 the country needs oil prices of around $105 per barrel to balance its budget. The country relies on oil sales for 90 percent of its budget revenue,"

Trump on ISIS: “I would bomb the hell out of those oil fields.”  -- “Nobody would be tougher on ISIS,” Trump stated. “The situation with ISIS has to be dealt with firmly and strongly. When you have people being beheaded, I would love not to be over there. That’s not our fight–that’s other people’s fights. That’s revolutions or whatever you want to call it.” When posed with the question of how specifically Trump would take on the international terrorist organization, the experienced businessman came back with a violent yet economically sensible response. “I would take away their wealth. I would take away the oil,” Trump said. Trump elaborated that he would attack oil sites that ISIS is now operating. ISIS is known to be luring heavy funding from the confiscated oil assets in Iraq. “I would bomb the hell out of those oil fields. I wouldn’t send many troops because you wouldn’t need them by the time I got finished.” Trump added that after destroying millions of dollars’ worth of infrastructure, he’d then “get Exxon [and other] great oil companies to go in. They’d rebuild them so fast your head will spin.”

Russia is facing a fuel shortage - Russia has lots of oil, but in a weird twist of fate, the nation could soon run dangerously low on gasoline. The head of Russia's biggest oil company is warning that the world's second largest oil producing nation could soon face a fuel shortfall. Rosneft's Igor Sechin predicts that Russia's gasoline shortage could reach 5 million tonnes a year by 2017. It produced around 38 million tonnes of gasoline in 2014, according to the energy ministry. The expected shortfall is a result of many factors, including new tax rules, a weakening economy and Western sanctions that are hurting Russia's oil refining businesses. This is pushing fuel prices up, even as oil prices have plunged. Gasoline prices rose 6.3% in the first half of the year, according to official data. In a letter sent to Russian President Vladimir Putin and quoted by local media this week, Sechin urged Putin to address the issue by introducing benefits for oil refineries. He said this would boost investment in the industry and increase efficiency.  New Russian tax rules, which were introduced in January, are exacerbating the situation. They were designed to make it cheaper to export crude oil, while raising taxes on refined oil exporters and miners. The move was meant to split the tax burden more evenly across the energy and mining sectors and give a boost to crude exporters. But the change ultimately made crude oil more expensive for domestic refineries, causing their profits to drop.

Saudi Arabia, Russia and Iran: Gulf players willing to abandon old narratives --The Iran nuclear deal is yet to cross the Rubicon of approval by the US Congress and the going got a bit tough last weekend with Senator Chuck Schumer and Representative Eliot Engel, two top congressional Democrats, announcing their objection to the deal. Schumer claimed he made the decision “after deep study, careful thought, and considerable soul-searching,” while Engel is yet to lay bare his soul. But never mind; the debate in the US looks increasingly surreal. The Middle East may have already begun implementing the Iran deal – and what matters would be that Iran lives in its region and not in the Western Hemisphere. The region is turning upside down with such impatience many established narratives, no sooner than word came from Vienna that the historic deal came through that it takes the breath away. The ‘big picture’ is that a full-bodied strategic partnership between Russia and Saudi Arabia is in the making. This is no longer a matter of two estranged countries exchanging glances. This is a communion. The Saudi Foreign Minister Adel al-Jubeir is heading for Moscow on Tuesday, although he had met his Russian counterpart Sergey Lavrov only last week. Obviously, he wants to talk more and cannot wait, since the Saudi-backed Syrian National Coalition opposition group is also due to Moscow next week for the first time.

The Growing Threat From China: Oil prices dropped to new six-year lows this week as WTI dipped below $42 per barrel. The big piece of news this week was the currency depreciation in China. It seems we are talking more and more these days about the warning signs coming from China’s economy and how the trouble there is depressing oil prices. In June and July, it was the stock market crash, and this week it is the currency depreciation. The yuan dropped 3 percent by the end of the week after stabilizing at 6.3975 per dollar. The move to devalue the yuan was aimed at providing a jolt to Chinese exports. But a more pessimistic take on the move is that China’s economy is starting to raise some red flags. The grip that the central government has had on the economy appears to be slipping. The Chinese government has carefully crafted a reputation of control, backed up by two decades of phenomenal growth. Presiding over such a period of unprecedented economic expansion has created an aura of invincibility and inevitability. But the economy is starting to appear fragile, with high levels of provincial debt, an inflated stock market, and growing unease about environmental pollution that could force the government to pullback on growth. To make matters worse, the port city of Tianjin suffered a massive explosion this week that killed dozens of people and spewed toxic chemicals into the air. The incident is emblematic of China’s growth-at-all-costs model, which is starting to run its course as people become fed up.

America and China friending over fracking - Americans and Chinese companies are friending each other over fracking. This might seem odd unless you’ve heard about China’s dependence on coal, and there are large amounts of untapped natural gas reserves within their boundaries. China’s current energy mix is problematic, making natural gas a popular area for development. According to the U.S. Energy information Administration, “China produces and consumes almost as much coal as the rest of the world combined.” Coal makes up 70 percent of China’s energy supply, which leads to visible and alarming air pollution. As reported by The Diplomat, “China’s oil fields are drying up. The International Energy Agency’s (IAE) World Energy Outlook for 2010 predicts China will import 79% of its oil by 2030, a figure that demonstrates the pressing need for China to develop new energy sources. Enter shale gas and the ‘unconventionals.’” Lucky for China, they already own copious amounts of natural gas. They just lack the fracking technology to access it. This is where the great American friending begins. Chinese oil companies are investing in American companies hoping to learn hydraulic fracturing techniques and technologies. As reported by Quartz, Bloomberg said, “Chinese oil giant CNOOC has spent billions investing in shale projects operated by America’s Chesapeake Energy. And more Chinese companies are marshalling cheap loans from Beijing government-backed banks to strike similar partnerships.”

The Commodity Crash Is "A Canary In The Coal Mine For The Global Economy" -- The best thing about the commodity crash relapse taking place so quickly after the last swoon - recall tha we have had two oil bear markets within 8 months - is that all those hollow chatterboxes and econo-tourists who swore that tumbling oil is "unambiguously good" and "great for the economy" (first and foremost Larry Kudlow and then proceeding with every single sellside strategist and economissed), have been laughed out of even CNBC's studio, and are nowhere to be found this time around because not only did all those promises of a surge in consumer spending never materialize (for reasons, or rather one reason which we explained extensively before), but the observent public still remembers all too well how countless 'experts' confusing cause (a gobal slowdown in the economy) with effect (crashing commodities).Therefore, we were delighted when someone who actually understands the energy market for a change, The Schork Report's Stephen Schork, appeared on BBG's Pimm Fox yesterday to explain not only what the immediate future holds for both oil and gasoline prices, but why, when one actually gets cause and effect right, "this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all."The full interview is below, here are the key spot-on highlights, first about the futures of commodity prices :

China in Grip of Wholesale Deflation: China's consumer price index (CPI) increased 1.6% in July from a year earlier, according to China's National Bureau of Statistics, more than the 1.5% median expectation according to Reuters and uo from the 1.4% increase in June and 1.2% in May. The rise in consumer prices was driven significantly by higher food prices. The PPI (producer-price index) fell 5.4%, continuing a long-term deflationary period, now 40 months in duration. Beijing has been loosening monetary policy in an attempt to reduce the deflationary pressures and, also, in an effort to support a slowing economy. : Two months ago we reported that there was some optimism that the Chinese economy might be ready to stop sliding. From GEI News 08 June: There are some hopeful voices among observers, still hoping for no return to inflation - rising prices still being considered the risk to worry about.  "The economy is bottoming but not bottoming out, as overall demand is still weak. As long as inflation pressure remains stable, PBOC still has space to pump in liquidity." Optimism is great, but what is going on is long-term, starting about four years ago, as illustrated by the two graphics below from Trading Economics, annotated by Econintersect. The trend is disinflationary and deflationary - inflation is not even on the horizon.

Bad loans at China banks surpass 1 trillion yuan -  The bad loan ratio at Chinese lenders increased to 1.5 percent at the end of June, the banking regulator said. The ratio was 0.11 percentage point higher than it was at the end of March. The value of outstanding non-performing loans (NPLs) climbed by 109.4 billion yuan to 1.09 trillion yuan, the China Banking Regulatory Commission announced. An NPL is a loan that is in default or close to being in default. The CBRC said the commercial banks' credit risk is “generally controllable" and the lenders' overall capability to offset risks remains stable. The banks' loan loss provisions, or funds set aside to cover potential loan losses, increased by 83.5 billion yuan to 2.17 trillion yuan by the end of June. The average capital adequacy ratio, the ratio of a bank's capital to its risk-weighted assets, fell by 0.18 percentage point to 12.95 percent, but the CBRC said the level was still “relatively high." As of the end of June, total assets at banks grew by 12.75 percent year on year to reach 188.5 trillion yuan, according to the CBRC. Outstanding loans to the agricultural sector and small and micro businesses grew by 11.5 percent and by 15.5 percent year on year respectively, outpacing average loan growth.—

Peak Insanity: Chinese Brokers Now Selling Margin Loan-Backed Securities - Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans. Here’s The South China Morning Post: Huatai Securities is selling 500 million yuan of the country's first asset-based securities product built on margin-financing loans as underlying assets. The product is due to be listed and sold to investors through the Shanghai Stock Exchange. The minimum investment for the product is 100,000 yuan, with exposure of a single borrower capped at 5 per cent. Investors will bear the risks for gains and losses in the underlying portfolio. Approval to mainland brokerages to securitise margin loans was given by the China Securities Regulatory Commission on July 1. Brokerages have been encouraged to raise capital via securitisation to help them recapitalise.  A couple of things should be obvious here. First, this sets up the possibility that a perpetual motion margin doomsday machine is being created. That is, if brokerages simply offload the margin loan risk to investors and use the proceeds to fund still more margin lending which can also be turned into still more ABS, and so, then the effect will be to pile leverage on top of leverage on the way to constructing a monumental house of cards. Beyond that though, one certainly wonders what happens in the event the underlying stocks become completely illiquid (i.e. Beijing decides to suspend trading on three quarters of the market again).

Case For Yuan Devaluation Grows As Chinese Factory Prices Fall Most In Six Years - On Saturday, we got what we called a stark "reminder of just who is lying hunched over, comatose in the driver's seat of global commerce" when China reported that exports fell 8.3%in July, far more than consensus and the most in four months.  This, we argued, was further evidence that China will ultimately be forced to devalue, as collapsing global trade and weak domestic demand feed into each other, pinning the country’s export-led economy in slow gear.  On Sunday, we got still more evidence of China’s economic malaise as producer prices plunged 5.4%, the largest Y/Y decline since 2009.Here’s more from Reuters: Producer prices in July hit their lowest point since late 2009, during the aftermath of the global financial crisis, and have been sliding continuously for more than three years. China's central bank would likely need to further cut interest rates again, having already cut four times since November in the most aggressive easing in nearly seven years. The gloom may only deepen in the coming week with a raft of economic data forecast to show renewed weakness in factories, investment and domestic spending.

China economy: July exports slump 8%: Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected, reinforcing expectations that Beijing will be forced to roll out more stimulus to support the world's second-largest economy. Imports also fell heavily from a year earlier, in line with market forecasts but suggesting domestic demand might be too feeble to offset the weaker global demand for China's exports. Economists had forecast exports to fall just 1 percent, after a 2.8 percent uptick in June, but the data on Saturday showed depressed demand from Europe and the first drop in exports to the United States, China's biggest market, since March. Exports to the European Union fell 12.3 percent in July while those to the United States dropped 1.3 percent.  "A recovery in external demand remains far off and economic growth will continue to rely on domestic demand, which implies policies should continue to be relaxed in the second half," Imports fell 8.1 percent, according to the data from the General Administration of Customs. That compared with forecasts for an 8 percent drop, after a 6.1 percent decline in June, though these falls also reflected weaker commodity prices.

Chinese Exports Slump Over Eight Percent - Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected, reinforcing expectations that Beijing will be forced to roll out more stimulus to support the world's second-largest economy. Imports also fell heavily from a year earlier, in line with market forecasts but suggesting domestic demand might be too feeble to offset the weaker global demand for China's exports. Exports to the European Union fell 12.3 percent in July while those to the United States dropped 1.3 percent. Demand from Japan, another big trading partner, slid 13 percent. "A recovery in external demand remains far off and economic growth will continue to rely on domestic demand, which implies policies should continue to be relaxed in the second half," wrote Qu Hongbin, China economist at global bank HSBC. China recorded a trade surplus of $43.03 billion for the month, below forecasts of $53.25 billion. Economists also blame a strong yuan for the export weakness, with ANZ Research estimating the currency's nominal effective exchange rate has risen by 13.5 percent since June 2014. Analysts say Beijing has been keeping its yuan strong to wean its economy off low-end export manufacturing. A strong yuan policy also supports domestic buying power, helps Chinese firms to borrow and invest abroad, and encourages foreign firms and governments to increase their use of the currency. "These factors suggest that China's exports will continue to face strong headwinds,"

Chinese Trade Crashes, And Why A Yuan Devaluation Is Now Just A Matter Of Time -- Two weeks ago we showed something very disturbing (something even the IMF is now figuring out): global trade is grinding to a halt... Nowhere has this trend been more visible than in the IMF's own admission that global trade, growing at 7% in 2011, has nearly halved its growth rate, and in 2016 global commerce is expected to rise at the slowest pace since the financial crisis. Overnight we got another acute reminder of just who is lying hunched over, comatose in the driver's seat of global commerce: the country whose July exports just crashed by 8.3% Y/Y (and down 3.6% from the month before) far greater than the consensus estimate of only a 1.5% drop, and the biggest drop in four months following the modest June rebound by 2.8%:China.  It wasn't just exports, imports tumbled as well by 8.1%, fractionally worse than the -8.0% consensus, and down from the -6.1% in June as China's commodity tolling operations are suddenly mothballed.  Goldman breaks down the geographic slowdown:

  • Exports to the US contracted 1.3% yoy, down from the +12.0% yoy in June.
  • Exports to Japan fell 13.0% yoy in July, vs -6.0%yoy in June
  • Exports to the Euro area went down 12.3% yoy, vs -3.4% yoy in June.
  • Exports to ASEAN grew 1.4% yoy, vs +8.4% yoy in June
  • Exports to Hong Kong declined 14.9% yoy, vs -0.5% yoy in June.

Slower sequential export growth likely contributed to the slowdown in industrial production growth in July. Weaker export growth is likely putting more downward pressure on the currency, though whether the government will allow some modest depreciation to happen remains to be seen.

China’s Hard Landing Suddenly Gets a Lot Rougher --Wolf Richter: This has become a sign of the times: Foxconn, with 1.3 million employees the world’s largest contract electronics manufacturer, making gadgets for Apple and many others, and with mega-production facilities in China, inked a memorandum of understanding on Saturday under which it would invest $5 billion over the next five years in India!  Meanwhile in the city of Dongguan in China, workers at toy manufacturer Ever Force Toys & Electronics were protesting angrily, demanding three months of unpaid wages. These manufacturing plant shutdowns and claims of unpaid wages are percolating through the Chinese economy. The Wall Street Journal: The number of labor protests and strikes tracked on the mainland by China Labour Bulletin, a Hong Kong-based watchdog, more than doubled in the April-June quarter from a year earlier, partly fueled by factory closures and wage arrears in the manufacturing sector. The group logged 568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June, compared with 1,379 incidents recorded for all of last year. The manufacturing sector is responsible for much of China’s economic growth. It accounted for 31% of GDP, according to the World Bank. And a good part of this production is exported. But that plan has now been obviated by events. Exports plunged 8.3% in July from a year ago, disappointing once again the soothsayers surveyed by Reuters that had predicted a 1% drop. Exports to Japan plunged 13%, to Europe 12.3%. And exports to the US, which is supposed to pull the world economy out of its mire, fell 1.3%. So far this year, in yuan terms, exports are down 0.9% from the same period last year. Then there’s the plunge of the China Containerized Freight Index (CCFI), which tracks contractual rates and spot market rates for shipping containers from major Chinese ports to major port around the world. Last week, the CCFI dropped 2.4% to 798.89, near its multi-year low at the beginning of July. It is now 23% below where it was in February, and 20% below where it had been in 1998, when it was set at 1,000!

Chinese Reaction to the IMF Announcement to Delay SDR Basket Review -- The statement from the IMF that they have decided to "extend the current SDR basket by nine months until September 30, 2016" has created quite a stir. The initial reaction by many was to assume this meant that the IMF was going to delay making a decision on whether or not to include the yaun/renminbi in the basket until Sept 2016. A more parsed reading of the statement however led others to point out that the IMF did not say they have moved back the decision date for a new basket. Instead the statement just said that the current basket would be kept in tact until Sept 2016 and noted that "the proposed extension . . . would not in any way prejudge the timing of conclusion or outcome of the review." Obviously, the wording used by the IMF left a lot to be desired. It created a lot of confusion and all kinds of instant analysis based on the idea that the decision on whether to add the yuan had been delayed.. The IMF tried to clarify on its own twitter feed.  So far I cannot find any official reaction from the Chinese government or the PBOC. But you can get a hint of how China may be reacting by looking at articles that are running in Chinese related media. Below are links from a few of those media sources with a quote or summary from the article just below. In general, the reaction seems to be very restrained and placing emphasis on the idea that nothing has changed in regards to including the yuan into the SDR basket except the date of actually including it. Here are the links:

China Moves to Devalue Yuan - —China’s central bank devalued its tightly controlled currency, causing its biggest one-day loss in two decades, as the world’s second-largest economy continues to sputter.  Chinese authorities said the change would help drive the currency toward more market-driven movements. The move also signaled the government’s growing worry about slow growth. A shift toward a weaker currency could help flagging exports at a time when many other efforts to boost the economy haven’t proven very effective.  China’s yuan has been on an upward track for a decade, during which the country’s economy grew to be the second largest in the world and the currency gained importance globally. The devaluation Tuesday was the most significant downward adjustment to the yuan since 1994, when as part of a break from Communist state planning, Beijing let the currency fall by one-third.  China sets a midpoint for the value of the yuan against the U.S. dollar. In daily trading, the yuan is allowed to move 2% above or below that midpoint, which is called the daily fixing. But the central bank sometimes ignores the daily moves, at times setting the fixing so that the yuan is stronger against the dollar a day after the market has indicated it should be weaker.

China devalues yuan by 2% to boost flagging economy -- China has devalued its currency to boost flagging exports in a move that risks deepening the global currency war. After recent data showing falling exports and a stalling manufacturing sector, the central bank said on Tuesday that it was allowing the yuan to weaken by nearly 2% in the hope of making China’s exports cheaper and pushing down borrowing costs. In what it called a “one-off depreciation”, the People’s Bank of China said the centre of the yuan’s trading band was reset 1.9% lower at 6.2298 per US dollar, its weakest point against the US dollar for almost three years. The midpoint will now be based on the previous day’s closing price rather than being controlled centrally. The impact of the decision was felt across regional markets as investors fretted about a prolonged fall in demand from the world’s second biggest economy. The US dollar gained against a basket of currencies, moving up 0.2% to 97.506. But the Australian dollar, often used as a liquid proxy for the Chinese currency, slid more than 1% to as low as US73.07c. Share prices across the region were down, with the Nikkei index in Tokyo falling 0.36% and the ASX200 in Sydney down more than 0.5%. The Hang Seng, however, was up 0.72% in Hong Kong.

China Devalues Its Currency as Worries Rise About Economic Slowdown - As China contends with an economic slowdown and a stock market slump, the authorities on Tuesday sharply devalued the country’s currency, the renminbi, a move that could raise geopolitical tensions and weigh on growth elsewhere.The central bank set the official value of the renminbi nearly 2 percent weaker against the dollar. The devaluation is the largest since China’s modern exchange-rate system was introduced at the start of 1994.China’s abrupt devaluation is the clearest sign yet of mounting concern in Beijing that the country could fall short of its goal of roughly 7 percent economic growth this year. Growth is faltering despite heavy pressure on state-owned banks to lend money readily to companies willing to invest in new factories and equipment, and despite a stepped-up tempo of government spending on high-speed rail lines and other infrastructure projects. A steep drop in the Shanghai and Shenzhen stock markets in late June and early July, only halted by aggressive government actions, appears to have dented consumer demand within China. Automakers, typically a bellwether of demand, have announced declines in sales last month; Ford China, for example, said last Friday that its sales had fallen 6 percent last month compared with July of last year. China’s devaluation represents a difficult dilemma for the Obama administration. The United States Treasury has tried to use quiet diplomacy in recent years to encourage China to free up its currency policies, while blocking efforts in Congress to punish China for major intervention in currency markets over the past decade to slow the rise of the renminbi. Many in Congress have long accused China of unfairly building up its manufacturing sector at the expense of American jobs by undervaluing the renminbi, and the Chinese devaluation could fan those criticisms.

China Bites The Cherry - Krugman - Are you staring to have the feeling that when it comes to economic policy Xi-who-must-be-obeyed has no idea what he’s doing? China’s decision to devalue the renminbi had some economic logic behind it. As David Beckworth rightly points out, it’s not just about gaining a competitive advantage. China clearly has a weakening economy, whatever the official numbers may say, and would like to use monetary stimulus. But monetary autonomy and a fixed exchange rate don’t go well together; China’s capital controls give it some leeway, but it is nonetheless suffering from a lot of capital flight — and it wants to liberalize the capital account in pursuit of reserve-currency status. (A foolish goal, but that’s a subject for another day.) So it would make sense on purely economic grounds for China to move to a free float, and gain the freedom to use monetary policy that, say, Japan has. China, however, did not let the renminbi float, nor did it devalue by enough to persuade investors that any future move was likely to be up. Instead, it only devalued a little.This is what Charlie Kindleberger used to call “taking the first bite of the cherry”. (Nobody takes just one bite out of a cherry.) China has now demonstrated that its currency peg is no longer solid; but it has come nowhere near to devaluing enough to create expectations of future appreciation. This is a recipe for convincing investors that the future direction of the currency is down — which means that capital flight will accelerate (and apparently already has.)Now what? China could just let the renminbi float; given the current state of the Chinese economy, that would surely mean a large depreciation. But this would greatly increase trade tensions and pose problems for foreign policy. Maybe that’s a tradeoff worth accepting, but nothing in events so far suggests that China’s leadership was prepared to take that step. Instead, they went for a small move that was sufficient to destabilize expectations while producing trivial benefits.

Has China just pressed the escape button? - For many months, as dark clouds have gathered over the Chinese economy, it has seemed obvious that the authorities might be tempted to press an escape button that has been used by all the other major economies since 2008. That button is labelled “devaluation”. Yet, until Tuesday, this temptation was stoutly resisted. Premier Li Keqiang has never seemed particularly attracted to a traditional Asian devaluation strategy. Indeed, export-led growth is the reverse of the economic rebalancing that he has always championed. China has now clearly blinked, and the renminbi has fallen by 4 per cent in two days. However, as so often in China, it is impossible to tell from official statements whether a major regime shift has actually taken place. The PBOC is trying to describe the devaluation as nothing more than a tactical shift to allow market forces to work more actively, thus allowing the currency to enter the SDR fairly soon. But the PBOC has also warned that the short term market moves might be quite large. They may be seeking to dress up a deliberate devaluation in the clothes of a “market friendly” reform. If China really has pressed its own escape button, the consequences for everyone else will be far reaching.

Somebody at the PBC blinked - In a recent post I made this comment about China’s decision to intervene in its own stock market. China is holding more than $1.2 trillion dollars of U.S. government debt. If the Bank were to tap those funds to stabilize the Chinese stock market it could not simultaneously maintain an exchange rate peg. If China goes that route, look out for upheaval in the foreign exchange markets. Chinese policy makers are now learning that lesson. The Peoples Bank of China (PBC) has allowed the Renminbi to tumble by more than 3% in the last few days. The ride may not yet be over.What’s happening and why? It's my guess that there are investors on the margin who are pulling money out of the Chinese market and moving it into the world capital markets. Those investors are betting against the valuation that the PBC is putting on domestic assets. The outflow of funds  puts downward pressure on the RMB and if the PBC were to maintain its previous parity they would be obliged to sell their holdings of dollar denominated assets to support the currency.  The PBC blinked! But that's a good thing. They’ve chosen a domestic target over an exchange rate target and to make that work, the world needs to keep buying Chinese goods.  I have advocated a policy of Treasury and Central Bank intervention to stabilize domestic asset markets. What we are seeing in the Chinese case is that this policy is inconsistent with a fixed exchange rate.

China’s renminbi move sends ripples through markets - Stock barometers are mostly lower, investors are moving into core sovereign debt and a stronger dollar is contributing to a retreat for commodity prices after China caught investors off guard by weakening its currency the most on record. The People’s Bank of China lowered the renminbi’s daily fix to the US dollar by 1.9 per cent to 6.2298. Each morning the central bank fixes the currency at a certain point and allows the renminbi to trade as much as 2 percentage points in either direction from the midpoint. Typically the PBoC’s adjustments are incremental. At its lowest point the renminbi was down 1.98 per cent to 6.3324 a dollar, the weakest since September 2012, The revaluation of the renminbi was a “shock to otherwise sleepy summer markets”, said Annette Beacher, TD Securities chief Asia-Pacific macro strategist. Ms Beacher said China’s central bank was also looking to improve the renminbi pricing mechanism with a view to having the currency included in the International Monetary Fund’s special drawing rights, a global reserve asset comprising the US dollar, euro, pound and yen. “This is apparently intended to be a one off and hold adjustment ahead of the new regime, intended to converge onshore and offshore pricing. It is likely not coincidental that a new pricing regime is being put together now ahead of the crucial IMF SDR inclusion vote later this year. The markets are somewhat more sceptical that this is merely a one-off adjustment,” she said. The devaluation has rattled traders and triggered a bout of “classic risk-off”, according to analysts at Citi. “The market may take away the message that the China economy is behaving as badly as some of the more pessimistic assessments,” the bank added. Industrial commodities, usually sensitive to China demand prospects, are giving back some of the previous session’s strong gains, with copper down 1.8 per cent to $5,201 a tonne and Brent crude slipping 0.6 per cent to $50.13 a barrel.

Shock China devaluation unhinges commodities (Reuters) - Oil, copper and other commodities tumbled on Tuesday after China devalued the yuan, raising concerns that a persistently weaker currency will choke off demand in the world's top commodities consumer. China's central bank made what it called a "one-off depreciation" of nearly 2 percent in the yuan after a run of poor economic data, which sent the currency to a three-year low. The dollar gave up immediate gains made after the devaluation, which ordinarily would boost dollar-denominated assets, but such is the importance of China to commodities demand that investors overlooked any weakness in the U.S currency. "When you have the biggest customer for oil and commodities devaluing, then obviously you find your product coming under pressure and that is really how the day has panned out," said Saxo Bank commodities strategist Ole Hansen. "We've see this kind of competitive devaluations (in other currencies) over the last year, which left the (yuan) relatively over valued and they are reacting to that because their economy cannot sustain a strong currency at this stage," he said. China's decision followed weekend data that showed a steep fall in exports and a slide in producer prices to a near six-year low in July. China's strong yuan policy, partly designed to foster its use as an international currency, has hurt low-end export manufacturers. The devaluation could be the first shot of a global currency war.

China devaluation heralds currency war; Greece gets deal  -  China's surprise 2 percent devaluation of the yuan on Tuesday pushed the dollar higher and raised the prospect of a new round of currency wars, just as Greece reached a new deal to contain its debt crisis. Stocks fell in Asia and Europe as investors worried about the implications of the move to support China's slowing economy and exports. The stronger dollar hit commodity prices, driving crude oil down after Monday's hefty gains. Weaker stocks lifted top-rated bonds, with yields on euro zone debt also driven lower by the Greek deal, nine days before Athens is due to repay 3.2 billion euros to the European Central Bank. China's move, which the central bank described as a "one-off depreciation" based on a new way of managing the exchange rate that better reflected market forces, pushed the yuan to its lowest against the dollar in almost three years. The Australian dollar, often used as a liquid proxy for the yuan, fell 0.9 percent to $0.7346 as the U.S. dollar rose 0.4 percent against a basket of currencies before paring gains. In Asia, the Singapore dollar hit a five-year low while the Malaysian ringgit and the Indonesian rupiah hit lows not seen since the Asian financial crisis 17 years ago. The Japanese yen JPY= hit a two-month low of 125.08 to the U.S. dollar.

China Fires the First Shot in a Currency War - In recent years, Japan, the U.S. and Europe have been accused of fomenting currency war by employing monetary stimulus that drove down their currencies. These accusations were off base: by boosting domestic spending with easier monetary policy, everyone, including their trading partners, benefited. But China’s move this week to devalue the yuan is an exception. Because its action was not part of a broader monetary boost, the effect will be to siphon demand from its trading partners while giving nothing in return. It is a zero-sum game and thus the first shot in a currency war. When the Federal Reserve or the European Central Bank ease monetary policy by cutting interest rates or buying bonds, it prompts investors to move their money elsewhere in search of a better return. This will ordinarily drive down the dollar or the euro. The Fed and ECB, though, have no say in how much it will drop. They only know that the boost to their economies will come through the combined effect of lower interest rates and a lower currency. While the latter may hurt their trading partners, the former will help since stronger domestic demand usually leads to more imports. By contrast, China has a closed financial system and routinely adjusts interest and exchange rates independently of each other. This week’s devaluation did not come about because of an interest rate cut, but in lieu of one. In seeking to stimulate the economy, the Chinese authorities appear to have taken aim at exports, rather than take the chance that lower rates might elevate asset prices and debt.

Expert sees currency wars just getting worse after Yuan decision --  China’s shock move to devalue the yuan risks opening a new front in a currency war that stretches from the Eurozone to Japan as nations look to energise their economies. The People’s Bank of China slashed the yuan’s fixing by a record 1.9 per cent on Tuesday, sparking the currency’s biggest one-day loss since the official and market exchange rates were united in 1994. It triggered the steepest sell-off among Asian currencies in almost seven years, led by slides in South Korea’s won and the Taiwan and Singapore dollars. The euro and the yen tumbled 18 per cent against the greenback in the past 12 months as monetary policies diverged in the US, Europe and Japan. “In a weak global economy, it will take a lot more than a 1.9 per cent devaluation to jump-start Chinese exports,” said Stephen Roach, a senior fellow at Yale University and former Morgan Stanley non-executive chairman in Asia. “That raises the distinct possibility of a new and increasingly destabilising skirmish in the ever-widening global currency war. The race to the bottom just became a good deal more treacherous.” China’s devaluation shook global markets just as the currency war appeared to be losing steam in Asia, with Australia and New Zealand toning down calls for weaker rates and Japan refraining from expanding stimulus this quarter. Even with almost all major currencies losing ground against the dollar this year amid rising expectations for increased borrowing costs in the US, China maintained a de facto peg since March amid a push for the yuan to win reserve status at the International Monetary Fund.

Ambrose Evans-Pritchard: China cannot risk the global chaos of currency devaluation - If China really is trying to drive down its currency in any meaningful way to gain trade advantage, the world faces an extremely dangerous moment. Such desperate behaviour would send a deflationary shock through a global economy already reeling from near recession earlier this year, and would risk a repeat of East Asia's currency crisis in 1998 on a larger planetary scale. China's fixed investment reached $5 trillion last year, matching the whole of Europe and North America combined. This is the root cause of chronic overcapacity worldwide, from shipping, to steel, chemicals and solar panels. A Chinese devaluation would export yet more of this excess supply to the rest of us. It is one thing to do this when global trade is expanding: it amounts to beggar-thy-neighbour currency warfare to do so in a zero-sum world with no growth at all in shipping volumes this year. Interactive: World merchandise trade It is little wonder that the first whiff of this mercantilist threat has set off an August storm, ripping through global bourses. The Bloomberg commodity index has crashed to a 13-year low. Europe and America have failed to build up adequate safety buffers against a fresh wave of imported deflation. Core prices are rising at a rate of barely 1pc on both sides of the Atlantic, a full six years into a mature economic cycle. One dreads to think what would happen if we tip into a global downturn in these circumstances, with interest rates still at zero, quantitative easing played out, and aggregate debt levels 30 percentage points of GDP higher than in 2008.

What a weaker Chinese yuan means for the world: This week's steep slide in the yuan is a game changer. The last time the currency posted a big move -- 1994 -- China's economy ranked as the world's eighth largest, just behind Canada's, and few outside its borders would have even been able to put a name to the currency. Now, the government's move to allow the market a greater say in setting the yuan level is roiling currencies, commodities and stocks the world over and reshaping the global economic outlook. Here are a few ways a sustained yuan downturn will be felt: Can the Fed still lift off if the greenback keeps strengthening? Bank of America Merrill Lynch analysts are among those who think the yuan devaluation clouds the picture for Janet Yellen. It was like money for jam - borrow cheaply offshore, somehow get the funds to China to earn a hefty interest-rate margin, and sell out later with a currency gain to boot. A sustained yuan downturn would kill the carry trade. Even putting aside a weaker yuan, deepening factory-gate deflation and the likely spillover to export prices spelled cheaper toys, T-shirts and television sets across the world. Now add in the weaker currency and we could see China's devaluation revive deflation fears globally. Global commodity prices - mostly still priced in US dollars - have been whacked since the yuan move. More weakness would bode ill for economic prospects in dependent nations including Australia, Brazil and Chile. A weaker yuan also means it's more expensive now for Chinese consumers to buy German cars, Swiss watches and French handbags. That's bad news for a region mired in it its own gloomy outlook, especially if Chinese tourists cut back on their overseas holidays - which could hit popular destinations such as Australia.

China "Loses Battle Over Yuan", And Now The Global Currency War Begins -- Almost exactly seven months ago, on January 15, the Swiss National Bank shocked the world when it admitted defeat in a long-standing war to keep the Swiss Franc artificially weak, and after a desperate 3 year-long gamble, which included loading up the SNB's balance sheet with enough EUR-denominated garbage to almost equal the Swiss GDP, it finally gave up and on one cold, shocking January morning the EURCHF imploded, crushing countless carry-trade surfers.  Fast forward to the morning of August 11 when in a virtually identical stunner, the PBOC itself admitted defeat in the currency battle, only unlike the SNB, the Chinese central bank had struggled to keep the Yuan propped up, at the cost of nearly $1 billion in daily foreign reserve outflows, which as this website noted first months ago, also included the dumping of a record amount of US government treasurys.   And with global trade crashing, Chinese exports tumbling, and China having nothing to show for its USD peg besides a propped and manipulated stock "market" which has become the laughing stock around the globe, at the cost of even more reserve outflows, it no longer made any sense for China to avoid the currency wars and so, first thing this morning China admitted that, as Market News summarized, the "PBOC lost Battle Over Yuan." That's only part of the story though, because as MNI also adds, the real, global currency war is only just starting.

Why Did China Devalue Its Currency? - HERE are two things that China’s government wants very badly: first, for its economy to remain on an even keel, keeping growth and employment high. Second, for its currency, the renminbi, to become globally pre-eminent, helping promote the country’s diplomatic goals and solidifying the country’s centrality to the global economy. Frequently those goals are in conflict. But on Tuesday, China did something it thought would advance both at once. That’s how to make sense of some blockbuster news out of Beijing that the country will adjust how it manages the renminbi, to link the currency’s value a bit more closely to market forces. The immediate result was a de facto devaluation, with the Chinese currency falling 1.8 percent versus the dollar and 2.2 percent versus the euro on Tuesday. Those are big moves for the renminbi, considering that the government has had a policy of maintaining a strict trading band — enforced with both legal restrictions on the transfer of capital and the government’s trillions of dollars in reserves. Usually, the renminbi will move only a few hundredths of a percent against the dollar in a given day; the largest move this year had been 0.16 percent. A roughly 2 percent shift in the value of a currency, even a major one, is not that big a deal, and certainly not the kind of thing that would earn blaring headlines about a devaluation. In the last year, the euro has dropped about 18 percent against the dollar and the Japanese yen has plummeted about 22 percent. What makes the Chinese move fascinating is what it says about China’s approach to its currency and economy, and about the country’s role in the global financial system in the future. The Chinese economy is unquestionably in a rough patch, and maybe something worse. Growth is downshifting from the double-digit rate of a few years ago, and the country’s investment-and-exports-driven growth model is looking exhausted after driving a generation of prosperity. A stock market crash in the last few months also hasn’t helped. But a hidden cost of the Chinese government’s strategy of keeping the renminbi within a narrow trading band against the dollar is that China has been unable to take advantage of one of the crucial tools most countries use when they’re in an economic slowdown.

China's Devaluation: Impossible Trinity, Deflationary Shocks, and Optimal Currency Blocks - So China devalued its currency peg almost 2% against the dollar. It happened just as I was wrapping up a twitter debate on this very possibility, a very surreal experience. Many more twitter discussions erupted after the announcement of this policy change and I got sucked into a few of them. My key takeaways from these discussions on the yuan devaluation are as follows.  First, this devaluation was almost inevitable. The figure below superficially shows why: the economic outlook in China had been worsening. The question is why? As I explained in my last post, the proximate cause is the Fed's tightening of monetary conditions. China's currency is quasi-pegged to the dollar and that means U.S. monetary policy gets imported into China. The gradual tightening of U.S. monetary conditions since the end of QE3 has therefore meant a gradual tightening of Chinese monetary conditions. Recently, it has intensified with the Fed signalling its plans to tighten monetary policy with a rate hike. U.S. markets have priced in this anticipated rate hike and caused U.S. monetary conditions to further tighten. Through the dollar peg this tightening has also been felt in China and can explain the slowdown in economic activity. Consequently, China had to loosen the dollar choke hold on its economy via a devaluation of its currency.  There is, however, a more fundamental reason for the devaluation. China has been violating the impossible trinity. This notion says a country can only do on a sustained basis two of three potentially desired objectives: maintain a fixed exchange rate, exercise discretionary monetary policy, and allow free capital flows. If a country tries all three objectives then economic imbalances will build and eventually give way to some kind of painful adjustment. China was attempting all three objectives to varying degrees. It quasi-pegged its currency to the dollar, it manipulated domestic monetary conditions through adjustment of interest rates and banks' require reserve ratio, and it allowed some capital flows. This arrangement could not last forever, especially given the Federal Reserve's passive tightening of monetary policy.

China economic growth falters in July, yuan's slide adds to worries | Reuters: Growth in China's factory output, investment and retail sales were all weaker than expected in July, adding pressure on Beijing to roll out more measures to prevent a deeper slowdown, days after it shocked markets by devaluing its currency. While the central bank insisted on Wednesday it would not let the yuan slide too far, the devaluation came days after data showed a hefty drop in exports and producer prices, which clearly weighed on Chinese manufacturers last month. Nearly all data released for July was weaker than economists had forecast, pointing to further deterioration in the world's second-largest economy. Data for June had fuelled some hopes that activity was stabilising after policymakers unleashed the biggest burst of stimulus since the global financial crisis. "This kind of data will only accentuate the negative outlook that everyone has about the economy," . "Many people were expecting an improvement and there is no improvement. Things are getting worse rather than getting better. This kind of data makes it really challenging to achieve the official 7 percent growth (target) this year."

China Scrambles to Support Slipping Yuan -- China’s shocking move to devalue the yuan and to align it closer to market rates has caused the currency to fall to a four-year low. Now, the country’s central bank is intervening to stop the slide.  Sources close to the matter toldThe Wall Street Journal that the People’s Bank of China told state-owned banks to sell dollars to help stop the yuan’s slide relative to the American greenback, a move that comes after the yuan experienced its biggest two-day rout since 1994.  China roiled financial markets Tuesday after it announced it would weaken the midpoint of the yuan’s trading band by nearly 2% against the US dollar. That one-day shift was the biggest since China’s currency was officially de-pegged from the U.S. dollar in 2005.That move, likely a reaction to China’s slowing economic growth rates and stock market slumps, caused a ripple effect worldwide, leaving the Dow Jones Industrial Average down more than 200 points at Tuesday’s close.The yuan is facing “a vicious cycle of depreciation,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, told Bloomberg. “At some point they’ll either abandon the implementation of the new fixing mechanism and stabilize the fixing, or they’ll intervene heavily.”The global response to China’s currency changes will test Beijing’s resolve in letting free-market forces decide the currency’s value. The People’s Bank tried to stem overseas worries by answering some key questions on its website. “In view of both domestic and international economic and financial condition, currently there is no basis for persistent depreciation of [China’s currency],” said a Bank spokesman in a statement online.

China central bank under pressure to weaken yuan further | Reuters: China's move to devalue its currency reflects a growing clamor within government circles for a weaker yuan to help struggling exporters, ensuring the central bank remains under pressure to drag it down further in the months ahead, sources said. The yuan has fallen almost 4 percent in two days since the central bank announced the devaluation on Tuesday, but sources involved in the policy-making process said powerful voices inside the government were pushing for it to go still lower. Their comments, which offer a rare insight into the argument going on behind the scenes in Beijing, suggest there is pressure for an overall devaluation of almost 10 percent. "There have been internal calls for the exchange rate to be more flexible, or depreciated appropriately, to help stabilize external demand and growth," said a senior economist at a government think-tank that advises policy-makers in Beijing. "I think yuan deprecation within 10 percent will be manageable. There should be enough depreciation, otherwise it won't be able to stimulate exports." The Commerce Ministry, which on Wednesday publicly welcomed the devaluation as an export stimulus, had led the push for Beijing to abandon its previous strong-yuan policy.

Is China’s Growth Miracle Over? -  San Fran Fed Economic Letter: China’s economy grew 10% per year for over 30 years beginning in the early 1980s. No other country in modern history has achieved such exceptional growth for so long. Before the global financial crisis, China’s growth was primarily driven by productivity gains. Since 2008, however, growth has slowed and become increasingly dependent on investment. Because China has been a large and expanding market for other countries, its growth prospects have important implications not just for the Chinese people but also for the global economy. This Letter examines the sources of China’s growth and some factors contributing to the recent slowdown, and offers a cautiously optimistic view of China’s future growth.

China Seeks to Calm Markets as It Devalues Currency for 3rd Consecutive Day - — China on Thursday sought to calm fears that the country’s depreciating currency had set off, as authorities defended the devaluation decision.The country’s central bank has pushed the value of the currency lower for three consecutive days. Since Tuesday, the currency, the renminbi, has fallen 4.4 percent, the biggest drop in decades.While China said the move was aimed to make the currency more market-oriented, it has raised concerns that the already slowing economy was in deeper trouble. The sharp and sudden fall has also prompted questions about whether the country’s leadership can manage the slowdown.At an ad hoc news conference on Thursday, officials from the central bank defended the devaluation, saying that the currency had not entered a free fall. The central bank also said it would continue to intervene, as necessary. Zhang Xiaohui, an assistant governor at the central bank who became a member of its monetary policy committee in June, added that there was “no basis for the continued depreciation of the renminbi.”

China Scrambles To Hide Toxic Fallout Of Tianjin Chemical Explosion -- Two days after an "apocalyptic" explosion in the port city of Tianjin killed at least 50 people and vaporized a bit of excess auto inventory, Chinese officials are struggling to explain what happened and reassure a nervous public. The blast - footage of which is reminiscent of a nuclear detonation - likely stemmed from what The New York times called a "witches brew" of toxic chemicals warehoused in the industrial zone. That has residents on edge, as many wonder if the air is safe to breathe. Here’s The Times: They wondered if even the air was safe because of the smoke, still billowing hours later from vestiges of the inferno, which destroyed an industrial zone near the port. Many people wore masks. “Right now, we don’t know anything,” said Sun Meirong, 52, an office cleaner who descended 13 flights of stairs with her 1-year-old grandson after the explosions blew in her apartment windows and front door. Questions loomed over the precise reasons the chemicals had ignited, detonating in frightening fireballs that registered on earthquake scales, engulfed hundreds of new cars awaiting export and shattered windows in high-rises a mile away. At least one chemical known to have been stockpiled at the site, calcium carbide, can emit flammable gases when it becomes wet. Some outside experts speculated that firefighters, in their effort to douse the flames, may have inadvertently contributed to the explosions.

Rating agencies still matter — and that is inexcusable - Roubini - No one said setting up an early warning system for a global financial storm was easy. Among those blamed for failing to spot the 2008 subprime crisis are senior politicians, the world’s biggest banks and several supranational institutions. However, with the US Federal Reserve and Bank of England likely to raise interest rates, China’s growth slowing and commodity prices falling, we need an effective way to spot the gathering clouds now as much as ever. For many, that means turning to credit rating agencies — despite the fact that they failed to detect signs of crisis on the horizon in the last decade. Credit rating agencies matter. These private companies assess the ability of debtors, including countries, to repay. Because regulators often defer to their assessments of the risk inherent in holding a particular asset, they in effect dictate what investors can invest in, and how much. They help to determine how much banks are willing to lend, and how much governments — and their citizens — must pay to borrow. They inform with whom corporations are willing to do business and on what terms. In principle, credit ratings should be based on statistical models of past defaults. In practice, because there have been very few defaults, sovereign ratings are often a highly subjective affair. Analysts follow developments from London or New York, visiting only when it is deemed necessary because of a notable crisis or because the country pays to be rerated. This means that ratings are often backward-looking and downgrades too late. Moreover, the agencies may lack the tools to track vital factors such as a country’s ability to innovate and the financial health of non-state actors.

Zimbabwe adopts Chinese yuan as legal currency: Zimbabwe has adopted the Chinese yuan as one of its legal currencies, but it remains unclear if this is good news for China, the Changjiang Times reported on Monday. Zimbabwe's own currency, the old Zimbabwean dollar, ceased circulation in 2009 and would have converted into yuan at a ratio of 40 trillion to one. The move by Zimbabwe signifies the expansion of the yuan into the global trading market. However, Xu Qiyuan, a researcher at the Chinese Academy of Social Sciences, says it may put a heavy financial burden on China, which could be held accountable for the stability of Zimbabwe's financial system. Xu says Zimbabwe can establish a yuan-centered currency system only if it meets certain conditions, including strict controls on financial deficits and the volume of foreign debt. Zimbabwe, once a colony of the UK, has seen significant inflation over the years. Therefore, Zimbabwe has introduced several foreign currencies for relief. Meanwhile, there is no rush to reenact the Zimbabwean dollar, says Charity Dhiwayo, governor of the Reserve Bank of Zimbabwe. In 2009, Zimbabwe adopted the US dollar and the South African rand. In 2014, Zimbabwe announced it would accept more foreign currencies, including the Japanese yen, the Australian dollar, the Indian rupee, and the Chinese yuan. However, in practice, the US dollar has been dominant in local markets.

China denies currency war as global steel industry cries foul - Chinese steelmakers are preparing to flood the global market with cut-price exports as they take advantage of this week’s shock devaluation of the yuan, setting off furious protests from struggling competitors in Europe and the US. It is the first warning sign of a deflationary wave of cheap products from China after the central bank, the People's Bank of China, abandoned its exchange rate regime, letting the currency fall in the steepest three-day drop since the country emerged as an economic powerhouse. The yuan has fallen 3.3pc against the dollar, closing at 6.3989 on Thursday. Steel mills in the Chinese industrial hub of Hebei have already begun to trim prices of rebar mesh-wires used for building by between roughly $5 and $10 to $295, citing the devaluation as a fresh chance to offload excess stocks of steel. Europe’s steel lobby Eurofer warned that there would be “very real competitiveness impacts” for European steel firms, already battling for their lives with wafer-thin margins. America’s United Steelworkers accused China of predatory practices."It is time for China to live by the rules or face the consequences," said the union's international president, Leo Gerard. The US steel group Nucor called the devaluation the “latest attempt to support Chinese industry at the expense of producers in the rest of the world who have to earn their cost of capital to survive.” Indian tyre-makers have issued their own warnings, fearing a fresh rush of cheap imports from China. They are already grappling with a 100pc surge in shipments over the last year as the recession in China’s car industry displaces excess supply.

Taiwanese companies face threats amid China's slowing economy --  Taiwanese enterprises operating in mainland China are facing unprecedented challenges for survival as China's economy has entered "new normal": an era of relatively slower growth, said Tu Tze-chen, head of the Industrial Technology Research Institute's Knowledge-based Economy and Competitiveness Research Center. China's plan to cultivate a domestic supply chain for the country's high-tech manufacturing sector, the so-called "red supply chain," the difficulties facing Taiwanese companies in transforming and upgrading their operations there, and Beijing's latest plan to grow its own high-tech sector, called "Made In China 2025," are the three major threats to Taiwanese businesses, Tu said. If Taiwan fails to come up with a strategy for the advancement of cross-strait economic relations, China-based Taiwanese companies could become a thing of the past in the next 10 years, Tu said at a seminar on cross-strait relations on Aug. 6. in Changchun, China. After years of development, China has entered a more mature stage of industrialization with competitive industries and surplus capacity. Since it has shown signs of using increased domestic supplies to replace imports, trade values between Taiwan and China could decline in the future and industrial cooperation ties between the two sides over the past 20 years could break down. This means that the economic relations between the two countries across the strait could shift from cooperative to competitive.

Taiwan Q2 Economic Growth Revised Down; Govt Cuts Forecast: Taiwan's economy grew slower than initially estimated in the second quarter and the government forecast slower growth for the year, a report from the Directorate General of Budget, Accounting & Statistics showed Friday. Gross domestic product grew 0.52 percent in the second quarter from last year, revised from 0.64 percent increase reported on July 31. The growth rate for the first quarter was revised to 3.84 percent from 3.37 percent. Economists had expected the growth rate to ease to 0.60 percent. This was the slowest since the second quarter in 2012 when GDP rose 0.42 percent. On the expenditure side, the real private final consumption grew 2.85 percent annually in the second quarter and real government final consumption rose by 0.05 percent. Gross capital formation increased by 1.33 percent. Exports of goods and services dropped 8.32 percent in the second quarter and imports plunged 12.56 percent. "Taiwan's export plummeted due to the sluggish demand in global consuming electronic products, the crowding out effects from the expanded supply chain in Mainland China and the falling prices of crude oil," the government said.

Belt Tightening: Massive Layoffs Underway at Major Korean Shipbuilders - According to industry sources, Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries are planning to reduce the number of their executive members by at least 30 percent and let go of 2,000 to 3,000 employees by the end of this year, as their combined losses for this year are estimated to be about 6 trillion won (US$5.1 billion). Daewoo Shipbuilding & Marine Engineering, which recorded over 3 trillion won (US$2.55 billion) in losses in the second quarter, is going to dismiss 1,300 managers this month by voluntary retirement or by telling them to quit. This is the first time since shipbuilding process automation back in the 1980s that the company has discharged such a large number of employees. It dismissed none of its employees at all even during the financial crisis in the late 1990s. However, seven executive members have already quit their jobs, taking responsibility for its losses in the offshore plant sector, and seven to eight more are slated to follow them this week. Then, the number of its executive members will be reduced by approximately 30 percent. Hyundai Heavy Industries let 1,500 employees retire voluntarily early this year after recording losses of over 3 trillion won last year. It paid retirement bonuses of no less than 161.4 billion won (US$137.4 million) in the first quarter of this year alone. The Hyundai Heavy Industries Group reduced the number of executive members by 31 percent in October last year, and retired 25 more late last month.

S. Korea to pardon over 6,500 convicts to boost economy (CNNMoney) — South Korea's government is set to pardon 6,527 convicts and release many of them from prison in an effort to boost the economy. South Korea's justice minister Kim Hyun-woong made the announcement Thursday. The pardons go into effect Friday. A key convict that will be released is Chey Tae-won, a famed businessman and chairman of the massive conglomerate SK Group, which has interests in dozens of firms across South Korea. This will be his second official pardon for financial crimes. South Korea is known for granting special pardons in honor of major national holidays. It's believed that releasing Chey early from his four-year prison sentence will help him run his family-owned conglomerate more effectively, negotiate new deals and potentially create new jobs in South Korea. Chey is one of the richest people in South Korea, with a net worth of $4.4 billion, according to Forbes.

Bazookas out as China’s yuan devaluation sparks fears of regional currency war -- With a dramatic devaluation of the yuan yesterday, Beijing brought out the bazookas in a move that might escalate a regional currency war that it had until now chosen to avoid. The central bank shocked the markets by devaluing the yuan by the most in a day in more than 20 years, setting the daily fixing - the midpoint for the yuan's value against the US dollar - 1.87 per cent lower than Monday's level. The instant devaluation would restore its competitiveness vis-à-vis other Asian currencies such as the Japanese yen and the Korean won that have been weakening over the past year. "Don't think for a moment that the region's activist monetary authorities will absorb this Chinese shift placidly, with the yuan representing a large weight in each and every reference basket," Westpac economist Huw McKay said. Signs of an imminent race to the bottom were evident yesterday as the won fell to its weakest level since June 2012, while the Taiwan dollar dropped to its lowest level in more than five years. The Australian dollar saw its biggest single-day decline in over seven months and the Indian rupee lost the most in two months. "Other Asian countries will see [it] as a competitive devaluation from China," JP Morgan said in a note to clients. "Currencies like the Korean won, Taiwan dollar and Singapore dollar are the most in the firing line. "In North Asia, Taiwanese and Korean authorities are anyway on the record for preferring weakening currencies." It also said Singapore would now also look to weaken its currency.

Collateral damage for Aussie as China lets yuan slide: The Australian dollar plunged to a new six-year low on Wednesday after Chinese authorities devalued the yuan for the second time this week. The dollar had recovered slightly on the back of an unanticipated surge in domestic consumer sentiment on Wednesday morning to reach US73.2¢, before Beijing lowered the midpoint of the yuan exchange rate by 1.6 per cent to 6.3306 per US dollar. This caused the Aussie dollar to drop more than a full cent to US72.15¢ within minutes, mirroring a fall on Tuesday. It recovered slightly to US72.5¢ in late trading.  ANZ currency strategist Daniel Been said losses in the yuan, the Australian dollar and Asian equity markets could continue on Thursday.

Central banks hold nerve after China devaluation (Reuters) - Global policymakers, including those at some of Asia's most intervention-minded central banks, are holding the line on their currency policies after China's surprise devaluation of the yuan. China's central bank said Tuesday's 1.9 percent devaluation was a one-off move. It also switched to a more market-determined benchmark for the currency's daily trading band. A weaker yuan makes Chinese exports cheaper and competing exports more expensive. Countries that see themselves at a competitive disadvantage might be tempted to devalue their own currencies in retaliation. But so far policymakers from South Korea, India, Indonesia and Japan see no reason for tit-for-tat trade-war policies. "I don't think the move would trigger a global currency war," a Japanese policymaker said. The devaluation is unlikely to perturb the Bank of Japan, whose money-printing programme to stimulate the economy has weakened the yen by 50 percent against the dollar since 2012. Beijing's move may reverberate more strongly in South Korea. China is its largest trading partner, accounting for a fifth of total trade last year. Its policymakers have been talking down the won and actively encouraging outflows from their country, and the won has weakened against the yuan this year. "We are not overly worried about the won, but we are closely watching the market to see if there's any excessive volatility happening," a South Korean foreign exchange official said.

Indonesia central bank heavily intervenes to defend rupiah - traders -- Indonesia's central bank was spotted "heavily" intervening to defend the rupiah on Wednesday, traders said, as the currency fell to a level last seen during the Asian financial crisis 17 years ago. The rupiah was down 1.6 percent to 13,820 per dollar as of 0450 GMT, after hitting 13,825, its weakest since July 1998. Bank Indonesia Senior Deputy Governor Mirza Adityaswara told Reuters earlier that the central bank will guard the rupiah against volatility, adding that the currency's depreciation does not reflect economic fundamentals. He declined to comment further. One trader in Jakarta said he believed the central bank had spent no more than $400 million on Wednesday to support the rupiah.

Malaysian ringgit slumps to weakest level in 17 years - Malaysia's ringgit currency slid past 4.0 to the US dollar on Wednesday (Aug 12) for the first time in 17 years, pounded by concerns over economic growth and political uncertainty stemming from a government financial scandal. Analysts said China's surprise devaluation of the yuan also pressured the ringgit, the worst-performing currency in Asia over the past year. Malaysia's economy has been dogged for months by concerns that slumping oil prices will harm growth in the oil-exporting country. Prime Minister Najib Razak also is struggling to fend off corruption allegations related to his links with debt-ridden state investment firm 1Malaysia Development Berhad (1MDB). "Malaysia's vulnerability is heightened by deteriorating terms of trade, high debt, and a fragile fiscal position highly dependent on oil-related revenue," said Chua Hak Bin, an economist with Bank of America Merrill Lynch. "Political uncertainty and 1MDB are also hurting consumer and business confidence." The ringgit closed near 4.03 on Wednesday, down 1.36 per cent on the day and more than 20 per cent over the past year, according to Bloomberg News. Najib has faced mounting pressure in the past year over allegations that hundreds of millions of dollars disappeared from deals involving 1MDB, which he launched in 2009.

China's currency devaluation: Thailand's economic nightmare?: Yesterday, the People’s Bank of China cut the value of its currency for the second day in a row. Analysts now estimate that the yuan has depreciated more than 3 per cent against the US dollar, having already dropped 1.8 per cent when China “threw a curveball” the day before. Most media called it a surprise move, but observant economists had seen it coming for quite some time. Markets around the world are reacting with increasing anxiety. Yesterday, the Dow Jones Index dropped 212 points, NYEX was down 4 per cent, the S&P 500 tumbled 20 points, European stocks fell 1.6 per cent, while the price of oil and copper dropped 4 and 3 per cent respectively Basically, what China is doing is exporting deflation. That means shrinking demand and diminishing purchasing power across the globe. In recent years, China’s GDP has grown at an anaemic rate of less than 7 per cent after years of double-digit boom. Beijing has responded with all the traditional antidotes against deflation, including monetary and fiscal stimulus policies and interest rate cuts. When those measures failed to stop the slump, the devaluation of its currency was the unavoidable remedy of last resort. Investors are now concerned that China’s economy is even weaker than anyone could have guessed. As such China may start pulling back on purchases of goods and services from other countries. In the US, whose currency is strengthening in reverse proportion to the weakening yuan, manufacturers fear for their already weakening export prospects, and the stronger dollar will make the competition even tougher.

Peso closes at 5-year low as fears of 'currency war' loom - — The Philippine peso slid to a five-year low on Wednesday (August 12), as China continued to allow the yuan to decline for a second straight day. According to figures from Reuters, the peso closed at 46.26 against the U.S. dollar from Tuesday's 45.93. However, the effects were much worse for other Asia-Pacific countries. Indonesia's rupiah and Malaysia' ringgit fell to 17-year lows on Wednesday. Similarly, the Australian and New Zealand dollars also fell to six-year lows. Countries will "seek weaker exchange rates in order to keep their own export sector competitive," . The yuan's fall has sparked fears of an Asian "currency war" — a scenario where countries purposely devalue their currencies in order to make their exports more competitive. A country that fails to do so could end up with more expensive exports than those who opted to devaluate. Although the move benefits outgoing goods, a devalued currency can also lead to a price increase in imports — consequently reducing consumers' purchasing power. "The spectre of currency wars was worrying enough yesterday [August 11], but today [August 12] it looks real enough to touch," . "A single move might have passed without reaction from China's trading partners, but now it looks like a tit-for-tat move by others in the region is certain,"

Japan's government debt hits record high ¥1.057 quadrillion | The Japan Times: The central government’s debt hit a record high of ¥1.057 quadrillion at the end of June, up by some ¥3.87 trillion from the end of March, according to the Finance Ministry. The national debts, or the combined balance of outstanding Japanese government bonds, financing bills to cover temporary funding shortfalls and borrowings, increased due to rising social security costs, including on medical care and pensions, amid the aging of society. The latest figure means that the government owed ¥8.32 million per person based on the nation’s estimated population of 126.95 million as of July 1. Of the total, general government bonds accounted for ¥784.1 trillion, up by ¥10 trillion from the end of March. Meanwhile, the balance of financing bills decreased by ¥1.76 trillion to ¥115.13 trillion thanks to higher tax revenue. Bonds issued under the zaito fiscal investment and loan program to raise funds for government-affiliated institutions fell by ¥3.14 trillion to ¥95.85 trillion. The total government debts are expected to grow to ¥1.167 quadrillion in March 2016, the end of fiscal 2015.

Japan machinery orders tumble in June, add to second-quarter GDP contraction fears | Reuters: Japan's core machinery orders tumbled the most in over a year, adding to fears of an economic contraction in the second quarter as exports slumped and consumer spending slackened. The 7.9 percent fall in the key gauge of capital spending followed a recent run of soft indicators - including exports and factory output - which led analysts to forecast a second-quarter contraction when economic growth figures come out on Aug 17. Policymakers see little chance of a return to recession, expecting the economy to stay on track for a moderate growth in the current quarter. Weak data though could raise doubts about the economic outlook in the face of China's slowdown, adding yet more pressure on the Bank of Japan to trim its rosy projections and prompting calls for fresh stimulus to support expansion. Companies surveyed by the Cabinet Office have forecast that core machinery orders, a highly volatile data series seen as an indicator of capital spending in the coming six to nine months, will rise 0.3 percent in July-September. Core orders, which exclude those of ships and electric power utilities, grew 2.9 percent in April-June from the prior three months, which was the fourth straight quarterly gain. The Cabinet Office stuck to its assessment of machinery orders as "picking up", suggesting that the monthly decline may be a one-off.

Japan economy seen shrinking in Q2 in setback for Abenomics (Reuters) - Japan's economy likely shrank in April-June as exports slumped and consumers cut back on spending, a Reuters poll showed, boding ill for Prime Minister Shinzo Abe's policy drive to lift the economy out of decades of deflation. China's economic slowdown and its impact on its trade-reliant Asian neighbors have also heightened the chance that any rebound in growth in July-September will be modest, analysts say. Growing signs that Japan's economy is at a standstill are clouding the outlook for the premier's "Abenomics" programme aimed at ending 15 years of deflation with bold monetary and fiscal stimulus to boost growth. It may also rekindle market expectations that the Bank of Japan will expand monetary stimulus again to prop up the economy, though many central bankers remain wary of acting any time soon. "If the BOJ is forced to cut its economic forecasts sharply, there's a chance it will consider easing policy again,"

Japan's Ghost Towns: Japan's population is diminishing while Tokyo's is growing. Abandoned houses are becoming more and more frequent in small cities and the countryside, while demand in the capital is growing relentlessly. Among the many contradictions, two emerge from a non-superficial view of the country. At first glance, Japan appears cohesive, harmonious, devoid of tensions appearing in other industrialized countries. At this point, Tokyo is the most populous city in the world with an immense metropolitan area and 38 million inhabitants. Real estate prices continue to grow dramatically, and construction is booming. However, Japan's population decreased by 270,000 last year. The country is aging and graying: the fertility rate (1.4 children per woman) doesn't compensate for deaths and immigration policies – which were traditionally very restrictive – don't rejuvenate the average age. There are fewer workers in the countryside. The few remaining farmers cannot manage the labor of cultivation; they are mostly senior citizens. Tokyo's attraction is strong for those who need proximity, care and assistance. In this framework a new home landscape has been painted. Many Japanese homes have been deserted, surrendered to neglect and decline. The value of buildings has vanished, leaving only the value of the earth. These eyesores, rare spectacles given the traditional Japanese attention to detail, have infected entire neighborhoods. In reality, there is always insufficient demand for homes and landlords – frequently older people – have no option but to let them degrade. Today, one in seven homes are uninhabited. According to Nomura, in 2023, 20 percent of residential equity will be empty. The government offers less catastrophic estimations, but they are worrying nonetheless.

Japan Consumer Sentiment Is Bad News for Central Bank - WSJ: Just a few days since Bank of Japan 8301 1.05 % Gov. Haruhiko Kuroda brushed aside the recent economic slowdown as a blip, the economy is showing a fresh sign of trouble. The country’s consumer sentiment dropped 1.4 points from the previous month to 40.3 in July, the biggest drop in 1½ years, according to data released Monday by the Cabinet Office. Consumers grew more pessimistic about income, employment and asset prices, in contrast with Mr. Kuroda’s assertion Friday that consumption is likely to rebound as household sentiment “continues to improve.” Policy makers have maintained a sunny outlook, blaming the soft patch on bad weather and temporary weakness overseas, but weakening confidence suggests deeper problems continue to hamper the economy’s momentum. Consumption accounts for 60% of Japan’s economy, meaning that its weakness undermines Mr. Kuroda’s efforts to generate 2% inflation by next year---especially given Japan’s weakening exports. “We continue to believe that deteriorating purchasing power of consumers due to food inflation amid lagging improvement in wages and job growth is likely to weigh on domestic household consumption,” Credit Suisse said in a report. BOJ policy makers began this year convinced that rising wages and cheaper energy prices would bolster consumer spending through the summer, and that a consumption rebound would quickly return Japan’s economy to growth. Instead, consumption likely fell in the April-June quarter, causing the whole economy to contract roughly 2% in annualized terms in the three months, according to economists. There are views that Japan’s embryonic inflation---particularly in food prices---is discouraging spending by those who aren’t getting big pay raises as well as some pensioners.

China Devalues Yuan For 3rd Day To 4 Year Lows, Argentina Suffers Losses & Japan Escalates Currency Race-To-The-Bottom --China stocks are lower and for the 3rd days in a row PBOC devalues the Yuan Fix (now down 4.65% in 3 days). Even before this evening's date with debasement history, Japan felt the need to step up the currency war rhetoric. Following disappointing Machine Orders data, Abe advisors Hamada warned that "Japan can offset Yuan devaluation by monetary easing," and so the race to the bottom escalates. China has its own problems as BofAML's leading economic indicator showed "the foundation for a growth recovery is not solid, facing more downward pressure," and while confusion reigns over why The PBOC would intervene at the close to strengthen the Yuan last night, the reality is the commitment isn’t to a devaluation for China’s exports, but undoubtedly its actions are directed toward trying to keep the wholesale finance interfaces somewhat orderly.  Finally, China’s devaluation couldn’t come at a worse time for Argentina - about a quarter of the country’s $33.7 billion of foreign reserves are now denominated in yuan, which suffered its biggest loss since 1994 on Tuesday. Having devalued the (onshore) Yuan fix by 3.5% in the last 2 days, China did it again... shifting Yuan to 4 year lows

TPP: 5 Sticking Points That Remain - TIME has an easy-to-read list of issues that remain in order for the Trans-Pacific Partnership (TPP) agreement to be concluded at the international level. Earlier this month, efforts to conclude it came to naught. It's hardly a done deal; I'll believe it when I see a deal. With traditionally FTA-averse countries like Japan in the mix--TPP would be its first plutilateral instead of bilateral arrangement outside the WTO--there are reasons to doubt. Among them are the following:
1. US Big Pharma - At issue in TPP negotiations is when cheaper generic forms of new drugs can come to market, or when that exclusivity ends. It makes sense that the U.S. wants the longest period of exclusivity; of the ten largest pharmaceutical companies in the world, six are based in the US.
2.  Canadian dairy farmers - Dairy accounts for more than 25 percent of New Zealand’s exports (and 7 percent of its overall economy), so the country is driving for greater market access for its dairy products, with help from Australia. Canada is having none of it. Their government is facing a tight election this fall, and dairy farmers hold disproportionate clout in Ottawa. How much clout? Enough that dairy imports in Canada currently face a 248.95 percent tariff.
3. Japanese "auto protectionism" (see my earlier commentary as well)
4. Textiles - Only clothing that is wholly sourced and assembled within TPP countries will qualify for duty-free sales. This poses particular problems for Vietnam, currently the second-largest exporter of apparel and footwear to the U.S., with more than $13 billion in sales last year. In order to manufacture all those items, however, Vietnam had to buy $4.7 billion worth of fabric from China, about half of its total annual imports.
5. America's "currency manipulation" schtick.  But tougher currency manipulation regulations were never going to be a part of the TPP. With anti-TPP Senators in the U.S. threatening to repeal Obama’s “fast-track” authority for TPP if the administration doesn’t address currency manipulation in the final agreement, Obama still has significant domestic battles ahead of him.

How the battle over biologics helped stall the Trans Pacific Partnership -  Talks that were meant to finalise the Trans Pacific Partnership wound up in Hawaii late last week without reaching a final deal. Despite the setback, there will be a strong push to sort out the remaining issues in August.  Over the next few weeks, Australia’s trade minister, Andrew Robb, will be under intense pressure to renege on the government’s oft-repeated commitment to reject anything in the deal that could undermine the Pharmaceutical Benefits Scheme (PBS) or increase the cost of medicines for Australians. A key issue affecting drugs is the length of the data-exclusivity period for a class of medicines called biologics, which are produced from living organisms. Biologics include many new and very expensive cancer medicines, such as Keytruda, a melanoma drug recently listed on the PBS. Without the PBS subsidy, it would cost over A$150,000 to treat a patient for a year. While a product is covered by data exclusivity, manufacturers of cheaper follow-on versions of the product can’t rely on the clinical trial data produced by the originator of the drug to support the marketing approval of their product. Section 25a of Australia’s Therapeutic Goods Act provides for five years of data exclusivity for all medicines. It makes no distinction between biologics and other drugs. Data exclusivity provides an absolute monopoly that, unlike a patent, can’t be revoked or challenged in court. The powerful biopharmaceutical industry lobby in the United States has been seeking 12 years of market exclusivity for biologics. Facing intense opposition from all other countries, the US trade representative fell back this week to eight years. While this was heralded as a new level of “flexibility” in the US position, in reality it remains a significant extension of intellectual property rights in most of the TPP countries.

Australian Trade Minister: TPP “Trade” Deal Unlikely -- Australia’s trade minister, Andrew Robb, has appeared at the National Press Club in Canberra today, where he admitted that concluding the Trans-Pacific Partnership (TPP) trade deal is looking increasingly unlikely. According to AAP, Rob said that sugar and dairy access remained key sticking points, along with motor vehicle assess between Mexico, the US, Canada and Japan. He also noted that “the closer we get to a US presidential election, the more prospect (there is) of it falling over”. I am surprised that Robb did not also mention the issue of enhanced protection for pharmaceuticals, in particular the fight over so-called “biologics,” which are an important new class of medicines produced from living organisms. The US first pushed for 12 years of data exclusivity before reducing its bid to 8 years, whereas Australia (amongst others) wants to keep protections to 5 years, as applies currently. As explained in The Conversation on 6 August: Data exclusivity refers to the protection of clinical trial data submitted to regulatory agencies from use by competitors. It’s a different type of monopoly protection to patents. While a product is covered by data exclusivity, manufacturers of cheaper follow-on versions of the product can’t rely on the clinical trial data produced by the originator of the drug to support the marketing approval of their product. Section 25a of Australia’s Therapeutic Goods Act provides for five years of data exclusivity for all medicines. It makes no distinction between biologics and other drugs. Data exclusivity provides an absolute monopoly that, unlike a patent, can’t be revoked or challenged in court. The powerful biopharmaceutical industry lobby in the United States has been seeking 12 years of market exclusivity for biologics. Regardless, the stalling of TPP negotiations is good news for Australians, since it means that we will not face rises in medicine costs nor increased litigation from multinational corporations taking action under investor-state dispute settlements clauses imbedded in the agreement.

The 70-year itch: America struggles to maintain its credibility as the dominant power in the Asia-Pacific Economist.--  John Kerry, America’s secretary of state, was this week a study in embattled optimism. Ministers from the 12 countries, including his own and Singapore, which are negotiating a much-vaunted trade agreement, the Trans-Pacific Partnership (TPP), had just failed to clinch an expected deal. And China was refusing even to discuss its controversial island-building in the South China Sea at a regional summit in the Malaysian capital, Kuala Lumpur. Mr Kerry’s speech was defiantly upbeat. But America’s prestige in the Asia-Pacific has been dented of late. On the 70th anniversary on August 15th of Japan’s surrender and the end of the second world war, the American-led order in place since then looks rather brittle. America itself has turned the TPP into the gauge by which its leadership in the region is measured. Officials and politicians from President Barack Obama down have portrayed it as the most important aspect of America’s “pivot” or “rebalancing” to the Asia-Pacific, and of its determination to help set the rules there rather than let China write them. Mr Kerry spoke positively of the progress made at the TPP talks in Hawaii, conceding only that “there remain details to be hashed out.” Ministers at the talks claimed that the deal was “98%” done. But the devil is in those details, and in any complex negotiation, the last bit is the hardest.

Where the TPP Could Lose - After years of secret negotiations and silence in the media, the Trans Pacific Partnership (TPP) has risen to headline news. Now that Congress has voted to give President Obama “fast-track” trade promotion authority to push the deal through the House and Senate with limited debate and no amendments, efforts to finalize the agreement among member countries are proceeding in earnest. But even if negotiators can reach a final accord, which is far from certain, the pact must still be approved by other national legislatures. And here, the United States is not the only country we should be watching. In Chile, where the administration of President Michelle Bachelet has moved forward with the TPP negotiation process, opposition is strong in the legislature. Even Bachelet’s minister of foreign affairs has indicated that Chile won’t sign the agreement if the TPP doesn’t meet certain criteria. The Chilean controversy over the TPP highlights some of the biggest problems with the agreement — for working people in Chile, the United States, and around the world — and it makes plain the false promises the Obama administration used to push Democrats to support fast track. That a no vote from Chile might unravel the agreement as a whole — or inspire other legislatures to follow suit — may be wishful thinking. But growing opposition in that country is a reminder of what’s at stake and why it’s so important for national legislators — in the United States and abroad — to take a stand against bad trade deals. And it highlights the power that organized citizens have to hold politicians accountable and make the TPP vulnerable.

Robot Invasion Undercuts Modi’s Quest to Put Indians to Work - In a sweltering factory in southern India, Royal Enfield motorcycles are being painted and lacquered by giant robotic arms that move at twice the maximum speed of a human limb, day in, day out, never making a mistake. Only a few workers are still needed on the paint line at Royal Enfield Motors Ltd.’s plant in Oragadam, doing touch-ups on the iconic two-wheelers coveted for their classic design. Four robots can do the work of 15 human painters toiling across three shifts. Improving automation will “likely compete with some low-skill tasks” Robots and automation are invigorating once-sleepy Indian factories, boosting productivity by carrying out low-skill tasks more efficiently. While in theory, improved output is good for economic growth, the trend is creating a headache for Prime Minister Narendra Modi: Robots are diminishing roles for unskilled laborers that he wants to put to work as part of his Make in India campaign aimed at creating jobs for the poor. India’s largely uneducated labor force and broken educational system aren’t ready for the more complex jobs that workers need when their low-skilled roles are taken over by machines. Meanwhile, nations employing robots more quickly, such as China, are becoming even more competitive. “The need for unskilled labor is beginning to diminish,” Akhilesh “Whatever education we’re putting in and whatever skill development we’re potentially trying to put out - - does it match where the industry will potentially be five to 10 years hence? That linkage is reasonably broken in India.”

India's Exports to be Hit by Yuan Devaluation: Trade Body - Exports will be hit and the trade deficit might widen after devaluation of Chinese currency yuan by 2 per cent, which is bound to raise the competitiveness of outbound shipments from the neighbouring country, the Federation of Indian Export Organisations (FIEO) said on Tuesday. "The devaluation will affect India's exports not only to China but to other countries also with increasing competitiveness of Chinese exports," the exporters' body said. "This may swell the trade deficit further, which is already touching $50 billion, as imports from China may increase particularly as China is having excessive capacity in diverse sectors of manufacturing," FIEO president S C Ralhan said. The move led to rupee falling the most in two weeks. It dropped to a two-month low of 64.19 per dollar. Mr Ralhan said the move may lead to a currency war as can be seen in huge depreciation of numerous currencies such as euro, Japanese yen, Brazilian real and Turkish lira. "The huge volatility in currencies will increase the hedging cost for Indian exports also," Mr Ralhan said. China is the world's largest exporter and its exports formed 13.7 per cent of global exports. India's overall exports have contracted for seven straight months until June 2015. India Ratings and Research also said that while the devaluation of RMB, or the yuan, will impart more competitiveness to Chinese exports, "a further decline in the currency may make it difficult for India to maintain its pace of monthly exports at $22 billion".

Indian Bonds Gain as Slowing Inflation Opens Door for Rate Cut -  India’s 10-year bond yield dropped to the lowest in almost two months after inflation slowed more than economists predicted, opening the door to further monetary easing. Consumer prices rose 3.78 percent in July from a year earlier, less than the 4.4 percent median forecast in a Bloomberg survey, data showed after trading hours on Wednesday. The rupee weakened to the lowest level since September 2013 as a central bank adviser said Thursday the currency needs to adjust downwards to help boost exports. “A continuation of muted inflation may open a window for a rate cut by as early as the September policy meeting,” said Bansi Madhavani, an economist at STCI Primary Dealer Ltd. in Mumbai. Expectations for easing will keep bond sentiment buoyed in the near term, she said. The yield on the 10-year note fell five basis points to 7.74 percent in Mumbai, the lowest level since June 22, prices from the central bank’s trading system show. Credit Suisse Group AG said Governor Raghuram Rajan may now cut interest rates in September, instead of its prior forecast for the April-June period. Rajan left the benchmark repurchase rate at 7.25 percent on Aug. 4 after three reductions this year, and said he will monitor developments before any further cuts. China’s surprise yuan devaluation on Tuesday roiled global markets and spurred a rout in Asian currencies. The move fueled speculation regional policy makers will reignite a currency war, favoring weaker exchange rates to revive exports. Cheaper Chinese imports following yuan devaluation will help contain India’s inflation and “should open up some space for financial accommodation,”

India Wholesale Inflation at Record Low Adds Easing Pressure - India’s wholesale prices dropped more than estimated, in line with retail inflation, adding pressure on central bank Governor Raghuram Rajan to cut interest rates. Wholesale prices fell 4.05 percent in July from a year earlier, the Commerce Ministry said in a statement on Friday, the steepest fall in data going back to 2005. The median of 33 estimates in a Bloomberg survey of economists predicted a 2.9 percent decrease. Prime Minister Narendra Modi’s government reiterated calls to lower one of Asia’s highest borrowing costs after data on Wednesday showed consumer inflation was lower than anticipated. Easing price pressures and a slide in China’s yuan has increased speculation that Rajan would cut interest rates for a fourth time this year. “This new data has just added to the expectation that RBI should now not wait any further and should announce an inter-meeting rate cut,” Rajan’s focus, however, will be wider because the central bank needs to assess the yuan’s moves to decide on an appropriate exchange rate, she said. Rajan left the benchmark repurchase rate unchanged at 7.25 percent on Aug. 4 as he sought more clarity on the impact of a poor monsoon on food inflation, and the timing and magnitude of an expected increase in U.S. rates. The Reserve Bank of India forecast CPI at 4 percent in August before rising toward its 6 percent target for January.

This Is Not A Drill: India, Russia And Thailand Prepare For Currency War - When China sneezes, the world catches a cold. Alternatively, when China devalues, the rest of the (exporting) world scrambles to not be the last (exporting) nation standing, and to do so next, before everyone else does. Case in point, at least three major emerging market nations announced they are bracing for currency war. First India, where NDTV ask rhetorically "How China's Devaluation of Renminbi Impacts India" and answers: According to SV Prasad of Chime Consulting, renminbi's devaluation may push the Reserve Bank of India to cut interest rates in India. Lower interest rates will put off foreign investors and will further weaken the rupee, he added. Then there is Thailand, where the senior executive vice president of the Stock Exchange of Thailand, Pakorn Peetathawatchai, said that "China is a very important market and a weaker yuan makes our exports there more expensive." He added that weaker yuan also increases travel costs for Chinese tourists. Finally, there is Russia whose economy is already in a tailspin now that the dead cat bounce in oil has ended, and where moments ago RIA said that the Yuan devaluation puts pressure on RUB, other EM currencies.  Still, the Russian Economy Ministry sees no domestic factors for ruble devaluation, RIA adds even as it admits crude prices to stay under pressure in 2015.

Indonesia's Economy Has Stopped Emerging - Indonesia has come a long way since Oct. 20, when Joko Widodo was sworn in as president. Unfortunately, the distance the country has traveled has been in the wrong direction. Expectations were that Widodo, known as Jokowi, would accelerate the reforms of predecessor Susilo Bambang Yudhoyono -- upgrading infrastructure, reducing red tape, curbing corruption. Who better to do so than Indonesia's first leader independent of dynastic families and the military? In 10 years at the helm, Yudhoyono dragged the economy from failed-state candidate to investment-grade growth star. Jokowi's mandate was to take Indonesia to the next level, honing its global competitiveness, creating new jobs, preparing one of the world's youngest workforces to thrive and combating the remnants of the powerful political machine built by Suharto, the dictator deposed in 1998. After 291 days, however, Jokowi seems no match for an Indonesian establishment bent on protecting the status quo. Growth was just 4.67 percent in the second quarter, the slowest pace in six years. What’s more, a recent MasterCard survey detected an "extreme deterioration" in consumer sentiment, which had plummeted to the worst levels in Asia.

‘Enormous’ rise in EM debt rings alarms bells - Emerging market private sector debt has surged by an “enormous” 33 per cent of gross domestic product since the global financial crisis, heightening the risk of financial crises, according to new analysis by JPMorgan. The findings come amid mounting expectations that the US Federal Reserve is drawing close to its first rate rise since the crisis, a move many fear many reduce capital flows to emerging markets, potentially raising borrowing costs even if central banks do not raise policy rates in order to defend their currencies. JPMorgan’s analysis suggests that the debt burdens of emerging market companies and households have jumped from 73 per cent of GDP in 2007 to 106 per cent at the end of 2014, virtually as high as in the developed world, where private sector debt levels have been falling (see the first chart). “In previous research, the IMF found that an increase in the ratio of credit to GDP of five percentage points or more in a single year signals a heightened risk of an eventual financial crisis,” says Joseph Lupton, senior global economist at JPMorgan.As a result, JPMorgan estimates that it is understating total private credit by around 10 per cent. “Nearly half [of the EM countries analysed] have registered sustained increases at close to this amount over the entire period.” Moreover, although the figures include domestic bank credit, cross-border loans extended to the non-bank private sector and debt securities issued by non-financial companies, it does not include shadow banking, due to a lack of data in many countries.

Turkey's central bank steps in as lira hits another record low (Reuters) - Turkey's lira tumbled to a fresh record low against the dollar on Friday, prompting the central bank to step in with an attempt to shore up the currency following the collapse of talks to form a coalition government. However, the moves - which traders said were largely symbolic - appeared to have little immediate impact as the renewed political uncertainty has further dented confidence in what is already one of the worst performing major emerging market currencies this year. The central bank lowered the one-week dollar deposit rate to 2.75 percent from 3 percent and raised the remuneration rate paid on foreign exchange required reserves to 0.23 percent from 0.21, policy tweaks designed to support the lira. It also tightened liquidity, opening a 19 billion lira one-week repo auction, compared with a 20 billion lira redemption. "These are symbolic steps and have a limited impact. They reduced the underperformance in the lira somewhat," a forex trader at one bank said. "These steps cannot prevent the exchange rate breaking new records." The lira hit a record low of 2.8460, bringing losses against the U.S. currency this year to more than 17 percent. By 0736 GMT, it had rebounded to 2.8311 after the central bank's steps.

Nigeria’s debt service set to exceed 25% of revenue - With $49 billion in domestic debt and $10.8 billion in external debts, Nigeria is now committing 23 percent of fiscal revenue to debt service, which is set to exceed the 25 percent benchmark by year end. The lack of a face in the new Nigerian President Muhammadu Buhari’s government to talk up the economy and calm investors is the main source of concern. “The alignment of fiscal and monetary policy which the economy benefitted from over the last five years seems to have been lost in the last two months,” said Adetilewa Adebajo, economist and CEO of CFG Advisory. “This misalignment of fiscal and monetary policy has started to impact macroeconomic indicators,” Adebajo said. Nigeria’s Inflation recently hit a six-month high of 9.2 percent in June, while the unemployment rate climbed to a high of 7.5 percent in the first quarter of 2015, according to data from the National Bureau of Statistics (NBS). The absence of fiscal input meant the Central Bank of Nigeria (CBN) was in the forefront of the recent restructuring of the state government bank loans into treasury bonds, which has increased the domestic debt profile by up to N1 trillion.

Africa’s throwing away dollars it can’t afford in currency: Africa is battling the global currency markets with one hand tied behind its back. With foreign-exchange reserves equal to less than a 10th of the emerging-market average, nations from Ghana to Zambia are finding they’re powerless to stop their currencies from tumbling amid a rout in commodities and the prospect of higher interest rates in the US. Seven of the 20 worst-performing currencies this year are from Africa, even though policy makers are burning through their reserves faster than any other region. “African central banks are being pushed to the brink,” said Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank, a unit of Africa’s biggest lender. “They’re going to have to accept more weakness.”That’s presenting challenges across the continent, from spiraling inflation in Angola to dollar shortages that are crippling business in Nigeria. And as reserves dwindle and exports fall, sub-Saharan Africa will push its current-account deficit to the widest of any region, deterring foreign investment, the International Monetary Fund warned in April. While a weaker exchange rate makes exports more competitive, the benefits are being wiped out by the plunge in the value of the oil, crops and precious metals the nations rely on for foreign earnings. African nations have an average $5.8 billion in foreign- exchange reserves, data compiled by Bloomberg show. That’s just 7% of the $78 billion average across 31 global developing countries, even after stripping out China’s $3.7 trillion of holdings, the world’s largest.

Latam currencies slide as China devalues yuan | Reuters: Latin American currencies fell on Tuesday after China's decision to devalue the yuan by nearly 2 percent fueled a sharp drop in commodities prices as well as concerns about the competitiveness of emerging market exporters. Latin America's most traded currencies - including those of Mexico, Brazil, Chile, and Colombia - all dropped about 1 percent following the Chinese move, which raised questions about Beijing's commitment to a strong yuan as part of a strategy to stimulate domestic consumption rather than exports. "China's unexpected currency devaluation is driving broad-based risk aversion across markets as participants consider its implications for global commodity demand, inflation, and the balance of risks to growth," analysts with Scotiabank wrote in a report. In Brazil, a weaker yuan could hurt the competitiveness of local manufacturing exporters, Trade Minister Armando Monteiro said. Yet analysts said such concerns seem to be exaggerated for now, as the yuan depreciation remains considerably smaller than that of other emerging economies. In Latin America, the currencies of Mexico and Chile have weakened about 10 percent so far this year. The Colombian peso has lost nearly 20 percent while the Brazilian real has slumped 24 percent. "Any loss of competitiveness against China from today's 'devaluation' should be limited," Neil Shearing, chief emerging market economist with London-based Capital Economics, wrote in a research note. "Several emerging markets, notably Brazil, have seen sharp pickups in export volume growth since the start of the second quarter of this year," he added.

As Economic Malaise Grows, Brazil Budget Deficit Hits All Time Record: June’s result means that the government's budget deficit reached a record breaking 8.1% of GDP -- one of the highest across emerging and developed economies and the highest in Brazil since the beginning of current data in 1995.  Brazil's consolidated public sector posted a significant primary deficit in June, with the central government reporting a primary deficit of BRL8.6 billion. June’s result means that the government's budget deficit reached a record breaking 8.1% of GDP -- one of the highest across emerging and developed economies and the highest in Brazil since the beginning of current data in 1995. The deficit has been worsening this year as lower oil prices, a Petrobras corruption scandal, and a poor economy bite, continuing a downward trend from -0.6% of GDP in December 2014 to -0.8% of GDP in June 2015. The government's efforts to tighten fiscal policy have been unable to halt the deterioration in fiscal accounts, since both interest payments and the primary deficit have increased substantially since December. The increase in the deficit occurred despite the net gains generated from FX swap operations, which benefited from the appreciation of the BRL. In July, however, the depreciation of the BRL (around 9.5%) will foster a reversal of that more positive result, implying the deterioration in accounts will continue.

Brazil’s dire economy slides toward “junk” status - The deterioration of the Brazilian economic situation in the last few months is quite impressive. Looking through a few of the recent economic indicators, the only ones that are pointing up are the ones that you would like to see going down: inflation, unemployment, delinquency rates, interest rate and public debt. Despite an economic policy U-turn in the second Dilma Roussef´s government, represented by the substitution of the heterodox Finance Minister Guido Mantega by the University of Chicago-trained Joaquim Levy and by the Brazilian Central Bank’s much tougher monetary policy stance, the government has not been able to contain a deterioration in the expectations. The confidence indicators are at their lowest level in history, indicating that not only is the situation dire, but also there is no likelihood of it getting any better in the short term.Levy tried to fix the deplorable state of the fiscal accounts, as well as to build the necessary conditions to make the economy grow again, but he was attacked by all sides, not only in the Legislative but also in the Executive. The bombardment of ministers that try to contain public spending is nothing new in Brazil. However, due to the aggravating current circumstances, this tradition promises to be particularly damaging.

Glencore’s $31 Billion Debt Weighs on Trader Amid Commodity Rout -  Glencore Plc, the world’s largest listed commodity supplier, may take further steps to alleviate the strain of a $31 billion debt pile and protect its credit rating amid a rout in prices. After trimming this year’s spending plan as much as $800 million and selling $290 million of mines, the company may announce additional measures to shore up its balance sheet alongside earnings on Aug. 19, according to Citigroup Inc. and Barclays Plc. The company needs to cut net debt by almost half to $16 billion by the end of next year to retain its credit rating, which may lead to the sacrifice of 2016 dividends, said JPMorgan Chase & Co. analysts. Commodity companies’ earnings worldwide are under pressure because of 13-year-low prices, while industrywide dollar-bond borrowing costs have jumped to the highest in five years. Glencore is rated BBB at Standard & Poor’s, the second-lowest investment grade. “If Glencore doesn’t do anything to reduce leverage, the ratings will be at risk,” said Max Mihm, a portfolio manager at Union Investment, which holds Glencore bonds among its about 250 billion euros ($280 billion) of assets. “They are dependent on bank financing, so they have to do something.”

Russian firms, banks shrink as they face fresh peak debt payment | Reuters: Russian state companies and banks are cutting staff and scrapping projects as they prepare for another surge of foreign debt repayments of at least $35 billion before the end of the year amid falling energy export revenues and a weaker rouble. Sberbank, the country's top bank, has already shed 3,600 jobs this year and is promising to unveil a "management reform" by October expected to include further job cuts. Another big state bank, VTB has laid off 2,000 workers and promised more cuts. Gas giant Gazprom scrapped a $10 billion gas liquefaction plant in the Pacific. Top oil firm Rosneft had to postpone some refinery modernization projects which had been due to cost up to $15 billion over five years, according to Russian officials. "We have taken a decision to adjust our business plans to take into account the macro environment and optimize capital expenditures to prioritize upstream projects," said Rosneft, whose total debt is estimated at over $40 billion. Russia has a very small sovereign debt of around $50 billion, but the world's largest energy exporter has amassed more than $500 billion in corporate debt over the past decade as its state energy firms and banks borrowed heavily to grow at home and abroad. Sanctions imposed on Russia over the annexation of Crimea and incursion in Ukraine since last year have made Western borrowing virtually impossible for most Russian companies, preventing them from refinancing debts as they did during the last fall in oil prices in 2008-2009.

Russia’s recession deepens as economy contracts 4.6% - Russia’s recession deepened in the second quarter of 2015, marking a sharp contrast with robust growth in much of eastern Europe, figures released prematurely by Rosstat, Moscow’s statistics service, on Monday showed. Russia’s gross domestic product declined 4.6 per cent year-on-year in June, a fraction worse than the consensus forecast of 4.5 per cent and a sharp acceleration from the 2.2 per cent year-on-year fall recorded in the first quarter. The country’s economy is now contracting at the fastest pace since the depths of the 2008-09 global financial crisis as it continues to be buffeted by low oil prices, sanctions imposed by the west in the wake of the Ukraine crisis and fiscal austerity driven by a sharp decline in tax revenues. Seasonally adjusted quarter-on-quarter data are not due to be released until later this month, but Capital Economics estimated that the Russian economy contracted 2.5 per cent quarter-on-quarter in Q2, almost double the 1.3 per cent rate seen in the previous three months, and again the highest figure since 2009. The data mean Russia is now the fastest contracting decent-size economy in the world in year-on-year terms, overtaking Iraq and Venezuela, which posted declines of 2.4 per cent and 2.3 per cent respectively, at least according to their official data. Brazil’s economy contracted 1.6 per cent year-on-year in March, although this figure in likely to have worsened since then, while Japan contracted 0.9 per cent. The Russian data also stand in sharp contrast to the robust growth figures currently enjoyed by many of its former vassal states in eastern Europe. The Czech Republic is growing at 4 per cent year-on-year, Poland 3.6 per cent and Hungary 3.5 per cent, although all three may report a slight slowing when they release fresh numbers on Friday.

Russia's ruble slides on Chinese yuan cut: Market value of Russia's national currency has fallen to a six-month low after China decided to devalue its yuan for the second consecutive day. The development came on the back of a similar fall in global oil prices on Wednesday when every US dollar topped 65 Russian rubles, AFP reported. During early daily trade, the Russian ruble hit USD 65.25 and 72.48 euros, though it later picked up slightly approaching the lows of over 67 rubles in early February. The ruble's staggering 20-percent fall over the last two months has triggered new fears of market destabilization and a run on the currency similar to a previous one in December, which was caused by falling oil prices and imposition of Western sanctions on Russia over allegations that Moscow played a role in Ukraine crisis. Moscow firmly rejected the allegation, noting that West’s approach to Kiev was the main cause of unrest in the eastern part of Ukraine. Russia's government has predicted that the economy would have hit the bottom in the second quarter, when it contracted by 4.6 percent year-on-year. Analysts have noted that economic recovery will start in Russia during the current quarter. According to market experts, the ruble is highly dependent on oil prices because oil and gas constitute the main sources of revenue for the government in Moscow.

German 2-year bond yields hit record low on China-driven flight to safety (Reuters) - German two-year bond yields fell to a record low on Wednesday, after China let the yuan fall sharply for a second straight day sparking fears around global growth. Investors sought refuge in top-rated government bonds, like European benchmark German bonds and U.S. equivalents, even though these assets could be most vulnerable if the U.S. Federal Reserve opts to raise rates next month. "We are seeing a global risk off move, with worries around China clouding the outlook for inflation and leading to a reappraisal of whether the Fed will raise rates in September," said Commerzbank strategist David Schnautz. German two-year yields fell to new record low of 0.288 percent, according to Reuters data, while U.S equivalents touched a one-month low of 0.633 percent.

Do Asset Purchase Programs Push Capital Abroad? -- NY Fed - Euro area sovereign bond yields fell to record lows and the euro weakened after the European Central Bank (ECB) dramatically expanded its asset purchase program in early 2015. Some analysts predicted massive financial outflows spilling out of the euro area and affecting global markets as investors sought higher yields abroad. These arguments ignore balance of payments accounting, which requires any financial outflow from the euro area to be matched by a similar-sized inflow, absent a quick and substantial current account improvement. The focus on cross-border financial flows also is misguided since, according to asset pricing principles, the euro and global asset prices can move without any change in financial outflows. The balance of payments tracks a country’s international transactions. It comprises the current account, which measures cross-border flows of goods, services, investment income, and transfers; the capital account, which is usually trivial; and the financial account, which records cross-border financial flows. The three components of the balance of payments add up to zero, apart from statistical discrepancies. Putting aside the small capital account and ignoring the statistical discrepancies, this means that the current account balance is exactly matched by the financial account. The intuition is that a country running a current account surplus, with exports greater than imports, is lending to the world to make up the difference. This lending is reflected in net purchases of foreign assets measured in the financial account.

TTIP: The View from the Other CEPR -- This issue brief the Center for Economic and Policy Research (CEPR) examines widely cited studies on the potential gains from the Trans-Atlantic Trade and Investment Partnership (TTIP) and finds that they would deliver no more than 40 cents per person per day in the U.S., and 0.2 euros per person per day in the EU. These projections are also optimistic, as they result in part from significantly underestimating the costs from patent protections for pharmaceuticals, copyright enforcement and other protections under the TTIP that could increase the price of a product by thousands, or tens of thousands, of percent. PDF | Flash

Spain Hit by Trade Suits, a Bitter Foretaste of TTIP - Don Quijones: US brokerage firm Schwab Holdings and Malta-based OperaFund Eco-Invest Sicav have lodged a new international complaint against the Spanish State over its recent cuts to renewable energy subsidies. The case will be heard in the International Center for Settlement Investment, a Washington DC-based investment arbitration institution that is a member of the World Bank.  It is the 19th complaint to date against the Spanish state over its cuts to renewable energy subsidies, propelling Spain to third place in the global leader board of nations facing Investor-State Dispute Settlement (ISDS) suits. In fact, the only two countries facing more suits are the two bugbears of international capital Venezuela (24 complaints) and Argentina (20).  As I wrote in The Global Corporatocracy is Just a Pen Stroke Away From Completion, the “investor-state dispute settlement” provision is what would give the new generation of trade treaties such as Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), and Trade in Services Agreement (TISA) their “claws and teeth.” It effectively allows privately owned overseas corporations to sue entire nations if they feel that a law lost them money on their investment… Cases do not get heard in a court of law, under the scrutiny of a judge and jury, but rather in front of arbitration panels made up of three professional arbitrators — one representing the company, one representing the country and the other chosen by the first two to sit as president of the panel. None of these arbitrators are trained judges; they are private individuals often representing some of the biggest international corporate law firms, mostly from the U.S. and Europe.

Greek Shipping Industry Extends Its Dominance - WSJ: Greece’s shipping magnates, having emerged largely unscathed from both the country’s ravaging financial crisis and one the industry’s longest-ever downturns, are now extending their dominance by snapping up vessels from competitors who haven’t fared as well.  The Greek owners, who operate almost 20% of the global fleet of merchant ships, are paying rock-bottom prices because assets once owned by bankrupt shipping lines are now in the hands of creditors, including German banks, who want to clear nonperforming loans from their portfolios. For years, Greece and Germany have been Europe’s shipping powerhouses. But while the Greeks stuck to a hands-on approach in which the owner arranged everything from financing to chartering and operations, the so-called German KG system largely depended on scores of investors ranging from banks to the country’s wealthy middle class. Many of them put their money into shipping at the peak of the market, before the 2008 economic downturn.

Migrant crisis overwhelms Greek government - Prime Minister Alexis Tsipras is due to chair an emergency government meeting on Friday to address the refugee crisis facing Greece, which has been compounded by serious funding problems in Athens. The meeting was called in the wake of European Commissioner for Migration and Home Affairs Dimitris Avramopoulos informing Tsipras that Greece was missing out on more than 500 million euros in European Union funding because it has failed to set up a service to absorb and allocate this money for immigration and asylum projects. Kathimerini understands that Avramopoulos has told the prime minister Greece will be given as a down payment 4 percent of the total funding due over a six-year period. This will be followed by another 3 percent to cover actions this year. Tsipras is due to discuss this issue, as well as the soaring number of refugees and migrants reaching Greece, with Alternate Minister for Immigration Policy Tasia Christodoulopoulou and several other cabinet members today. Christodoulopoulou admitted Thursday that the government has so far fallen short on this matter. “At the moment, nongovernmental organizations and charities are covering the gaps left by the state,” she told Mega TV. “Without them things would be worse.” The alternate minister said efforts were continuing to prepare a plot of land in Votanikos, near central Athens, so some 400 refugees currently living in tents in Pedion tou Areos park could be housed there. Authorities are currently carrying out work aimed at making the new site livable.

Athens in 'intense' weekend talks to avoid another loan default, - Greece and its creditors were involved in "intense talks" over the weekend to agree a new bailout before the debt-ridden country must repay €3.4 billion (S$4.7 billion) to the European Central Bank on Aug 20. European officials said sticking points still remain despite the progress being made, with a "generally positive reception... towards Greek readiness to vote on reforms this week. "It is ambitious but feasible to come to an agreement in the coming days, preferably by 20 August," an EU diplomat said Saturday. Greece has been in discussions with officials from the ECB, the IMF and the European Stability Mechanism for the past week over further reforms they are demanding in return for a third bailout for up to €86 billion. With its lenders insisting on "very good co-operation" from Athens, both sides were "working flat out on a draft memorandum of understanding" and "intense talks with Greece will continue over the weekend," another EU source said. The ECB deadline means an agreement will have to be reached by next Monday to prevent Greece having to ask for a bridging loan to stop it defaulting on another repayment. Cash-strapped Greece already missed two key payments to the International Monetary Fund that were due on June 30 and July 13, but the repayments - amounting to around two billion euros - were later made possible with a short-term EU loan. Greek Prime Minister Alexis Tsipras said Thursday that the talks for a new bailout were in the "final stretch".

Greece, Creditors Make Progress in Talks to Secure Bailout - WSJ: Negotiations to secure a third bailout deal in time to prevent Greece from defaulting this month on bonds owned by the European Central Bank appeared to advance after weekend-long meetings between officials from Athens and the country’s creditors. Greek Finance Minister Euclid Tsakalotos and Economy Minister George Stathakis met Sunday for several hours with representatives from the four institutions overseeing the rescue program, the European Commission, International Monetary Fund, ECB and the eurozone’s own bailout fund. Those discussions, which continued late into the evening, followed more than six hours of talks on Saturday. Greek officials said they discussed the economic overhauls and budget cuts the government needs to complete to clinch a third loan package of up to €86 billion ($94 billion), and secure the first tranche of aid from the bailout. Greek and European officials said they were discussing a draft memorandum put together by the institutions. It wasn’t immediately clear what the discussion document contained, or what its status was. One European official said “a lot of progress had been made,” without saying in what areas. A spokeswoman from the IMF declined to comment. All sides are under pressure to secure some kind of agreement before Aug. 20, when €3.2 billion of Greek government bonds owned by the ECB come due. Defaulting on these bonds would severely complicate Greece’s chances of remaining afloat given they would likely compel the ECB to withdraw its extensive support to Greek banks. The big issues are what demands the creditors will make on the Greek budget and how the government will manage the sale of up to €50 billion of state assets.

Greece inches closer to third bail-out deal but Finns insist rescue package 'won't work' - Telegraph: Greece's creditors agree on draft deal after marathon talks as Finland's foreign minister criticises the rescue and inists 'Grexit' is still the most likely outcome. Greece is closer to unlocking a fresh €86bn (£61bn) rescue package after the country's creditors reportedly agreed on a draft deal this weekend. German and Greek media said 27-pages of "substantial" and "far-reaching" reforms had been agreed following marathon talks between Euclid Tsakalotos, Greece's finance minister, and the country's creditors on Saturday. The six hour meeting, which ended in the early hours of Sunday morning, will see the country slash defence spending and subsidies for farmers as part of a fresh package of austerity measures, according to German newspaper Frankfurter Allgemeine Sonntagszeitung. Mr Tsakalotos and Giorgos Stathakis, Greece's economy minister, will meet creditor representives again on Sunday to iron out details on fiscal targets and a €50bn privatisation fund. The country's third bail-out in five years has faced fierce opposition from countries such as Finland, which threatened on Saturday to withhold its support for a new deal.  Timo Soini, the country's eurosceptic foreign minister, said Finland was "running out of patience" with Greece, as he insisted that a Greek exit from the eurozone was still the most likely outcome. "Of course we can stay out [of another rescue package], that is possible," he told Reuters.

Greece nears €86bn Accord with Creditors - Significant concessions by Alexis Tsipras and his negotiators in the past month have encouraged other hawkish eurozone members such as Finland to break with Berlin, which wants to hold out longer to squeeze more reforms from Athens. Even previously sceptical EU diplomats now say that a full agreement could be reached by the August 20 deadline, when Athens must make a €3.2bn debt repayment to the European Central Bank. The cautious optimism contrasts sharply with the acrimony at last month’s eurozone summit, which came close to ushering Greece out of the currency bloc before agreeing to negotiate a deal. The main elements of the proposed deal include spending cuts, administrative reform and privatisations. Remaining sticking points between Athens and its creditors include details of a €50bn privatisation plan and proposals for raising the planned budget surplus, excluding debt interest, to 3.5 per cent of gross domestic product in 2018 from zero this year. Officials in Brussels said an early deal was “ambitious but feasible”. But they emphasised that while this was the “preferable” way forward, the option of a €5bn bridging loan to give negotiators more time, championed by Berlin, was still on the table.   Germany, the biggest creditor, was late last week still holding out for more reforms from Athens, arguing that a two- or three-week bridging loan was better than hurriedly striking an inadequate three-year deal. Jens Spahn, deputy finance minister, tweeted on Friday: “It is better done thoroughly than hastily.” An EU official said that even if Wolfgang Schäuble, Berlin’s hawkish finance minister, dug in his heels, chancellor Angela Merkel would not want Berlin isolated.

Greece and lenders in final push to seal new bailout - Greece and its international creditors sought to put final touches to a multi-billion euro bailout accord on Monday to keep the country financially afloat and meet an important debt repayment to the European Central Bank within days. Germany set out "strict" conditions for further aid and said it would be sensible to link the size of the first tranche to Greece's progress in carrying out reforms, a reflection of worry around the euro zone that Athens might not do as promised. Greece is hoping to wrap up the deal for 86 billion euros ($94 billion) in fresh loans by Tuesday so it can get parliamentary and other approvals for aid to flow by Aug. 20, when a debt repayment to the ECB is due. After lengthy negotiations on Sunday and Monday, Greek Finance Minister Euclid Tsakalotos said talks were going "quite well" and was optimistic that an agreement will be reached soon. "I don't know if it will be tomorrow morning, but soon means soon," Tsakalotos told reporters. The European Commission also said a deal could be reached within August, "preferably before Aug. 20." An agreement would mark the end of a painful chapter on bailout talks for Greece, which fought against austerity terms demanded by creditors for much of the year before accepting a deal under the threat of being bounced out of the euro zone.

Greece and lenders agree on primary budget targets-official - Reuters: Greece and international lenders negotiating terms of a new multi-billion euro bailout on Tuesday concluded on final fiscal targets, aiming for a primary surplus from 2016, a government official said. The targets, tweaked from an earlier baseline scenario, foresee a 0.25 percent of gross domestic product primary budget deficit in 2015, turning into a 0.5 percent surplus from 2016, 1.75 percent in 2017 and 3.5 percent surplus in 2018, the official said. "The targets for the primary budget have been finalised," the official said on the sidelines of talks underway between Greek government officials and representatives of international lenders in Athens. "It was also agreed that no new measures would be introduced in 2015 and 2016," the official said. Greece was discussing the terms of a bailout worth up to 86 billion euros. It is anxious to conclude a deal before a debt repayment to the ECB which falls due on Aug.20.

Greece Says It Has Reached a Deal for a Third Bailout - The Greek government said on Tuesday that it had reached a deal with its international creditors for a third bailout, though a number of European officials expressed caution.The rescue plan, outlined in a 20-hour negotiating session in an Athens hotel, would provide aid worth up to 86 billion euros, or about $94.4 billion, to Greece in exchange for harsh austerity terms. It also acknowledged that the economy has been so severely damaged that it is now likely to wallow in recession through at least next year.But whether the accord would satisfy Germany, or be ratified by other European governments in time to send Greece new aid to make a crucial €3.2 billion payment to the European Central Bank on Aug. 20, remained to be seen.Martin Chaudhuri, a spokesman for the German Finance Ministry, said that Berlin had not yet been notified of an agreement. Should a deal emerge, “we are ready to evaluate it quickly,” he said.“What we have is a technical-level agreement,” Annika Breidthardt, a spokeswoman for the European Commission, told a daily news conference on Tuesday, referring to the negotiations with the government in Athens. “What we don’t have at the moment is a political agreement.”

Greece Says It Has Reached a Deal with Creditors; New Research Says Germany Comes Out Ahead from Lending to Greece Even with 100% Default  -- Yves Smith - Breaking news, from the Financial Times, is that Greece and its creditors have reached agreement on key terms for a so-called “third bailout”: Greece has struck an outline deal with creditors on terms of a new Euro86bn rescue package, Greek officials said on Tuesday. Another official confirmed the main points of a sweeping three-year fiscal and structural reform programme had been agreed with bailout monitors from the European commision, the International Monetary Fund, the European Central Bank and the European stability mechanism, the EU’s own bailout fund, Kerin Hope and Christian Oliver write. Most of the so-called “prior actions” – reforms that the Greek government must implement immediately before creditors will begin to release funds from the new package – had been agreed but that final details still need to be worked out on “one or two items”, an official said. So it appears that barring the tail event of a revolt in the Greek parliament, Greece and its lenders are on track to reaching an overall agreement before an August 20 ECB payment date.  While the staff made clear that it thought a debt haircut was necessary, it gave enough wriggle room to allow for aggressive debt reduction (meaning via extensions of maturities, further reductions of interest rates, and payment deferrals). As the two sides seem moving in on cinching an agreement, the BBC has reported on a German study that argues that Germany came out ahead of lending to Greece even after you allow for large debt writeoffs. Key points: The Greek debt crisis has saved the German government some €100bn (£70bn; $109bn) in lower borrowing costs because investors have sought safety in German bonds, a study has found. Even if Greece defaults on all its debt, Germany would still benefit, says the German IWH institute…. However, the study by Halle Institute for Economic Research said Germany had made interest savings of more than 3% of GDP between 2010 and 2015, and much of that was down to the Greek debt crisis.

No wonder the Greek finance minister looks resigned over possible bailout deal -  Euclid Tsakalotos failed to raise a smile. As the Greek finance minister moved past waiting reporters, he turned and said that only two or three more issues remained on the table unresolved. In other words, an €86bn (£61bn) bailout package was within his grasp. It was a moment to punch the air in defiance. But he seemed resigned and tired. And well he might be. Not only must the rescue package receive the approval of the German government and its sceptical finance minister, Wolfgang Schäuble, he must know that many of the projections he has used to convince lenders they can be repaid are based on fantasy figures. Those are the words of Jonathan Loynes, the chief European economist at consultancy Capital Economics. He said the plan for a third rescue in five years rests on initial forecasts for the economy and public finances that are “little short of fantasy”.  Recent survey evidence suggests the economic impact of capital controls has been catastrophic, he said, leading to a collapse in economic activity “to levels way below those seen even when the economy was contracting at annual rates of 9% in 2010/11”. That means the past eight months of wrangling between the new Syriza government and the troika of the EU, International Monetary Fund and European Central Bank have not only handed the Greeks a tougher set of austerity measures than was probably available in January, but also crashed the economy. Tsakalotos must be proud.

29 Page Memo Proves Greek Parliament is Puppet Government Run by Germany; Devil Details and EU Guarantees  -- The Financial Times reports Memo Reveals Extent of Control Bailout Monitors Will Have on Greece. The 29-page memo details what Greece will have to do in order to get a third bailout program. The memo covers damn near every aspect of Greek finances, effectively making the Greek parliament a puppet government of Germany. Devil Details:

  • The Greek government will have its hands bound on everything from overall budget planning to drug pricing, tourist rentals, farmers’ fuel tax breaks and the finer points of personal bankruptcy.
  • Greece must eliminate recent cross-border withholding taxes.
  • Overhaul the tax administration.
  • Progressively raising the pension age to 67.
  • Cut pharmaceuticals prices.
  • Reverse recent protective labour laws.
  • Open up a range of sectors to fuller competition.
  • Liberalize energy supplies for consumers by 2018.
  • Commit to a broad range of fiscal, financial, regulatory and pensions reforms.
  • A task force will decide how to setup a €50bn privatization fund, with specific demands coming out in December.
  • Greece must go from a primary account deficit of of 0.25 percent this year to surpluses of 0.5 per cent next year, 1.75 percent in 2017 and 3.5 percent in 2018 and beyond.

A one line preamble note reads “the recovery strategy takes into account the need for social justice and fairness”.

Beware of American econ professors! – POLITICO: How Krugman, Sachs and Stiglitz led the Greeks astray.   They have wrongly insisted that the fault for the breakdown in trust between the two sides lies exclusively with the creditors. They have also — some as informal but active advisors to Varoufakis — insisted on the need for deep debt relief, in a form bound to antagonize Greece’s European partners and one that isn’t economically necessary for Greek recovery. In a New Yorker profile a couple of weeks ago, Varoufakis says that Sachs, one of these informal advisors, counseled him repeatedly in the run-up to the referendum to default on the creditors if Greek demands for debt relief were not met. Krugman, in a visit to Athens in April, said that structural reform did not really matter much for future growth. After the referendum was called, he urged Greeks to vote No, arguing that, especially after the imposition of capital controls, things couldn’t get much worse, and would probably get better, with a new currency Stiglitz also nudged Greeks in the direction of No, and Grexit.

Greek ruling party heads toward split before bailout vote | Reuters: Greece's ruling Syriza party edged toward a formal split on Thursday, hours before rebel leftist lawmakers plan to vote against a new bailout deal to keep the country afloat. With opposition support, the government is asking parliament to approve a 85 billion euro bailout deal that Greece needs to avoid defaulting on a debt repayment next week. The vote, expected in the early hours of Friday, will test the strength of a rebellion by anti-austerity Syriza lawmakers, which could raise pressure on Prime Minister Alexis Tsipras to call snap elections as early as September. The rebels' leader, former energy minister Panagiotis Lafazanis, took a step toward breaking away from Syriza, a coalition of leftist groups which stormed to power in January promising to reverse austerity policies demanded by the euro zone and International Monetary Fund creditors. "The fight against the new bailout starts today, by mobilizing people in every corner of the country," said a statement signed by Lafazanis and 11 other Syriza members posted on the far-left faction's Iskra website. The statement called for founding a "united movement that will justify people's desire for democracy and social justice" although it did not explicitly call for a new party or a split from Syriza. Parliament, however, is expected to approve the bailout agreement by a comfortable margin since opposition parties have promised their backing for the government to ensure Greece does not return to financial chaos.

Memorandum of understanding: what exactly has Greece signed up for? -- New details have emerged of the extraordinarily detailed new memorandum of understanding struck between Greece and its creditors in exchange for an €86bn bailout. The actions Athens have agreed to take are divided into four “pillars”:

  • Restoring fiscal sustainability. Alexis Tsipras’s government has promised to turn around a projected primary deficit of 1.5% (ie, excluding debt repayments) to one of just 0.25% by the end of this financial year, despite the fact that the economy is sliding into recession.  Myriad specific money-raising measures are listed in the document, from scrapping tax breaks for farmers, to taxing TV adverts, to centralising the procurement of health supplies. Pension reforms, once a “red line” issue for Syriza, also feature here, and are expected to save 1% of GDP in 2016,
  • Safeguarding financial stability. A “buffer” of up to €25bn will be set aside to recapitalise Greece’s banks and wind down insolvent ones, with any capital shortfalls in the four major lenders due to be resolved by the end of 2015.  Greece will call in external consultants to help it check up on the membership of major banks’ boards, and “members may be replaced in a manner that ensures banks’ boards include at least three independent international experts with adequate knowledge and long-term experience in relevant banking and no affiliation over the previous 10 years with Greek financial institutions”.
  • Growth, competitiveness and investment. Athens has pledged to launch a review by October of labour market practices, including “collective dismissal, industrial action and collective bargaining”, asking whether they are aligned with European norms.  A series of consumer markets will be liberalised — allowing consumers to switch utility supplier, for example. Greece will, “adopt a general transport and logistics master plan,” covering “road, railways, maritime, air and multi-modal,” and a “time-bound action plan for the logistics strategy”.  Greece will re-write the regulations covering a series of jobs, including “the restricted professions of notaries, actuaries, and bailiffs”.
  • A modern state and public administration. Lumped in with this pillar is everything from reform of the judiciary to cutting travel allowances and perks for Greek civil servants.

Greece creditors raise 'serious concerns' about spiralling debt levels - Greece’s European creditors have underlined the temporary nature of the country’s surprise return to growth by warning that they have “serious concerns” about the spiralling debts of the eurozone’s weakest member. The economic news came as Greece’s parliament met in emergency session on Thursday to ratify a new bailout deal, although it was unclear whether the multibillion-euro agreement had the vital backing of Germany. The three European institutions negotiating a third bailout package with the government in Athens said that the Greek economy had plunged into a deep recession from which it would not emerge until 2017. According to an analysis completed by the European commission, the European Central Bank and the eurozone bailout fund, Greece’s debts will peak at 201% of its national output (GDP) in 2016. The study says that Greece’s debt burden can be made more bearable by waiving payments until the economy has recovered and then giving Athens longer to pay. However, it opposes the idea of a so-called “haircut” – or reducing the size of the debt. It is a course of action the International Monetary Fund, which joined the three European institutions in negotiating the latest bailout, thinks may be necessary for Greece’s debts to become sustainable.  “The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece’s public debt,”

Germany criticises Greek bailout agreement - Germany criticised an outline deal between Athens and its bailout monitors as insufficient, upsetting eurozone attempts to smooth the way to a new €85bn rescue for Greece. Germany’s finance ministry outlined its objections in a paper circulated to its eurozone counterparts just hours before the Greek parliament was due to debate on Wednesday the painful austerity and reform package that had been reluctantly accepted by the radical left government of prime minister Alexis Tsipras. It also sets up a potentially difficult meeting of eurozone finance ministers on Friday who are due to decide whether to approve the deal — or grant Athens a bridging loan to give the negotiators time to rework the agreement. Berlin did not make clear whether it would ask for such a delay on Friday. The finance ministry denied that it was rejecting the deal and said it was only raising “some open questions that need to be addressed in the euro group”. These include delays in planned reforms, debt sustainability and the role of the International Monetary Fund, which has helped EU institutions finance the past two Greece packages. The German intervention revives memories of last month’s acrimonious summit, when Wolfgang Schäuble, Berlin’s hawkish finance minister, openly aired the possibility of a temporary Greek exit from the euro. It punctures the optimism that had been building in Brussels that a deal could be done in time for Athens to pay a €3.2bn debt to the European Central Bank on August 20.

Germany Warns Greek Bailout Is "Insufficient" As 2Y Bund Yields Collapse To Record Lows -- With the Greek bailout deal now nearly done, all that stands in the way of disbursal is the Greek parliamnent and a predictably incalcitrant Germany which, according to Bild (citing EU sources) has now determined that the new bailout plan is "insufficient." Lawmakers reportedly want "immediate answers" to three questions. Here's the summary, via Bloomberg:

  • German govt sees agreement between creditors and Greek govt on 3rd bailout as insufficient, Germany’s Bild-Zeitung reports, citing EU officials it doesn’t name and written Finance Ministry analysis.
  • Germany sees open questions regarding participation of IMF, debt sustainability and privatizations
  • Implementation of many measures not foreseen before October or November
  • “Some very important measures are not yet implemented and are not specified”
  • Three basic questions must be answered immediately:
    • Whether IMF agreed to all terms of bailout completely
    • Whether debt sustainability can be secured although debt relief is planned to take place only later
    • Whether independent privatization fund can start work quickly and could take over Greek banks
  • Analysis criticizes that agreement falls short of almost all decisions taken by special euro region summit in July

And meanwhile, German 2-year yields have collapsed to record lows:

Tsipras wins bailout vote, faces widening rebellion -- Greek Prime Minister Alexis Tsipras confronted a widening rebellion within his leftist Syriza party as parliament voted to approve the country's third financial rescue by foreign creditors in five years. The vote was held after daybreak on Friday after lawmakers bickered through the night over procedural matters. Euro zone finance ministers are expected to approve the vital aid for Athens later on Friday. Thanks to support from pro-euro opposition parties, the 85 billion euro ($95 billion) bailout program easily passed with 222 votes in the 300-seat chamber. But 43 lawmakers - or nearly a third of deputies from Tsipras's Syriza party - voted against or abstained, well above the three dozen that defied him in a vote on reforms last month. Tsipras will call a confidence vote in parliament after Greece makes a debt payment to the ECB on August 20, a government official said. A senior lawmaker, Makis Voridis from the opposition New Democracy party immediately said his party would not vote in favor of the government, raising the odds that the government could be toppled. In an appeal to lawmakers before the vote, Tsipras defended the decision to accept a program that comes at the price of tax hikes, spending cuts and economic reforms, saying it was a choice between "staying alive or suicide".

Eurozone approves €86bn Greek bailout - Eurozone finance ministers have approved an €86bn bailout for Greece, even though the International Monetary Fund’s financial participation in the programme is in question, setting the scene for tough talks between Brussels, Berlin and the fund. Doubts over IMF involvement in the deal — which was demanded by Germany and other hawkish states — centre on the fund’s fears that Greece’s debt is unsustainable without some relief. Speaking after a six-hour meeting of eurozone finance ministers in Brussels, Christine Lagarde, the IMF managing director, said: “I remain firmly of the view that Greece’s debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own.” The lack of a firm commitment from the IMF will make it harder for countries such as Germany and the Netherlands to win over sceptics in national parliaments, who must approve any deal. Wolfgang Schäuble, the German finance minister, put a brave face on the lack of a guarantee from the IMF. He said the eurogroup ministers were “assuming” that the fund would decide in October to make “a financial contribution” — something the fund has previously said it would consider. This assumption is seemingly weaker than the “if possible binding commitment” that the German finance minister said was needed just before the eurogroup meeting. In an effort to win over the IMF, the finance ministers agreed to consider debt relief at a later date “if necessary”. Such relief would potentially include a longer grace period and longer maturities, although would not involve a nominal reduction in the level of Greek debt.

IMF: Lagarde eyes new act in Greek drama - Christine Lagarde looked rattled. “The IMF has been adopting a line of, not silence but, erm, we try to be mindful of developments and not be excessive in our positions,” the grave IMF managing director said, dipping her eyes to the lectern in front of her and pausing before launching into a defence of the fund’s role in Greece’s now five-year-old crisis — and of what had until then been only a single terse statement from the fund about the vote. Nothing during her tenure has generated greater division within the IMF than the Greek crisis and, once again, events in the country — the subject of the biggest bailout in the fund’s 71-year history and the first advanced economy to default on one of its loans — has, from the IMF’s perspective, just gone horribly wrong. In the weeks since that appearance the IMF’s role has only come under greater scrutiny. Ms Lagarde, who had quietly begun a campaign to win a second term as managing director days before the Greek vote, and the IMF have been helping to build a new €86bn European-led rescue package for Athens that eurozone finance ministers are due to discuss today. But the fund has also been issuing what critics in Europe argue are a procession of confusing messages. Five years after the IMF, under the leadership of Ms Lagarde’s predecessor Dominique Strauss-Kahn, first joined a European-led rescue of Greece, the fund’s future participation and its credibility are facing very real questions. The timing could not be worse with the international financial system already unsettled by the arrival of new institutions backed by China. Eager not to repeat what many see as one of myriad mistakes it and others made in Greece, IMF staff have for months insisted that the rescue has to include not just a series of difficult reforms by Athens, but also what in countries such as Germany would be a politically awkward agreement to help reduce the burden of Greece’s more than €300bn sovereign debt pile, most of which is now owed to other eurozone governments and taxpayers.

Germans borrow more even as Merkel urges Europe to spend carefully -- While Chancellor Angela Merkel’s focus on careful spending as a cure for the eurozone’s debt problems has made her popular at home, German consumers are borrowing more to finance everything from furniture to cars. Germans, traditionally a nation of debt-averse savers, took out an average of €8,700 ($9,650) in loans last year — a rise of around 10% compared with 2013, according to Schufa, Germany’s main credit bureau. With borrowing expected rise again this year, that marks a significant shift in a country where the thrifty southwestern ‘Swabian housewife’ has been held up as a model and a strong dislike of borrowing is rooted in the language. ‘Schuld’, the word for debt, also means guilt.While the number of new loans dropped slightly last year, the average amount people borrowed rose. For the first time, new instalment loans worth more than €10,000 overtook those worth less than €1,000, Schufa data showed. Germans still have far less outstanding consumer credit per head than peers in Norway, Denmark and the United Kingdom, but they have far more left to pay off than the Italians, Spanish and Portuguese, a study by French bank Credit Agricole found. “Nowadays Germans differentiate between ‘good’ and ‘bad’ debt,” “Taking out debt to pay for cosmetic surgery, new clothes or jewellery is still frowned upon but taking out a loan to buy a house or pay for health treatment is accepted.”

Finnish economy stuck in three-year-old recession - data | Reuters: Finland's gross domestic product (GDP) contracted in April-June for the fourth consecutive quarter as the Nordic euro zone member struggles to revive exports to its major markets, Europe and Russia. The economy has contracted for three years in a row and has yet to return to its 2008 output levels since the decline of core businesses, including Nokia (NOKIA.HE) phones, as well as the impact of the euro zone debt crisis and Russia's slowdown. Preliminary data from the statistics office on Friday showed the second-quarter gross domestic product (GDP) contracted 0.4 percent from the previous quarter. That follows a quarterly decline of 0.1 percent in the first quarter. "Very weak number, I would have expected a flat second-quarter. This means pressure for full-year forecasts," Danske Bank economist Pasi Kuoppamaki said. Latest forecasts by banks and officials estimate Finland's GDP growth will be in the range of -0.1 to 0.5 percent this year and between 1.0 and 1.6 percent in 2016.

A Finnish cautionary tale - Eurozone growth figures came out today. And they are horribly disappointing. Everyone undershot, apart from Spain which turned in a remarkable 1% quarter's growth, and Greece which somehow managed an even more incredible 0.8% (yes, I will write about this, but not in this post). France  didn't grow at all, Italy all but stagnated at 0.2%, and even the mighty Germany only managed 0.4%. Despite low oil prices, falling commodity prices, weak Euro and the ECB's QE programme, Eurozone quarterly growth is a miserable 0.3%. Maybe it's just me, but I can't help thinking that something just isn't working in the Eurozone. Among the most disappointing performances was Finland's. Back in May, the European Commission confidently predicted that growth would return in 2015:  Finland has been in recession for most of the last three years. True, towards the end of 2014 it did look as if it was beginning to recover. But that was a damp squib. Today's figures show that the economy contracted by 1% in the second quarter of 2015.  So what on earth went wrong? It doesn't appear to have been the financial crisis. Finland did get clobbered, yes - it suffered a deep recession in 2009, as the chart shows - but it bounced back quickly and in 2010-11 was growing at a highly respectable 5%. Then it collapsed. It would be easy to blame that on the Greeks, wouldn't it? Or maybe the oil price rises at that time? No. This is not a story of Eurozone macroeconomic imbalances and oil price shocks. Rather, it is the sad tale of a country that allowed itself to become dependent not just on one industry, but on one company.  And when this happens to an entire country, the consequences are disastrous. From the EC's country report, here is Nokia's contribution to Finnish GDP:

Negative Yields on $1.5 Trillion of Euro Bonds Show Flat Economy - Negative bond yields, unthinkable before Europe’s debt crisis, have become a fact of life as the euro region shows few signs of growth. More than four months after the European Central Bank started its bond-buying program to funnel money into the economy, $1.5 trillion of securities issued by governments in the region pay less than zero, according to data compiled by Bloomberg. That’s equivalent to 23 percent of that market. “Investors have no choice but to get used to negative yields,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “It’s not an abnormality any more. This time, I think they are set to stay lower for longer.” Yields on French two-year securities slid on Aug. 6 to less than the minus 0.2 percent the ECB charges lenders to park excess cash with it overnight. German yields are less than zero for notes with maturities of as long as four years. Negative yields mean investors who hold them to maturity are effectively giving some of their money away in return for keeping it safe relative to risker securities that are more geared toward the prosperity of companies and countries.

Eurozone industrial production falls in June - Industrial production across the eurozone declined more than expected in June, rounding off a weak second quarter and indicating that lackluster investment continues to restrain economic activity. The European Union's statistics agency said Wednesday that production at factories, mines and utilities fell for the second straight month in June, down 0.4% from May. Economists polled by The Wall Street Journal had forecast a monthly decline of 0.1%. The data, coming ahead of Friday's publication of gross domestic product estimates, "shed a concerning light on the manufacturing recovery in 2015" as some of the region's main trading partners are going through a weak growth spell, said Bert Colijn, an economist at ING Bank. A cooling Chinese economy prompted Beijing on Tuesday to devalue its currency, while data on Monday showed that Russia's economy moved further into recession in the second quarter. The level of industrial output in the world's second-largest economic region also remained well below levels in 2007 and early 2008, ahead of the global financial crisis, Eurostat data showed. Jessica Hinds, an economists at Capital Economics, estimated that eurozone industrial production dropped 0.3% in the second quarter from the first, its weakest quarter since the end of 2012. With industry accounting for around 20% of gross value added, this will weigh on second-quarter GDP growth, she said.

Eurozone economic recovery likely stalled in Q2 - — The eurozone's hopes for a strong economic recovery this year have soured over the past couple months, partly because of the crisis over Greece's future in the currency zone and fading growth in China. So there's growing speculation that official figures released Friday will show the 19-country bloc's growth rate eased during the second quarter. With most elements of economic activity — such as industrial production, retail sales and construction — already shown to have had a subdued quarter, economists think the quarterly growth rate was unchanged at 0.4 percent. Many note, however, that the figure could disappoint and come in as low as 0.2 percent. "Recent European data have tended to underwhelm, suggesting that the euro area has struggled to build upon the momentum gained earlier in the year," said James Nixon, chief European economist at Oxford Economics. "The recovery is therefore delicately placed." The stalling in growth would be disappointing for the eurozone, where there was much optimism in early spring that the region was set for a strong pick-up. With oil prices sharply lower, the euro at multiyear lows and the European Central Bank on a 1.1 trillion-euro ($1.3 trillion) bond-buying spree to keep market interest rates low, there were hopes that the eurozone had turned a corner after years of crisis. In the first quarter of 2015, the eurozone's big four economies — Germany, France, Italy and Spain — were all growing at the same time for the first time since 2010. Since then, the eurozone has seen the Greek debt crisis explode again and suffered from growing uncertainty over the Chinese economy.

European GDP Unexpectedly Disappoints As All "Big Three" Economies Miss Expectations -- Define irony: in a quarter in which Greece was supposed to have been near death (at least according to the worst PMI print in history and of course, judging by the bank lines in front of the capital controlled institutions), yesterday we learned that Greek GDP surged relative to expectations rising by 0.8%, which was what analysts had expected but with a minus sign in front of it. Then overnight, we got the rest of European GDP, including the big three: Germany, France and Italy. The results were nothing short of a big disappointment. To wit: Germany Q2 GDP rose by 0.4%, below the 0.5% expected; Italy's GDP rose by 0.2%, also below the 0.3% expected, but the biggest surprise was France, which did not even rise, and Q2 GDP was unchanged, well below the 0.2% expected, and down substantially from the revised 0.7% GDP growth in Q1. At the Euroarea level, the result was also a big negative surprise with Q3 GDP rising 0.3%, down from 0.4%, and below expectations. This was the worst GDP print since Q3 2014. From Eurostat: Seasonally adjusted GDP rose by 0.3% in the euro area1 (EA19) and by 0.4% in the EU281 during the second quarter of 2015, compared with the previous quarter, according to flash estimates2 published by Eurostat, the statistical office of the European Union. In the first quarter of 2015, GDP grew by 0.4% in both areas. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.2% in the euro area and by 1.6% in the EU28 in the second quarter of 2015, after +1.0% and +1.5% respectively in the previous quarter. During the second quarter of 2015, GDP in the United States increased by 0.6% compared with the previous quarter (after +0.2% in the first quarter of 2015). Compared with the same quarter of the previous year, GDP grew by 2.3% (after +2.9% in the previous quarter).

Eurozone inflation remains weak in July -  Consumer price inflation in the eurozone remained subdued in July, a sign that the European Central Bank's bond purchase program has yet to have its desired effect. Consumer prices in the 19 countries using the euro fell 0.6% on the month and rose 0.2% from July last year, the European Union's statistics agency said Friday. The data are in line with economists' expectations and the annual rate matches Eurostat's flash estimate from July 31. Inflation continued to undershoot the ECB's medium-term target of just below 2% despite a series of unprecedented measures by the central bank, including a massive quantitative easing program that allows the ECB to purchase government bonds and private debt securities worth more than 1 trillion euros ($1.1 trillion) by September 2016. Annual inflation rates hovered just above zero in the eurozone's three largest economies, namely Germany (+0.1%), France (+0.2%) and Italy (+0.3%). Prices fell from July last year in Cyprus (-2.4%) and Greece (-1.3%). And prices are expected to remain depressed for longer. The International Monetary Fund said in July that inflation will remain below target through 2020, while unemployment will stay high.

Cut the working week to a maximum of 20 hours, urge top economists - Britain is struggling to shrug off the credit crisis; overworked parents are stricken with guilt about barely seeing their offspring; carbon dioxide is belching into the atmosphere from our power-hungry offices and homes. In London on Wednesday, experts will gather to offer a novel solution to all of these problems at once: a shorter working week. A thinktank, the New Economics Foundation (NEF), which has organised the event with the Centre for Analysis of Social Exclusion at the London School of Economics, argues that if everyone worked fewer hours – say, 20 or so a week – there would be more jobs to go round, employees could spend more time with their families and energy-hungry excess consumption would be curbed. Anna Coote, of NEF, said: "There's a great disequilibrium between people who have got too much paid work, and those who have got too little or none." She argued that we need to think again about what constitutes economic success, and whether aiming to boost Britain's GDP growth rate should be the government's first priority: "Are we just living to work, and working to earn, and earning to consume? There's no evidence that if you have shorter working hours as the norm, you have a less successful economy: quite the reverse." She cited Germany and the Netherlands. Robert Skidelsky, the Keynesian economist, who has written a forthcoming book with his son, Edward, entitled How Much Is Enough?, argued that rapid technological change means that even when the downturn is over there will be fewer jobs to go around in the years ahead. "The civilised answer should be work-sharing. The government should legislate a maximum working week."

A-level results 2015: UK exam board OCR admits it 'estimates' hundreds of pupils' grades after papers 'go missing' - The country’s leading exam boards are ‘estimating’ hundreds of A-level grades every year in cases where papers have ‘gone missing’, it has been revealed. Speaking with The Telegraph, chief executive of the Oxford Cambridge and RSA (OCR) board – the UK’s leading awarding body for providing A-level, GCSE, and vocational qualifications at over 13,000 centres – admitted how the board is forced to estimate grades after papers either get lost in the post or are put into wrong envelopes. Mark Dawe added how the practice happens every year in schools and said the board does not want to “punish the child for an administrative error.” The admission has come just days before thousands of students from across the country will be receiving their exam results which will determine which university they will get into. Mr Dawe said: “It might be the school, it could be us. We have so many processes in place.”

No comments: