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

Saturday, August 22, 2015

week ending Aug 22

Divided Fed Puts Yellen on Hot Seat - WSJ: The Federal Reserve faces a potential cliffhanger about whether to raise interest rates at its September meeting, a decision that will test Chairwoman Janet Yellen’s ability to lead an uncertain policy-making committee. Officials have signaled for months they intend to start raising short-term rates from near-zero interest before year-end. But they have provided no clear sign of having settled on whether to move at their next policy meeting Sept. 16-17. Minutes of their July 28-29 meeting, released Wednesday, underscored why the decision remains a close call. “Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” the minutes said. That passage might be read as a hint that officials saw a September rate increase in the cards, but the minutes showed officials had wide-ranging views about taking that step and several notable sources of trepidation. The Fed has said it won’t move rates until it is more confident inflation will rise toward its 2% target after running below it for more than three years. “Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term,” the minutes said.

Fed Watch: FOMC Minutes Give No Clear Signal --The FOMC minutes from the July 28-29 FOMC meeting were released today. Arguably they are stale. Arguably they have been overtaken by events. And because the Fed has been very good about not signaling their exact intentions, arguably you can read anything into them you want. If you want to take a hawkish view, I think you focus on this and similar portions of the minutes: Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point. Participants observed that the labor market had improved notably since early this year, but many saw scope for some further improvement. Many participants indicated that their outlook for sustained economic growth and further improvement in labor markets was key in supporting their expectation that inflation would move up to the Committee's 2 percent objective, and that they would be looking for evidence that the economic outlook was evolving as they anticipated.When considering a rate hike, "many" participants were willing to dismiss current low inflation if they believe evidence of stronger growth supports their conviction that inflation would trend toward target over time. The data since the July meeting tends to support that view. July retail sales were healthy, and revisions to previous months points toward upward revisions to second quarter GDP growth to 3.0 percent or higher. Industrial production was higher, perhaps starting to move past the declines related to the sharp drop in oil prices. Single family housing starts continued their slow but steady rise, reaching a level last seen in 2007. Homebuilder confidence is up. While manufacturing has been soft, the service sector as measured by the ISM non-manufacturing measure is picking up the slack. And the employment report was yet another in a long line of employment reports suggesting slow yet steady gains. Overall, a picture generally supportive of sustained growth and further improvement in labor markets.

Is the Economy Ready for a Rate Hike?: Members this past week were making their arguments over a September rate hike, but they are missing the point of what is actually behind a rate hike — our economy. “I think the point of liftoff is close,” was Atlanta Fed President Dennis Lockhart’s comment on rate hikes, all but assuring the market that September was D-day for the first interest-rate hike since 2006. Then, Fed Vice Chairman Stanley Fischer commented that a September hike is not a done deal, pushing expectations back to October or December. But, if you pay too much attention to this debate cycle, you end up missing what the bigger debate is about — is our economy even healthy enough for a rate hike? The answer is no. And the Fed knows it…For a rate hike to occur, there is one thing that must accompany it, and it’s the only debate we should be having today — a stronger U.S. economy. Low interest rates act as a boost to the economy; they spur lending and encourage spending capital. Higher interest rates do the opposite; they suppress lending, and encourage saving — both of which slow an economy. In other words, if rates were to lift off in a fragile economy, one like we have, it could cause a greater collapse than the financial crisis because the few people who are spending now would stop and sock their wealth away in savings to enjoy the higher rates. If the Fed were to raise rates by a minimal tenth of a basis point, it wouldn’t mean anything. And if the Fed pushes for a typical quarter-of-a-point hike, that would likely be the last rate hike for another decade.

A Fine Fed Mess - WSJ: The Federal Reserve is debating whether to fulfill its pledge to finally begin raising interest rates off zero in September, and the markets are throwing a fit. Wall Street and many in the political class are begging the Fed to stand down, and the Fed has only itself to blame for its economic and political predicament. Global stocks have taken a beating this week, and as always the question is whether the selloff is a temporary correction or a harbinger of bigger problems. U.S. equities have risen for six years with few breaks, and the recent market declines are merely 10% or so off their recent top. A larger correction might even be useful if it reminds investors that stocks can’t rise forever if the real economy remains sluggish.  On the other hand, sluggish might flatter this economy. Global growth has slowed, and that’s hurting U.S. growth. China is decelerating, Europe is growing but not very much, and Japan isn’t taking off. Slower growth is reflected in falling commodity prices, notably in oil, which dipped below $40 a barrel on Friday for the first time since 2009. But nearly every major commodity price is also off. The U.S. is still growing, but corporate profits are far from booming. Growth in the first half of the year came in at a paltry 1.5%, and so far the third quarter doesn’t look like it will rebound as smartly as it did in 2014. One lesson here is that the Fed’s great monetary experiment since the recession ended in 2009 looks increasingly like a failure. Recall the Fed’s theory that quantitative easing (bond buying) and near-zero interest rates would lift financial assets, which in turn would lift the real economy.  But while stocks have soared, as have speculative assets like junk bonds and commercial real estate, the real economy hasn’t. This remains the worst economic recovery by far since World War II, and we’ll be watching to see if financial assets now fall to match the slow real economy.

Plotting the Fed's Baby Step 1/8 Point Hikes; Yellen vs. Greenspan (Measured Pace Revisited)  - The market still believes the Fed will hike rates in September or October. The CME's FedWatch Sees it like this.That table is based on Fed Fund Futures and option bets. I highly doubt the Fed will think about a half-point hike no matter how strong the economic data between now and the September 16-17 meeting. Fed Funds Futures expire on the last day of the month but settle at the average rate for 30 days prior.  Using Fed Funds Futures (not options) from August 18, I generated the chart and table below. Comments:

  • Rate hikes will not be that smooth. For starters, meetings are 8 times a year, not 12.
  • The current Fed Funds Rate as of August 18, 2015 is .0138 percent. 
  • The implied rate for September is only 0.185 percent (but that is a 30-day average).
  • The implied rate does not hit .025 percent until October. That would roughly be a 1/8 point hike from the current rate of 0.138 percent.
  • The next 1/8 point hike would not occur until December or January at the earliest.

Let's assume the Fed actually does get a hike off in September if for no other reason than the market expects such a hike. Based on Fed Fund Futures and FOMC Meeting Dates, and taking into account 30-day averages, the table of future rate hikes looks something like this.

How Well-Structured Is Our Federal Reserve, Anyway? - Brad DeLong - When we think about what the Federal Reserve is doing right now, we need to consider four questions:

  1. Is the Federal Reserve properly implementing the monetary policy strategy the FOMC has decided upon?
  2. Is the monetary policy strategy the FOMC has decided upon the right strategy given the beliefs and values of the committee and the baton the Congress has given to it?
  3. Has the Congress given the Federal Reserve the right baton--that is, is the mandate calling for price stability, maximum feasible employment, moderate long-term interest rates, and financial stability the right mandate?
  4. Has Congress created the right institutional structure--that is, given the FOMC the proper membership and orientation?

I would argue that the answers to all four of these questions are: "No."

The Fed Is on Thinner Ice Than It Realizes, and It May Be Setting Us Up for Recession -- Have members of the Federal Reserve already engineered a soft landing? And are they even asking that question? The thought came to me while reading Barry Ritholtz's recent piece on policy normalization: Today, the panic is a receding memory. Interest at zero is an emergency setting. Why do we still have a Fed policy designed for an economy that needed life-support? I believe monetary policymakers generally concur with Ritholtz. They see zero interest rates as an artifact of the financial crisis. The economy today resembles normality—and so, too, should monetary policy. Hence the push to raise rates this year, possibly as early as the next meeting in September. Consider instead that zero—or at least, very low—short-term rates reflect the realities of the new normal for economic growth. In this scenario, quantitative easing was the Fed's emergency policy setting. And by ending quantitative easing, the Fed has already normalized policy. Monetary policymakers will resist this interpretation. They do not believe that tapering and ending the bond-buying program reflects a tightening of policy. Regardless of what they believe, however, real interest rates rose at the suggestion that QE has a short half-life:  Meanwhile, inflation expectations have waned:  And the yield curve has flattened: Equities started moving sideways after QE ended:  The dollar rose and oil cratered as the end of QE approached: Meanwhile, employment gains stabilized: As did gross domestic product growth: Moreover, the effects spread outside U.S. borders. David Beckworth argues that China is yet another victim of the Fed's status as a monetary superpower. And it should not go unnoticed that as the economy has settled into this mediocre equilibrium, fears of inflation or widespread wage acceleration remain premature—arguably, almost as if the Fed pulled the plug a little too early.

After 6 Years Of QE, And A $4.5 Trillion Balance Sheet, St. Louis Fed Admits QE Was A Mistake - As you’re no doubt aware, the Fed is fond of using the research departments at its various branches to validate policy and analyze away bad economic outcomes. For instance, earlier this year, the San Francisco Fed came up with an academic justification for the now infamous double seasonally adjusted GDP print - they call it "residual seasonality." Then there’s the NY Fed, where researchers recently took to the bank’s blog to explain why, despite all evidence to the contrary, Treasury liquidity is "fairly favorable." Be that as it may, someone will occasionally say something really inconvenient - like when, back in April, the St. Louis Fed warned that the American Middle Class was "under more pressure than you think," a situation the bank blamed on the diverging fortunes (literally) of the haves and the have nots in the post-crisis world. The implication - made clear in the accompanying graphics - was that QE was effectively eliminating the Middle Class. Now, the very same St. Louis Fed (this time in the form of a white paper by the bank’s vice president Stephen D. Williamson), is out questioning the efficacy of QE when it comes to stoking inflation and boosting economic activity.  Williamson says the theory behind QE is "not well-developed", and calls the evidence in support of Ben Bernanke’s views on the transmission mechanisms whereby asset purchases affect outcomes "mixed at best." "All of [the] research is problematic," Williamson continues, as "there is no way to determine whether asset prices move in response to a QE announcement simply because of a signalling effect, whereby QE matters not because of the direct effects of the asset swaps, but because it provides information about future central bank actions with respect to the policy interest rate." In other words, it could be that the market is just reading QE as a signal that rates will stay lower for longer and that read is what drives market behavior, not the actual bond purchases.

U.S. Lacks Ammo for Next Economic Crisis - WSJ: As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive. Money has been Washington’s primary weapon in the decades since British economist John Maynard Keynes proposed aggressive government spending to battle the Great Depression. The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending. Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers. Few economists believe the U.S. is near recession. The economy seems to have regained its footing after a first-quarter stumble, and Federal Reserve officials are considering whether to raise short-term interest rates for the first time in a decade to ensure the economy doesn’t overheat. Even so, looming threats are a reminder that the slow-growing global economy is just a shock away from peril. Japan’s economy contracted in the second quarter and Europe recorded lackluster growth. China’s slowdown, meanwhile, appears more severe than global policy makers initially realized and a currency devaluation there might spur trade frictions.

Serious Question, Janet Yellen Edition -- In spite of a sustained lack of inflation, a large, sustained gap in the Civilian Employment/Population Ratio, an abiding lack of post-recession growth domestically, and significant underperformance (old, new, [PDF] and overall) internationally, the Fed appears prepared to raise interest rates this year. Which leaves me now wondering: With the possible exception of Robert, is there any former colleague/roommate/coworker of whom Brad DeLong has spoken highly who is worth the trouble of paying attention to when they have a chance to do something in government?*  My top-of-the-head list is:

  1. LawrenceLarryH. Summers (the RoboQB of the Econ field, in more ways than one)
  2. Tim Bloody Effing Geithner (all links but one to Brad in his post-Chief Internet Geithner Apologist days)
  3. Andrei Shleifer
  4. Christina Romer (though I’ll be the second or third to stipulate that It Wasn’t Her Fault; see above), and, now,
  5. Janet Yellen

What good is alleging that you have sharp, respectable people who Know What to Do if they then Don’t Do It? When the perpetual answer you get when they screw up is a variation on “You said you regretted not doing more. What do you regret not doing?”

Fed Watch: Some Thoughts On Productivity And The Fed -   Will flagging productivity growth trigger a hawkish response from the Fed? That is a question I have been asking myself since Federal Reserve Chair Janet Yellen discounted the cyclical influences of low wage growth in her July 10 speech: The most important factor determining continued advances in living standards is productivity growth, defined as the rate of increase in how much a worker can produce in an hour of work. Over time, sustained increases in productivity are necessary to support rising household incomes…Here the recent data have been disappointing. The growth rate of output per hour worked in the business sector has averaged about 1‑1/4 percent per year since the recession began in late 2007 and has been essentially flat over the past year. In contrast, annual productivity gains averaged 2-3/4 percent over the decade preceding the Great Recession. I mentioned earlier the sluggish pace of wage gains in recent years, and while I do think that this is evidence of some persisting labor market slack, it also may reflect, at least in part, fairly weak productivity growth. Goldman Sachs economists led by Jan Hatzius hypothesize that productivity growth is low only because growth is mis-measured, undercounting the value of free or improved software and digital content made possible by information technology (although see Greg Ip’s opposing view). It seems that Yellen is leaning in the direction of taking the productivity numbers at face value and seeing low wage growth as consistent with the view that the productivity slowdown is real.

Productivity paradox deepens Fed’s rate-rise dilemma - With this week’s release of the US Federal Reserve minutes reinforcing expectations of a rate rise, perhaps as soon as September, Fed officials are at pains to stress that any final decision will depend on the macroeconomic data; and thus be “data dependent”. But as the Fed keeps tossing around those “D” words, a certain irony hangs in the air. In a corner of the data world — productivity — the picture looks so baffling it is hard to see how anyone could depend on those numbers. And while this data fog has not yet attracted much public debate, the mystery could complicate the Fed’s policy challenge — not least because it makes it hard to tell how fast the economy can grow before it needs more rate hikes. To understand the issue, take a look at some numbers assembled by Alan Blinder, an economics professor at Princeton and a former vice-chairman of the Fed. Mr Blinder calculates that in the period between 1995 and 2010, productivity in the US economy grew on average by 2.6 per cent each year. That meant the potential trend growth rate in the US economy, or the speed at which the economy could grow sustainably ignoring capacity issues, was roughly 3 per cent. (The trend rate is usually calculated by adding population growth and productivity increases.) However, since 2010, overall average productivity increases have tumbled to just 0.65 per cent; indeed, over the past year private sector labour productivity, excluding farming, has grown by a paltry 0.3 per cent according to the quarterly data series. This is peculiar on many levels. For one thing, the trend flies in the face of the popular belief that the western world is undergoing a technology boom. After all, the internet revolution has given us mobile phones with the computing power of 1970s rockets, while analysts such as the Oxford Martin school are now predicting that digitalisation has become so powerful that it will replace half of all US jobs in the next couple of decades. In what adds to the sense of mystery, the Fed itself seems to be using a very different understanding of productivity. Recent projections from Fed policy board members, for example, imply they think potential “trend growth” in the economy is around 2.15 per cent. That implies productivity growth of around 1.75 per cent.

Yield Curve Flattens in Recessionary Manner; Rate Hike Odds Shift to December -- The Fed has been trying for months to convince the markets that rate hikes are coming in September. On Thursday the market took another look and came around to my point of view "I'll believe it when I see it".The CME concludes there is a 23.57% chance of a hike. This is bad math because the CME ignores ranges. If the Fed comes flat out and sets a target rate of precisely 0.25% that is a hike from here. The current Fed stance is 0.00% to 0.25% and the actual rate has been about 0.14%. Thus 0.25% would be a hike of roughly 1/8 point (0.125 percentage points). That said, it is certainly debatable if we see even that much of a hike. A look ahead at action in the CME Fed Fund Futures shows why. To calculate the expected interest rates simply subtract the numbers in the first column from 1.00. In December, the expected average rate for the month is 0.28%. Simply put, the market is not expecting much more than an eight point hike all the way to December.

The decline in long-term interest rates -   John Cochrane - Long term interest rates are trending down around the world. And it's not just since the great recession and financial crisis. The same trend has been going on for decades. The Council of Economic Advisers just issued an excellent report surveying our understanding of this question. A blog post summary by Maury Obstfeld and Linda Tesar.(Many other interesting CEA reports here. Occupational licensing is next on my in box.) The report is really well done, for explaining the economic issues in clear simple terms, but without hesitating to use a model and an equation when necessary. If you're wondering how to keep your undergraduate or MBA class (heck, your PhD class) busy this week, this report will do the trick. There is some grumbling in economics circles about the CEA and what role it should play, between Sunday morning talk show cheerleader for the Administration's policies vs. providing dispassionate  economic analysis to the Administration and country. This kind of report is the kind of CEA I cheer for. I won't summarize the whole thing. Maury and Linda's blog post blog post does a great job of that, and you should just go read it. A few comments however.

Some Real Interest Rates Are Low, Others Are Not - Steven Williamson - Observed real interest rates on U.S. government debt are, by any measure, low. For example, here's the 30-day T-bill rate minus the inflation rate: And this is the yield on 10-year TIPS:  John Cochrane has a post which references a recent Council of Economic Advisors survey on low real interest rates, which contains a useful summary of what is known about this. As well, Ben Bernanke discussed this phenomenon in his blog, and Bernanke and Larry Summers discussed what this might have to do with so-called "secular stagnation."Some of this discussion seems to work from the assumption that the rate of return on government debt and the rate of return on capital are the same thing. For example, Bernanke shows a chart of the 5-year TIPS yield and then, in addressing what this might have to do with secular stagnation, makes this statement:  at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects... if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period. So, Bernanke appears to think that low real Treasury yields are associated with low rates of return on capital. As well, Summers's arguments concerning secular stagnation seem to rely on a loanable funds theory of the real interest rate - the demand for investment (i.e. the demand for loanable funds) is low, which makes the real interest rate low. It seems clear that the real interest rate that Summers has in mind is the real rate of return on capital.

Have interest rates actually risen? -  The Council of Economic Advisors recently put out a report on the long, steady decline in long-term interest rates over the last two decades. John Cochrane called the report "excellent", and reposts the following graph: These are government bond yields - they represent the government's cost of borrowing. Steve Williamson, however, notes that the return on government bond yields is not the same thing as the return on capital. He writes: Some of this discussion seems to work from the assumption that the rate of return on government debt and the rate of return on capital are the same thing...Bernanke appears to think that low real Treasury yields are associated with low rates of return on capital. Williamson is responding to a quote by Bernanke stating that if (real) interest rates get low enough, investment will eventually be stimulated. Williamson points out the distinction between government borrowing rates and rates of return on capital in order to argue (I think) that pushing down government bond rates will not necessarily induce companies to invest. In defense of this thesis, Williamson cites a St. Louis Fed report by Paul Gomme... ... I am not sure whether Gomme et al. are measuring the return on capital correctly here. But I am pretty sure that Williamson is making sort of an error here - or at least overlooking an important distinction. What should matter for business investment is not businesses' return on capital, but the difference between their return on capital and their cost of capital.

Motor Vehicles, Housing Starts Boost GDPNow 3rd Quarter Forecast to Anemic 1.3 Percent -- A 15% boost in motor vehicle assemblies added 0.5 percentage points to the Atlanta Fed GDPNow Forecast for 3rd quarter GDP.  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.3 percent on August 18, up from 0.7 percent on August 13. The forecast for real GDP growth increased from 0.7 percent to 1.2 percent after Friday's industrial production release from the Federal Reserve. Most of this increase was due to a 15.3 percent increase in seasonally adjusted motor vehicle assemblies in July that boosted the forecast of the contribution of real inventory investment to third-quarter GDP growth from -2.2 percentage points to -1.8 percentage points.  GDPNow vs. Blue Chip Forecasters: Motor vehicles added 0.5 percentage points to the forecast and today's housing starts numbers added another 0.1 percentage points to the forecast on August 13.

Atlanta Fed Q3 GDP Forecast Doubles Thanks To Subprime Auto Loans  -- Thanks to the economic miracle of offering cheap money to the least creditworthy of society,The Atlanta Fed just increased its forecast for Q3 GDP from +0.7% to +1.3% - though this is still less than half consensus estimates. The driver of this 'almost doubling' was due to a 15.3% increase in seasonally adjusted motor vehicle assemblies in July stuffing inventories even fuller. Of course, as we previously noted, this is entirely unsustainable and we await the mean-reversion in August and September. As The Atlanta Fed explains, The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.3 percent on August 18, up from 0.7 percent on August 13. The forecast for real GDP growth increased from 0.7 percent to 1.2 percent after Friday's industrial production release from the Federal Reserve. Most of this increase was due to a 15.3 percent increase in seasonally adjusted motor vehicle assemblies in July that boosted the forecast of the contribution of real inventory investment to third-quarter GDP growthfrom -2.2 percentage points to -1.8 percentage pointsBut as we showed previously, this is simply unsustainable as automakers face a massive inventory already...

July 2015 Leading Economic Index Rate of Growth Declines: The Conference Board Leading Economic Index (LEI) for the U.S. declined this month - but the authors believe the outlook "is still pointing to moderate economic growth through the remainder of the year." This index is designed to forecast the economy six months in advance. The market (from Bloomberg) expected this index's month-over-month change at 0.0 % to 0.4 % (consensus 0.2%) versus the -0.2 % reported. ECRI's Weekly Leading Index (WLI) is forecasting very slow growth over the next six months. Additional comments from the economists at The Conference Board add context to the index's behavior. The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.2 percent in July to 123.3 (2010 = 100), following a 0.6 percent increase in June, and a 0.6 percent increase in May. "The U.S. LEI fell slightly in July, after four months of strong gains. Despite a sharp drop in housing permits, the U.S. LEI is still pointing to moderate economic growth through the remainder of the year," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "Current conditions, measured by the coincident economic index, have been rising moderately but steadily, driven by rising employment and income, and even industrial production has improved in recent months." The Conference Board Coincident Economic Index® (CEI) for the U.S. increased 0.2 percent in July to 112.5 (2010 = 100), following a 0.2 percent increase in June, and a 0.1 percent increase in May.

Chart of the Day: Here's Why the Recovery Has Been So Weak - I don't really have any good hook for posting this chart, but it's one of the most important ones you'll ever see. It's from the Wall Street Journal and it shows total government spending (state + local + federal) during the recession and its aftermath:  For about a year following the Obama stimulus, total spending was a bit higher than average for recession spending. But after that, spending fell steadily rather than rising, as it has after every previous recession. The result: a sluggish recovery, persistent long-term unemployment, and anemic wage growth.  Instead of responding to a historically bad recession with a historically strong stimulus, we responded with the weakest stimulus ever. Government spending is now more than 25 percentage points lower than normal. If you want to know why the recovery has been so feeble and unsteady, this is it. Republican presidential candidates, please take note.

Debt Is Good, by Paul Krugman -- Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.  I know that may sound crazy. After all, we’ve spent much of the past five or six years in a state of fiscal panic, with all the Very Serious People declaring that we must slash deficits and reduce debt now now now or we’ll turn into Greece, Greece I tell you. But the power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people — most recently Narayana Kocherlakota, the departing president of the Minneapolis Fed — are making the case that we need more, not less, government debt. Why? One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right. The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future, and a very bad time for what has actually happened: an unprecedented decline in public construction spending adjusted for population growth and inflation. Beyond that, those very low interest rates are telling us something about what markets want. I’ve already mentioned that having at least some government debt outstanding helps the economy function better. How so? The answer, according to M.I.T.’s Ricardo Caballero and others, is that the debt of stable, reliable governments provides “safe assets” that help investors manage risks, make transactions easier and avoid a destructive scramble for cash.

Bumpier deficits, smoother ride - I just love these graphs! (Can you say that about graphs you made?? We–RK and I–were only able to make them because my formidable co-author Richard Kogan dug up data on deficits as a share of GDP going back the beginning of the nation!) Over at Vox. Basically, these figures are pictures of what I called optimal fiscal policy here.  Someone pointed out that we neglected to provide sources for Richard’s data. Here ’tis:

  1. Deficits through 1900 are from TABLE Ea584–587 Federal government finances – revenue, expenditure, and debt: 1789–1939 [Historical Statistics of the United States, Millennial Online Edition, Cambridge University Press, 2014]
  2. Deficits from 1901 on are from OMB Historical Tables 1.1,
  3. GDP growth rates are derived from Louis D. Johnston and Samuel H. Williamson, “What Was the U.S. GDP Then?” MeasuringWorth, through 1929.
  4. GDP growth rate are derived from OMB Historical Table 10.1 from 1950 on,

Our use of sources 3 and 4 is explained in more detail, and over the entire period 1792-1930, in Appendix 1 of this CBPP analysis.

Is the battle over the Iran deal in Congress already over? - In the read of the morning, Karoun Demirjian brings us the most comprehensive analysis I’ve seen yet of where the battle over the Iran deal in Congress stands, and the conclusion is a stark one: At this point, the chances that Congress will block the accord are very slim indeed. Demirjian raises another striking possibility: It’s not out of the question at this point that opponents will fail to muster 60 votes in the Senate to stop the deal — which would mean that President Obama would not even need to veto the expected measure disapproving of the accord, sparing us a veto-override fight. . According to the latest whip count, 31 Democratic or Dem-aligned Senators have either supported the deal or are leaning towards backing it. Another 12 Dems are genuinely undecided, and one (Ron Wyden) is leaning against it. Thus far, 56 Senators — 54 Republicans, plus Dems Chuck Schumer and Robert Menendez — are certain to vote to disapprove of it. To avoid a veto-override fight, supporters need 10 of those 13 up-for-grab Democrats. That might prove very hard, but it’s not impossible. My guess is that the following six Dems are the most likely to oppose the deal: Ben Cardin, Chris Coons, Ron Wyden, Gary Peters, Bob Casey, and Heidi Heitkamp. Opponents very well may get four or more of them (or persuade someone I’m missing) to go against it. That would give them 60 or more. But they might not get four of them. Which could mean no veto is necessary.But let’s say opponents do get to 60, and a veto is required. Then the veto-override math kicks in, and it is very tough for foes. They need 67 Senators to oppose the deal. As Demirjian notes, that would require 11 of the remaining undecided Dems — which is to say, nearly all of them — to oppose the deal. And the math in the House is also trending towards the veto being sustained.

The opportunity cost of war - What is true of natural disasters is even more true of the disasters we inflict on ourselves and others. Of these human-made calamities, the greatest is war. The wars engaged in by the US, Australian and other governments come at the opportunity cost of domestic programs that could save thousands of lives every year. The cost of war, in terms of American (and Australian) lives, is many times greater than battlefield casualty counts would suggest. That’s the theme of this extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here.  Dwight Eisenhower, Supreme Commander of the Allied Forces in Europe during World War II. served as President of the United States at the height of the Cold War with the Soviet Union. It is striking, then, that more than any US political leader before or since, Eisenhower showed an acute understanding of the limitations of military power and of the economic costs of military expenditure. He is, perhaps, best remembered for warning of the dangers of the ‘military-industrial complex’ as a standing lobby for armaments spending. Even more penetrating was his observation that  Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed The logic of opportunity cost has rarely been put more simply or sharply, particularly as it applies to military expenditure.

VICE News: “Why Pay Your Taxes?” --  Yves Smith  This Vice News segment makes the normally dry and daunting subject of taxes (really tax policy) accessible and entertaining. Plus it features Lee Sheppard, who is the oxymoron of a tax celebrity (see this New York Times article) and is also a friend of NC.   While the fast-paced editing was fun, I found myself frustrated at points at the way the exploration of issues wound up being truncated. For instance, I would have liked to hear more discussion of the case for continuing to tax corporations. It wasn’t all that long ago that corporations paid a much larger proportion of total Federal tax receipts, and since the US growth rate was higher then, one can’t argue (as many try to) that lower corporate income taxes are necessarily pro-growth. In fact, corporate profits are now a record percent of GDP, and the low of labor share of GDP growth is increasingly recognized by economists and financial analysts as one of the major reasons this “recovery” is so weak.

Hacking of Tax Returns More Extensive Than First Reported, I.R.S. Says - The Internal Revenue Service said Monday that hackers had gained access to the tax returns of more than 300,000 people, a far higher number than the agency had reported previously.In the coming days, the I.R.S. will send 220,000 letters to taxpayers whose returns were probably viewed by the hackers, the agency said.The agency had said in May that criminals using stolen data gained access to tax returns for 114,000 people through software called “Get Transcript” that allows taxpayers to retrieve their returns from previous years.Relying on personal information — like Social Security numbers, birth dates and street addresses — the hackers got through a multistep authentication process. They then used information from the returns to file fraudulent ones, generating nearly $50 million in refunds.About 170,000 others whose accounts the hackers tried but failed to break into will also receive notifications, the I.R.S. said.The disclosure fits an emerging pattern: Federal agencies often say months after they initially discover a breach that it has affected far more people than investigators initially believed.

Yet More Private Equity Grifting: The SEC Enables “Broken Deal Expense” Con  --  Yves Smith - There’s so much chicanery afoot in private equity that I sometimes don’t write about important aspects on a timely basis. One of the big ones that most investors manage to kid themselves about is how the general partners’ fee structures really work. The widely-cherished fantasy is that the prototypical 2% annual management fee (the “2” in the “2 and 20″ formula; the “20” is a 20% profit share once a hurdle rate has been met) is meant to pay for the overhead of the firm. The reality is that the general partners seek to have as much of that 2% management fee as possible be pure profit to them. How do they do that?  One ruse is by charging many of the elements of the general partner’s operation back to portfolio companies as expenses. We’ve discussed a major example at some length, of how the general partner will present a “team” when a fund is being marketed. The investors will often size up the number of bodies relative to what they expect the total management fee payments to get a rough and ready sense of reasonableness. But as exposed by the Wall Street Journal and the New York Times, many of those “team” members wind up on the investors’ dime, by being charged to portfolio companies. In a July newsletter, Michael Flaherman, a former CalPERS board member and head of its investment committee, now a researcher at Harvard’s Safra Center for Ethics, stressed how another large-scale gimmick for shifting costs from private equity general partner overheads to fund investors has gone largely unnoticed. A $29 million SEC settlement with KKR managed to sidestep this elephant in the room with a set of charges called “broken deal expenses” while whacking KKR for how it allocated these expenses among investors.

Citigroup affiliates to pay $180M to settle hedge fund fraud charges -- The U.S. Securities and Exchange Commission announced Monday that two Citigroup affiliates agreed to pay almost $180 million as part of a settlement on charges that they defrauded investors. The SEC alleged its investigation found that Citigroup Global Markets (CGMI) and Citigroup Alternative Investments (CAI) "made false and misleading representations to investors" regarding two hedge funds that later "crumbled and eventually collapsed during the financial crisis." Those funds—the ASTA/MAT fund and the Falcon fund—raised roughly $3 billion from about 4,000 investors before falling apart, the SEC said. The Citigroup affiliates "did not disclose the very real risks of the funds," the SEC said, and CAI even continued to accept nearly $110 million in further investments as the funds began to collapse. "Firms cannot insulate themselves from liability for their employees' misrepresentations by invoking the fine print contained in written disclosures," Andrew Ceresney, director of the SEC's enforcement division, said in the organization's release. "Advisers at these Citigroup affiliates were supposed to be looking out for investors' best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster." The funds were highly leveraged, according to the SEC, and neither was a "low-risk investment akin to a bond alternative as investors were repeatedly told."

Citigroup Sorry Angry Investors Who Lost Billions Feel That Way -- Citigroup’s settlement with the Securities and Exchange Commission, announced on Monday, comes more than seven years after the two hedge funds collapsed, saddling investors with billions of dollars in losses…In the fall of 2007, one of the hedge funds, called Falcon Strategies, sold as much as $110 million in additional shares in the funds to investors. Yet only a few months later, in January 2008, the liquidity problem had become so dire that the manager of the Falcon fund had drawn up “liquidation scenarios.” Even Citigroup, the parent, wouldn’t extend emergency liquidity to its own hedge funds…Citigroup agreed to pay the $180 million to harmed investors without admitting any wrongdoing.

Banks braced for billions in civil claims over forex rate rigging - Global banks are facing billions of pounds-worth of civil claims in London and Asia over the rigging of currency markets, following a landmark legal settlement in New York. Barclays, Goldman Sachs, HSBC and Royal Bank of Scotland were among nine banks revealed last Friday to have agreed a $2bn settlement with thousands of investors affected by rate-rigging in a New York court case. Lawyers warned the victory opens the floodgates for an even greater number of claims in London, the largest foreign exchange trading hub in the world, in a sign that the currency manipulation scandal is far from over. Banks could be hit as early as the autumn with claims in London’s High Court from corporates, fund managers and local authorities, according to lawyers working on the cases. In addition, investors are expected to bring cases in Hong Kong and Singapore, which are also home to large foreign exchange markets. The US settlement comes just months after a record $5.6bn fine was slapped on six banks by regulators for manipulating the $5.3tn-a-day foreign exchange markets. “There will be more claims in London than in New York because it’s a bigger forex market,” said David McIlroy, a barrister at Forum Chambers. A settlement in London could amount to “tens of billions of pounds”, he said.

J.P. Morgan Chase said to be near $150 million SEC settlement -- J.P. Morgan Chase & Co. will soon settle allegations it inappropriately steered private-banking clients to its own investment products without proper disclosures, according to the Wall Street Journal on Tuesday. The settlement with the Securities and Exchange Commission, expected to include a fine of more than $150 million, could be announced within the next few weeks. The investigation centered on whether J.P. Morgan bankers recommended the bank’s own so-called proprietary investment products clients too often to clients, generating higher fees than if clients were put in competitor’s products. The Office of the Comptroller of the Currency, the bank’s primary regulator, and the state of Indiana’s Securities Division are also looking into the practice.

Tim Pawlenty Makes It Clear Banks Want Immunity for Negligence -- Marcy Wheeler -- The business community is launching a big push for the Cyber Information Sharing Act over the recess, with the Chamber of Commerce pushing hard and now the Financial Services Roundtable’s Tim Pawlenty weighing in today. Pawlenty is fairly explicit about why banks want the bill: so that if they’re attacked and share data with the government, they cannot be sued for negligent maintenance of data. “If I think you’ve attacked me and I turn that information over to the government, is that going to be subject to the Freedom of Information Act?” “If so, are the trial lawyers going to get it and sue my company for negligent maintenance of data or cyber defenses?” Pawlenty continued. “Are my regulators going to get it and come back and throw me in jail, or fine me or sanction me? Is the public going to have access to it? Are my competitors going to have access to it? Are they going to be able to see my proprietary cyber systems in a way that will give up competitive advantage?”  As I’ve pointed out repeatedly, what the banks would get here is far more than they get under the Bank Secrecy Act, where they get immunity for sharing data, but are required to do certain things to protect against financial crimes.  Here, banks (and other corporations, but never natural people) get immunity without having to have done a damn thing to keep their customers safe.  Which is why CISA is counterproductive for cybersecurity.

Global tagging system proposed for derivatives trades | Reuters -  Global regulators and central bankers have proposed a common tagging system for off-exchange derivatives transactions to spot more easily which banks could be at risk in a market crisis. Regulators were left in the dark when Lehman Brothers went bust in September 2008, unable to see who was on the other side of the U.S. bank's derivatives transactions, adding to uncertainty that fuelled a global markets meltdown. Seven years on and regulators are still unable to get a reliable snapshot of each bank's derivatives exposures which can straddle many borders in a $630 trillion market. Off-exchange or "over the counter" (OTC) derivatives transactions, such as credit default swaps and interest rate swaps, are already being reported to so-called trade repositories or TRs. But there are 26 of them in 16 jurisdictions with no system for aggregating the data or even ensuring the data is comparable. The International Organisation of Securities Commissions (IOSCO) and the Committee of Payments and Market Infrastructures (CPMI) issued draft guidance for public consultation on Wednesday for a "unique transaction identifier" or UTI.

Exclusive: U.S. graft probes may cost Petrobras record $1.6 billion or more - source (Reuters) - Brazil's Petrobras may need to pay record penalties of $1.6 billion or more to settle U.S. criminal and civil probes into its role in a corruption scandal, a person recently briefed by the company's legal advisors told Reuters. State-run Petroleo Brasileiro SA, as the company is formally known, expects to face the largest penalties ever levied by U.S. authorities in a corporate corruption investigation, according to the person, who has direct knowledge of the company's thinking. The settlement process could take two to three years, this person said. To date, the largest settlement of corporate corruption charges with the U.S. Department of Justice and the U.S. Securities and Exchange Commission was a 2008 agreement with Siemens AG, the German industrial giant. It agreed to pay the United States $800 million to settle charges related to its role in a bribery scheme, and paid about the same amount to German authorities. The person told Reuters the legal advisors said they believed Petrobras faced fines that could be as large as, or more than, the $1.6 billion in combined U.S. and German penalties that Siemens faced. Two other sources with direct knowledge of Petrobras' plans also said that any settlement, while several years away, would likely be "large," but declined to give a specific estimate.

Top U.S. hedge funds stayed bullish in second quarter on energy as slump began | Reuters: Top U.S. hedge funds made bullish bets on the energy sector in the second quarter even as companies' shares began a slide toward multi-year lows on concerns about oversupply, regulatory filings showed on Friday. Hedge funds such as Baupost Group, Magnetar Capital and Jana Partners increased or took new stakes in energy shares over the second quarter, a period when the S&P 500 energy index lost 2.6 percent. That decline has since accelerated, with the S&P energy index now down about 13.7 percent for the year, largely reflecting renewed fears of crude oversupply and weak global demand. Two favorites among hedge funds were Cheniere Energy and Pioneer Natural Resources. However, both companies struggled in the second quarter, with Cheniere falling 10.5 percent and Pioneer dropping more than 15 percent. Hedge fund managers had already been overweight the energy sector in the first quarter, expecting oil and gas shares to rebound as the year wore on, but the opposite has happened, even as some of these funds have added to their bets. Seth Klarman's Baupost, which managed about $32 billion at the end of last year, increased its stake in Cheniere by 1.5 million shares, leaving it with a stake of 15.4 million shares that was worth about $1.1 billion at the end of the quarter. The fund also raised its bet on Pioneer by about 900,000 shares to 4.1 million shares, bringing the stake's value to about $564 million at the end of the quarter. The moves were revealed in quarterly disclosures of manager stock holdings, known as 13F filings, with the U.S. Securities and Exchange Commission.

China’s Woes Echo in U.S. Earnings - WSJ: With the U.S. recession behind them and the European fiscal crisis fading, American companies are grappling with a new threat: China’s economic blues. In quarterly conference calls, U.S. executives recited a litany of pain, from mild to severe, resulting from a slowdown in China’s economy, the world’s second-largest. Engine-maker Cummins Inc., for example, said demand for excavators in China fell 34% in the second quarter from a year ago with no signs of improvement. For such companies as Weyerhaeuser, less construction in China means logs and lumber pile up in the U.S., pushing down prices. “China was weak in the quarter, and we expect it to be weak as we move forward,” Robyn Denholm, chief financial officer of Juniper Networks Inc.,  told investors. China pulled down the networking-gear maker’s Asia-Pacific revenues by 3% from the prior quarter; without China, they would have risen 11%. China’s policy makers are stimulating the economy to counter slackening consumer demand and falling factory output. Authorities have intervened in financial markets by devaluing the currency, a move that would help Chinese exporters while pinching some U.S. companies by making their products more expensive for Chinese buyers. Chinese officials are trying to keep the economy growing at 7% in 2015, the country’s slowest pace in more than two decades. It comes at a  tough time for U.S. businesses. Overall, companies in the S&P 500 index are on track to eke out a 1.2% increase in second-quarter earnings, according to data from Thomson Reuters. That is the slowest growth since fall 2012.

China concerns reduce emerging market appetite to record low - BoA ML survey - Investors have cut their exposure to emerging markets to record low levels and increasingly expect the United States to raise interest rates in September, a survey showed on Tuesday. The monthly Bank of America Merrill Lynch poll of 202 fund managers showed China's slowing economic momentum and an emerging market debt crisis had replaced a euro zone break-up as the biggest global 'tail risk' in investors' minds. The share of participants expecting the U.S. Federal Reserve to hike rates for the first time in almost a decade next month jumped to 48 percent, despite a sharp drop in growth and inflation expectations. "Investors are sending a clear message that they are positioned for lower growth in China and emerging markets," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. Global growth and profit expectations fell to 10-month lows the survey showed, though only 6 percent of those who took part thought there would be another global recession in the coming year. European stocks remained the favourite global trade among participants, although anything exposed to China or commodities was being avoided.

Emerging market debt trading volumes down 27 pct in Q2 | Reuters: Emerging market debt trading volumes fell to $1.211 trillion in the second quarter of 2015, from $1.668 trillion in the same period a year ago, due to economic weakness in the sector and regulations tied to the Volcker Rule, a new survey showed. Second-quarter trading volumes declined 27 percent versus a year ago, but fell only 1 percent from the first quarter of 2015, EMTA, the association for the emerging markets debt trading industry, said in a statement. "EM's weakening fundamentals have also played an important role, underpinning relentless outflows from both local and hard currency funds," Drausio Giacomelli, head of emerging markets research at Deutsche Bank, said in EMTA's statement. "And the implementation of the 'Volcker Rule' starting in July is also a key factor, as dealers may have been forced to scale back their inventories and market-making activities to conform with the new regulations," he added. Local market debt instruments accounted for 60 percent of total reported volume, or $721 billion, a 30 percent decline on a year-on-year basis, EMTA said.  Mexican local market debt volumes were the highest in the category at $219 billion, followed by Brazil with $93 billion, South Africa at $82 billion, India at $69 billion and South Korea at $38 billion.

Riskiest End of the Junk Bond Market Just Blew Up - You wouldn’t know by looking at the US Treasury market, which remained relatively sanguine this week, with only a little panic buying on Tuesday. So 10-year Treasuries ended the week near where they’d started it. But at the other end of the spectrum, the riskiest portion of the junk bond market just blew up spectacularly. It didn’t help that the Fed’s cacophony has been pointing at a September rate hike. It would be the first ever in the careers of millennials working on Wall Street. It would bring to an end the 30-year bull market in bonds. Even most middle-aged money managers have not yet experienced the alternative, other than a few short-lived dips and panics. On a visceral level, they simply can’t believe rates can ever rise over the long term. To them, rates can only go down. And oil prices plunged to six-and-a-half year lows, taking out the low set earlier this year, instead of bouncing off it. West Texas Intermediate ended the week at $42.18 a barrel. But in Canada, the benchmark blend Western Canada Select hit a catastrophic C$29.79 a barrel.In Delaware alone, there were 20 Chapter 11 filings this week, including the prepacked bankruptcy of Hercules Offshore and a gaggle of related companies. Risk, which the Fed had so ingeniously removed from the equation, is suddenly rearing its ugly head again. How suddenly? This chart of yields at the riskiest end of the junk bond market – bonds rated CCC and below – shows what happened. These bonds have been selling off over the past 12 months, with exception of the sucker rally earlier this year, and their yields more than doubled from less than 7.9% in June a year ago to 16.2% by Thursday evening. And Thursday was a massacre:

Yuan Devaluation Sparks Biggest Crash In US Corporate Bonds Since Lehman - Just two days ago we warned of the dramatic disconnect between equity insurance and credit insurance markets - at levels last seen before Bear Stearns collapse. As the Yuan devaluation shuddered EURCNH carry traders and battered European assets, US equity markets stumbled onwards and upwards, impregnable in their fortitude with The Fed at their back no matter what. However, US corporate bond markets were a bloodbath... The Bank of America/Merrill Lynch High Yield CCC Yield got absolutely slammed this week, rising from 13.58% to 16.18%! The biggest spike in yields since the financial crisis. That would suggest, as all listed above, that there has been inordinate and tremendous “dollar” pressure not in foreign, irrelevant locales but creeping into the contours of the domestic and internal framework. And while the junkiest of the junk saw the biggest decompression since Lehman, the rest of the high yield bond market is also starting to catch the credit cold.. But it's not all energy. And as we noted previously, BofA points out that in just the past two weeks, credit spreads from our HG corporate bond index have widened another 9bps to 164bps while equity volatility is down another percentage point (although technically BofA uses the 3rd VIX futures as its measure of equity volatility rather than VIX itself to get a smoother series that is less affected by the daily noises and seasonalities). This is how the resulting dramatic divergence looks like:

Blowout in Some Junk Bond Spreads; Bond Funds Post 3rd Week of Outflows - Reuters reports High-yield, Investment-Grade Funds Post Third Week of OutflowsU.S-based high-yield bond funds reported $1.2 billion in outflows, while U.S.-based investment-grade corporate bond funds posted their biggest cash withdrawals since June 2013, at $1.8 billion, data from Thomson Reuters' Lipper service showed on Thursday. The latest figures, for the week ended Aug. 12, mark the third straight week of outflows for the two fund categories, Lipper said. "The flows data indicated investors were running away from high yield in both mutual funds and ETFs," said Pat Keon, research analyst at Lipper. Reader Jerome who emailed the above link also noted rising spreads in corporate bonds. Here are some charts and a table that highlight what's happening. The Fed has to be freaking out if it really intends to hike into this.

Keep Your Eye on Junk Bonds: They’re Starting to Behave Like ‘08 -  According to data from Bloomberg, corporations have issued a stunning $9.3 trillion in bonds since the beginning of 2009. The major beneficiary of this debt binge has been the stock market rather than investment in modernizing the plant, equipment or new hires to make the company more competitive for the future. Bond proceeds frequently ended up buying back shares or boosting dividends, thus elevating the stock market on the back of heavier debt levels on corporate balance sheets. Now, with commodity prices resuming their plunge and currency wars spreading, concerns of financial contagion are back in the markets and spreads on corporate bonds versus safer, more liquid instruments like U.S. Treasury notes, are widening in a fashion similar to the warning signs heading into the 2008 crash. The $2.2 trillion junk bond market (high-yield) as well as the investment grade market have seen spreads widen as outflows from Exchange Traded Funds (ETFs) and bond funds pick up steam. The big fear this time around is who is going to provide the liquidity in the junk bond market if too many investors head for the exits at the same time:  “Since the crisis, market liquidity has become more fragmented in a few markets, such [as] those for sovereign bonds in emerging markets and U.S. corporate bonds. Signs of bifurcation or fragmentation include the concentration of dealer inventories in high-quality liquid assets, declines in trading turnover relative to market size, declines in the size of average trades, and increased settlement failures. Perhaps more importantly, liquidity appears to have become increasingly brittle, even in the world’s largest bond markets.

Junk-Bond Risk Gauge Rises to '15 High as Oil Rout Escalates - Junk-bond investors are getting fidgety amid a renewed plunge in the energy market. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, rose 2.4 basis points to 396 basis points, the highest level this year. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest fund of its kind, extended its slump this month trading near a four-year low. Oil prices that have dropped below $41 are rattling investors in the high-yield bond market. The debt is poised to post a third straight month of losses -- something that has never happened since 2008. “Oil prices continue to hover at their lowest levels of 2015 and continue to stoke fears not only about the impact to the domestic oil industry but also about global growth,” “The Federal Reserve, China, oil prices, and the U.S. dollar continue to be the main drivers of bond price movements this summer.” The extra yield investors demand to hold speculative-grade bonds in the U.S. instead of government securities has climbed to 5.68 percentage points, according to Bank of America Merrill Lynch index data. That’s close to levels last reached in December. JPMorgan Chase & Co. Cut its forecast for high-yield bonds, reducing their returns estimate for this year to 4.5 percent from 7 percent, according to a report last week. “The best of times for high-yield are behind us and we are now witnessing the beginning of the end of the credit cycle,” Bank of America Corp. strategists wrote

Dow Plunges 531 Points in Global Selloff - WSJ: Stocks plummeted on global-growth fears for a second straight day Friday in a plunge that dragged the Dow industrials into correction territory. The global market rout pummeled stocks and commodities as fresh evidence emerged that China’s economy is slowing, spooking investors. The Dow industrials lost 530.94 points, or 3.1%, to close at 16459.75, putting it in correction territory, as defined by a 10% decline from a recent high. The S&P 500 dropped 64.84 points, or 3.2%, to close at 1970.89. The Nasdaq Composite fell 3.5%, or 171.45 points, to 4706.04. The Dow’s more than 1,000-point drop this week was the largest weekly drop since the week ended Oct. 10, 2008. U.S. oil prices also briefly dropped below $40 a barrel on Friday, a level not seen since the financial crisis. Signs of a sharp slowdown in the world’s second-largest economy have unnerved investors since Beijing surprised markets last week by devaluing its currency.. Shares in the U.S., Asia and Europe have tumbled, along with commodity prices as investors fretted about waning Chinese demand just as supplies are surging. The market turmoil has some traders exercising caution.

VIX ‘Fear Index’ more than doubles on week, biggest weekly jump ever - The CBOE Volatility Index jumped Friday to levels not seen since December 2011, logging its largest ever weekly percentage jump as stocks sold off for a fourth straight session. The VIX, or so called “fear index,” surged more than 47% to 28.21 right after the close. For the week, the index is up nearly 120%, making it the largest weekly percentage jump in the VIX’s history, according to FactSet data. The previous largest surge was back in early May 2010, when the VIX jumped nearly 86% on the week. For the week, the Dow Jones Industrial Average and S&P 500 Index both dropped 5.8%, and the Nasdaq Composite Index fell 6.8%.

Importing Deflation Is Now the Major Fear Across U.S. Markets -- U.S. stocks felt their worst selloff in 18 months yesterday with the Dow Jones Industrial Average losing 358 points and the S&P 500 index shaving off 43.88 points. Of particular concern, the S&P has now broken through its 200-day moving average which suggests to market technicians that more pain is ahead.  The stock plunge set off a flight to safety with money flowing into the 10-year U.S. Treasury note, driving down the yield. This morning, the U.S. 10-year paper is sporting a yield of 2.06 percent. Despite persistent talk of a rate hike coming out of the Federal Reserve, the yield on the 10-year has been declining for months, not rising – suggesting that the markets believe the Fed is reading the wrong tea leaves.  The currency devaluation in China has set off a currency war in Asia as other countries must now devalue to make their exports competitive with those of China to protect market share. Stock markets, particularly the U.S. stock market, view deflation as the worst possible of all economic outcomes as it is difficult to create purchasing demand when consumers believe that delaying a purchase will mean they can buy it at a cheaper price in the future because of deflationary forces. The central bank of the U.S., the Federal Reserve, has already been in the zero-bound range of interest rates since December 2008 and has no bullets left in its monetary policy gun to lower rates further should deflation set in. The Fed would be forced to resort to further rounds of quantitative easing at a time when its balance sheet has already ballooned to more than $4 trillion from prior rounds of QE. The U.S. stock market, which had appeared to be immune to the realities of what was happening in other markets, has suddenly opened its eyes. Clearly, it doesn’t like what it sees.

Greenspan warns about bond-market bubble - Former Federal Reserve Chairman Alan Greenspan is sounding the alarm about a bubble that he believes is forming in the bond market. In two television interviews in recent days, Greenspan said interest rates could shoot higher and derail the economy when the bubble bursts. The former Fed chairman says the current situation in the bond market is comparable to what happens in the stock market during an equity bubble. Noting that stock-market bubbles are typically characterized by extreme price-to-earnings ratios, Greenspan said extremely low yields are telling a similar tale for bonds. “If you turn the bond market around and you look at the price of bonds relative to the interest received by those bonds, that looks very much like the usual spread which would concern us if it were equities, and we should be concerned,” Greenspan said in an interview with Fox Business Network. In an earlier interview with Bloomberg Television, Greenspan said it was appropriate to be very afraid of the bubble. He said the bond market price-to-earnings ratio was at an “extraordinary unstable position.” Greenspan said “normal” interest rates have always been in the 4% to 5% range.

Bond market liquidity: should we be worried? -- To anticipate our conclusion, while bond markets are clearly evolving, we do not see reasons for immediate concern about the financial system as a whole. In fact, our expectation is that the capital and liquidity requirements that have made financial intermediaries more resilient to economic downturns and to interest rate spikes, also have improved their ability to stabilize bond markets. That said, we hope that officials will redouble their efforts to collect information and study what is going on in these markets and why.Turning to the complaints, the loudest and most worrying are about market liquidity. Participants say that it has become more difficult to execute large trades without affecting prices. The claim is that post-crisis regulatory reforms have driven banks out of the business of making these markets, and no one has stepped in to replace them. As a result, there is a shortage of people willing to take the risks that come along with holding the inventories required to readily and continuously buy and sell bonds. At first glance, the following chart shows a rise in corporate bond turnover, but a closer look shows that corporate bond volume has always been minuscule – a point that we made in another context in an earlier post. We doubt that the increase in average daily corporate trading volume from 0.5% of dollar quantity outstanding before the crisis to 0.9% today is material. (For a recent discussion of corporate bond market illiquidity, see here.)

Has U.S. Treasury Market Liquidity Deteriorated? - NY Fed blog - First in a five-part series - The issue of financial market liquidity has received tremendous attention lately. This partly arises from market participants’ concerns that regulatory and structural changes have reduced dealers’ market making abilities, but also from events such as the taper tantrum and the flash rally, in which Treasury prices fluctuated sharply amid seemingly little news. But is there really evidence of a sustained reduction in Treasury market liquidity? The U.S. Treasury securities market is the largest and most liquid government securities market in the world. Treasury securities are used to finance the U.S. government, as an investment and hedging instrument, as a risk-free benchmark for pricing other financial instruments, and, not least, by the Federal Reserve in implementing monetary policy. Having a liquid market matters for all of these purposes and is thus of keen interest to market participants and policymakers alike.

Liquidity during Flash Events - NY Fed - Second in a five-part series -- “Flash events,” extremely large price moves and reversals over just a few minutes, have occurred in some of the world’s most liquid markets in recent years. What’s made these events remarkable is that they seem to have been unrelated to any discernable fundamental economic news that may have taken place during the events. In this post, we consider a few of the important similarities and differences among three major flash events in the U.S. equities, euro–dollar foreign exchange (FX), and U.S. Treasury markets that occurred between May 2010 and March 2015. All three flash events involved high trading volumes and long-term impacts on depth, but the U.S. Treasury event stands out in terms of both price volatility and price continuity.  The three events are summarized in the table below. Other notable recent events, such as the abandonment of the Swiss National Bank exchange rate floor on January 15, 2015 (FX), or the “taper tantrum” following Federal Reserve Chairman Bernanke’s testimony to Congress on May 22, 2013 (Treasuries), were clearly related to specific news announcements and therefore are less relevant as examples of flash events. However, it is worth noting that price movements in the flash events we describe were comparable to the movements seen following significant news announcements.

High-Frequency Cross-Market Trading in U.S. Treasury Markets- NY Fed  - Third in a five-part series - The U.S. Treasury market is one of the deepest and most liquid markets in the world, with significant trading in both Treasury futures and benchmark securities. In this post, we examine the pattern of trading activity in these instruments and document the substantial increase in cross-market trading (simultaneous order placement and execution in multiple markets) in recent years, highlighting the impact of technological advancements that allow nearly instantaneous trading across assets and trading platforms. Identifying the growing role played by high-frequency trading in U.S. Treasury markets is important for understanding the price discovery process. Our findings suggest that price discovery takes place on both futures and cash markets and that cross-market trading helps maintain the tight link between the two.

The Evolution of Workups in the U.S. Treasury Securities Market - NY Fed -- Fourth in a five-part series - The market for benchmark U.S. Treasury securities is one of the deepest and most liquid in the world. Although trading in the interdealer market for these securities is over-the-counter, it features a central limit order book (CLOB) similar to that found in exchange-traded instruments, such as equities and futures. A distinctive feature of this market is the “workup” protocol, whereby the execution of a marketable order opens a short time window during which market participants can transact additional volume at the same price. With the broadening of the interdealer market to include hedge funds and proprietary trading firms, and the increase in trading activity, some market participants consider the workup to be somewhat of an anachronism that is destined to lose its relevance relative to the CLOB. Contrary to this notion, we document the continued important role played by the workup, show some ways in which trading behavior in the workup has evolved, and explain some of the observed changes.

What’s Driving Dealer Balance Sheet Stagnation? - NY Fed -- Fifth in a five-part series - Securities brokers and dealers (“dealers”) engage in the business of trading securities on behalf of their customers and for their own account, and use their balance sheets primarily for trading operations, particularly for market making. Total financial assets of dealers in the United States have not shown any growth since 2009. This stagnation in their balance sheets raises the worry that dealers’ market-making capacity could be constrained, adversely affecting market liquidity. In this post, we investigate the stagnation of dealer balance sheets, focusing particularly on the boom and bust of the housing market.

The Hot Thing for Wall Street Banks: Capital-Relief Trades (WSJ)  Faced with new global regulations requiring them to strengthen their capital, big lenders in the U.S. and Europe have turned to a trading tactic that flatters their positions without actually raising extra funds. Banks that have done such “capital-relief trades” include some of the largest in the world: Citigroup, Bank of America, Deutsche Bank and Standard Chartered. But the Office of Financial Research, a U.S. Treasury office created to identify financial-market risks, is suggesting the trades run the risk of “obscuring” whether a bank has adequate capital and pose other “financial stability concerns.” The Securities and Exchange Commission and the Federal Reserve also have also voiced concerns about the trades. Capital-relief trades are opaque, little-disclosed transactions that make a bank look stronger by reducing its ” risk-weighted” assets. That boosts key ratios that measure the bank’s capital as a%age of those assets, even as capital itself stays at the same level. In a capital-relief trade, a bank can keep a risky asset on the balance sheet, using credit derivatives or securitizations to transfer some of the risk to a hedge fund or other investor. The investor potentially gets extra yield and the credit risk of smaller borrowers in a way it would be hard for them to get otherwise, while the bank gets to remove part of the asset’s value from its closely watched “risk-weighted asset” count. Banks say the trades help them manage their risk, even if they don’t go as far as a bona fide asset sale, and are just one tool among many they are using to meet new capital requirements.

Could the FDIC Seize Bank Deposits During a Crisis? - As we noted last week, one of the biggest problems for the Central Banks is actual physical cash. The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system. Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem. Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system. Because of this, Central Banks and the regulators have declared a War on Cash in an effort to stop people trying to get their money out of the system.One policy they are considering is to put a carry tax on physical cash meaning that your Dollar bills would gradually depreciate once they were taken out of the bank. Another idea is to do away with actual physical cash completely. Perhaps the most concerning is the fact that should a “systemically important” financial entity go bust, any deposits above $250,000 located therein could be converted to equity… at which point if the company’s shares, your wealth evaporates.

The U.S. Foreclosure Crisis Was Not Just a Subprime Event - NBER: Many studies of the housing market collapse of the last decade, and the associated sharp rise in defaults and foreclosures, focus on the role of the subprime mortgage sector. Yet subprime loans comprise a relatively small share of the U.S. housing market, usually about 15 percent and never more than 21 percent. Many studies also focus on the period leading up to 2008, even though most foreclosures occurred subsequently. In "A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012" (NBER Working Paper No. 21261), Fernando Ferreira and Joseph Gyourko provide new facts about the foreclosure crisis and investigate various explanations of why homeowners lost their homes during the housing bust. They employ microdata that track outcomes well past the beginning of the crisis and cover all types of house purchase financing—prime and subprime mortgages, Federal Housing Administration (FHA)/Veterans Administration (VA)-insured loans, loans from small or infrequent lenders, and all-cash buyers.  The researchers find that the crisis was not solely, or even primarily, a subprime sector event. It began that way, but quickly expanded into a much broader phenomenon dominated by prime borrowers' loss of homes. There were only seven quarters, all concentrated at the beginning of the housing market bust, when more homes were lost by subprime than by prime borrowers. In this period 39,094 more subprime than prime borrowers lost their homes. This small difference was reversed by the beginning of 2009. Between 2009 and 2012, 656,003 more prime than subprime borrowers lost their homes. Twice as many prime borrowers as subprime borrowers lost their homes over the full sample period.

U.S. housing regulator targets more support for poor borrowers --The regulator for U.S. housing finance giants Fannie Mae and Freddie Mac told the two firms on Wednesday to provide more support to low-income Americans taking out mortgages and refinancing home loans. The Federal Housing Finance Agency released goals for the two government-controlled firms for 2015-2017 that would advance agency chief Mel Watt's aim to widen access to housing credit. The rules direct Fannie Mae and Freddie Mac to expand the number of loans they back for low-income families to 24 percent of the their purchases of single-family home mortgages over the period, up from a target of 23 percent in 2014. FHFA also asked each firm to make mortgages refinanced by low-income families a bigger share of their refinancing purchases, and to increase the number of mortgages they buy for multi-family properties each year. Fannie Mae and Freddie Mac have been controlled by the U.S. government since taxpayers bailed them out in 2008 during the housing market implosion. The two firms don't lend money directly, but buy mortgages from lenders and sell them as packaged securities with a government guarantee. They back most new U.S. mortgages, and their purchases are a major driver of credit access.

Why a New Mortgage-Reduction Program Is Likely Too Little, Years Too Late - Affordable housing advocates and Democratic lawmakers have pushed hard on Fannie Mae and Freddie Mac’s regulator to do something to help borrowers who still owe more on their mortgages than their homes are worth. Federal Housing Finance Agency officials are still considering what, if any, program they should roll out, but the time when such a program would have a substantial impact might have already passed, according to new research from the Urban Institute’s Housing Finance Policy Center. The agency has long barred the companies from reducing the mortgage balances, or principal, of underwater borrowers. When Mel Watt, a former Democratic congressman from North Carolina, became the agency’s director in January 2014, some thought that a change in policy might be on the way. Conservatives and some mortgage investors, on the other hand, have loathed the idea of a potential program that could end up hurting taxpayers or rewarding borrowers for falling behind. However, putting aside the financial and moral implications of principal reduction, the real-estate market has already taken care of a large chunk of the problem. Home prices have rebounded sharply in some of the cities hit hardest by the bust. Other underwater homeowners have already been foreclosed upon. Fannie and Freddie have also sold some of their delinquent loans to private investors who can reduce principal themselves on loans they own.

Reverse mortgages: The final blow killing middle class wealth -  Many fellow Americans that have worked their entire lives, weathered several recessions and depressions, put their children through school, helped many in need, and faithfully paid their mortgages for decades are now being taken advantage of once again. Most have followed all the rules necessary to be considered fiscally responsible, yet because of "legal fraud" by the financial sector and policies effected by purchased politicians, their years in retirement will be compromised. The Plutocracy, the one percent has walked away with a large percentage of their 401Ks, their SEPs, and to some extent their financial security. Because of stagnant or falling real wages, much of the working middle class have maxed out on their credit in the attempt to maintain their standard of living. For a Plutocracy that feeds on perpetual growth, from where will it feed now? An old and well-crafted financial instrument known as the reverse mortgage is being marketed on steroids to a baby boomer population. Before any reader of this article that may have already taken out a reverse mortgage gets upset, please note that it is understood that for many this is the only option left. That said, every American should be fighting for a system that allows all the ability to build a nest egg that can be transferred to the next generation. More about reverse mortgages below the fold.

Seniors, Not Millennials, Are Creating New Households - The rate at which Americans are creating new households has increased over the past year to reach the highest level since before the recession began in 2007. And it’s older Americans, not those ages 25 to 34, driving the uptick, according to new research from economist Jed Kolko of the Terner Center for Housing Innovation at the University of California, Berkeley. Americans created 1.27 million households during the year ended in June, Mr. Kolko estimates. That’s in line with Census Department figures showing year-over-year household formation topping 1 million for three straight quarters. A similar streak hasn’t occurred since 2006. Of those new households, 860,000, or about two-thirds, were created by Americans between 65 and 74 years old. Just 159,000, or 13%, were created by young people between 25 and 34 years old. A household is formed when an adult leaves the home of another adult and finds his or her own place. The property could be owned or rented. Say, a recent college grad leaves behind roommates or mom and dad and rents her first apartment. But baby boomers were the only age cohort where the share of adults that headed households significantly increased from a year earlier, according to Mr. Kolko. Why that’s happening is a bit difficult to pin down. One possibility is more older adults are getting divorced.

Existing-Home Sales Increase for Third Consecutive Month --  This morning's release of the July Existing-Home Sales shows an increase for the third consecutive month to a seasonally adjusted annual rate of 5.59 million units from a slight downward revision of 5.48 million in June (previously 5.49 million). The consensus was for 5.44 million. The latest number represents a 2.0% increase from the previous month and a 10.3% increase year-over-year. Here is an excerpt from today's report from the National Association of Realtors. Lawrence Yun, NAR chief economist, says the increase in sales in July solidifies what has been an impressive growth in activity during this year's peak buying season. "The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now," he said. "As a result, current homeowners are using their increasing housing equity towards the downpayment on their next purchase."Adds Yun, "Despite the strong growth in sales since this spring, declining affordability could begin to slowly dampen demand," adds Yun. "Realtors® in some markets reported slower foot traffic in July in part because of low inventory and concerns about the continued rise in home prices without commensurate income gains." [Full Report] For a longer-term perspective, here is a snapshot of the data series, which comes from the National Association of Realtors. The data since January 1999 is available in the St. Louis Fed's FRED repository here.

Existing home sales surge 4.9% in May | 2014-06-23 | HousingWire: In April, existing home sales rose for the first time in 2014. The rise was a modest 1.3% increase over March’s figures but it still led to headlines like, "Has spring buying season finally arrived?” As it turns out, that headline may just have been prophetic. That's because May’s existing home sales were even better than April’s. According to newly released data from the National Association of Realtors, May’s existing home sales rose by nearly 5% over April’s numbers. May’s month-over-month gain of 4.9% was the highest monthly rise since August 2011. The total existing homes sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, rose to a seasonally adjusted rate of 4.89 million in May. That’s up from the upwardly revised figure of 4.66 million for April. But it's still 5.5% below May 2013's total of 5.15 million. “Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” said Lawrence Yun, NAR’s chief economist. “Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.” NAR’s report also showed that total housing inventory rose 2.2% in May to 2.28 million existing homes available for sale. That represents a 5.6-month supply at the current pace of sales, which is down slightly from 5.7 months in April. Unsold inventory is 6% higher than it was a year ago, when there were 2.15 million existing homes available for sale.

Existing Home Sales Are On Fire - NAR's existing home sales jumped to yet another record high.  Sales were up 2.0% to 5.59 million, a high not seen in over eight years.  In February 2007 existing home sales were 5.79 million.  Sales are 10.3% higher than a year ago.  Existing home sales have been above their year previous amounts for ten months in a row now.  First time home buyers just hit their lowest share of existing home sales since January, clearly being priced out and unable to meet the still strict mortgage requirements to buy.   Prices are through the roof and inventories are tight.  The national median existing home sales price, all types, is $234,0000, a 5.6% increase from a year ago. This is just slightly down from last month's $236,300 median price record and still beats the previous $230,400 July 2006 high. The annual median price has also increased for 41 months in a row. Even when adjusting for inflation, prices are increasing at housing bubble rates. The average existing sales price for homes in February was $278,000, a 3.9% increase from a year ago. Below is a graph of the median price. NAR Economist Yun finally nails the obvious in his below comment. Despite the strong growth in sales since this spring, declining affordability could begin to slowly dampen demand. Realtors® in some markets reported slower foot traffic in July in part because of low inventory and concerns about the continued rise in home prices without commensurate income gains..Distressed home sales are at the lowest levels since the NAR started tracking on them in October 2008. Distressed sales are now only 7% of all sales. Distressed sales were 9% of all sales a year ago. Foreclosures were 5% while short sales were 2% of all sales. The discount breakdown was 17% for foreclosures and short sales were a 12% price break. First time home buyers are really having a tough go. First time home buyers were 28% of the sales. First time home buyers were 29% of all sales a year ago. Investors were 13% of all sales and 64% of these investors paid cash. All cash buyers were 23% of all sales. A year ago all cash buyers were 29% of all existing home sales. Here is what NAR had to say about first time home buyers:

July 2015 Existing Home Sales Headlines Say Sales Up. NAR Worries About Declining Affordability.: The headlines for existing home sales say "the increase in sales in July solidifies what has been an impressive growth in activity during this year's peak buying season". Our analysis of the unadjusted data shows that home sales were a little soft after last month's strong data - but that the rolling averages did improve. Overall, existing home sales appear to continue in the long term improvement trend channel.. Econintersect Analysis:Analysis:

  • Unadjusted sales rate of growth decelerated 1.3 % month-over-month, up 11.7% year-over-year - sales growth rate trend improved using the 3 month moving average.
  • Unadjusted price rate of growth decelerated 0.6% month-over-month, up 3.9% year-over-year - price growth rate trend is modestly slowing using the 3 month moving average.
  • The homes for sale inventory declined this month, remains historically low for Julys, and is down 4.7% from inventory levels one year ago).

NAR reported:

  • Sales up 2.0 % month-over-month, up 10.3% year-over-year.
  • Prices up 5.6% year-over-year
  • The market expected annualized sales volumes of 5.30 M to 5.60 million (consensus 5.40) vs the 5.59 million reported.

Strong Home Sales? Price Mismatch? --Economists are bubbly over home sales, especially existing home sales that came in at the top end of the Bloomberg Consensus range of 5.3 to 5.6 million homes at a seasonally adjusted annualized rate.  There's plenty of life in the housing sector with existing home sales up a stronger-than-expected 2.0 percent in July to a 5.59 million annual rate. And demand is well ahead of supply which is very thin, at 4.8 months at the current sales rate vs 4.9 and 5.1 in the two prior months and 5.6 months in July last year. Sales are up 10.3 percent year-on-year, well ahead of the median price which, at $234,000, is up 5.6 percent. This mismatch, especially with thin supply, hints at pricing power ahead. Single-family homes lead the report, up 2.7 percent in the month at a 4.960 million annual rate. Condos, where demand on the new home side is soaring, actually fell 3.1 percent in the month to a 630,000 rate. Year-on-year, sales of single-family homes are up 11.0 percent with condos at plus 5.0 percent.   By region, July's strength is centered in the South with a gain of 4.1 percent. The West follows at plus 3.2 percent with the Midwest unchanged and the Northeast down 2.8 percent. Year-on-year, sales are very evenly balanced with all right at the 10 percent mark. The balance of this report is impressive, pointing to a rising tide of strength across housing which, given spotty performances by the factory and consumer sectors, looks to be the leading driver for the second-half economy. Comparison:

  • Existing home sales are now back to a level first seen in 2001.
  • New home sales are below a number reached in 1963.
  • Sales are "strong" only as compared to recent anemic activity.

Existing Home Sales Extrapolation Surges To Highest Since Feb 2007 -- By the miracle of NAR extrapolation and seasonal adjustment, the SAAR Existing Home Sales data just printed 5.59mm units - the highest since Feb 2007. Sales were dominated by increases in The West and The South with The Northeast falling. We have two questions for NAR - where are the buyers coming from... and how long is this sustainable? What's wrong with this picture? Some other data from the NAR: median prices. Where the sales were: Months of Supply What were the prevailing home prices: And sales change by price bucket: In other words, a whole of all-cash purchases in... the South. Sure. And for more comedy here is a brief history of the NAR's spin, fabrication and outright manipulation of all housing data it can get its hands on.

Mixed Messages For US Housing Activity In July -  Housing Starts inched higher in July, reaching a new post-recession peak of 1.206 million units (seasonally adjusted annual terms). That’s encouraging, but the news is tempered by the sharp deceleration in the year-over-year trend. The net result: residential construction activity continues to increase, but it’s still not clear that we’ll see much more than modest growth at best in the near term.  The surprisingly sharp slide in newly issued building permits adds weight to the cautious outlook. This leading indicator for construction activity tumbled to its lowest level since March: 1.119 million units (seasonally adjusted annual rate). The retreat in July vs. June represents the biggest monthly tumble for permits since 2008. Although recent updates paint a volatile profile on a month-to-month basis for housing activity, it’s worth remembering that the current annual pace of growth for starts and permits—10.1% and 7.5%, respectively—is a healthy rate. The question is whether the market can continue to hold on to the current expansion trend? Yesterday’s sentiment data for the home building industry offers an upbeat forecast. Indeed, builder confidence inched up to its highest level in nearly a decade in August—61—according to the National Association of Home Builders (NAHB). A reading above 50 indicates that more than half of the builders have a favorable outlook. “The fact the builder confidence has been in the low 60s for three straight months shows that single-family housing is making slow but steady progress,” saidNAHB Chairman Tom Woods in a press release. The NAHB data imply that residential housing construction will continue to rise. “There’s enough demand and there’s a little catch-up going on here in terms of housing construction,” Eric Green, head of U.S. economic research at TD Securities, tells Bloomberg.

Housing Starts - Permits always lead, as there are no starts without permits. And in NY it was the rush to get multi family permits in before June 15 when a tax break expired is what caused the prior surge in permits and some starts as well and is now reversing:  Building permits slid sharply in July but reflect in part a plunge in the Northeast where a change in New York City real estate law pulled permits into June at the expense of July. Permits fell 16 percent in July to a 1.119 million annual rate with the Northeast down 60 percent. But permits also fell in the other three regions including a steep 9.9 percent decline in the West. Turning now to starts, they inched 0.2 percent higher to a 1.206 million rate. But the decline in permits, though skewed by the Northeast, points to less strength than expected for the new home market in the months ahead. A relative positive in the report is less weakness in permits for single-family homes which fell only 1.9 percent. Permits for multi-family homes, which are smaller in size and provide less of a boost to GDP, fell 32 percent. Housing completions came in at a 987,000 pace in the month, up 2.4 percent from June in a positive start for the third quarter. In sum, this report is on the soft side and doesn’t increase the chances for a September rate hike from the Fed. Initial reaction in the markets is mixed with the resilience in starts offering some offset to the plunge in permits.

New Residential Housing Starts Slightly Above Forecast for July - The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for July new residential housing starts. The latest reading of 1.206M was fractionally above the forecast of 1.190M. Here is the opening of this morning's monthly report: Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,206,000. This is 0.2 percent (±15.2%)* above the revised June estimate of 1,204,000 and is 10.1 percent (±10.8%)* above the July 2014 rate of 1,095,000. Single-family housing starts in July were at a rate of 782,000; this is 12.8 percent (±9.8%) above the revised June figure of 693,000. The July rate for units in buildings with five units or more was 413,000. [link to report] Here is the historical series for total privately-owned housing starts, which dates from 1959. Because of the extreme volatility of the monthly data points, a 6-month moving average has been included.  Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1959. Here is a chart of housing starts as a percent of the population. We've added a linear regression through the monthly data to highlight the trend.

New Residential Building Permits: Largest MoM Decline Since 2008 - The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for July new residential building permits.  The latest reading of 1.119M was slightly below the forecast of 1.232M, which is the largest MoM decline since July of 2008. Here is the opening of this morning's monthly report: Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,119,000. This is 16.3 percent (±1.1%) below the revised June rate of 1,337,000, but is 7.5 percent (±1.4%) above the July 2014 estimate of 1,041,000.  Single-family authorizations in July were at a rate of 679,000; this is 1.9 percent (±1.0%) below the revised June figure of 692,000. Authorizations of units in buildings with five units or more were at a rate of 412,000 in July. [link to reportHere is the complete historical series, which dates from 1960. Because of the extreme volatility of the monthly data points, a 6-month moving average has been included.  Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1960. Here is a chart of housing starts as a percent of the population. We've added a linear regression through the monthly data to highlight the trend.

July housing permits & starts: neither cause for jubiliatioin nor concern: Let's start with the graph of housing starts (blue) vs. permits (red) for the last 5 years: Over the longer term, the two series move in tandem. The two big differences are that starts are about twice as volatile as permits, and permits typically lead starts by about a month. So the post-recession record in starts for July is just a reflection of the post-recession records in permits for May and June. Secondly, notice that even with the big decline, in this recovery permits are still better than at any time except the last three months. You were expecting them to continue rising like a moonshot with no saw-teeth? Now let's focus on permits for single family structures (blue) vs. multi-unit structures (red): The uptrend in single family permits is intact. All of the big decline came from multi-unit structures, taking back their spike from May and June. Finally, here are permits for multi-unit structures for the last 30 years: Even taking back the spike in May and June, multi-unit permits are still at the top of that range. In sum, no cause for jubilation, and no cause for concern. Housing continues to benefit from the big demographic tailwind of the Millennial generation, and there is every reason to believe that, with some fits and starts, housing construction is in the midst of a secular upturn.

July 2015 Residential Building Sector Permits Significantly Slows: Be careful in looking at this data set with a microscope as the potential error ranges and backward revisions are significant. Also the nature of this industry causes variation from month to month. But the July data was not good. Using 3 month rolling averages likely is the best way to view this series - and still the data remains in the range we have seen over the last 3 years. The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is 3.9% this month. This slowdown is largely attributable to multi-family homes.Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) show that construction completions are lower than permits this month for the seventh month in a row. Econintersect Analysis:

  • Building permits growth decelerated 36.2% month-over-month, and is up 3.9% year-over-year.
  • Single family building permits accelerated 6.1% year-over-year - so permit growth slowdown is from multi-family.
  • Construction completions accelerated 2.6% month-over-month, up 18.9% year-over-year.

US Census Headlines:

  • building permits down 1.1% month-over-month, up 7.5% year-over-year
  • construction completions up 2.4% month-over-month, up 14.6% year-over-year.

Building Permits Plunge After NYC Property Tax Break Expires, Housing Starts Stable - After 3 months of exploding building permits - driven almost exclusively by the Northeast region (due to expiration of property tax breaks in NYC) - reality bit in July as permits plunged 16.3% to the lowest since March. This was the biggest miss on record for permits. Housing Starts rose less than expected but thanks to a dramatic upward revision are stable at around 1.2 million units SAAR (driven by a rise in single-family units trumping multi-family units). The 3 month surge into the NYC property tax break expiration has ended...Looks like we are going to need some more tax break expirations to keep the housing recovery dream alive.

NAHB Housing Market Index: Up One Point - The National Association of Home Builders (NAHB) Housing Market Index (HMI) is a gauge of builder opinion on the relative level of current and future single-family home sales. It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales; below 50 indicates a negative outlook. The latest reading of 61, a slight increase from the previous revised month, was in line with the forecast of 61. Here is the opening of this morning's monthly report: Builder confidence in the market for newly built, single-family homes in August rose one point to a level of 61 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since November 2005. [link to report] Here is the historical series, which dates from 1985.

Homebuilder Confidence Jumps To 10 Year Highs As Lumber Prices, New Home Sales Slump -- NAHB Sentiment jumped to 61 - the highest since 2005 - despite weakening new home sales and collapsing lumber prices. Housing Starts also remain tepid (especially compared to 2005 levels) but hope springs eternal for an industry almost 100% reliant on hope. Prospective buyer traffic rose 2 points as Northeast saw a drop as West and South saw modest increases.

How the Federal Reserve Has Lulled Consumers Into a False Sense of Credit Reality -- A recent posting by Nerd Wallet examines Americans and their credit card debt.  While the data is not terribly surprising, the fact that the Federal Reserve is contemplating an end to their unprecedented zero interest rate policy will cause significant discomfort for American households. Let's start by looking at what has happened to overall household debt levels as of June 30, 2015 from the New York Federal Reserve Bank: At the end of Q2 2015, non-housing debt (in pink) reached $3.24 trillion on top of $8.62 trillion in housing debt (in blue).  While overall household debt is 6.5 percent below its peak of $12.68 trillion in Q3 2008, non-housing debt is now at the highest level that it has been since Q1 2004.  In fact, non-housing debt peaked at $2.71 trillion in Q4 2008 during the Great Recession and dropped to a post-Great Recession low of $2.56 trillion in Q2 2010.  Since its low in 2010, non-housing debt has risen by $680 billion or 26.6 percent. Let's focus on non-housing debt and then take a closer look at credit card debt.  Here is a graph from the Philadelphia Federal Reserve showing how total revolving and non-revolving consumer credit has reached a 24 year high: In the first quarter of 2015, total outstanding consumer credit reached $3.364 trillion which is composed of $890.9 billion in revolving credit and $2.473 trillion in non-revolving debt.  This is up $811.9 billion or 31.8 percent from the Great Recession low of $2.552 trillion in 2009. According to Tim Chen at Nerdwallet and based on an analysis of Federal Reserve statistics, an average American household had the following consumer debt in July 2015:

  • Credit card debt: $7400
  • Mortgage debt: $156,584
  • Student Loan debt: $33,090

If the households that have no credit card debt are removed from the equation, the average outstanding credit card debt more than doubles to $15,863.As we can see on this graph, the number of credit card accounts (in blue) has risen to its highest level since the Great Recession:

American Malls In Meltdown - The Economic Recovery Is Complete & Utter Fraud - The government issued their monthly retail sales this past week and four of the biggest department store chains in the country announced their quarterly results. The year over year retail sales increase of 2.4% is pitifully low in an economy that is supposedly in its sixth year of economic growth with a reported unemployment rate of only 5.3%. If all of these jobs have been created, why aren’t retail sales booming? The year to date numbers are even worse than the year over year numbers. With consumer spending accounting for 70% of our GDP and real inflation running north of 5%, it’s pretty clear most Americans are experiencing a recession, despite the propaganda data circulated by the government and Fed. The only people not experiencing a recession are corporate executives enriching themselves through stock buybacks, Wall Street bankers using free Fed Bucks while rigging the the markets in their favor, politicians and government bureaucrats reaping their bribes from billionaire oligarchs, and the media toadies who dispense the Deep State approved propaganda to keep the ignorant masses dazed, confused, and endlessly distracted by Cecil the Lion, Bruce/Caitlyn Jenner, Ferguson, and blood coming out of whatever. You won’t hear CNBC, Bloomberg, the Wall Street Journal or any corporate mainstream media outlet reference the fact retail sales growth is at the exact same levels as when recession hit in 2008 and 2001. Their job is to regurgitate the message of economic recovery and confidence in the future, despite overwhelming evidence to the contrary.

July consumer prices: all intact trends continue -- This morning's CPI report for July was a big yawn, coming in at +0.1% just as expected, and YoY CPI also unchanged at +0.2%.  OMG, the Fed simply *must* raise rates as a precaution!!! < / snark >  So let's look at a couple of useful bits of information. First, inflation continues to be confined almost exclusively to housing.  The below graph comparing CPI for shelter (blue) vs. everything else (red) continues to show housing inflation a little on the "hot" side, while everything else remains in the most severe deflation in the last 50 years outside of the Great Recession:  Next, we can now show real retail sales for July, which continue to show an improving trend, although they did not make a new high: Finally, over the longer term YoY real retail sales tend to lead YoY employment. The recent deceleration in growth of real retail sales is another reason to suspect that YoY job growth will fade at least a little bit, with reports under 225,000 or maybe even under 200,000 a month: Basically, all of the existing trends are still intact.

July Consumer Price Index: Year-over-Year Core Remains at 1.8% --  The Bureau of Labor Statistics released the July CPI data this morning. The year-over-year unadjusted Headline CPI came in at 0.17% (rounded to 0.2%), up from 0.12% (rounded to 0.1%) the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.80%, essentially unchanged from the previous month's 1.76% (rounded to 1.8%). Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 0.2 percent before seasonal adjustment. The indexes for food, energy, and all items less food and energy all rose slightly in July. The food index rose 0.2 percent as all six major grocery store food group indexes increased. The energy index rose 0.1 percent as an increase in the gasoline index more than offset declines in other energy component indexes. The index for all items less food and energy also rose 0.1 percent in July. A 0.4-percent advance in the shelter index was the main contributor to the increase, though the indexes for medical care and apparel also rose. In contrast, the index for airline fares fell sharply, and the indexes for used cars and trucks, household furnishings and operations, and new vehicles all declined. The all items index increased 0.2 percent for the 12 months ending July. The 12-month change has been rising since April. The index for all items less food and energy increased 1.8 percent for the 12 months ending July; this was the fourth time in 5 months the 12-month change was 1.8 percent. The food index increased 1.6 percent over the last 12 months. The energy index, however, continues to show a 12-month decline, falling 14.8 percent over the past year. [More…] The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

July 2015 CPI Annual Inflation Rate Is Now 0.2%: According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate rose from 0.1% to 0.2%. The year-over-year core inflation (excludes energy and food) rate remained unchanged at 1.8%, and continues to be under the targets set by the Federal Reserve.  As a generalization - inflation accelerates as the economu heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 0.2 percent before seasonal adjustment. The indexes for food, energy, and all items less food and energy all rose slightly in July. The food index rose 0.2 percent as all six major grocery store food group indexes increased. The energy index rose 0.1 percent as an increase in the gasoline index more than offset declines in other energy component indexes. The index for all items less food and energy also rose 0.1 percent in July. A 0.4-percent advance in the shelter index was the main contributor to the increase, though the indexes for medical care and apparel also rose. In contrast, the index for airline fares fell sharply, and the indexes for used cars and trucks, household furnishings and operations, and new vehicles all declined. The all items index increased 0.2 percent for the 12 months ending July. The 12-month change has been rising since April. The index for all items less food and energy increased 1.8 percent for the 12 months ending July; this was the fourth time in 5 months the 12-month change was 1.8 percent. The food index increased 1.6 percent over the last 12 months. The energy index, however, continues to show a 12- month decline, falling 14.8 percent over the past year.

Consumer Prices Rise At Slowest Pace Since 2014 As Airfares Plunge, Car Costs Slide, But 'Rents' Jump -- US Consumer Prices (CPI) missed expectations MoM with a mere 0.1% rise (half the expected 0.2% rise). Core CPI (ex food and energy) rose just 0.1% - its weakest growth since Dec 2014 with the biggest drivers being a 5.6% plunge in airfares - the biggest drop since 1995and a 0.3% surge in 'owner equivalent rents' driven by lodging. Gas prices rose for the 3rd consecutive month (unequivocally good?) but new and used car prices tumbled. Core CPI rose at slowest pace since Dec 2014...The index for all items less food and energy increased 0.1 percent in July following a 0.2-percent increase in June. The shelter index rose 0.4 percent, its largest increase since February 2007. The indexes for rent and owners' equivalent rent both increased 0.3 percent, while the index for lodging away from home increased 2.5 percent after falling in May and June. The apparel index also turned up in July, rising 0.3 percent after declining in each of the last 3 months. The index for medical care rose slightly in July, increasing 0.1 percent, with both the medical care services and medical care commodities indexes advancing 0.1 percent. Several indexes were unchanged in July, including those for personal care, recreation, alcoholic beverages, and tobacco. The index for airline fares declined sharply in July, falling 5.6 percent, its largest decline since December 1995. The index for used cars and trucks fell for the third month in a row, declining 0.6 percent, and the index for household furnishings and operations fell 0.2 percent, also its third straight decline. The new vehicles index, which had increased five months in a row, also fell 0.2 percent in July.

Airfares Fall By The Most In Nearly Two Decades The great oil-price plunge has been a boon for U.S. airlines, and now it’s starting to trickle down to consumers. Jet-fuel prices have declined nearly 35% over the year, tracking the drop in oil prices, according to the Labor Department’s producer-price index. The decline has helped airlines produce their best-ever profits, as a front-page Wall Street Journal article on Wednesday reports. Airlines have been cutting fares, though not nearly as precipitously, the government reported Wednesday. Airline fares fell 5.6% in July from a year earlier, the biggest 12-month decline since late 1995, the Labor Department’s consumer-price index shows. But consumers might not be noticing the decline all that much. The airfare drop has been offset by rising prices for other items, most notably rents and mortgage payments. So-called shelter costs rose 3.1% in July from a year earlier, the biggest jump since early 2008.  Overall, consumer prices are up just 0.2% from a year ago, a very weak reading reflecting mainly the drop in oil costs. Core prices, which exclude food and energy, rose 1.8%.

July 2015 Inflation and our very low expectations -- The slow-motion train-wreck continues.  Shelter inflation moved up this month and there was no non-shelter core inflation.  Year-over-year shelter inflation has moved up to 3.1% while non-shelter core inflation remained flat at 0.9%.I think it is plausible that the housing supply problem that I have written so much about has been a key factor in recent business cycles.  Note that in both 2000 and 2006, core inflation jumped up, but in both cases non-shelter core inflation was level and all of the marginal increase in core inflation came from shelter.  In both cases, this was accompanied by a decline in housing starts - a very small one in 2000 and a large drop in 2006.  In 2000, the Fed began lowering rates, and by the end of 2001, rent inflation began to moderate because supply had recovered.  In the more recent episode, the Fed Funds rate was still holding steady at 5.25% in August 2007, after 18 months of a supply collapse.  Shelter inflation began to moderate at the beginning of 2007, in spite of the supply collapse.  Even before the Fed began to lower the Fed Funds rate, demand had been so undercut that housing consumption was decelerating more quickly than housing supply.  The problem was so severe that neither housing supply nor shelter inflation began to recover until after QE was implemented. What's a little frightening about forward inflation expectations suggested by TIPS spreads is that the paltry 5 year breakeven CPI level of 1.2% includes shelter.  Markets know that there is no reason for this rent inflation to subside, either because of our metropolitan housing policies or our financial "macroprudence", so this 5 year forward inflation expectation must reflect an expectation of non-shelter core inflation that is basically zero.  The shelter inflation issue is structural.  Forward bond markets are already predicting a monetary stagnation.

Here's Proof That Core CPI Is Really +3%, Not +1.8% -The BLS reported today that Owners Equivalent Rent, a fictitious input to the CPI which, with the similarly formulated lesser item rent of primary residence accounts for nearly 32% of the total weight in the index, rose by 3% between July 2014 and July 2015, including a seasonally adjusted, fictitious +0.3% month to month in June. The BLS has used these tortured calculations since 1982 to suppress the housing component of CPI. Prior to 1982 the BLS had included house prices, but because the actual purpose of CPI is for indexing government benefits, including housing inflation at its actual rate became too costly. The BLS therefore eliminated it from consideration in the second year of the Reagan administration. Since then, they have used the fictitious construct of Owner’s Equivalent Rent. From time to time the BLS asks owners what they think their house should rent for. They adjust that fantasy number every month by the actual amount of rent that tenants pay according to surveys of tenants.   The problem with that is that leases are typically indexed to CPI, or capped at 2-3% per year increases. Tenants who have been in their apartments for years see their rents going up 2-3% and that’s what they report.  Since 2000, OER has risen at a compound annual growth rate of +2.5%. Meanwhile, market rent, which is the actual price paid by tenants in the marketplace, and is the true state of price level inflation, has been rising much faster. Over the past 15 years rents have risen at a compound annual growth rate of +3.7%. However, the actual price of rent in the market is not considered. And the actual rate of house price inflation is not considered. If our aim is to measure inflation, shouldn’t we be measuring actual prices in the market place, rather than people’s imaginary opinions, and fixed rates of increase established by contracts written years ago? We know from a variety of surveys that house price inflation has recently been running around an annual rate of 5-6%. Rents have been rising at a similar rate. The census bureau surveys rents quarterly. Their second quarter survey showed median rents increasing by 6% nationally, year to year.

The Big Four Economic Indicators: July Real Retail Sales Show Improvement - Nominal Retail Sales in July rose 0.6%, and the two previous months were revised upward. Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, came in at 0.44% month-over-month. The chart below gives us a close look at the monthly data points in this series since the end of the last recession in mid-2009. The linear regression helps us identify variance from the trend. The early 2014 dip in sales was generally written off as a temporary result severe winter, and the return to trend sales growth gave credence to the explanation. The early 2015 dip triggered the same explanation, but even with the subsequent recovery, Real Sales remain slightly below trend. The US economy has been slow in recovering from the Great Recession. Weak Retail Sales and Industrial Production beginning in December 2014 triggered a replay of the "severe winter" meme from last year. Collectively the indicators have essentially trended sideways through June, but the July data is nudging in the right direction.

Gasoline Prices for Week Ending 17 August 2015 Rose Over 8 Cents: Average gasoline prices rose 8.3 cents per gallon nationwide this past week following the previous week's 5.9 cent decline.  From the same week one year ago, gas prices have fallen $0.75 a gallon. At the end of the article is a Gas Buddy graphic with access to local gasoline prices anywhere in the country. The graph represents the weighted average of gasoline based on sampling of approximately 900 retail outlets, 8:00AM Monday. The price represents self-service unless only full-service is available and includes all taxes. All Formulations includes both conventional gasoline and reformulated gasoline.

Unplanned refinery outage leads to higher Midwest gasoline prices - Today in Energy (EIA) - On August 8, the BP refinery in Whiting, Indiana, the largest petroleum refinery in the Midwest, experienced an unplanned outage and was forced to reduce production. The BP Whiting refinery has a crude oil distillation unit (CDU) capacity of 413,500 barrels per calendar day (b/d), and it is an important source of gasoline and distillate fuel oil supply to the region.  Press reports indicate that the largest of three crude oil distillation units at the refinery was shut down because of leaking pipes, cutting the refinery's total operable CDU capacity by roughly 50%. EIA estimates the loss of gasoline production from that unit to be between 120,000 b/d and 140,000 b/d, based on May 2015 refinery yield data for the region and press reports of the refinery running at 40% capacity. Initial estimates are that it may take BP a month to fix the problem.  On news of the outage, the wholesale spot price for gasoline in Chicago, Illinois increased 60¢ per gallon (gal) to $2.47/gal on August 11. Regional spot gasoline prices can be compared to the front month futures contract of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline) from the New York Mercantile Exchange (Nymex). Spot prices in Chicago went from a 3¢/gal discount to the New York RBOB on August 7 to a 78¢/gal premium on August 11.

Huge oil gains a sign of gas price gouging - - The days when oil companies could easily deny they've gouged California motorists through much of this year should have ended with the second-quarter financial reports of Valero Energy Corp. and Tesoro Corp., which together control about 40 percent of the California gasoline market. But their denials won't end despite the humongous windfall financial gains they and other gasoline refiners reaped from a spring of obviously excessive gasoline prices. When the same companies unveil their third-quarter financial reports, the refiners' take will likely be even higher. Valero saw California gasoline profits rise from $24 million last year to $294 million in the April-through-June period this year. Per-barrel profits rose from 99 cents in 2014 to $11.23 this year. Tesoro, meanwhile, reported a record profit of $668 million in the same time period, far outstripping its previous record of $415 million, set in 2007. Tesoro gasoline is sold under brand names like Arco, Shell and USA. Valero and Tesoro are the only oil companies specifically breaking out California refining profits in their corporate reports. Chevron, with large refineries in Richmond and El Segundo, does not distinguish California profits from other operations. But 54 percent of that firm's refining is done here, and its company-wide refining profits rose $214 million in this year's second quarter, the lion's share no doubt coming from the pockets of California drivers. And yet, the oil industry's regional umbrella organization, the Western States Petroleum Assn., continues to insist oil companies did nothing out of the ordinary to create those record profits.

Vehicle Miles Traveled: A Look at Our Evolving Behavior - The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through May. "Travel on all roads and streets changed by 3.9% (10.3 billion vehicle miles) for June 2015 as compared with June 2014." The less volatile 12-month moving average is up 0.39% month-over-month and 3.06% year-over-year. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) is a smaller change, up 0.31% month-over-month and up only 1.89% year-over-year. Here is a chart that illustrates this data series from its inception in 1971. It illustrates the "Moving 12-Month Total on ALL Roads," as the DOT terms it. As we can readily see, the Great Recession had a substantial impact on our driving habits. The rolling 12-month miles traveled contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent decline lasted for 85 months, the trough in November 2011, 48 months from the previous high. The latest data point is a new high. Total Miles Traveled, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we want to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. Let's use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.

U.S. Postal Service Tries Hand as Fishmonger, Grocer - WSJ: The U.S. Postal Service is ramping up same-day delivery of everything from bottled water to fresh fish as its new postmaster general tries to better compete with FedEx, UPS and even In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. They collect packages from Internet electronics retailer Newegg Inc. for fast, local afternoon delivery. They’re also doing daily water delivery to businesses for Nestlé SA in Manhattan and Brooklyn. Same-day delivery is part of a big push by Megan Brennan, the new postmaster general, to make the postal service more competitive. “Clearly, the consumer demand is such that we all want the package today,” said Ms. Brennan in an interview. “So we’re being responsive to that.” About six months after taking the top job at the quasigovernmental agency, Ms. Brennan said she’s pushing Congress to green light the shipping of alcoholic beverages. She also wants to expand grocery delivery and offer more Sunday delivery.

Here’s How the Post Office Is Taking On UPS, FedEx, and Amazon-- The United States Postal Service’s postmaster general Megan Brennan has been in office for six months, and already she’s starting to push the quasi-governmental agency to evolve in line with changing American mailing needs, according to The Wall Street Journal.Under Brennan, USPS has ramped up same-day delivery in order to compete with rivals FedEx, UPS, and Amazon for the growing share of packages with tight schedules.Since October 2014, the Postal Service has begun offering deliveries of Amazon groceries in select markets, such as San Francisco, and New York. Now the service delivers an estimated 40% of the e-commerce giant’s orders across the country, compared to UPS and FedEx’s shares of around 20% each, according to Bloomberg.The USPS saw first-class mail drop 3% in 2014; over the past decade, according to the Journal, it’s fallen 20%. The insatiable need for e-commerce delivery presents the Postal Service with an opportunity to replace that lost revenue — but only if it can be light on its feet in a competitive market. Already, in 2014, package delivery revenue has risen by 8% to account for 20% of the agency’s revenue.

Truck Freight Demand Surges at Fastest Rate Since November 2013 - WSJ: Trucking activity rose to its second-highest level on record in July, as a strengthening economy increased the amount of freight on the road. The amount of cargo hauled by U.S. truckers rose 2.8% in the latest reading of the American Trucking Associations’ monthly index. It was the biggest monthly gain since November 2013, the industry group said. The index is based off of surveys of the group’s members. The ATA pointed to improved retail sales, factory output and housing starts, all of which raised demand for freight transportation. The relatively robust domestic economy has shielded U.S. truckers from headwinds that have rattled other carriers, including sluggish growth in Europe and China’s unexpected devaluation of the yuan. Some large trucking companies, including Werner Enterprises Inc. WERN -3.07 % and J.B. Hunt Transportation Services Inc., say strong freight demand should allow them to raise rates later this year. Carriers have had an up and down year since the ATA’s index hit a record high in January. The U.S. economy has moved in fits and starts, leading to inconsistent demand for hauling freight. In July a key manufacturing reading fell to a three-month low and the Cass Freight Index, which tracks all types of cargo shipments, dipped 1.6% from June.

U.S. Containerized Exports Fall Off the Chart -- “Many of our major trading partners are experiencing stalled or slowing economies, and the strength of the US Dollar versus other currencies is making US goods more expensive in the export market.” That’s how the Cass/INTTRA Ocean Freight Index report explained the phenomenon. What happened is this: The volume of US exports shipped by container carrier in July plunged 5.8% from an already dismal level in June, and by 29% from July a year ago. The index is barely above fiasco-month March, which had been the lowest in the history of the index going back to the Financial Crisis. The index tracks export activity in terms of the numbers of containers shipped from the US. It doesn’t include commodities such as petroleum products that are shipped by specialized carriers. It doesn’t include exports shipped by rail, truck, or pipeline to Mexico and Canada. And it doesn’t include air freight, a tiny percentage of total freight. But it’s a measure of export activity of manufactured and agricultural products shipped by container carrier. Overall exports have been weak. But the surge in exports of petroleum products and some agricultural products have obscured the collapse in exports of manufactured goods. For now, the currency war waged by all the other major economies catches much of the blame: The strength of the U.S. dollar against other currencies accounts for a significant part of the drop because of the relative price advantage our competitors have. There is concern that U.S. sellers—especially suppliers of agriculture products and food products such as meats—may have lost customers for good. That’s the goal of a currency war. But wait… the dollar began to strengthen last year, while containerized exports have been dropping since 2012, when it was the Fed that waged a currency war against other economies, and when it was the dollar that was losing its value. So there are other reasons, long-term

July 2015 Sea Container Counts Improved But Still Showing a Weak Economy: The data for this series continues to be less than spectacular - but improved this month. The year-to-date volumes contracting for both imports and exports. This continues to indicate weak economic conditions domestically and globally. Consider that imports final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos which are not shipped in containers. For this month:As the data is very noisy - the best way to look at this data is the 3 month rolling averages. There is a direct linkage between imports and USA economic activity - and the change in growth in imports foretells real change in economic growth. Export growth is an indicator of competitiveness and global economic growth. The continued underperforming of exports is not a positive sign for GDP as the year progresses. Econintersect considers import and exports significant elements in determining economic health (please see caveats below). The takeaway from the graphs below is that neither imports or exports have returned to pre-2007 recession levels.

Industrial Production Has a Great Month on Autos - The Federal Reserve Industrial Production & Capacity Utilization report shows industrial production soared by 0.6% as manufacturing came alive with a 0.8% increase.  This is the largest gain since November 2014.  The reason for the surge was autos.  Motor vehicles and parts manufacturing jumped up 10.6% in a month.  The G.17 industrial production statistical release is also known as output for factories and mines. Total industrial production has now increased 1.3% from a year ago.  Currently industrial production is 7.5 percentage points above the 2012 average.  Below is graph of overall industrial production's percent change from a year ago.  Here are the major industry groups industrial production percentage changes from a year ago.

  • Manufacturing: +1.5%
  • Mining:             -2.0%
  • Utilities:           +4.6%

For the month manufacturing overall increased 0.8%. Manufacturing output is 5.7 percentage points above it's 2012 Levels and is shown in the below graph. Within manufacturing, durable goods increased 1.2% for the month and 1.5% for the year. While Motor vehicles & parts increased a whopping 10.6%, Machinery decreased -1.3%. Nondurable goods manufacturing increased by 0.4% for the month and has increased 2.0% over the year. Petroleum showed a -0.9% drop. Mining increased 0.2% and is now down -2.0% for the year. Mining includes gas and electricity production and the Fed have a special aggregate index for oil and gas well drilling. Oil and gas well drilling increased 1.3% and for the year is down -53.2%, an astounding collapse.

U.S. factories still haven’t recovered from the recession - It took less than a year for America's factory output to rebound from the 1991 recession. It took 3½ years to bounce back from the 2001 recession. Now, six years clear of the Great Recession, manufacturing output still hasn't returned to the pre-crisis levels it reached in 2007, according to revised economic data from the Federal Reserve. The downward revisions highlight the persistent weakness in a sector that President Obama has long called crucial to the health of the U.S. economy and the fate of the middle class. They track with the continued disappointing employment numbers for manufacturing, which since January 2013 has added fewer than half of the 1 million jobs that Obama promised the sector would create in his second term. And they appear to reflect a deeper-than-previously-thought hit to defense and aerospace manufacturing as the result of Pentagon cuts and deficit-reduction measures Obama and Congress agreed to several years ago. The revised data show manufacturing output grew by nearly 2 percentage points less than previously estimated in both 2012 and 2013, and by nearly 1 point less in 2014. Output in defense and space equipment was revised even more dramatically downward: by 4 points in 2012, 7 points in 2013 and 2.5 points in 2014. That coincides with the implementation of a series of curbs to the federal defense budget, including ones agreed to by Obama and congressional Republicans in a 2011 budget deal.

"Out of the Blue" Plunge in New York Region Manufacturing; Optimism Persists  --Last month, the Empire State Manufacturing report eked out a small gain, giving economists grounds for optimism in the manufacturing sector. This month, the index plunged nearly nineteen percentage points to -14.92, well below the lowest Bloomberg Econoday Estimate of 3.0.  Out of the blue, the Empire State index has plunged deeply into negative column this month, to minus 14.92 in August vs plus 3.86 in July. This is by far the weakest reading of the recovery, since April 2009. New orders, which had already been weak in this report, fell from July's minus 3.50 to minus 15.70 for the weakest reading since November 2010. Backlog orders, which had also been weak, came in at minus 4.55 from minus 7.45. Shipments, in the weakest reading since March 2009, fell to minus 13.79 from positive 7.99. Last week's industrial production report, boosted by the auto sector, offered hope but today's report is a reminder that weak exports and weakness in the energy sector are stubborn negatives for the factory sector. Today's results scramble the outlook for Thursday's Philly Fed report which was expected to show moderate strength. The above chart from the Empire State Manufacturing ReportThe headline general business conditions index tumbled nineteen points to -14.9, its lowest level since 2009. The new orders and shipments indexes also fell sharply, to -15.7 and -13.8 respectively, pointing to a marked decline in both orders and shipments. The inventories index dropped to -17.3, signaling that inventory levels were lower. Price indexes showed that input prices were slightly higher, while selling prices were flat. Labor market indicators suggested that employment levels and hours worked were little changed. Indexes for the six-month outlook registered somewhat greater optimism than in July, with the future general business conditions index rising seven points to 33.6.

Empire Fed Collapses To Six Year Lows As New Orders Crash - Having 'stabilized' in recent months, The Empire Fed Manufacturing Survey just collapsed to -14.92 (from 3.86) missing expectations of 4.50 by the biggest margin since 2010. Across the board it was a bloodbath with New Orders crashing, inventories plunging and employment lower (with both workweek and number of employees falling). The headline data would have been worse were it not for the concurrent spike in 'hope' - highest since April.

Empire State index tumbles to recession-era levels - A reading of New York-area manufacturing conditions fell swiftly and brutally in August, one that could make the likelihood of an interest-rate hike next month — or even this year — more remote. The Empire State general business conditions index nose-dived to a reading of negative 14.9, from positive 3.9 in July, marking the worst level since April 2009, the New York Fed said. The index, on a scale where any positive number indicates improving conditions, was far worse than the positive 4.5 forecast in a MarketWatch-compiled economist poll. It wasn’t just weakness at the headline. The new-orders component sank to negative 15.7 from negative 3.5, and the shipments index sank to negative 13.8 from positive 7.9. Readings for unfilled orders, delivery time, inventories and average employee workweek also were negative, and the index for prices received just barely stayed positive at 0.9 from 5.3 in July. Oddly, perhaps, the index for future business activity climbed seven points to 33.6. Manufacturers have complained for some time about the strength of the U.S. dollar, and turbulence in China probably isn’t helping matters. That said, the Empire State index is the first of a wave of regional manufacturing reports, and generally economists pay closer heed to the Philadelphia Fed report, which comes out Thursday.

Empire State Manufacturing Tumbled to Lowest Level Since 2009 -- This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at -14.9 (-14.92 to two decimals) shows a significant decrease from last month's 3.8, which signals a decline in activity.This is the lowest level since 2009. The forecast was for a reading of 5.0. The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report. The August 2015 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers. The headline general business conditions index tumbled nineteen points to -14.9, its lowest level since 2009. The new orders and shipments indexes also fell sharply, to -15.7 and -13.8 respectively, pointing to a marked decline in both orders and shipments. The inventories index dropped to -17.3, signaling that inventory levels were lower. Price indexes showed that input prices were slightly higher, while selling prices were flat. Labor market indicators suggested that employment levels and hours worked were little changed. Indexes for the six-month outlook registered somewhat greater optimism than in July, with the future general business conditions index rising seven points to 33.6. Here is a chart of the current conditions and its 3-month moving average, which helps clarify the trend for this extremely volatile indicator:

A Surprisingly Dark Macro Update From The NY Fed -- This morning’s monthly release on manufacturing activity in the New York Fed region offers an early peek at the macro profile for August. Unfortunately, the numbers are unusually ugly. Is this an early warning sign for the US business cycle? Maybe, but it’s too soon to know for sure. That won’t stop the usual suspects from jumping to defnitive conclusions. But in the wake of a recovery that’s now in its sixth year, an obvious question arises: could macro’s pessimists, after being wrong for so long, finally be right this time? Let’s consider that question, but first: a quick look at the NY Fed numbers. The headline index for the Empire State Manufacturing Survey in August tumbled to its lowest level since the Great Recession (blue line in chart below). The general business conditions benchmark sank to -14.9 for this month, a level last seen in 2009, at the tail end of the recession. If we use this data in isolation, the outlook is quite grim. But there are good reasons to reserve judgment, starting with the obvious: the NY Fed index, as valuable as it is, reflects only a small piece of the US manufacturing sector overall. Even if today’s update turns out to be an accurate clue for manufacturing generally, it’s not obvious that the rest of the economy would follow in due course.Yes, manufacturing is among the more cyclically sensitive slices of the economy, which is why it’s so closely followed–and rightly so. But history reminds that using manufacturing data in isolation dispenses a fair amount of false signals when it comes to assessing the state of US macro in real time.

August 2015 Empire State Manufacturing Index Crashes: The Empire State Manufacturing Survey fell 19 points from barely positive to significantly negative.

  • Expectations were for a reading between 3.0 and 6.0 (consensus 4.75) versus the -14.9 reported. Any value above zero shows expansion for the New York area manufacturers. 
  • New orders sub-index of the Empire State Manufacturing Survey has been very weak for the last 9 months and slide deeper into contraction, whilst unfilled orders marginally improved but remains in contraction.
  • This noisy index has moved from +14.7 (August 2014), +27.5 (September), +6.2 (October), +10.2 (November), -3.6 (December), +10.0 (January 2015), +7.8 (February), +6.9 (March), -1.2 (April), +3.1 (May), -2.1 (June), 3.9 (July) - and now -14.9.

As this index is very noisy, it is hard to understand what these massive moves up or down mean - however this regional manufacturing survey is normally one of the more pessimistic. Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post. However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know. From the report: The August 2015 Empire State Manufacturing Survey indicates that business activity declined for New York manufacturers. The headline general business conditions index tumbled nineteen points to -14.9, its lowest level since 2009. The new orders and shipments indexes also fell sharply, to -15.7 and -13.8 respectively, pointing to a marked decline in both orders and shipments. The inventories index dropped to -17.3, signaling that inventory levels were lower. Price indexes showed that input prices were slightly higher, while selling prices were flat. Labor market indicators suggested that employment levels and hours worked were little changed. Indexes for the six-month outlook registered somewhat greater optimism than in July, with the future general business conditions index rising seven points to 33.6.

Empire Fed Collapses To Six Year Lows As New Orders Crash - Having 'stabilized' in recent months, The Empire Fed Manufacturing Survey just collapsed to -14.92 (from 3.86) missing expectations of 4.50 by the biggest margin since 2010. Across the board it was a bloodbath with New Orders crashing, inventories plunging and employment lower (with both workweek and number of employees falling). The headline data would have been worse were it not for the concurrent spike in 'hope' - highest since April.

Philadelphia Fed Business Outlook Survey August 20, 2015: That sigh you hear is one of relief, that Monday's historic plunge in the Empire State report is probably a fluke. The Philly Fed's index, which is very closely watched, posted a gain for August and not a huge plunge. The general business conditions index came in at a stronger-than-expected 8.3 vs July's 5.7. Shipments lead the report at a very strong plus 16.7. Order data show less strength, with new orders at 5.8 in August vs 7.1 in July and with unfilled orders showing a slight month-to-month decline at minus 1.0. A positive in the report is a respectable monthly gain for employment to 5.3 vs July's contraction of minus 0.4. The 6-month outlook is also a plus, up 1.6 points to a solid 43.1. The early view on the August factory is thankfully mixed. Watch tomorrow for the manufacturing PMI flash.

August 2015 Philly Fed Manufacturing Growth Rate Modestly Improves. Internals Mixed. --  The Philly Fed Business Outlook Survey growth improved modestly - and remained in expansion. Key elements are mixed. This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently. The index improved from 5.7 to 8.3. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) 5.0 to 10.5 (consensus 7.5). Manufacturing activity in the region increased in August, according to firms responding to this month's Manufacturing Business Outlook Survey. The indicators for general activity are holding fairly steady and suggest modest growth. While firms reported increased shipments compared with the prior month, the current indicators for new orders and employment suggest steady conditions. The survey's indicators of future activity predict a continuation of growth in the region's manufacturing sector over the next six months. The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 5.7 in July to 8.3 in August. This index has hovered in a low range since the beginning of the current year, far below the highs of late 2014 (see Chart). The demand for manufactured goods, as measured by the survey's current new orders index, remains low as well, falling slightly more than 1 point to 5.8 in August. However, the current shipments index rebounded 12 points to 16.7.

Philly Fed Stagnant At 2015 Lows Amid Weaker Prices And New Orders -- After July's hope-crushing drop in the Philly Fed manufacturing survey, August printed 8.3, modestly higher than expectations of a modest rise to 6.5. Prices Paid and Prices Received tumbled as did New Orders as deflation has firmly reappeared: "percentage of firms reporting reductions in prices received exceeded those reporting increases in prices received",but the headline index rose thanks to a pick up in employment and average workweek. The bottom line is that Philly Fed's survey is flatlining at the lowest levls in 2 years; and on a side note, the not-discussed-much Philly Fed non-manufacturing survey utterly collapsed from 51.4 to 2.7 in July.

US Manufacturing PMI Tumbles To 22 Month Low: "Lack Of Growth" And Deflation Blamed -- Not even the seasonally-adjusted sentiment surveys can give a glimmer of hope any more. A few weeks after the July ISM manufacturing report printed at the lowest since March, moments ago the Markit mfg PMI index was released, printing at justt 52.9, below the expected 53.8, and down from last month's 53.8. This was the lowest level since October 2013 and the biggest miss in exactly 2 years, with output, new orders and employment all expand at slower rates in August; Markit adds that "Input cost inflation picks up fractionally, but remains well below the survey average." The report also notes that the latest rise in production volumes was the weakest since the weather-related slowdown recorded in January 2014 - perhaps someone can blame it on the record hot July. Some survey respondents cited a cyclical slowdown in new business growth, as well as heightened uncertainty regarding the demand outlook in August.   Most notably, now that even highly subjective survey data can no longer be rigged to boost confidence, there is only one recourse: beg and plead for the Fed to not hike rates or better yet, as Bank of America did overnight, just hint that QE4 is just around the corner if the market crashes enough. To wit, commenting on the flash PMI data, Tim Moore, senior economist at Markit said: “August’s survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September.

You Could Soon Be Driving a Buick Made in China -- General Motors is expected to start exporting the Buick Envisionfrom a Chinese plant to American dealerships by the end of 2016. If the move goes through, GM will become the first major car company to sell a vehicle in the U.S. that was made in China, USA Today reports.  GM makes the model in China because Chinese consumers likeBuicks more than American consumers do, making that country the biggest market for Buick cars. The company likely won’t have enough sales in the U.S. to justify a second plant, so if they want to sell that model here, the most efficient and cost-effective way to do so would be to export it from China, the paper reports.This move would be made in the midst of an already heated presidential campaign, and it would likely provoke conversation about declining American manufacturing as compared to risingChinese manufacturing. We already know that current GOPfrontrunner Donald Trump will have something to say about this.

The Trade Deficit is Responsible for Manufacturing Job Loss -- Growing trade deficits and the collapse of manufacturing output following the Great Recession are directly responsible for the loss of 5 million U.S. manufacturing jobs that occurred between 2000 and 2014. As the figure below shows, manufacturing started rapidly declining in 2000, just as the U.S. manufacturing trade deficit began to rise sharply. A rising trade deficit indicates that U.S. manufacturers are losing business to manufacturing industries in other countries like China and Japan, who manipulate their currency to make their goods cheaper and therefore more appealing to consumers in the United States and elsewhere. This leads to reduced demand for goods produced by U.S. manufacturers, both at home and abroad. Between 2000 and 2007, growing trade deficits in manufactured goods led to a loss of 2.6 million manufacturing jobs. When the Great Recession hit and consumers pulled back on their spending, the collapse in demand for U.S. manufactured goods caused a loss of 2.3 million additional manufacturing jobs. While in the past the manufacturing industry has typically regained most if not all jobs lost during a recession, manufacturing employment after the Great Recession has experienced an anemic recovery—only 900,000 of the 2.3 million jobs lost have been recovered since 2009. This is because the manufacturing trade deficit has skyrocketed since 2009 as a result of the rapid growth of imports from China and other currency manipulators. The manufacturing trade deficit grew from $319.5 billion in 2009 to $514.6 billion in 2014—very close to its pre-recession peak of $558.5 billion in 2006.

The Problem is Not Globalization, It is Selective Protectionism --  In an interesting piece on the decline of the political center, E.J. Dionne wrongly lists globalization as a villain. He tells readers: "Globalization weakens the ability of moderate governments of both varieties to deliver on their promises. Capital can flee easily to more congenial climes, undercutting a nation’s tax base and its regulatory efforts." Globalization should also have the effect of reducing inequality by making it easier to take advantage of lower cost professional services (e.g. physicians services, lawyers' services, dentists' services) except that the United States has acted to maintain or even increase barriers to trade in these areas. It should also make it easier to circumvent patent and copyright monopolies that redistribute income upward, except we have consciously pursued policies to strengthen these forms of monopolies to limit the extent to which developing countries might provide vehicles for avoidance (in contrast to tax policy). Also, governments with their own currency (e.g. the United States, the U.K., and the euro zone collectively) need not be restricted by their tax take in terms of spending, as long as they are below full employment. The decision not to use fiscal policy to bring economies to full employment is due to superstitions, not actual limits imposed by globalization.

BLS vs.Gallup Unemployment Rate - The Gallup Daily U.S. Employment , poll estimates unemployment at 6.3% and underemployment at 14.5%.Gallup cautions: "Because results are not seasonally adjusted, they are not directly comparable to numbers reported by the U.S. Bureau of Labor Statistics, which are based on workers 16 and older. Margin of error is ±1 percentage point." Actually the numbers can be compared. All one has to do is use the BLS non-seasonally adjusted numbers. Gallup estimates the unemployment rate at 6.3% but the BLS says 5.6%. If anything, the BLS number should be higher than Gallup. Why? Because Gallup surveys those 18 and older whereas the BLS surveys 16 and older. Given high youth-unemployment, any BLS bias should be higher, not lower. Gallup uses a 30-day rolling average, not seasonally adjusted, and samples 30,000 people for their rolling-average numbers.  The Gallup numbers are more believable than the BLS numbers. Finally, for comparison purposes, the University of Michigan sentiment survey does a one-time sample a mere 500 people on which it allegedly measures spending habits and the economic health of the entire nation.

Why Job Growth May Not Be as Bad as You Think - Job growth since the recession has been led by high-wage occupations. Surprised? A common refrain about the U.S. economy has been that the job growth of the past five years has been overwhelmingly concentrated in low-wage industries, suggesting that although the total number of jobs in the U.S. is back to record levels, the quality of those jobs has eroded. But new research that drills down to look look at jobs occupation by occupation finds a different story. The report from Georgetown University’s Center on Education and the Workforce looks at all 485 occupation groups in the U.S. labor force and sorts them into thirds. The highest third of jobs have average earnings of at least $53,000 a year for full-time employees, and include occupations like software developer, registered nurse, financial analyst and physician. More than two-thirds of workers in these occupations have employer-provided health insurance and just under two-thirds have employer-provided retirement plans. They fell sharply in the recession but have rebounded to become the biggest growth category: There are now 1 million more of these jobs than before the recession.

New Jobless Claims Worse Than Forecast -Here is the opening statement from the Department of Labor: In the week ending August 15, the advance figure for seasonally adjusted initial claims was 277,000, an increase of 4,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 274,000 to 273,000. The 4-week moving average was 271,500, an increase of 5,500 from the previous week's revised average. The previous week's average was revised down by 250 from 266,250 to 266,000. There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted 277K new claims was slightly worse than the forecast of 272K. The four-week moving average at 271,500, up from last week's revised interim low of 266,000. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

Initial Jobless Claims Rise For 4 Straight Weeks - First Time In 5 Years - While still hovering at multi-decade lows, initial jobless claims (up 4,000 to 277k) have nowrisen for 4 straight weeks (for the first time since August 2010).

These 6 Million People Have No Interest in Full-Time Jobs --  The phrase “part-time worker” comes with some baggage. Assumptions are made about part-time workers—perhaps that their gigs are part-time because they’re students, or retirees whose schedules and needs don’t jibe with full-time employment. Probably the biggest assumption is that employees are working part-time simply because they cannot find full-time gigs with benefits, which could be reflective of something lacking on the behalf of the worker or shifting company policies that emphasize lower-paid part-timers.What’s rarely assumed is that workers are part-time employees 100% due to their own choice. In fact, according to U.S. Bureau of Labor Statistics data cited by Bloomberg, there are now 6 million Americans who actively choose to work part-time. And their numbers are on the rise, up 12% since 2007.While each individual has a different reason for seeking part-time employment as a first option rather than a fallback position, many of these workers have a few things in common. Namely, they tend to be young and well-educated. Instead of following traditional career paths, they are using part-time pay to help them pursue some version of the popular vision to follow your passion or “do what you love”during the hours they’re not on the clock.Because these workers feel holding down a single, standard job would be limiting—and likely drudgery—the idea is to mix and match flexible, limited-time gigs with dream pursuits. By doing so, young workers can earn enough to pay the bills (maybe while still living with their parents) while simultaneously writing, making apps, helping nonprofits, or doing whatever else they love at little or no pay.

Summer Break: Fewer Young People Seek Jobs - Young Americans may be spending more time lounging by the pool than on duty in the lifeguard chair or at other summer jobs. The youth-unemployment rate fell in July fell to its lowest level since the recession began, but part of the reason is that four in 10 Americans between 16 and 24 years old didn’t work or seek a job this summer. The unemployment rate for those between 16 and 24 years old fell to 12.2% in July from 14.3% a year earlier, on a non-seasonally adjusted basis, the Labor Department said Tuesday. That’s the lowest July reading since 2007, five months before the recession began, and matches the historical average since 1948. As is typical, the level is well elevated compared with the jobless rate for all adults, which was an unadjusted 5.6% last month. But the share of youth participating in the labor force fell to 60% in July from 60.5% last year. Last month’s reading is the second-lowest July figure on record, just above 59.5% in 2011. The historical average is 69%.The peak labor-force participation rate for youth was 77.5% in 1989. The government closely tracks July figures because the month is the usual peak for youth employment. The falloff in the youth labor force in notable because it follows the same pattern as the wider population.  The falloff in the youth labor force in notable because it follows the same pattern as the wider population. But at least part of the broader decline has been blamed on an aging Americans choosing to retire. As recently as the early 2000s, labor-force participation among young people exceeded that of the broader population during the summer.

No Wage Change?  Atlanta Fed's Macroblog - Even when prevailing market wages are lower, businesses can find it difficult to reduce wages for their current employees. This phenomenon, often referred to as "downward nominal wage rigidity," can result in rising average wages for incumbent workers despite high unemployment levels. Some economic models predict that a period of subdued wage growth can follow, even as the labor market recovers—a kind of delayed wage-adjustment effect. In her 2014 Jackson Hole speech, Fed Chair Janet Yellen suggested this effect may explain sluggish growth in average wages in recent years, despite significant declines in the rate of unemployment. This macroblog post looks at evidence of wage rigidity, particularly a spike in the frequency of zero wage changes relative to wage declines. A comparison is made between hourly and weekly wages and between incumbent workers (job stayers) and those who have changed employers (job switchers).

Why is productivity so weak? -- One of the major reasons I expects sluggish growth and weak earnings is the secular decline in the growth of real net fixed nonresidential investment. The dominant factor driving productivity growth is workers being provided additional capital equipment to assist them. It is the old simple story of getting a ditch dug. Would you rather have a dozen men with shovels or one guy with a back-hoe to do the job? It is important to look at net, not gross investment, because more and more business capital spending is on high technology equipment. But high tech has a much shorter life span than traditional capital goods. Consequently, more and more of gross investment is just to replace obsolete equipment. We are having to run faster and faster just to stay even. The growth of net nonresidential capital equipment averaged 3.3% from 1950 to 1980 and 2.5% from 1980 to 2008. Over the past five years its’ average growth was 1.1%, or 0.0% growth on a per employee basis. No wonder productivity growth is so weak and is most likely to remain so..

Do rising child care costs & stagnant wages explain the decline in the Labor Force Participation Rate ?  - What is driving the long term decline, shown in the graph below, in the labor force participation rate (LFPR) among prime working age adults, ages 25-54?  A couple of weeks ago I wrote that it wasn't poor job prospects.   There is compelling evidence that  the main culprit is increased child care costs, paired with stagnant or declining real wages.  Let's start with a framework for the discussion.  Many families face a familiar choice between hiring a contractor vs. doing it yourself for a variety of tasks.  For example, do I mow my lawn myself, or do I let a landscaper do it? All else being equal, higher costs for hiring a contractor will cause some increase in the number of homeowners who decide to do the task themselves.  The same process would apply to other tasks, like hiring a painter or someone to install a new automatic garage door. But since all of the above tasks can be done on nights or weekends, a choice to perform them doesn't mean the homeowner doesn't have to give up time from work to go the DIY route.  Child care stands alone.   A choice not to send children to day care inevitably means limiting at least one spouse to part-time work, or dropping out of the labor force entirely.  In other words, the cost of day care must be weighed against the income earned from a job.  This is a balance: the higher the cost of daycare, or the lower income earned from a job, the more we should expect a parent to choose part-time work or dropping out of the labor force entirely.

The Fraud of “Family-Friendly” Work - Robert Reich  - Netflix just announced it’s offering paid leave for new mothers and fathers for the first year after the birth of adoption of a child. Other high-tech firms are close behind. Some big law firms are also getting into the act. Orrick, Herrington & Sutcliffe is offering 22 paid weeks off for both male and female attorneys.Even Wall Street is taking baby steps in the direction of family-friendly work. Goldman Sachs just doubled paid parental leave to four weeks.  All this should be welcome news. Millennials now constitute the largest segment of the American work force. Many are just forming families, so the new family-friendly policies seem ideally timed. But before we celebrate the dawn of a new era, keep two basic truths in mind. First, these new policies apply only to a tiny group considered “talent” – highly educated and in high demand. They’re getting whatever perks firms can throw at them in order to recruit and keep them. “Netflix’s continued success hinges on us competing for and keeping the most talented individuals in their field,” writes Tawni Cranz, Netflix’s chief talent officer.That Neflix has a “chief talent officer” tells you a lot. Netflix’s new policy doesn’t apply to all Netflix employees, by the way. Those in Netflix’s DVD division aren’t covered. They’re not “talent.”They’re like the vast majority of American workers – considered easily replaceable. Employers treat replaceable workers as costs to be cut, not as assets to be developed. Replaceable workers almost never get paid family leave, they get a few paid sick days, and barely any vacation time.

Robert Reich: Having a Life (Sort of) as a New Perk for “Talent” --naked capitalism - Yves here. This post illustrates how far social norms have shifted, as in decayed, in a mere three decades. When I entered the work force, only a few extreme jobs on Wall Street required unrelenting high pressured, long hours and required staffers to submit to violations of personal boundaries as routine. At Goldman, it was considered normal to tell employees to reschedule a wedding if it conflicted with a deal. But even at Goldman, those sort of jobs were in the minority. Bob Rubin, on the trading side of the house, though the investment bankers were losers because they agreed to these work conditions (by contrast, the traders often burned out by 40, so that side of the firm, which in those days was less powerful, had its own set of issues, that of leaving the desk but psychologically taking your trading position with you). And even then, at Goldman, the hours did get better as you got more senior.But now not only did the New York Times’ Amazon expose show that workers in jobs with much less potential upside are subjected to similar extreme time demands, it also appears that they are often openly abusive. By contrast, the top Wall Street firms simply hired highly insecure and competitive people and most of the rest of the manipulation was achieved via successfully indoctrinating incoming staff to see their personal worth in terms of how big a bonus they got and whether they made partner. Reich points to some new worker-friendly policies implemented at some Silicon Vally firms and argues they mean little because they apply only to “talent”. I’d argue that they mean little for another reason: those who avail themselves of them will be seen as less dedicated, aka losers. And in our highly stratified society, when you lose, you drop further in terms of income and status than you did three or four decades ago. And of course, the “sacrifices” that the people who got to the top made to get there justifies them abusing people further down.

Inside Amazon: Wrestling Big Ideas in a Bruising Workplace -  On Monday mornings, fresh recruits line up for an orientation intended to catapult them into Amazon’s singular way of working. They are told to forget the “poor habits” they learned at previous jobs, one employee recalled. When they “hit the wall” from the unrelenting pace, there is only one solution: “Climb the wall,” others reported. To be the best Amazonians they can be, they should be guided by the leadership principles, 14 rules inscribed on handy laminated cards. When quizzed days later, those with perfect scores earn a virtual award proclaiming, “I’m Peculiar” — the company’s proud phrase for overturning workplace conventions. At Amazon, workers are encouraged to tear apart one another’s ideas in meetings, toil long and late (emails arrive past midnight, followed by text messages asking why they were not answered), and held to standards that the company boasts are “unreasonably high.” The internal phone directory instructs colleagues on how to send secret feedback to one another’s bosses. Employees say it is frequently used to sabotage others.  Many of the newcomers filing in on Mondays may not be there in a few years. The company’s winners dream up innovations that they roll out to a quarter-billion customers and accrue small fortunes in soaring stock. Losers leave or are fired in annual cullings of the staff — “purposeful Darwinism,” one former Amazon human resources director said. Some workers who suffered from cancer, miscarriages and other personal crises said they had been evaluated unfairly or edged out rather than given time to recover.

Why Bezos’ Denials About Exploitation at Amazon Sound Like Sociopathic CEO-Speak - One of the core tenets of libertarianism is that the market is always self-correcting; that any injustice or moral offense carried out through Darwinian competition will somehow, by virtue of the invisible hand, fix itself. Restaurant uses rats in its meat loaf? People will find out and the business will shut down. Too many rapes at Northwestern University? It will come to light and women will choose to get educated elsewhere. It is impossible, therefore, for a libertarian to accept that a worker can ever be exploited. Being the fully realized Randian heros that they are, abusive working conditions will simply compel workers to walk across the street, making any workplace abuse short of criminality a virtual impossibility.  So when the New York Times published its measured indictment of Amazon's dog-eat-dog corporate culture last Sunday, the response from Amazon's finely honed PR department — and its ideological confederates in Silicon Valley— was equal parts laughter and equal parts dismissal. It wasn't just unfair, in their minds; it was a contradiction in terms. The tautology of libertarian orthodoxy means that anyone who stayed at Amazon had to, by definition, be happy. So what gives? Jeff Bezos was quick to insist that the Amazon described in the New York Times report was not the Amazon he knew. Which is bizarre since this isn't the first time Amazon's dystopian company culture has been exposed. Let's take a look at the Amazon that, if he had ever bothered to Google his own company in the past 10 years, Bezos should know by now

Racial Wealth Gap Persists Despite Degree, Study Says - Even with tuition shooting up, the payoff from a college degree remains strong, lifting lifelong earnings and protecting many graduates like a Teflon coating against the worst effects of economic downturns. But a new study has found that for black and Hispanic college graduates, that shield is severely cracked, failing to protect them from both short-term crises and longstanding challenges. “White and Asian college grads do much better than their counterparts without college, while college-grad Hispanics and blacks do much worse proportionately.” A college degree has long been recognized as a great equalizer, a path for minorities to help bridge the economic chasm that separates them from whites. But the report, scheduled to be released on Monday, raises troubling questions about the ability of a college education to narrow the racial and ethnic wealth gap.“Higher education alone cannot level the playing field,” the report concludes.Economists emphasize that college-educated blacks and Hispanics over all earn significantly more and are in a better position to accumulate wealth than blacks and Hispanics who do not get degrees. Graduates’ median family income in 2013 was at least twice as high, and their median family wealth (which includes resources like a home, car and retirement account) was 3.5 to 4 times greater than that of nongraduates. But while these college grads had more assets, they suffered disproportionately during periods of financial trouble. From 1992 to 2013, the median net worth of blacks who finished college dropped nearly 56 percent (adjusted for inflation). By comparison, the median net worth of whites with college degrees rose about 86 percent over the same period, which included three recessions — including the severe downturn of 2007 through 2009, with its devastating effect on home prices in many parts of the country. Asian graduates did even better, gaining nearly 90 percent.

Mark Perry Doesn’t Understand Geography - As I recently highlighted, Mark Perry – an AEI scholar and professor of economics - is playing very fast and loose with data surrounding employment in Seattle post its recent minimum wage hike. In his recent “report” on the subject, which was picked up far and wide by conservative outlets, Professor Perry wrote: “In June of last year, the Seattle city council passed a $15 minimum wage law to be phased in over time, with the first increase to $11 an hour taking effect on April 1, 2015.  It’s too soon to tell for sure, but there is already some evidence that the recent minimum wage hike to $11 an hour, along with the pending increase of an additional $4 an hour by 2017 for some businesses, has started having a negative effect on restaurant jobs in the Seattle area. The chart below shows that the Emerald City MSA started experiencing a decline in restaurant employment…”  The minimum wage hike took place in the city of Seattle, population ~650,000. What’s all this talk about “area restaurants,” “the Seattle area,” and the “Emerald City MSA”? (Note that companies with under 500 employees — that includes most restaurants — the actual date is 2021, not 2017). This is simply someone with an agenda deliberately being intellectually dishonest in an attempt to mislead readers and spread misinformation widely through the conservative echo chamber. It’s a tried and true method that, unfortunately, has worked time and again.  When Perry talks about Seattle (city proper) and the “Seattle area,” you may not know it, but he’s talking about two very, very different areas.

More of the Same in the July State Jobs Report -- The July State Employment and Unemployment report, released today by the Bureau of Labor Statistics, was remarkable only for its consistency: most states added jobs at the same decent pace that has become the norm over the past few years—strong enough to not cause alarm, but too weak to quickly drive down unemployment. In fact, job growth nationwide was strikingly similar to the same period last year, although there have been some regional shifts. Falling energy prices continue to slow job growth in the energy-intensive states in the interior of the map, while stronger growth in construction, healthcare, and leisure and hospitality is driving relatively stronger job gains closer to the coasts. As of July, 37 states and the District of Columbia have reached their December 2007 employment totals, but only 13 have reached their pre-recession unemployment rates. From April to July, 39 states and the District of Columbia added jobs, with Nevada (+1.2 percent), New York (+1.0 percent), Rhode Island (+1.0 percent), and Utah (+1.0 percent) posting the largest percentage gains. Over the same period, 11 states lost jobs, with West Virginia (-1.8 percent), North Dakota (-1.6 percent), and Alaska (-1.0 percent) experiencing the largest percentage declines. Over the past year, the Pacific (+3.1 percent), Mountain (+2.4 percent), and South Atlantic (+2.4 percent) census divisions have significantly outpaced the U.S. average of 2.1 percent job growth, while the slowest growth has been in the West North Central division (+1.0 percent).

The Only State to Lose Jobs Since July Last Year: West Virginia - Poor West Virginia. It’s the only state in the country to have lost a statistically significant number of jobs in the past year, the Labor Department reported Friday, as falling energy prices have rippled through its coal mining industry and beyond. The state shed 19,100 jobs between July 2014 and July 2015, the Labor Department said, a 2.5% decline in employment. The 35 other states to post a statistically significant change in employment all had notable gains. The coal industry has experienced high-profile layoffs over the past year, with mining companies like Murray Energy Corp. and Alpha Natural Resources Inc. shedding jobs as coal prices have fallen by around 15% in the past year. Other West Virginia industries have suffered perhaps even more. Jobs in construction and manufacturing have fallen by 23% and 16%, respectively, since the recession. West Virginia’s growing natural gas industry initially cushioned the fall in coal prices. But as a natural gas glut pushed prices down, jobs in that sector also got hit, said Ted Boettner, executive director of the West Virginia Center on Budget and Policy. “Natural gas is a very capital-intensive industry, more so than coal, so it doesn’t employ nearly as many people, and the construction side of natural gas has gone down as well recently,” Mr. Boettner said. West Virginia’s 7.5% unemployment rate is more than 2 percentage points higher than the national rate of 5.3%. Across the country, July was a mixed picture. In 24 states and the District of Columbia, unemployment fell from June. Fourteen states saw increases in their unemployment rates from June, and 12 states were unchanged. California added 80,700 jobs from June to July, and Florida and Texas added more than 30,000 jobs each.

Technical Default Hits Illinois : In what has been a not-so-stunning turn of events over the last week, the State of Illinois has failed to appropriate funds on a certain class of its outstanding appropriation-backed sales tax debt issued by the Metropolitan Pier & Exposition Authority (Met Pier). The mechanics of this missed payment mirror Puerto Rico’s default on its appropriation-backed Public Finance Corp. (PFC) bonds earlier this month. To be sure, Illinois has not missed a payment on its outstanding debt. It has, however, failed to make a monthly payment to the trustee for a December 15th payment, a covenant breach that constitutes a “technical default”— not a payment default, but typically the first step that fallen angels take on the way to a payment default. In mid-July Puerto Rico failed to appropriate funds to a trustee, which later resulted in a payment default on a class of its outstanding debt.

Puerto Rico Seeks Help From the Supreme Court -- Puerto Rico is asking the U.S. Supreme Court to review the First Circuit decision that Puerto Rico's Recovery Act is preempted and thus unconstitutional. Here's the petition. In addition to parsing the legal issues, the petition is framed around Puerto Rico's financial emergency, the need for the Supreme Court to step in notwithstanding the lack of circuit split (or even a dissent to the First Circuit ruling). It makes sense that Puerto Rico would challenge a ruling making it harder for the Commonwealth, in a nebulous legal zone, to write laws to solve its problems. The difficulty with the financial crisis framing is that even if (1) the Supreme Court agreed to hear the matter, (2) heard the matter quickly, (3) decided the matter quickly, and (4) actually reversed the First Circuit - a chain of tough "even ifs"  - public corporations in Puerto Rico will not be able to start using the law because another formidable constitutional challenge is still alive: whether the Recovery Act can survive scrutiny under the Contracts Clause. That hotly contested fight would be fact intensive in a way that the preemption dispute was not. A fix from the federal government must come from one of the other two branches. Speaking of which, the persuasive argument against H.R. 870/S.1774 continue to be underwhelming. For example, the fact that chapter 9 would not be a complete solution for, say, PREPA, is really beside the point.

Congratulations! Chicago Just Leapfrogged 4 Cities to America's Highest Sales Tax rate; Graft Chicago Style - Chicago just leapfrogged past several other cities with the passage of a Cook County sales tax hike of one percentage point to 10.25%. With that hike, Chicago Now has America’s Highest Sales TaxChicago has long had a steep sales tax, but a vote by Cook County commissioners Wednesday night made the city’s rate the highest of any major city in the nation. The commissioners approved a 1% hike, which bumped the sales tax rate in Cook County—where Chicago is located—from 9.25% to 10.25%. The increase passed with the minimum number of votes needed and is aimed at helping bail out the pension system for county workers.   Cook County Board President Toni Preckwinkle, who advocated for the hike, said the increase would generate an estimated $474 million more in sales tax per year and is necessary to ward off the “pension tsunami” that’s closing in on the county. The retirement fund has a shortfall of $6.5 billion—a figure that’s growing by $360 million per year. Congratulations are in order. Only one city can be number one. And Chicago is now on the top of the heap. Unions are cheering. Unfortunately, everyone else suffers. Private taxpayers and businesses (those unable or unwilling to move) have to pay the price.

Bankruptcy will cost Detroit on new bonds: Detroit is paying a high price in its return to the $3.6 trillion municipal-bond market for the first time since emerging from a record bankruptcy. The $245 million of bonds, to be sold Wednesday through the Michigan Finance Authority, have the top claim on city income taxes to ensure investors are repaid. Even so, 14-year debt is being offered at an initial yield of 4.75 percent, according to three people familiar with the sale who requested anonymity because it isn’t final. That’s 2.1 percentage points more than top-rated securities. “It’s still Detroit,” said Dennis Derby, a portfolio manager in Menomonee Falls, Wisconsin, for Wells Capital Management, which holds the city’s water bonds among its $39 billion of munis. “There’s still concerns of whether or not they can have positive momentum.” Detroit filed for bankruptcy protection two years ago to escape from debts it couldn’t afford after the population tumbled, tax collections slid and the automobile-industry’s decline left the economy reeling. That allowed the city to cut $7 billion from its obligations by the time it emerged from bankruptcy in December, an effort to steady the government’s finances and hasten its revival. The plan left some general-obligation bondholders recovering as little as 41 percent of what they were owed, according to Moody’s Investors Service. Those losses called into question the long-held assumption that cities would do everything possible to repay securities backed by their full faith and credit.

Rebuilt confidence in New Orleans flood controls fuels rebuilding | Reuters: The 2005 flood that inundated 80 percent of New Orleans and killed 1,572 people began hours after Katrina had blown through the city. Water forced by the storm into inland canals overwhelmed levees and broke through floodwalls. After Katrina, Congress authorized spending more than $14 billion to beef up the city's existing flood protection infrastructure and to build a series of new barriers. Despite the enormous outlay, there are no guarantees. Plans to bolster flood protection, drawn up years ago, never addressed the wild card of climate change, which most experts now acknowledge will lift sea levels and trigger more intense storms. Protecting against the potential devastation of those changes will require the building of more artificial barrier islands and wetlands south of New Orleans, experts say, a work in progress that will take years to complete. Still, in the past 10 years, the Corps has bolstered 350 miles of levees and upgraded 70 pumping stations. The Army's public engineering arm also built the largest flood barrier it has ever attempted, a nearly two-mile-long concrete wall that stretches across the convergence of three major waterways that connect to the Gulf of Mexico. "These waterways form a funnel that directed the water into the Industrial Canal," said John Lopez, coastal sustainability coordinator for the Lake Pontchartrain Basin Foundation, which helped plan the barrier system. The funneling effect was the main cause of levee failures to the east of New Orleans. It also led to an explosive break on a floodwall along the Industrial Canal that devastated every home in the city's Lower Ninth Ward neighborhood, he said. When its gates are closed, the new barrier is designed to completely block storm surge at a critical point where it entered New Orleans after Katrina.

Homes aren’t enough for homeless families --Homeless families are among the worst off in the country. The majority are not working, are headed by a single parent, and have exhausted the support of relatives. If we are serious about fighting for Americans being left behind, there is no better place to start than with homeless families.  A new study finds that offering homeless families housing vouchers — with no strings attached and no time limits — does one thing really well; it ends a family’s homelessness. It has associated benefits that come from housing stability like reducing stress, domestic violence and child separations, as well. But housing vouchers also decrease earnings and increase dependence on welfare programs. Without time limits their cost extends indefinitely. And in any case, they are not a practical solution to a temporary housing problem: Millions of poor families double up and pay large parts of their income in rent. Offering highly valuable vouchers to all families who show up at homeless shelters would almost certainly lead more families to show up at shelters. In a new report, I point to practical solutions for homeless families that don’t sell them short. They certainly need immediate relief, but they also need real opportunity for empowerment. We already have two solutions that, if retooled, may be capable of just this goal.

What Will You Do When The Government Checks Stop? -- Preppers talk about the day when paper currency becomes worthless and how they plan to barter when things fall apart. But, what will most people do when the government check they depend on stops forever more. Over 50% of the people in America now get some kind of government check every month. That is a question that I think many people have not come to grips with yet. At some point, the checks will stop. Social security and Medicare are running dry fast and it is only a matter of time before they stop paying out in whole or in part. If someone relies on these payments then they likely do not have sufficient money stored away to survive on in the event payments stop. Not only that, the many other entitlement payments sent out monthly that are keeping the population clothed, fed and housed will stop at some point as well. When that happens we already know what the result will be, especially in the cities. It is inevitable but many people still trust the government line and do not worry about it. There are those that realize the threat but have not taken any action to mitigate the problems that will result when the fateful day comes. Many hope it will be forestalled for their lifetimes and some hope if they ignore it, it simply will not happen. If government checks stop it will also mean the destruction of retirement plans and savings accounts and if you do not hold it you will not have it.

President Obama’s Department of Injustice — LAST month, President Obama used his clemency power to reduce the sentences of 46 federal prisoners locked up on drug-related charges. But for the last six years, his administration has worked repeatedly behind the scenes to ensure that tens of thousands of poor people — disproportionately minorities — languish in federal prison on sentences declared by the courts, and even the president himself, to be illegal and unjustifiable. The case of Ezell Gilbert is emblematic of this injustice. In March 1997, he was sentenced to 24 years and four months in federal prison for possession with the intent to distribute more than 50 grams of crack cocaine. Because of mandatory sentencing laws, Mr. Gilbert was automatically sentenced to a quarter-century in prison, though even the judge who sentenced him admitted that this was too harsh. At his sentencing, Mr. Gilbert noted a legal error that improperly increased his sentence by approximately a decade based on a misclassification of one of his prior offenses. In 1999, without a lawyer, he filed a petition seeking his release. A court ruled against him. Nearly 10 years later, the Supreme Court issued a ruling in another prisoner’s case, confirming that Mr. Gilbert had been right. A public defender helped him file a new petition for immediate release in light of this new decision. Mr. Obama’s Justice Department, however, convinced a Florida federal judge that even if Mr. Gilbert’s sentence was illegal, he had to remain in prison because prisoners should not be able to petition more than once for release. The “finality” of criminal cases was too important, the department argued, to allow prisoners more than one petition, even if a previous one was wrongly denied.

Owners of the Prison System in America -- The moment an order is written, whether it’s a warrant or a traffic ticket, or whatever, the money machine is activated. Every prisoner has a monetary value to our government whether its local, county, state or federal. Bonds are written based on the person’s name and social security number and are sold through a brokerage firm such as AG Edwards or Merrill Lynch who has the contract to sell all the prison bonds for the city, county, state or federal prisons. Over 50% of the money market bonds right now are purchased in Japan or China. I’ve been told by researchers that Walmart and, used to be, Kmart also purchase these bonds, Walmart mostly doing so by emptying out bank accounts at night. Both companies are fronts for enormous money machines. The way the bond works is that a monetary value is placed on the alleged crime and then factored the way banks factor their money. In other words if a person is convicted of a felony the ‘value’ would be $4 million. The county/city/ state then multiplies it by ten, so the bond that goes out for sale with the prisoner’s name and social security number is a short-term ‘promissory’ note. It’s offered at $40 million. Perhaps an investor will offer 40% of the $40 million, or $16 million. Once this ‘promissory note’ of the face value of $40 million reaches the banks it is then multiplied again by 200 to 300% and sold as bank securities. For those of you who wonder why the US has more people in prison per capita than any other nation on earth, you’ll begin to understand how we can have a weakening economy and still fund wars overseas. It’s all based on other words, prison for profit. Knowing all this and knowing that a prisoner can have a ‘net worth’ of say, $10,000 per day in the money markets, helped me explain to many bewildered women why they were in jail. We were only merchandise in a warehouse. The storage was pretty cheap; one woman while in jail researched the cost of feeding prisoners per day which ranged from 74 cents to $2.72 per prisoner per day.

Locked in Solitary at 14: Adult Jails Isolate Youths Despite Risk - The prisoner spent a fitful August night trying to tune out the howls and moans of inmates in adjoining cells. He did not stir from his thin sleep mat until well after 1 p.m. A breakfast of cold grits waited in a slot in the reinforced steel door.It was a day like many others he had spent at the Forrest County Jail for much of the past two years — awaiting trial on armed robbery charges, but held in a cell alone for more than 23 hours each day.The prisoner, Ke’jorium McKnight, is 16 years old. He was kept in solitary confinement not for behavioral reasons or as punishment but because he is being tried as an adult. Under Mississippi law, that means he must be held in an adult jail. And federal law requires that if he is held in an adult jail, he must be kept separate from other inmates, for his own protection.  Solitary confinement has long been a feature of the nation’s criminal justice system, either to punish or protect inmates, with about 75,000 state and federal prisoners in solitary across the country. Ke’jorium, though, is emblematic of a more select and far less visible group of prisoners in solitary — children or teenagers in isolation in adult jails for their own safety. Putting juveniles in solitary, though, brings its own complications. Solitary confinement is increasingly being questioned — by mental health officials, criminologists and, most recently, President Obama. But experts say its effects on juveniles can be particularly damaging because their minds and bodies are still developing, putting them at greater risk of psychological harm and leading to depression and other mental health problems. In 2012, the American Academy of Child and Adolescent Psychiatry called for an end to the practice.

These LAUSD students are not heading back to school: As thousands of Los Angeles students head back to school Tuesday, Sabrina Campos is already six weeks deep into her algebra, chemistry, English and history classes. That's because she attends Bell High School — the last year-round campus in the Los Angeles Unified School District. Under the school's four-track schedule, Sabrina, a junior, began school July 1 while many of her friends were splashing in water parks, playing at Disneyland and visiting Mexico. Instead of one long summer vacation, Sabrina and her Bell classmates get two six-week breaks. Bell is a throwback to what was once the much-maligned norm in L.A. Unified before the building boom. But as year-round schools fade, some students, teachers and administrators who have had to adjust to the unusual schedule are resisting joining the rest of the district.In fact, Bell Principal Rafael Balderas likes his campus' current calendar so much that he plans to propose keeping it — even after a new school down the road is completed in two years and solves his overcrowding problem. The two shorter breaks prevent students from forgetting as much as they do during the traditional 10-week summer vacation and allow him to bring more of them in for extra academic support, he said.

The Teach For America Bait and Switch: From ‘You’ll Be Making a Difference’ to ‘You’re Making Excuses’ - naked capitalism - Editor’s note: In the decade and a half of its existence, Teach For America has trained upwards of 50,000 individuals to enter classrooms nationwide and “make a difference” in the lives of children — usually those living in poverty. But the question of how prepared these individuals are to deal with the realities faced by the children they teach and meet their educational needs has long been in question. In the following excerpt, taken from an essay in the newly published book, Teach For America Counter-Narratives: Alumni Speak Up and Speak Out, one former TFA corps member shares her account of her time with the organization, alleging that TFA both “preyed on [her] naïveté of the lived realities of urban schooling” and “exploited [her] desire to ‘make a difference.'” Her disillusionment with the organization and its educational philosophy grew so deep, in fact, that she resigned after just 6 months.

Federal Intervention in Schools? It Happens Less Than Critics Think -  Congress is entering final negotiations over the biggest piece of federal education legislation in over a decade. The House and Senate have both passed new versions of the No Child Left Behind Act of 2001, the controversial law that mandated standards, testing and accountability in public schools nationwide. In the coming weeks, lawmakers will try to forge a compromise that can pass the fractious House without drawing a veto from President Obama. It’s the stuff of high legislative drama. But the single biggest point of contention is, oddly enough, between House and Senate provisions that aren’t very different from one another. Both are devised to prevent the federal government from doing something it has hardly ever done: force state and local governments to overhaul low-performing schools. If Congress removes that authority, it will mark the end of an optimistic, expansive era of federal efforts to improve K-12 education for disadvantaged students, one that began with the desegregation battles of the mid-20th century and extended to the creation of challenging standards nationwide. For many parents, it would mean less anxiety about local schools being labeled “failing,” and perhaps less pressure on educators to drive up student scores on standardized tests.

School board member tells female colleague: All you know is ‘laying on your back’ with legs in the air: School board members in Perryville, Missouri censured one of its members and voted to ask for his resignation after he made a sexist remark toward a female colleague, KFVS-TV reported. The board voted 4-3 to ask Mark Gremaud (pictured above, right) to quit for telling fellow board member Kathy Carron, “Kathy, you are just a woman, the only thing you know is laying on your back with your legs in the air splayed” during a closed session. The group does not have the power to expel a member on its own.According to the Cape Girardeau Southeast Missourian, board president Nancy Voelker read the remark during a public meeting on Tuesday, on the advice of the group’s legal counsel. Gremaud, who has denied making that “exact” statement and addressing Carron by name, was silent during the meeting except for asking to speak to his attorney.

Finally, A Real Plan To Rid Nebraska Schools Of Commie Infiltrators - Hooray! The spirit of McCarthyism is alive and well in Hastings, Nebraska, where for the first time in ages, the local school district has asked all its teachers to comply with a 1951 state law requiring all teachers to sign a loyalty oath. After teachers complained, the ACLU warned the district that it’s begging for a lawsuit, but the school’s attorney advised the superintendent that the law is still valid and probably should be followed. Besides, isn’t Real Americanism all about making people pledge to support democracy and freedom, whether they want to or not, and also judging whether they’re patriotic enough?  The ACLU of Nebraska’s legal director, Amy Miller, wrote to Hastings School Superintendent Craig Kautz to advise that the Supreme Court actually outlawed loyalty oaths way back in 1964, in the mellifluously named case of Baggett v. Bullitt, which only sounds like it should be a movie with hobbits and a kickass car chase, but actually held that states can’t require employees to take vague oaths that might deter free speech.  For his part, Kautz says that the school district’s attorney said the 1951 law requiring the oath wasn’t invalidated by the nasty Baggettses, since there’s no actual penalty for teachers who refuse to sign.   Kautz told the Associated Press that his preference would be for the state legislature to resolve the issue by re-examining the 1951 law and maybe tossing it out as the Red Scare relic it is. “I just hope we don’t get dragged into something that’s above our level.” Nice try, there, Superintendent.

“Smell something, say something!” Teachers’ unions do not hurt student outcomes. -- Conservative partisans (as well as many centrist D’s) consistently assert that teachers’ unions are bad for student outcomes, and if we want to improve such outcomes, we must diminish the impact of teachers’ unions. Most recently, this negative role of unions was a featured assertion in a Republican primary debate. That claim smelled bad to me, as in I know of no body of evidence to support it. I know it’s a constant refrain, but I figured I’d have seen something from the deep academic community that runs analyses of such issues over the years to support it, and I haven’t. Maybe I missed it. So I asked some experts in this field and they confirmed my intuition.

  • –Berkeley econ prof Jesse Rothstein, who’s done important work on “value-added-measurement” in teacher evaluations, confirmed my priors that such evidence is wanting.
  • –He and education policy expert Kevin Carey made the same interesting point: there’s a significant measurement challenge in that school districts that don’t have unions, and would thus serve as a useful control, “tend to have teachers associations and/or contracts that aren’t too different from what unionized districts have” (Rothstein).
  • –Larry Mishel shares this paper by himself and Emma Garcia. It tests–rigorously, I thought–for correlations–again, we’re not talking causality–between the strength of teachers unions and whether unions shift more experienced and higher credentialed teachers away from poorer schools. Their results fail “to show an association between the strength of unions in the states and the allocation of teacher credentials across schools. We find no negative or no association between the allocations of credentials in average schools or in high poverty schools and the unions’ strength…

The Rise of Phone Reading - WSJ: Ever since the first hand-held e-readers were introduced in the 1990s, the digital-reading revolution has turned the publishing world upside down. But contrary to early predictions, it’s not the e-reader that will be driving future book sales, but the phone. “The future of digital reading is on the phone,” said Judith Curr, publisher of the Simon & Schuster imprint Atria Books. “It’s going to be on the phone and it’s going to be on paper.”  For now, tablets like the iPad and Kindle Fire remain the most popular platform to read digital books. According to Nielsen, the percentage of e-book buyers who read primarily on tablets was 41% in the first quarter of 2015, compared with 30% in 2012.  But what has captured publishers’ attention is the increase in the number of people reading their phones. In a Nielsen survey of 2,000 people this past December, about 54% of e-book buyers said they used smartphones to read their books at least some of the time. That’s up from 24% in 2012, according to a separate study commissioned by Nielsen. The number of people who read primarily on phones has risen to 14% in the first quarter of 2015 from 9% in 2012. Meanwhile, those reading mainly on e-readers, such as Kindles and Nooks, dropped over the same period to 32% from 50%. Even tablet reading has declined recently to 41% in the first quarter this year from 44% in 2014.

Authors Group Seeks DOJ Probe of Amazon - WSJ: A group of prominent authors says has “unprecedented power” over the book publishing market and wants the U.S. Department of Justice to begin an investigation of what it claims is a monopoly. On Thursday, the Authors United group submitted a formal request to the DOJ’s top antitrust official. The group formed last year in response to Amazon’s bruising negotiations with publisher Hachette Book Group, primarily over pricing. Led by author Douglas Preston, the group sent a letter to the DOJ that said Amazon has repeatedly blocked or limited the sale of thousands of books on its website, sold some books below cost to gain market share, and attempted to compel customers to buy books from its own imprints rather than from other companies. “We respectfully request that the Antitrust Division investigate Amazon’s power over the book market, and the ways in which that corporation exercises its power,” Authors United said in its letter, reviewed by The Wall Street Journal. Authors United had been working on its formal appeal to the agency since at least September. A Justice Department spokesman said the agency will review the group’s materials.

Stop Universities From Hoarding Money - WHO do you think received more cash from Yale’s endowment last year: Yale students, or the private equity fund managers hired to invest the university’s money?It’s not even close.Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment.In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at four other endowments I researched: Harvard, the University of Texas, Stanford and Princeton.Endowments are exempt from corporate income tax because universities support the advancement and dissemination of knowledge. But instead of holding down tuition or expanding faculty research, endowments are hoarding money. Private foundations are required to spend at least 5 percent of assets each year. Similarly, we should require universities to spend at least 8 percent of their endowments each year.

For-profit colleges recruit veterans for cash: Many of the nation's largest for-profit college chains have seen enrollments plummet amid investigations into questionable job placement rates and deceptive marketing practices. One crucial source of revenue, however, has remained a constant: military veterans. For-profit colleges have collected $8.2 billion from the latest GI Bill since it went into effect in 2009, according to a Los Angeles Times analysis of government data. Those colleges enroll only 8% of all U.S. students but 30% of the 1.4 million veterans who have used the most recent version of the GI Bill. That money for years helped prop up some of the industry's most distressed institutions — including ITT Educational Services Inc. and bankrupt Corinthian Colleges Inc. — which needed the funding to meet tough regulatory requirements. To keep the GI Bill money flowing, the industry aggressively targeted veterans, and often hired them to help recruit their brethren returning home from the battlefields, according to internal school memos and interviews with former students and employees.

Why The Nation’s Lawyers Might Be Getting Dumber - The impetus for the jokey headline is rather serious: Scores from the multiple-choice section of the bar exam last July registered the largest single-year drop in the test’s four-decade history. In six states—Delaware, Iowa, Minnesota, Oregon, Tennessee, and Texas—scores dropped 9 percentage points or more.Erica Moeser, the president of the National Conference of Bar Examiners, told law school deans that the students who sat for last year’s exam in July 2014 were “less able” than those who took it a year prior. When law school deans said her comments were offensive and demanded an investigation in the fairness of the 2014 test, Moeser apologized for causing insult. Nevertheless, she suggested that the drop-off may be due to the lower LSAT scores of the students being admitted to law schools.You can forgive law school deans for being on the defense—their entire industry is midst of an unprecedented upheaval. BloombergBusiness explains: “In 2015 fewer people applied to law school than at any point in the last 30 years. Law schools are seeing enrollments plummet and have tried to keep their campuses alive by admitting students with worse credentials.”The dip in law school applications is the trickle-down result of changes at the top of the industry. When the financial crisis hit and business cut back on their legal spending, jobs at law firms shriveled up. With few opportunities for employment, college grads turned away from the profession. In 2014, law school enrollments bottomed-out to their lowest in 40 years. This year, fewer students are expected to apply for law school than at any point in the past 15 years, BloombergBusiness says.

Major publisher retracts 64 scientific papers in fake peer review outbreak - Made-up identities assigned to fake e-mail addresses. Real identities stolen for fraudulent reviews. Study authors who write glowing reviews of their own research, then pass them off as an independent report. These are the tactics of peer review manipulators, an apparently growing problem in the world of academic publishing. Peer review is supposed to be the pride of the rigorous academic publishing process. Journals get every paper reviewed and approved by experts in the field, ensuring that problematic research doesn’t make it to print. But increasingly journals are finding out that those supposedly authoritative checks are being rigged. In the latest episode of the fake peer review phenomenon, one of the world’s largest academic publishers, Springer, has retracted 64 articles from 10 of its journals after discovering that their reviews were linked to fake e-mail addresses. The announcement comes nine months after 43 studies were retracted by BioMed Central (one of Springer’s imprints) for the same reason. The blog Retraction Watch, which monitors and reports on retractions for fraud, plagiarism and other dubious practices in the academic publishing industry, says this latest announcement brings the tally of papers withdrawn for faked reviews up to 230 in the past three years. Those papers make up only a fraction of the hundreds of thousands of studies published each year, but they have the publishing world concerned.

Grad-School Loan Binge Fans Debt Worries - WSJ -- Virginia Murphy borrowed a small fortune to attend law school and pursue her dream of becoming a public defender. Now the Florida resident is among an expanding breed of American borrower: those who owe at least $100,000 in student debt but have no expectation of paying it back. Ms. Murphy pays just $330 a month—less than the interest on her $256,000 balance—under a federal income-based repayment program that has become one of the nation’s fastest-growing entitlements. She plans to use another federal program to have her balance forgiven in about seven years, a sum set to swell by then to $300,000.  She earns $56,500 a year as an assistant public defender in West Palm Beach.  The doubling of student debt since the recession, to $1.19 trillion, has stoked a national discussion over how to rein in college costs and debt and is becoming a major issue in the 2016 presidential race. Little noted in the outcry is the disproportionate role played by postgraduate borrowers, who now account for roughly 40% of all student debt but represent just 14% of students in higher education. Propelling the surge in grad-school debt is a welter of federal programs that make it easy for students to borrow large amounts, then to have substantial chunks of those debts eventually forgiven. Critics of the system say it makes it easier for graduate schools to raise tuition, and for some high-earning graduates such as doctors to escape debts they can afford to repay.“What we’re doing is randomly subsidizing lots of people without careful thought,”.  Federal programs allow grad students to borrow essentially unlimited amounts—whatever their schools charge—while requiring only a scant credit check and no assessment of their ability to repay. Other government loan programs, such as those for undergraduate students and home buyers, set loan limits to prevent borrowers from getting too deep into debt. Undergraduates are capped at $57,500 total in federal loans.

5 Things About Grad-School Debt - WSJ:

  • 1 Grad School Is a Disproportionate Driver of Total Student Debt - Grad students represent about 14% of those in higher education, but they hold about 40% of the $1.19 trillion in total student debt, according to an analysis of federal data by Jason Delisle of the New America Foundation, a centrist think tank.
  • 2 Six-Figure Debts Have Become More Common - The number of Americans carrying student debt roughly doubled in the past decade, to just over 43 million, according to the New York Federal Reserve. But the ranks of those carrying at least $100,000 in debt more than quintupled to just over 1.8 million, as of the start of this year.
  • 3 Grad Students Have the Big Debts - Debts of $100,000 or more are rare among bachelor’s degree holders. Not so among those who went to graduate or professional school. In 2012, less than 0.3% of undergraduates owed six figures upon earning their degree. But 15% of grad students—or 171,500—owed that much.
  • 4 New Doctors and Lawyers Owe a Lot of Money - Law and medical school are a big source of huge debt loads, but they aren’t the only one. Among borrowers, the typical student leaving law school owed $140,616 in student debt in 2012, according to an analysis of federal data from the New America Foundation. The typical student leaving medical school owed $161,772.
  • 5 The Cost of Grad School Has Increased Faster Than College - The average net price of a year of college—the price minus any grants—increased 16%, after inflation, at four-year public schools between 2000 and 2012, according to the Education Department. The price of graduate school, by comparison, jumped 36%.

Bernie Sanders Campaign Calls Out Hillary's College Plan: 'Disappointment' -- Last week, Hillary Clinton's campaign released its own college affordability plan, called the “New College Compact.” The thrust of the plan is to increase aid to states and to make college “debt-free” by partly subsidizing tuition if students agree to a work requirement. The plan came on the heels of Bernie Sanders' plan, which is much simpler. Sanders has called for “tuition-free” public colleges, similar to how college used to be for most of U.S. hiistory and in most of our economic rivals abroad. Over the weekend, the Sanders camp released a statement on the Clinton plan, commending her on releasing a plan of her own but also pointing to the differences. Here are the key portions of the statement: In that regard, Secretary Clinton’s “New College Compact” is something of a disappointment. Instead of placing college “within reach” of every qualified American, it should be available to all people, as a public good—not contingent on individual family sacrifice, or student work requirements. The Sanders plan, which was released last May, would make all public colleges and universities tuition-free. It would eliminate the federal “profit” from student debt and would allow students to refinance at significantly more favorable rates. (Under current conditions the undergraduate student loan rate would drop from 4.29 percent to 2.37 percent.)

Student Debt: How States Are Working to Ease the Crisis On Their Own - Hillary Clinton, as we learned this month, has a plan: a big, fat, $350bn, 10-year plan to make college more affordable. Predictably, her detailed proposal – which followed a pledge by Democratic rival Bernie Sanders to make all four-year public colleges and universities tuition free, and one by another of her fellow candidates, former Maryland governor Martin O’Malley, to cut tuition and link repayments to income – drew plaudits from many fellow Democrats. Predictably enough, it also drew furious opposition from Republicans. But as the party lines are drawn, and politicians squabble over the pros and cons of such an ambitious federal proposal, it’s worth pondering the fact that many states – and even individual institutions – aren’t waiting meekly on the sidelines for the federal government to lead the way. They’re well aware of what the issues are, and are busy creating a wide and varied array of programs and ideas designed to address just this issue: how to give as many students as possible access to as high a quality of education as possible, with as little financial burden to them and their families.

California’s Retirement Funds Lost $5 Billion In Fossil Fuel Investments Last Year --California’s public pension funds lost $5 billion last year through declines in their fossil fuel investments, according to a new report from Trillium Asset Management.  The losses for CalPERS and the California State Teachers’ Retirement System were largely due to the price of coal and oil falling between July 2014 and June 2015, the group found. The report comes amid increasing calls — and proposed legislation — for fossil fuel divestment.  “It’s important to see that fossil fuels in general, and coal in particular, are risky bets for the pension system,” Brett Fleishman, a senior analyst with, which advocates for divestment, said in a statement. “When folks are saying divestment is risky, we can say, ‘Well, not divesting is risky.'” California State Senate President Pro Tem Kevin De León (D) introduced a bill earlier this year as part of the Senate’s “climate package” that would require both funds to divest from companies that derive at least half their revenue from coal mining. The package passed the state Senate in the spring, and de León’s bill, S.B. 185, is expected to be considered by the Assembly later this month. The two funds represent pensions for nearly 2.6 million Californians.  Trillium’s analysis found that the coal stocks in the funds declined 25 percent during the 12-month period.  “These freshly incurred losses starkly demonstrate coal’s financial risk, and illustrate the potential benefits of S.B. 185 to California pensioners,”

Pension-cutters and Privatizers, Oh My - Krugman - I wrote Monday about the strange phenomenon of Republicans lining up to propose cuts to Social Security, a deeply unpopular policy that is, however, also a really bad idea. How unpopular? Lee Drutman has the data: only 6 percent of American voters support Social Security cuts, while a majority want it increased. I argued that this apparent act of political self-destructiveness probably reflected an attempt to curry favor with wealthy donors, who are very much at odds with the general public on this issue: Now we have another example: Marco Rubio has announced his health care plan, and it involves (a) greatly shrinking the tax deductibility of employer health benefits and (b) turning Medicare into a voucher system. Part (a) is favored by many economists, although I would argue wrongly, but would be deeply unpopular; part (b) is really terrible policy — proposed precisely at the moment when Medicare is showing that it can control costs better than private insurers! — and also deeply unpopular. The strategy here, surely, is to propose things that voters would hate if they understood what was on the table, but hope that Fox News plus “views on shape of planet differ” reporting elsewhere will keep them confused, while at the same time pleasing mega-donors. It might even work, especially if Trump can be pushed out of the picture and the Hillary-hatred of reporters overcomes professional scruples. But it’s still amazing to watch.

The Baby Boom Will Never Retire - Half Have No Retirement Savings At All -- Some of you might remember the glossy highly produced advertisements back in the early 1980s when Wall Street decided it was time to turn American retirement plans into casinos.  The slow and agonizing death of the pension plan was supposed to be replaced by the beautiful and wonderful world of the 401(k) plan.  Save for 30 years and in the end, you will be a millionaire just like your friends on Wall Street that sincerely care about your financial future.  Of course since then, we have found out about junk bond scandals, mutual fund fees that make loan sharks look conservative, and of course the financial shenanigans of giving people toxic mortgages that were essentially ticking time bombs of destruction.  This was the industry that was put in charge of helping you plan for your future.  We are now a generation out from those slick ads and the results have been disastrous for most Americans.  A recent analysis found that half of US households 55 and older have no money stashed away for retirement. The new retirement is no retirement.

How Medicare Rewards Copious Nursing-Home Therapy - WSJ: During his 2013 California nursing-home stay, Jack Furumura became severely dehydrated and shed more than 5 pounds, partly because staff didn’t follow written plans for his nutrition or the facility’s policies, a state inspection report shows. Still, during many of his 21 days there, the 96-year-old man suffering from dementia received two hours or more of physical and occupational therapy combined, records show. That qualified as what Medicare terms an “ultra high” amount of therapy to help with tasks such as walking, even as he deteriorated. And it allowed the nursing-home operator to bill Medicare top dollar for his entire stay. The federal insurance program for the elderly and disabled, which pays nursing homes a daily rate for a person’s stay based largely on the duration of therapy, spent $13,468.19 for his care. Patients getting ultrahigh therapy—at least 720 minutes a week—generate some of nursing homes’ biggest payments from the taxpayer-funded program. Medicare’s ultrahigh rate averaged about $560 a day in 2013, a Wall Street Journal analysis of billing records found. The average was $445 a day for “very high” therapy of 500 to 719 minutes and $325 for the “low” category, 45 to 149 minutes.

California's Obamacare exchange criticized for not fixing enrollment, tax errors: In response to blistering criticism from a consumer group, California's Obamacare exchange vowed to fix longstanding enrollment and tax-related errors that have blocked consumers from getting coverage for months and left some with unforeseen bills. Peter Lee, executive director of the Covered California exchange, addressed the complaints at a Thursday board meeting and said more staff and resources have been assigned to resolve these lingering glitches. "We take this very seriously. We are committed to handling appeals well and effectively,” Lee said. "We still have work to do." Lee said a detailed report on customer complaints and appeals would be presented at the next board meeting in October. More than 1.3 million Californians are enrolled in the insurance exchange. The Health Consumer Alliance of San Diego, representing legal aid groups across the state, sent a letter to Covered California on Monday describing a litany of problems during the health-law rollout. "Some of these issues have continued for some time, including issues we first raised in early 2014 without adequate resolution for consumers," the alliance said in the Aug. 17 letter. "Many consumers face considerable difficulties in enrolling in the correct plan with the correct level of financial assistance, even after coming to agreement with Covered California staff as to what should be done," the group wrote.

With 10 Health Care Executives on it Board, US Chamber of Commerce Defends Big Tobacco Abroad --Tobacco, especially smoked in cigarettes, is generally recognized by health care professionals as having health hazards that greatly outweigh its benefits to society.  Therefore, most health care organizations discourage tobacco use, and many have developed tobacco free policies. However, the tobacco industry has its powerful supporters.  A recent NY Times investigative report, and a report entitled "Blowing Smoke for Big Tobacco," documented how the US Chamber of Commerce has defended the interests of tobacco companies overseas.  The apparent paradox here is that the leadership of the US Chamber of Commerce includes leaders of large health care organizations.  So far this paradox has not been explained by the parties involved. On June 30, 2015, the NY Times published a wide ranging report on the pro-tobacco activities of the US Chamber of Commerce, From Ukraine to Uruguay, Moldova to the Philippines, the U.S. Chamber of Commerce and its foreign affiliates have become the hammer for the tobacco industry, engaging in a worldwide effort to fight antismoking laws of all kinds, according to interviews with government ministers, lobbyists, lawmakers and public health groups in Asia, Europe, Latin America and the United States. The U.S. Chamber’s work in support of the tobacco industry in recent years has emerged as a priority at the same time the industry has faced one of the most serious threats in its history. A global treaty, negotiated through the World Health Organization, mandates anti-smoking measures and also seeks to curb the influence of the tobacco industry in policy making. The treaty, which took effect in 2005, has been ratified by 179 countries; holdouts include Cuba, Haiti and the United States.

The FDA Just Approved OxyContin To Be Prescribed To Children -- The infamously untrustworthy Food and Drug Administration (FDA) has furthered its reputation as one of America’s most beloved hypocrites with its latest motion. It was reported on Thursday that the FDA has just approved OxyContin prescriptions for children between the ages of 11 and 16 years-old. For those unfamiliar, OxyContin is an opiate-based pharmaceutical painkiller used to ease severe pain. Aside from being known for its powerful effects on users, it is also notorious for its widespread abuse. Its effects on the mind and body are strikingly similar to heroin, making it dangerously addictive. It typically contains anywhere between 40-160 milligrams of OxyCodone, which lasts around 12 hours thanks to its extended release. However, abusers generally crush the pills to inhale or inject them with a syringe by mixing it with water, thus receiving a dose that is meant to stretch over a 12-hour span almost instantly. One of the most blatant problems with this new allowance is that opiate addiction itself has become one of the most pressing health crises of modern times. In 2010 alone, 16,651 people died from opiate overdoses — making up 60% of all overdose deaths. Prescription drug overdoses are now responsible for more deaths than all illegal drug overdoses combined. Another recent study has shown that 4 out of 5 new heroin addicts initially became addicted from using prescription opiates. One can’t help but ask whether or not prescribing children OxyContin will lead to heroin addiction at an earlier age.

FDA Approves First Drug to Boost Women’s Libido - WSJ: The Food and Drug Administration approved on Tuesday the first pill designed to boost sexual desire in women, but studies show some serious side effects, including drowsiness, fainting and nausea. The little pink pill, often dubbed “Viagra for women,” in clinical studies had a modest effect in boosting women’s interest in sex. But there are “serious risks” of low-blood pressure and fainting with the drug, especially when taken while drinking alcohol, an FDA analysis said. Because of the side effects, the FDA is requiring that doctors and pharmacists be specially certified to deal with the drug. The side effects could give doctors pause if their patients demand the drug. The approval of the drug for premenopausal women, to be called Addyi, follows a lobbying campaign by the drug’s maker, Sprout Pharmaceuticals Inc., and by a group called Even the Score, partially sponsored by Sprout. In an online petition, Even the Score, says the FDA “has approved 24 drugs for the treatment of male sexual dysfunction. For women, that number is zero.” The best-known of the drugs for men, such as Viagra and Cialis, affect blood flow and men’s physical ability to have sex. Addyi, generically called flibanserin, is designed to increase sexual desire in women who are distressed by low libido.

Will Women Be Able to Afford the Little Pink Pill? -- As Valeant Pharmaceutical International nears a deal to buy Sprout Pharmaceuticals, the maker of the new little pink female libido pill Addyi, it’s worth looking at what happens when Valeant takes over other companies. Will women be able to afford Addyi when it reaches the market? Sometimes an increase in a drug’s price can be attributed to increased research and development costs or a relocation of a drug manufacturing plant. But in some other cases, a change of corporate ownership can result in a price hike. Consider the case of Isuprel, a drug used to combat heart block, purchased in February 2015 by Valeant from Marathon Pharmaceuticals. Following the corporate turnover, the price of Isuprel rose by nearly 450 percent. Valeant also acquired Nitropress, a medication used to treat congestive heart failure. Subsequently, the price of Nitropress rose by 388 percent. These price increases were caused by the takeovers. Such price fluctuations are not exclusive to cardiac medications. As pharmaceutical giants acquire new drugs, raising prices serves as a means to fund the takeovers.  Pain medications such as Ofirmev and Vimovo have seen their prices increase following a shift in ownership. Cancer regimens, such as those that combine Yervoy and Opdivo, have become so expensive that oncologists must consider patient finances during treatment planning.

Illumina CEO Jay Flatley Launches Helix to Stoke Consumer Use of Genomic Data -  MIT Technology Review: The CEO of the world’s leading DNA sequencing company says he knows how to finally get consumers interested in their genomes: by creating an enormous app store for genetic information. Yesterday, Illumina said that along with Warburg Pincus and Sutter Hill Ventures it was investing $100 million in a new company called Helix to make consumer genomics part of the Internet mainstream. Illumina’s CEO, Jay Flatley, said in an interview that Helix will subsidize the cost of decoding people’s genomes in hopes of spurring the creation of consumer apps that will draw on the DNA data repeatedly. “You saw what happened with the Apple app store: it just unleashed the consumer side because apps are so cheap to make,” says Flatley, who will be chairman of the new company. Flatley says that when Helix goes live next year it will sequence and store consumers’ DNA, then sell them pay-as-you-go access to it through the apps, which will be offered by partners, the first of which are LabCorp and the Mayo Clinic. Profits will get shared, in a model similar to the one for Apple’s app store. If Helix succeeds, it will operate the largest sequencing laboratory of any kind,

Easy DNA Editing Will Remake the World. Buckle Up. -- Everyone at the Napa meeting had access to a gene-editing technique called Crispr-Cas9. The first term is an acronym for “clustered regularly interspaced short palindromic repeats,” a description of the genetic basis of the method; Cas9 is the name of a protein that makes it work. Technical details aside, Crispr-Cas9 makes it easy, cheap, and fast to move genes around—any genes, in any living thing, from bacteria to people. “These are monumental moments in the history of biomedical research,” Baltimore says. “They don't happen every day.” Using the three-year-old technique, researchers have already reversed mutations that cause blindness, stopped cancer cells from multiplying, and made cells impervious to the virus that causes AIDS. Agronomists have rendered wheat invulnerable to killer fungi like powdery mildew, hinting at engineered staple crops that can feed a population of 9 billion on an ever-warmer planet. Bioengineers have used Crispr to alter the DNA of yeast so that it consumes plant matter and excretes ethanol, promising an end to reliance on petrochemicals. Startups devoted to Crispr have launched. International pharmaceutical and agricultural companies have spun up Crispr R&D. Two of the most powerful universities in the US are engaged in a vicious war over the basic patent. The technique is revolutionary, and like all revolutions, it's perilous. Crispr goes well beyond anything the Asilomar conference discussed. It could at last allow genetics researchers to conjure everything anyone has ever worried they would—designer babies, invasive mutants, species-specific bioweapons, and a dozen other apocalyptic sci-fi tropes. It brings with it all-new rules for the practice of research in the life sciences. But no one knows what the rules are—or who will be the first to break them.

Where is the dairy checkoff Report to Congress? --  Each year, USDA's Agricultural Marketing Service (AMS) sends an official Report to Congress summarizing the activities of the dairy checkoff program. Through this program, milk and dairy producers must pay a mandatory assessment -- like a tax -- to semi-public federal checkoff boards that use the funds for advertising and promotion.  As this blog has reported in the past, the annual reports make lively reading, laying bare the program's ambitions for raising dairy consumption through healthy and unhealthy methods alike. For example, in Feb 2014, we noted that the report described the program's partnerships with Domino's and other restaurant chains to get Americans -- who already consume astonishing amounts of pizza -- to yet further increase their average pizza consumption. The pizza partnerships appear in tension with the Dietary Guidelines for Americans, which also is overseen by USDA (jointly with the Department of Health and Human Services).  Recently, the AMS website has been redesigned. The dairy checkoff annual reports that formerly were posted there can no longer be found, at least for now. USDA may be intending to repost these reports as the website redesign proceeds. For now, I have posted an archives of past reports for your interest.

Aging Water Pipelines Sicken Residents in Flint, Michigan: While California’s drought dominates the headlines, another severe water problem is becoming more and more prevalent in the U.S.: aging pipes. Poor water-piping infrastructure is leaving residents in certain cities forced to drink and bathe in water loaded with high levels of copper, lead and E. coli. Flint, Michigan, one of the cornerstone examples of a city struggling to keep up its infrastructure, provides its residents with contaminated water from a local river. Flint officials had to gamble with water quality and depend on the murky Flint River to supply the residents with clean water after outsourcing to the nearby Detroit Water and Sewage Department became too expensive for a struggling city. Genesee County, where Flint serves as the county seat, is building a pipeline in conjunction with other state counties that would connect Lake Huron to mid-Michigan. The Karegnondi Water Authority pipeline won’t be completed for another year. For the time being, elected officials thought it best for the city to treat its own water from Flint River, at a cost of $2.8 million annually, a great deal less than the $12 million it would have to pay Detroit for water. Residents, however, have immediately felt the sacrifice the city officials made to save money until the pipeline is built. The water tested positive for fecal coliform bacteria, which forced city engineers to increase the amount of chlorine in the water — causing high levels of trihalomethanes, which put the city in risk of violating the Clean Water Act.  According to the Atlantic, a family riddled with sickness likely linked to the water quality sent in the water to be tested. Marc Edwards of Virginia Tech found that the water had lead contents of 13,000 parts per billion — the EPA suggests keeping lead content under 15 parts per billion. None of the 30 samples the family sent in were safe to drink.

Research on meat species shows mislabeling in commercial products  - Researchers in Chapman University's Food Science Program have just published two separate studies on meat mislabeling in consumer commercial products. One study focused on identification of species found in ground meat products, and the other focused on game meat species labeling. Both studies examined products sold in the U.S. commercial market; and both study outcomes identified species mislabeling among the product samples. In the study on identification of species found in ground meat products, 48 samples were analyzed and 10 were found to be mislabeled. Of those 10, nine were found to have additional meat species and one sample was mislabeled in its entirety. Additionally, horsemeat, which is illegal to sell in the United States, was detected in two of the samples."Although extensive meat species testing has been carried out in Europe in light of the 2013 horsemeat scandal, there has been limited research carried out on this topic in the United States," said Rosalee Hellberg, Ph.D., assistant professor at Chapman University and co-author on both studies. "To our knowledge, the most recent U.S. meat survey was published in 1995."

Mystery meat's comeback; cracking fracking's health risks - Cherry Hill Courier Post

  • Q: I am trying to pay attention to food labels and ingredients, like you suggest. But I hear that the U.S. government wants to ban labeling that tells us where our meat is from. How can this be?— Frank H., Pierre, South Dakota
  • A: We all remember Mystery Meat — that gray-brown lump of gravy-covered stuff that got dished up in school cafeterias across the country. Unfortunately, Congress seems determined to bring it back, in an updated form. Your elected House representatives voted to repeal the COOL (Country of Origin Labeling) Act. If your elected representatives in the Senate ratify the legislation, you won’t know where a large amount of your beef, pork, chicken and ground meat comes from. Whaddaya think McBurgers will be made of then? How did this happen? In 2002, Congress passed the COOL Act (it came into full effect in March 2009). A Consumer Federation of America survey found that 90 percent of Americans love it. Several countries in the European Union have comparable legislation. But a complaint was lodged with the World Trade Organization claiming that Canada and Mexico weren’t getting a fair shake because they have to ID the country of origin on their meat sold in the U.S. The WTO agreed, and it might allow those countries to impose $3 billion in retaliatory tariffs on the U.S. That’s what caused our representatives to collapse under pressure.
  • Q: My brother lives in Steubenville, Ohio, where there’s a fracking boom. I’m worried about his family’s health and safety. What can I tell him? — Jamie K., Findlay, Ohio
  • A: It’s starting to sink in with a lot of people that fracking’s practice of pumping tons of toxic liquid chemicals into the ground at extremely high pressure may have long-term, far-reaching effects on everyone. The Ohio Environmental Council has stated that “regulations in Ohio remain woefully inadequate when it comes to protecting human health and the environment from the radiological and chemical risks associated with fracking waste.” A recent study done in northwest Pennsylvania, conducted by the University of Pennsylvania and Columbia University and published on July 15, 2015, found that people who lived in ZIP codes that had an average of 0.79 wells per square mile (there were 18) had a 27 percent increase in cardiology inpatient treatments when compared with folks who lived in counties without fracking wells. The study also states: There was a distinct and further “association between well density (wells per kilometer) and inpatient prevalence (hospitalization) rates for the medical categories of neurology, dermatology, oncology, urology and neonatology.” So we’re talking heart, brain, skin, cancer (all kinds), guts and babies.

Are Microplastics in Your Salmon Filet? - Want some microplastic with your salmon dinner? Probably not. But since the plastic is so tiny, you might not even know it’s there. That could be a problem, since microplastics contain concentrated pollutants.  It starts with the billions of tiny plastic particles that are getting into every ocean on the planet, even those far from where people live, like the Arctic. Plastic is not biodegradable, but it does break down into little pieces—pieces that fish often mistake for food. A lot of plastic garbage inevitably ends up in the oceans; the accumulation of billions of tons of plastic trash in what are known as gyres has been well documented. Plastic bottles, bottle caps, jugs, toys and even furniture pieces get washed into the oceans. But these aren’t the only source of oceanic plastic trash. Facewash, toothpaste and other consumer products may contain plastic microbeads. The beads provide scrubbing power, but when they get washed down the drain, they’re too tiny to be filtered out by water treatment plants. They end up in rivers, lakes, streams and yes, the ocean, where they will float for years and years, maybe until sea creatures eat them. Unfortunately, you as a consumer would have no idea if the salmon you buy in the store has consumed plastic. But chances are, it has, either by mistaking it for food and eating it directly, or by feeding on zooplankton that have eaten the plastic.  While there’s not yet much research on how much plastic we’re ingesting from our food, a study co-authored by Dr. Peter Ross, an ocean pollution researcher at the Vancouver Aquarium’s Marine Science Center, reports that salmon young and old may be consuming enough microplastic to kill them.

Jellyfish invasion: record numbers appear off British coast - Swimmers are being warned that record numbers of jellyfish are amassing off the coast of Britain. Counts of massive barrel jellyfish have rocketed for a second consecutive year and large numbers of mauve stingers were reported off Guernsey in July. The potentially dangerous Portuguese man of war has also been found washed up on beaches in Devon and Cornwall. The Marine Conservation Society said this year was set to be another record breaker as by July - before the peak month of August - there were already more than 1,000 reports of sightings of jellyfish across the UK made by members of the public. Experts said it was important that beachgoers and swimmers 'look but don't touch' as some of the jellyfish have painful or toxic stings. In 2013 there were more than 1,000 sightings; by last year it had risen to over 1,400 and 2015 is set to be even higher. The marine charity said the continuing rise of jellyfish in UK seas could no longer be ignored and more research and monitoring was needed to try and understand why. "We know that our seas are changing through climate change, resulting in rising sea temperatures and increased ocean acidification, and we know our seas are also heavily fished," Dr Richardson said. "At the same time, we seem to be witnessing increases in jellyfish around the UK. "Is this an anomaly, a coincidence, or are the jellyfish telling us something about fundamental changes in the condition of our seas?"

Dozens of Dead Whales Are Washing Ashore in Alaska - DOZENS OF DEAD whales have been washing ashore in Alaska, and nobody knows why. In the past four months, more than thirty dead cetaceans have been found along the state’s southwestern coast. The ordeal has everyone freaked out. Except bears, who appear to be having an awesome time. NOAA has declared the string of strandings an “unusual mortality event.” And while “horrific environmental mystery” seems like a much more appropriate label, this is actually a bureaucratic term that allows the agency to begin formal investigation, convening with state, federal, and tribal partners to figure out what is causing the whales’ deaths. Right now, the death toll is 11 fin whales (like the one pictured above), 14 humpbacks, and one gray whale. This is in addition to four other unidentifiable cetacean carcasses. The agency will post updates to its unusual mortality event website.

The Case Against DuPont --Robert Bilott was an unlikely person to take on one of the world’s largest chemical companies. A partner at a corporate firm in Cincinnati, Bilott had spent his first eight years as an attorney on the other side of the table, defending large companies like DuPont. But in 1999 a cattle farmer named Wilbur Tennant came to see him. Tennant told him that DuPont had bought land from his family that was adjacent to his farm, for what the company had assured him would be a non-hazardous landfill, according to a letter Bilott later filed with the Environmental Protection Agency. Soon, a stream his cows drank from started to run smelly and black, with a layer of foam floating on the surface. Within a few years, hundreds of Tennant’s cattle had died.  Bilott had no way of knowing at the time that what seemed like a straightforward case would lead to one of the most significant class-action lawsuits in the history of environmental law. In 2000, after spending more than a year on the case, Bilott still didn’t have any idea what had killed the cows. None of the chemicals DuPont had informed him about could explain the die-off. DuPont even agreed to do a study with the EPA on what might have caused the deaths. The study concluded that the Tennants must have mismanaged their animals, declaring that “there was no evidence of toxicity associated with chemical contamination of the environment.”  It was only after one of the attorneys working on the case stumbled across a document that mentioned a compound called PFOA that he began to solve the mystery. Known within the chemical industry as a “surfactant,” because it reduces the surface tension of water, PFOA — short for perfluorooctanoic acid — was slippery, chemically stable, and a critical ingredient in the manufacture of hundreds of products, including Teflon. Almost no one had heard of the stuff back then.  PFOA was just one of tens of thousands of unregulated industrial substances manufactured and used by American companies without any significant oversight by environmental or health authorities.

The U.S. Geological Survey Found This Widely-Used Pesticide In Half Of Their Stream Samples -- The results from the first national-scale investigation looking at the environmental prevalence of a controversial and widely used pesticide are in, and they’re pretty stunning: a little more than half of the streams sampled by the United States Geological Survey contained neonicotinoids, a class of insecticides that has been closely examined for its potential impact on key pollinators like honeybees. The study tested for six different types of neonicotinoids in 24 states, as well as Puerto Rico, between 2011 and 2014. Samples were collected from both urban streams and agricultural streams.“In the study, neonicotinoids occurred throughout the year in urban streams while pulses of neonicotinoids were typical in agricultural streams during crop planting season,” USGS research chemist Michelle Hladik, the report’s lead author, said in a press statement. The prevalence of neonicotinoids varied among types — one type of neonicotinoid was found in 63 percent of samples, while another was not detected in any samples. In all cases, the levels were low — below thresholds mandated by the Environmental Protection Agency’s aquatic life criteria.

Crop pests outwit climate change predictions en route to new destinations: A paper from the University of Exeter has highlighted the dangers of relying on climate-based projections of future crop pest distributions and suggests that rapid evolution can confound model results. Crop pests and pathogens are destructive organisms which pose a huge threat to food security and land management across the world. Much research has been carried out into why the pests are spreading, where they are likely to establish next, what damage they will do and what can be done to reduce their impact. In a new synthesis, published in the Annual Review of Phytopathology, Dr Dan Bebber from the University of Exeter examines the gaps in knowledge which mean that models based only on climate, designed to predict where crop pests and pathogens are likely to end up, can be misleading. Dr Bebber uses the example of the Colorado potato beetle, an important pest of potato crops whose spread across much of the Northern Hemisphere has been linked to global warming. Although the beetle had invaded most European and Central Asian countries by 1950, one leading climate change computer model predicted it would be unable to establish in Kazakhstan and western China. In fact, the pest spread rapidly through the region -- entering Xinjiang Province in China from Kazakhstan around 1992.

Food Goes ‘GMO Free’ With Same Ingredients - WSJ: Last year, Evolution Salt Co. proudly put a label on its packages of Himalayan salt proclaiming they contained no genetically modified organisms. It shouldn’t have been a surprise, because salt has no genes. But Hayden Nasir, chief executive of the Austin, Texas-based company, said advertising the absence of GMOs was good business. If a competing salt next to Evolution’s “doesn’t say non-GMO on it, chances are somebody will bypass that,” The U.S. food industry is under siege from consumers’ growing demand for natural and less-industrially produced fare, with sales of everything from conventional breakfast cereals to Kraft Cheez Whiz suffering. Part of that skepticism has focused on GMOs, which, according to a vocal core of critics, damage the environment and may harm human health. While the U.S. government and most major science groups say evidence shows that GMOs are safe, consumer concern has grown so strong that some vendors of products such as blueberries and lettuce are paying for non-GMO labeling even though their products aren’t among the small number of crops that are genetically modified in the U.S. The U.S. Department of Agriculture has approved production of genetically modified varieties of less than 20 crops. Only eight are widely produced commercially: corn, soybeans, alfalfa, papaya, summer squash, sugar beets, cotton and canola. GMO potatoes and apples recently started commercial production but aren’t yet widely available. Of the total, only some papaya and squash commonly are eaten by people directly (little of the sweet corn Americans eat is of the GMO variety). The rest are used for animal feed or to make oils or ingredients for packaged foods like soy lecithin.

The GM Labeling Law to End All Labeling Laws  -- As the vitriol intensifies in what passes for debate over the safety of genetically modified foods, scientific inquiry, thankfully, continues. A Tufts researcher, Sheldon Krimsky, recently published his assessment of the last seven years of peer-reviewed evidence, finding 26 studies that “reported adverse effects or uncertainties of GMOs fed to animals.” If recent history is any indication, Sheldon Krimsky should expect to be slammed as a “science denier.” The current vehemence is the product of a well-funded campaign to “depolarize” the GMO debate through “improved agricultural biotechnology communication,” in the words of the Gates Foundation-funded Cornell Alliance for Science. And it is reaching a crescendo because of the march of the Orwellian “Safe and Accurate Food Labeling Act of 2015” (code-named “SAFE” for easy and confusing reference) through the U.S. House of Representatives on July 23 on its way to a Senate showdown in the fall. The SAFE law sounds like it promises what polls suggest 99 percent of Americans want, accurate labeling of foods with GM ingredients. It likely guarantees that no such thing will ever happen. Backed by biotech and food industry associations, SAFE would make it illegal for states to enact mandatory GM labeling laws. It would instead establish a “voluntary” GM labeling program that pretty well eviscerates the demand for the right to know what’s in our food. It would undercut the many state level efforts. Vermont now has a labeling law that survived industry opposition, threats, and a court challenge, which may explain why the industry got busy in Congress. If you can’t beat democracy, change it. The Senate is expected to take up the bill after its August recess. As written, SAFE is truly the labeling law to end all labeling laws.

Navajo Nation farmers express concerns about quality of delivered water - The Navajo Nation has an advisory still in effect that instructs ranchers and farmers not to use San Juan River water. Using the river water has been prohibited since about 3 million gallons of toxic wastewater was accidentally released Aug. 5 from the Gold King Mine north of Silverton, Colo., into the Animas and San Juan rivers. On Monday, farmers voted 64-1 to have Shiprock Chapter President Duane “Chili” Yazzie write a memorandum to the Bureau of Indian Affairs asking it to deliver water containers and provide clean water for irrigation purposes. The move comes after Shiprock Chapter’s farm board member, Joe Ben Jr., complained about the condition of about 11 tanks that were delivered to the chapter by a contractor hired by the U.S. Environmental Protection Agency. Ben alleges the tanks are not suitable to deliver water to farmers because he noticed water inside the tanks was brown and had a noticeable film and odor. A flier notifying residents of a meeting at the Shiprock Chapter house on Monday announced that participants would “address unclean fracking barrels.”During the emergency farmers meeting at the chapter house, Ben explained the situation to farmers and residents. Sitting on a table were five plastic containers holding water samples — varying in color from yellow to brown — that Ben said were collected from the tanks.

Interior Department will review Gold King Mine spill - — The U.S. Environmental Protection Agency announced Tuesday that the federal Department of the Interior will lead an independent review of the Gold King Mine spill that released 3 million gallons of toxic wastewater into the Animas River from an abandoned mine north of Silverton, Colo., earlier this month. The review’s goal is to provide the EPA an analysis of the incident and any contributing causes, according to an EPA press release. The Interior Department’s assessment is expected to be released in about 60 days. Also in response to the spill, San Juan County lawmakers sent a letter to the New Mexico Congressional Delegation asking for federal legislation to address damage caused by the mine spill. The letter, dated Tuesday, is signed by House Majority Leader Nate Gentry, R-Albuquerque; Rep. Paul Bandy, R-Aztec; Rep. James Strickler, R-Farmington; Rep. Sharon Clahchischilliage, R-Kirtland; and Rep. Rod Montoya, R-Farmington. Several of the lawmakers are expected to speak about the letter during a 1 p.m. press conference today at the Farmington Civic Center. In the letter, the representatives state they want legislation requiring an independent environmental impact study on the immediate and long-term effects of the spill and to investigate the EPA’s action before, during and after the incident. They also ask the EPA to compensate those affected by the spill and to create a plan for monitoring the spill’s effects in both northern New Mexico and on the Navajo Nation.

Adani poised to submit third plan for dredging in Great Barrier Reef -- The latest version of Adani’s controversial plan to dredge in Great Barrier Reef waters to expand its Queensland coal port is poised to go before federal environment minister Greg Hunt for approval. Guardian Australia understands Queensland mining minister Anthony Lynham will announce on Thursday that an environmental impact statement on the Abbot Point port expansion is complete, opening the way for an application to Hunt. It is the third attempt at a plan for Adani’s new terminal, after earlier versions involving the dumping of potentially toxic seabed in reef waters and sensitive wetlands were scrapped amid public outcry, legal challenges and a change of state government. The latest plan will be open to public comment for a month before going to Hunt for assessment under the same environmental laws the Abbott government wants to change to head off “vigilante” legal challenges by green activists. The desire to change the laws was a response to a successful federal court challenge by conservationists which overturned Hunt’s approval of Adani’s related Carmichael coalmine under the Environmental Protection and Biodiversity Conservation Act. Hunt originally approved the dumping of dredged seabed from the port project in reef waters last year. But this plan was abandoned by Queensland’s former Newman government in the face of public criticism of the possible impact on the world heritage listed reef and separate legal challenges by conservationists.

Vietnamese plea to Thailand: Don't divert the Mekong -  The Mekong Delta is Vietnam's most important agricultural area. Each year, the area produces the most rice and fruit in the country. This region also nurtures many freshwater fish species, which are an important source of protein for local people. However, this key food production could be jeopardised by large water management projects upriver, Vietnamese experts have warned. Prime Minister Prayut Chan-o-cha voiced plans to use water from the Mekong and Salween rivers to fill dams that have run low because of drought and poor water management. But the PM's remarks have caused shockwaves in the Mekong Delta, which would be directly affected if such a project was to go ahead. Nguyen Huu Thien, a freelance expert on wetland ecology and natural resource conservation, criticised the idea. He said taking a large amount of water out of an international river was like sucking the blood from a body and would surely hurt the livelihood of people downstream. "I just heard of Thailand's idea to divert water from the Mekong River. I still don't have much information about the plan but I strongly oppose this idea, as a change in the amount of water in the river would definitely have an impact on the people who live in the Mekong Delta and who rely on the river," Thien said.

Shrinking Colorado River is a growing concern for Yuma farmers and millions of water users – ‘They believe there’s a target on their backs’: – The Colorado River begins as snowmelt in the Rocky Mountains and ends 1,450 miles south in Mexico after making a final sacrifice to the United States: water for the farm fields in this powerhouse of American produce. Throughout the winter, perfect heads of romaine, red-and-green lettuce, spinach and broccoli are whisked from the warm desert soil here onto refrigerated trucks that deliver them to grocery stores across the continent.   The summer freshness on all of those winter plates reflects the marvel of engineering the Colorado has become — and why managing the river in the Southwest's changing landscape seems so daunting. The Colorado is suffering from a historic drought that has exposed the region's dependence on a single, vulnerable resource. Nearly 40 million people in seven states depend on the river, a population some forecasts say could nearly double in the next 50 years. The drought, now in its 16th year, has made one fact brutally clear: The Colorado cannot continue to meet the current urban, agricultural, hydroelectric and recreational demands on it — and the point at which the river will fall short could come sooner than anyone thought.  Farmers who grow cattle feed and cotton in central Arizona could be forced to let fields lie fallow, maybe for good, and cities like Phoenix might have to begin reusing wastewater and even capping urban growth, the region's economic engine. Here in Yuma, though, there may be no cuts at all. Thanks to the seemingly endless idiosyncrasies of the rules governing the Colorado, much of metropolitan Phoenix could theoretically become a ghost town while Yuma keeps planting lettuce in the desert.

World without Water: The Dangerous Misuse of Our Most Valuable Resource - Mooradian is drilling for groundwater. He has been doing this day and night, seven days a week, ever since California's rivers and lakes began drying up. His order book for the next few months is so full that he no longer answers the phone. Were he to answer, all he could do would be to put off the callers, and hearing the desperation in their voices depresses him. They all urgently need water, the farmers, who are on the verge of bankruptcy because of the drought, but also the families, the elderly and the sick, who have had to live for months or even years without a drop of running water, here in California, the vacation paradise that calls itself The Golden State. The only question is whether he will find water down there. If he does his customer, a local farmer, will be saved, at least for the time being. The mile-long rows of small, seemingly identical fruit trees would stay green, in contrast to the devastation in the surrounding area, with its cracked earth, yellow meadows and dead trees, their branches protruding admonishingly into the sky like dinosaur bones. And if he doesn't?  "We recently drilled an 880-foot hole nearby, and it was dry," says Mooradian. "Oh man, it really made me sick. Those poor people. They went into debt for that well." California's rivers and lakes are running dry, but its deep aquifers are also rapidly disappearing. The majority of the 40 million Californians are already drawing on this last reserve of water, and they are doing so with such intensity and without restriction that sometimes the ground sinks beneath their feet. The underground reservoir collapses. This in turn destabilizes bridges and damages irrigation canals and roads. This groundwater is thousands of years old, and it is not replenishing itself. Those who hope to win the race for the last water reserves are forced to drill deeper and deeper into the ground. Men like Mooradian help the thirsty and despairing obtain water. At the same time, however, their actions contribute to the impending collapse here.

The Drought in California Is So Bad the Ground Is Literally Sinking -- Vast stretches of California’s Central Valley are sinking faster than in the past as the state continues to pump out massive amounts of groundwater during its epic drought, NASA said in a report released Wednesday. The Golden State has been forced to rely more and more on groundwater as it grapples with a four-year drought, record low snowpack and reservoirs that are running dangerously low.  The report found that some places are losing nearly two inches per month. “Because of increased pumping, groundwater levels are reaching record lows—up to 100 feet lower than previous records,” said Department of Water Resources Director Mark Cowin. “As extensive groundwater pumping continues, the land is sinking more rapidly and this puts nearby infrastructure at greater risk of costly damage.” Sinking land, or subsidence, has been a problem in California’s Central Valley for decades as the state has had to rely on increasing amounts of groundwater. But now NASA data, which the agency obtained by comparing satellite images of the Earth’s surface over time, reveals the problem is the worst its ever been.  Land near Corcoran in the Tulare basin sank 13 inches in just eight months—about 1.6 inches per month. One area in the Sacramento Valley was sinking approximately half-an-inch per month, faster than previous measurements. NASA also found areas near the California Aqueduct sank up to 12.5 inches, with eight inches of that occurring in just four months of 2014. The increased subsidence rates have the potential to damage local, state and federal infrastructure, including aqueducts, bridges, roads and flood control structures. Long-term subsidence has already destroyed thousands of public and private groundwater well casings in the San Joaquin Valley. Over time, subsidence can permanently reduce the underground aquifer’s water storage capacity.

Parts Of California Have Sunk Over A Foot In Eight Months Due To Drought - California Dreamin’ this is not. Sounds pretty freakin’ terrifying actually. From Bloomberg: Land in California’s central valley agricultural region sank more than a foot in just eight months in some places as residents and farmers pump more and more groundwater amid a record drought. The ground near Corcoran, 173 miles (278 kilometers) north of Los Angeles, dropped about 1.6 inches every 30 days. One area in the Sacramento Valley was descending about half-an-inch per month, faster than previous measurements, according to a report released Wednesday by the Department of Water Resources. NASA completed the study by comparing satellite images of Earth’s surface over time.“Groundwater levels are reaching record lows — up to 100 feet lower than previous records,” Mark Cowin, the department’s director, said in a statement. “As extensive groundwater pumping continues, the land is sinking more rapidly and this puts nearby infrastructure at greater risk of costly damage.” Areas along the California Aqueduct — a system of canals and tunnels that ships water from the north to the south –– sank as much as 12.5 inches, with eight inches of that occurring in just four months of 2014, researchers found.

What Drought? Nestle Pays Only $524 To Extract 27,000,000 Gallons Of California Drinking Water - Nestle has found itself more and more frequently in the glare of the California drought-shame spotlight than it would arguably care to be — though not frequently enough, apparently, for the megacorporation to have spontaneously sprouted a conscience. Drought-shaming worked sufficiently enough for Starbucks to stop bottling water in the now-arid state entirely, uprooting its operations all the way to Pennsylvania. But Nestle simply shrugged off public outrage and then upped the ante by increasing its draw from natural springs — most notoriously in the San Bernardino National Forest — with an absurdly expired permit. Because profit, of course. Or, perhaps more befittingly, theft. But you get the idea. Nestle has somehow managed the most sweetheart of deals for its Arrowhead 100% Mountain Spring Water, which is ostensibly sourced from Arrowhead Springs — and which also happens to be located on public land in a national forest. In 2013, the company drew 27 million gallons of water from 12 springs in Strawberry Canyon for the brand — apparently by employing rather impressive legerdemain — considering the permit to do so expired in 1988. But, as Nestle will tell you, that really isn’t cause for concern since it swears it is a good steward of the land and, after all, that expired permit’s annual fee has been diligently and faithfully paid in full — all $524 of it. There is another site the company drains for profit while California’s historic drought rages on: Deer Canyon. Last year, Nestle drew 76 million gallons from the springs in that location, which is a sizable increase over 2013’s 56 million-gallon draw — and under circumstances just as questionable as water collection at Arrowhead. In fact, the review process necessary to renew Nestle’s antiquated permit met a similarly enigmatic termination: once planning stages made apparent the hefty price tag and complicated steps said review would entail, the review was simply dropped. Completely. Without any new stipulations or stricter regulations added to the expired permit that Nestle was ostensibly following anyway — though, obviously, that remains an open question.

River that runs through downtown San Jose, California dries up; fish and wildlife suffer – ‘Every stream is slowly going dry’: – One of America's 10 largest cities is swiftly losing its river, and the loss is having major effects on the ecosystem around it. The San Jose Mercury News said eight miles of the 14-mile long Guadalupe River that runs through San Jose, California, has now dried up, another victim of the years-long California drought that is already regarded as the worst in the Golden State's recorded history. Even worse, the city had finally taken steps to restore wildlife to the river after years of neglect, but with no water left in the stream, all those fish and birds are either dead or gone again. Because there's no state agency that keeps a count of the fish and other species, there's no way to know if they migrated elsewhere or just died.  The reasons for the disappearance of more than half the Guadalupe are both man-made and natural. The drought has depleted much of the state's water, and that has led to lower lake and river levels all over California. But there's another reason why parts of the Guadalupe are dry, the Mercury News said. When water levels go down, state lawmakers must approve additional water releases from reservoirs to keep the rivers flowing. Environmentalists want the water releases to continue in areas where animals are in danger of going extinct.

Losing Water, California Tries to Stay Atop Economic Wave - Evert W. Palmer has a vision for Folsom. famous for its state prison: 10,200 new homes spread across the rolling hills to the south, bringing in a flood of new jobs, new business and 25,000 more people. Yes, Mr. Palmer, the city manager, is well aware that Folsom Lake, the sole source of water for this Gold Rush outpost near Sacramento, is close to historically low levels, and stands as one of the most disturbing symbols of the four-year drought that has gripped this state. But Mr. Palmer, like other officials who approved the ambitious plan to expand this city, said he was confident that there was enough water to allow Folsom’s population to grow to nearly 100,000 by 2036. It would be economic folly, he said, to run things any other way. The drought that has overrun California — forcing severe cutbacks in water for farms, homeowners and businesses — has run up against a welcome economic resurgence that is sweeping across much of the state after a particularly brutal downturn. It is forcing communities to balance a robust demand for new housing with concerns that the drought is not cyclical but rather the start of permanent, more arid conditions caused by global warming.At a time when Gov. Jerry Brown has warned of a new era of limits, the spate of construction, including a boom in building that began even before the drought emergency was declared, is raising fundamental questions about just how much additional development California can accommodate. The answer in places like this — and in other parched sections of the state, from the Coachella Valley to Bakersfield to the California coast — is, it seems, plenty.“They say we can’t stop building and developing because weather is cyclical,” Jennifer Lane, a Folsom planning commissioner, said as she drove around Folsom Lake last month, where expanses of lake bed were exposed to the sky and recreational boaters had been ordered to get their vessels out of the water.

California First, As Both Climate Victim and Responder, the National Style-Setter Leads the Way  On the U.S. Drought Monitor’s current map, a large purple bruise spreads across the core of California, covering almost half the state. Purple indicates “exceptional drought,” the direst category, the one that tops both “severe” and “extreme.” If you combine all three, 95% of the state is covered. In other words, California is hurting. Admittedly, conditions are better than at this time last year when 100% of the state was at least “severe.” Recent summer rains have somewhat dulled the edge of the drought, now in its fourth year. Full recovery, however, would require about a foot of rain statewide between now and January, a veritable deluge for places like Fresno, which in good times only get that much rain in a full year.To be clear, the current drought may not have been caused by climate change. After all, California has a long history of periodic fierce droughts that arise from entirely natural causes, some of them lasting a decade or more. Even so, at a minimum climate change remains a potent factor in the present disaster. The fundamental difference between California’s current desiccation and its historical antecedents is that present conditions are hotter thanks to climate change, and hotter means drier since evaporation increases with temperature.  California is already on average about 1.7° Fahrenheit hotter than a century ago, and its rate of warming is expected to triple in the century ahead. The evaporative response to this increase will powerfully amplify future droughts in unprecedented ways, no matter their causes. Meanwhile, a staggering 5,200 wildfires have burned in the state’s forests and chaparral country this year, although timely rains everywhere but in the northern parts of California and the rapid responses of a beefed-up army of firefighters limited the burning to less acreage than last year — at least until recently. The blow-up of the Rocky Fire, north of San Francisco, in the early days of August — it burned through 20,000 acres in just a few hours — may change that mildly promising statistic. And the fire season still has months to go.

California Drought Is Made Worse by Global Warming, Scientists Say - Global warming caused by human emissions has most likely intensified the drought in California by 15 to 20 percent, scientists said on Thursday, warning that future dry spells in the state are almost certain to be worse than this one as the world continues to heat up.Even though the findings suggest that the drought is primarily a consequence of natural climate variability, the scientists added that the likelihood of any drought becoming acute is rising because of climate change. The odds of California suffering droughts at the far end of the scale, like the current one that began in 2012, have roughly doubled over the past century, they said.“This would be a drought no matter what,” said A. Park Williams, a climate scientist at the Lamont-Doherty Earth Observatory of Columbia University and the lead author of a paper published by the journal Geophysical Research Letters. “It would be a fairly bad drought no matter what. But it’s definitely made worse by global warming.”The National Oceanic and Atmospheric Administration also reported Thursday that global temperatures in July had been the hottest for any month since record-keeping began in 1880, and that the first seven months of 2015 had also been the hottest such period ever. Heat waves on several continents this summer have killed thousands of people.

Wildfires rage in U.S. Northwest, army and foreign crews called in | Reuters: U.S. crews battling a flurry of wildfires raging unchecked across the Pacific Northwest contended with high winds on Thursday, a day after three firefighters were killed and four others were injured in Washington state. Authorities late Thursday ordered the immediate evacuation of the small community of Tonasket, nestled along the bank of the Okanogan River in north-central Washington, impacting about 1,000 people. On Wednesday, some 4,000 households in the riverfront towns of Twisp and Winthrop, in the foothills of the Cascade mountains about 75 miles (120 km) southwest of Tonasket, were also forced to flee the encroaching blaze. The Twisp blaze is just one of more than 70 large wildfires or clusters of fires in several drought-stricken Western states, the bulk of them in Washington, Oregon, Idaho, California and Montana, the National Interagency Fire Center in Boise reported. Dozens of homes have been reduced to ruins in Idaho and Oregon in recent days. The fires have stretched civilian firefighting resources, prompting authorities to call the U.S. Army and Canadian crews to help, as well as mobilize personnel from Australia and New Zealand for the first time since 2008. Seventy-one fire managers and specialists from those two countries were due to arrive in Idaho on Aug. 23. U.S. wildland blazes have claimed the lives of at least 13 firefighters and support personnel so far this year, four more than died in the line of duty during all of 2014, the interagency fire center said.

‘Godzilla El Niño’ Plus Carbon Pollution Equals Global Warming Speed-Up  -- NASA oceanographer Bill Patzert called the intensifying El Niño, “Godzilla.” A NOAA research scientist called it “Bruce Lee” in July, and, by August, she said that what’s coming is “Supercalifragilisticexpealidocious.” Whatever you call it, the short-term burst of regional warming in the tropical Pacific (from the monster El Niño) combined with the strong underlying long-term global warming trend means that 2015 will easily be the hottest year on record — blowing past the record just set in 2014. And if the global temperature pattern repeats that of the last super El Niño (1997-1998), then 2016 could well top 2015 record. Here’s why. First, as a 2010 NASA study explained, the 12-month running mean global temperature tends to lag the temperature in the key Niño 3.4 region of the equatorial Pacific “by 4 months.” El Niño (and La Niña) are typically defined as positive (and negative) sustained sea surface temperature anomalies greater than 0.5°C across the central tropical Pacific Ocean’s Nino 3.4 region. More details here. Second, in its monthly ENSO (El Niño Southern Oscillation) update released last week, NOAA reported, “All multi-model averages predict a strong event at its peak in late fall/early winter.” NOAA’s National Centers for Environmental Prediction (NCEP) went on to explain, “At this time, the forecaster consensus unanimously favors a strong El Niño, with peak 3-month SST departures in the Niño 3.4 region potentially near or exceeding +2.0°C.”

Tamino: July 2015 is the hottest month of any month in the record, not just July - Now that NASA has released their data updated through July, we know that in that data set, this July was the hottest July on record with a temperature anomaly of 0.75 C, i.e., it was 0.75 C above “climatology” (which is what’s usual for the given month). It’s not the hottest temperature anomaly in the data set, however; that record still belongs to January 2007, at 0.96 C above climatology. Yet it does seem that this July, while not the hottest temperature anomaly on record, is the hottest month on record. Every year, the global average temperature goes through an annual cycle — not just the temperature at a given location. In the Northern Hemisphere, we tend to be hottest in July and coldest in January but, in the Southern Hemisphere, the seasons are reversed, hottest in January and coldest in July. The seasons are definitely hemisphere dependent.   My first instinct, many years ago, was that the Earth would, overall, be hottest in January simply because we’re closer to the Sun (at the perihelion of our orbit). But it turns out the Earth is actually hottest in July. That’s because when the Southern Hemisphere is tilted toward the Sun in January, all that solar heat mainly strikes the oceans, which dominate the Southern Hemisphere rather than land. The thermal inertia of the oceans is much greater than that of the land masses, so it heats up more slowly, and just doesn’t get that hot even at the peak of summer. But in July, it’s the Northern Hemisphere that’s tilted toward the Sun. The lower thermal inertia of land (mostly in the Northern Hemisphere rather than the Southern) means it can heat up quickly, so the Northern Hemisphere reaches higher temperatures at its summer peak than the Southern Hemisphere does at its summer peak.

NOAA: July Was Hottest Month Ever Worldwide --July was a scorcher, globally speaking. Last month was the warmest on record worldwide with many countries and the world’s oceans experiencing intense heat waves, the U.S. National Oceanic and Atmospheric Administration said today in a report. The report found that “the July average temperature across global land and ocean surfaces was 1.46°F above the 20th century average.” And since July is “climatologically the warmest month for the year, this was also the all-time highest monthly temperature in the 1880–2015 record, at 61.86°F, surpassing the previous record set in 1998 by 0.14°F.” It comes as no surprise that Arctic sea ice hasn’t fared well with all this warmth. The average Arctic sea ice extent was the eighth smallest since records began in 1979.The report also found that it’s been the warmest January to July period on record, all but ensuring that 2015 will be the hottest year on record. “I would say [we’re] 99 percent certain that it’s going to be the warmest year on record,” Jessica Blunden, a climate scientist with ERT, Inc., at the National Oceanic and Atmospheric Administration, said during a press teleconference on Thursday.

July Was Warmest Month On Record NOAA Reports, Lists All "Significant Climate Anomalies And Events" - While some, perhaps not California farmers, will disagree with NOAA's assessment of the world's atmospheric conditions, earlier today the National Oceanic and Atmospheric Administration declared that July was the warmest month ever recorded for the globe and was also the record warmest for global oceans, putting a full stop to a year that has been characterized by numerous perplexing atmospheric outliers around the globe but perhaps none other more so than NOAA's earlier assessment that the winter of 2015 was also the warmest on record despite the much discussed US winter, where for the second year in a row the economic slowdown was blamed on a colder than usual winter. Go figure: perhaps here too we need double seasonal adjustments.  Among some of the highlights noted by NOAA:

  • The combined average temperature over global land and ocean surfaces for July 2015 was the highest for July in the 136-year period of record, at 0.81°C (1.46°F) above the 20th century average of 15.8°C (60.4°F), surpassing the previous record set in 1998 by 0.08°C (0.14°F). As July is climatologically the warmest month of the year globally, this monthly global temperature of 16.61°C (61.86°F) was also the highest among all 1627 months in the record that began in January 1880. The July temperature is currently increasing at an average rate of 0.65°C (1.17°F) per century.
  • The July globally-averaged land surface temperature was 1.73°F (0.96°C) above the 20th century average. This was the sixth highest for July in the 1880–2015 record.
  • The July globally-averaged sea surface temperature was 1.35°F (0.75°C) above the 20th century average. This was the highest temperature for any month in the 1880–2015 record, surpassing the previous record set in July 2014 by 0.13°F (0.07°C).The global value was driven by record warmth across large expanses of the Pacific and Indian Oceans.

Substantial glacier ice loss in Central Asia's largest mountain range -- Glaciers in Central Asia experience substantial losses in glacier mass and area. Along the Tien Shan, Central Asia's largest mountain range, glaciers have lost 27% of their mass and 18% of their area during the last 50 years. An international research team led by the GFZ German Research Centre for Geosciences and including the institute of the French Centre National de la Recherche Scientifique (CNRS) at Rennes University in particular, estimated that almost 3000 square kilometres of glaciers and an average of 5.4 gigatons of ice per year have been lost since the 1960s. In the current online issue of Nature Geoscience, the authors estimate that about half of Tien Shan's glacier volume could be depleted by the 2050s. Glaciers play an important role in the water cycle of Central Asia. Snow and glacier melt from the Tien Shan is essential for the water supply of Kazakhstan, Kyrgyzstan, Uzbekistan, and parts of China.

One of World’s Fastest Melting Glaciers May Have Lost Largest Chunk of Ice in Recorded History  --With the world’s glaciers melting at record rates, the Jakobshavn—Greenland‘s fastest-moving glacier and one of the fastest melting in the world—may have lost its largest chunk of ice in recorded history. The Washington Post reported that members of the Arctic Sea Ice Forum examined satellite images of the glacier between Aug. 14 and Aug. 16 and found that a large chunk of ice (an estimated total area of of 12.5 square kilometers or five square miles), had broken away from the glacier’s face. The amount is quite possibly the largest ever recorded, some members have speculated. According to forum member Espen Olsen, this loss is “one of the largest calvings in many years, if not the largest.”  As the Post noted in its report, calving isn’t unusual for this area in Greenland due to rising air and sea temperatures in the Arctic. “As of 2012, the glacier was pouring out ice at a speed of 150 feet per day, nearly three times its flow rate in the 1990s,” the report stated. Even if this event isn’t the largest ice loss recorded on the glacier, as you can see from these satellite images captured on July 31 and Aug. 16 of this year (just two weeks apart!) by Joshua Stevens, a senior data visualizer and cartographer at NASA’s Earth Observatory, the Jakobshavn is going through tremendous ice loss.

Iceland: Volcanic eruptions could be a consequence of melting glaciers -- Melting glaciers could result in a higher number of volcanic eruptions in Iceland, according to new research. The research, which looked at the glacial melting occurring in the North Atlantic island as a result of climate change, showed that the country’s glaciers are losing around 11 billion tonnes of ice each year. As a result, not only do global sea levels rise, but Iceland itself is elevated. The study – Climate driven vertical acceleration of Icelandic crust measured by CGPS geodesy – was carried out by researchers from the University of Iceland and the University of Arizona. The group studied data from 62 GPS sensors around Iceland to work out how the earth responded to climate change-driven glacial melting; they found that the country is actually rising by as much as 35 millimetres a year. Researcher Kathleen Compton explained that as the glaciers melts, the pressure on the rocks beneath lessened, and that rocks at a high temperature could remain solid if the pressure was high enough. She further explained that as the pressure was reduced, the melting temperature was effectively lowered. According to Compton, this means that Iceland could expect more volcanic eruptions like the Eyjafjallajokull one in 2010.

Climate Change: Have We Reached the Point of No Return? --naked capitalism - Yves here. This Real News Network segment provides a sobering assessment of the speed of climate change and species die-offs.  (video & transcript) Examples of deadly extreme weather patterns are alarming. Droughts, killer heat waves, extended wildfires, drastically melting glaciers, typhoons, and extreme rainfalls leading to floods and landslides as well as sea level rises and mass die-off of animals all make it rather clear. For scientists, the debate has been long over. Climate change is here and these extreme weather events are the kinds of things we can expect more of in the future. But have we reached the point of no return? Is this extreme weather the new normal? To discuss all of this I’m joined by a two-member panel, Dahr Jamail and Guy McPherson. Dahr Jamail is a staff reporter with TruthOut. He currently focuses on the environment and climate change. And Guy McPherson is Professor Emeritus of conservation biology at the University of Arizona.

Muslim Leaders Release First-of-Its-Kind ‘Islamic Declaration on Climate Change’ -- Today, a symposium of Muslim leaders and representatives from 20 countries released an “Islamic Declaration on Climate Change,” the first such document of its kind.  Among its supporters are the grand mufti’s of Lebanon and Uganda, along with prominent Islamic scholars and teachers from across the muslim world. The declaration is a powerful call to work towards phasing out greenhouse gas emissions “no later than the middle of the century,” and asks all countries to commit to a 100 percent renewable energy strategy. This powerful and historic call to action underscores humanity’s urgent moral obligation to address the climate crisis, protect future generations and preserve our planet. This landmark declaration adds more voices of faith to the chorus of leaders from all backgrounds—including the Pope, the Dalai Lama and many others—who have emphasized the need to act on a crisis that knows no borders and excludes no one on earth.  Because of this moral leadership, momentum is building for significant action during international negotiations in Paris and beyond to transition the world from dangerous fossil fuels to a healthy and just clean energy economy.

Naomi Klein: Tony Abbott Is a Climate Change ‘Villain’  In a pair of interviews given ahead of her upcoming visit to Australia, author and activist Naomi Klein branded Prime Minister Tony Abbott as a climate change “villain” and said that Canadians and Australians can relate because they are both run by governments bent on destroying the planet. “In Canada I can’t tell where the oil industry ends and the government begins and in Australia the same is true when it comes to coal,” she told Guardian Australia in an interview published Sunday. Both the governments of Australia and Canada have been lambasted by environmentalists for being distinctly pro-fossil fuel amid ever-increasing awareness about the dangers of carbon emissions. With the upcoming Canadian elections, Klein says there is hope that things will change in her country. “If that happens, Australia will be isolated as a climate villain,” she said. She added that Abbott’s climate record is “particularly shocking” given that “Australia is very much on the frontline of climate change. Also, being a Pacific nation, your closest neighbors are facing a truly existential threat. So I find it even more shocking that Australia is a hotbed of climate denial.”

Climate change deniers present graphic description of what Earth must look like for them to believe: – Evoking cataclysmic scenes of extreme weather and widespread drought and famine, the nation’s climate change deniers held a press conference Wednesday to describe exactly what the Earth must look like before they will begin to believe in human-induced global warming. The group of skeptics, who said that the consensus among 97 percent of the scientific community and the documented environmental transformations already underway are simply not proof enough, laid out the precise sequence and magnitude of horrific events—including natural disasters, proliferation of infectious diseases, and resource wars—they would have to witness firsthand before they are swayed. “For us to accept that the average surface temperature of the Earth has risen to critical levels due to mankind’s production of greenhouse gases, we’ll need to see some actual, visible evidence, including a global death toll of no less than 500 million people within a single calendar year,” said spokesperson William Davis, 46, of Jackson, NJ, who added that at least 70 percent of all islands on the planet would also have to become submerged under rising seas before he and his cohort would reconsider their beliefs. “The reality is that we’re still experiencing cold, snowy winters, and the entire global population is not currently embarking on cross-continental migrations in search of arable land,” Davis continued. “Until that changes, we cannot be expected to believe climate change is occurring.”

Methane Is Leaking From Natural Gas Processing Plants At Much Higher Rates Than Reported --Natural gas gathering and processing plants leak much more methane than producers have reported, and even more than the Environmental Protection Agency has estimated, according to a study released Tuesday.  Researchers at Colorado State University found that U.S. gathering and processing facilities — where natural gas from nearby wells is consolidated for distribution through pipelines — leak 2,421,000 metric tons of methane each year. The facilities emit 100 billion cubic feet of natural gas every year, roughly eight times the amount previously estimated by the EPA.  Gathering facilities “could be responsible for something like 30 percent of emissions for all natural gas production,” the study’s lead researcher, Anthony Marchese, said on a press call Tuesday. Methane is a greenhouse gas that is 86 times more effective at trapping heat than carbon dioxide over a 20-year time frame. It is the primary ingredient in natural gas.  The amount of emissions tracked in the study has roughly the same 20-year climate impact as 37 coal-fired power plants, the Environmental Defense Fund (EDF) said. The study, published in Environmental Science and Technology, is part of a series of studies organized by EDF that will compose the largest inventory of methane leaks in the U.S. natural gas industry to date. An earlier report in the series found that oil and gas operations on federal and tribal lands leaked $360 million worth of fuel in 2013.

Methane Leaks in Natural-Gas Supply Chain Far Exceed Estimates, Study Says - A little-noted portion of the chain of pipelines and equipment that brings natural gas from the field into power plants and homes is responsible for a surprising amount of methane emissions, according to a study published on Tuesday. Natural-gas gathering facilities, which collect from multiple wells, lose about 100 billion cubic feet of natural gas a year, about eight times as much as estimates used by the Environmental Protection Agency, according to the study, which appeared in the journal Environmental Science & Technology. The newly discovered leaks, if counted in the E.P.A. inventory, would increase its entire systemwide estimate by about 25 percent, said the Environmental Defense Fund, which sponsored the research as part of methane emissions studies it organized. Methane is the main component of natural gas and has a more potent short-term effect on climate change than carbon dioxide. The effect that the newfound emissions would have on climate change over 20 years, the Environmental Defense Fund said, would be similar to that of 37 coal-fired power plants. The new study, led by researchers at Colorado State University, involves measurements of 114 natural-gas gathering facilities and 16 processing plants in 13 states.  Many gathering facilities use puffs of natural gas in valves that open and close to regulate gas or liquid flow, releasing a bit of methane into the air with every cycle. Companies can substitute other relatively inexpensive technologies for the methane-leaking systems, he said, but “they’re so used to using gas pneumatic, and they think it’s so reliable, they are reluctant to change.”

Report: Massachusetts riddled with natural gas leaks — An analysis of the state’s aging natural gas pipelines has found that they are riddled with about 20,000 potentially dangerous and environmentally damaging leaks which may cost ratepayers more than $1 billion. The analysis was conducted by Home Energy Efficiency Team, a Cambridge nonprofit that mapped the leak data submitted by the utilities under a new state law. Some leaks are decades old. Home Energy President Audrey Schulman tells The Boston Globe the leaks are potentially explosive, harm the environment by releasing greenhouse gases, and threaten human health. Utility companies are addressing the problem. An Eversource spokeswoman says the company plans to repair about 50 miles of pipe per year. A National Grid spokeswoman says the company plans to spend $2.4 billion over the next five years repairing pipes.

EPA Cracking Down On U.S. Methane Waste - On August 18 the U.S. EPA announced new regulations to control methane emissions from oil and gas sites. The EPA has already proposed limits on carbon emissions from power plants. The latest rules are also an effort to reduce heat-trapping gases as part of the Obama administration’s campaign to address climate change. The first-ever regulations released on Monday will aim to reduce methane emissions – a potent greenhouse gas – by 40 to 45 percent below 2012 levels by 2025. Over a short period of time, methane is actually a lot more potent than carbon dioxide in terms of its warming effect. That means slashing methane emissions is critical to achieving climate goals. Methane is accidently released up and down the oil and gas drilling supply chain – at the well head but also along pipelines and processing facilities. EPA’s regulations will require the industry to cut down on emissions at drilling sites and in transmission infrastructure. Companies will also have to monitor emissions levels.  Although the oil and gas industry opposes the move (and environmental groups welcome it) the technology to cut down on methane emissions appears relatively straightforward and compliance with EPA’s rules should not be too difficult.

How The EPA And New York Times Are Getting Methane All Wrong -- Pretty much every recent news article you’ve read about the global warming impact of methane compared to carbon dioxide is wrong. Embarrassingly, everyone from the Environmental Protection Agency itself to the New York Times and Washington Post and Wall Street Journal continue to use lowball numbers that are wrong and outdated. In fact, as we’ll see, they are doubly outdated.  Here, for instance, is the New York Times from Tuesday: “Methane, which leaks from oil and gas wells, accounts for just 9 percent of the nation’s greenhouse gas pollution — but it is over 20 times more potent than carbon dioxide, so even small amounts of it can have a big impact on global warming.” Here is the EPA’s own news release from Tuesday on its on its proposed new methane rule: “Methane, the key constituent of natural gas, is a potent GHG with a global warming potential more than 25 times greater than that of carbon dioxide.” In fact, two years ago the Intergovernmental Panel on Climate Change (IPCC) reported in its definitive Fifth Assessment of the scientific literature (big PDF here) that methane is 34 times stronger a heat-trapping gas than CO2 over a 100-year time scale, so its long-term global-warming potential (GWP) is 34.   If you think that the 20-year GWP (86) might actually be more relevant in a world where we are only decades away from crossing points of no return for key climate impacts, you aren’t alone. Again, there is no scientific reason to pick the 100-year GWP over the 20-year GWP. The EPA and media outlets should in fact make clear they are talking about the 100-year GWP, and the best media coverage should give the 20-year GWP, since that number is increasingly relevant for humanity.

If Natural Gas Use Reduces Greenhouse Gas Emissions, Why Would the Industry Oppose Regulations that Ensure It Reduces Greenhouse Gas Emissions?  -- It might have been worth a few sentences calling attention to the seeming irony in the industry's objections to proposed regulations that would limit emissions of methane gas. The NYT article noted that a large share of greenhouse gas comes from such methane emissions. At the same time, the industry has promoted fracking as a way of developing a bridge fuel, that emits less greenhouse gas than the coal it replaces, until renewable energy becomes cheaper. If the net effect of fracking is to reduce emissions then regulations that ensure this outcome should not pose a problem for the industry. The regulations should only be a major issue for the industry if it turns out that methane gas emissions largely or completely offset any reductions in carbon dioxide emissions.

Methane Reductions Will Not Hold Off Growing Climate Crisis - Wenonah Hauter - Today the Obama Administration released proposed regulations to directly regulate methane leaks from the oil and gas industry. If adopted, these regulations would wrongly promote natural gas as a “clean” alternative to oil and coal. These weak regulations leave the impression that pursuing natural gas benefits the environment, providing a justification for continuing to drill and frack.  Besides contaminating water and causing earthquakes, drilling and fracking for gas is impacting the global climate.Implementing the proposed methane reductions could not possibly hold off the growing climate crisis. Methane leaks are seriously underreported and will increase as fracking is expanded.Even if only carbon dioxide emissions from natural gas are considered, we must keep fracked gas in the ground. Regulating methane will not address fracking’s carbon dioxide footprint and fracking must be entirely halted if we are to avoid the worst of the expected impacts from global warming. A serious program for curbing climate change, means President Obama needs to move aggressively to keep fossil fuels in the ground, stop promoting expanded drilling and fracking, and do everything in his power to accelerate the transition to a 100 percent renewable energy economy.

Earth Is Facing Most Severe Extinction Crisis in 65 Million Years - Earth’s living community is now suffering the most severe biodiversity crisis in 65 million years, since a meteorite struck near modern Chicxulub, Mexico, injecting dust and sulfuric acid into the atmosphere and devastating 76 percent of all living species, including the dinosaurs. Ecologists now ask whether or not Earth has entered another “major” extinction event, if extinctions are as important as general diversity collapse and which emergency actions we might take to reverse the disturbing trends.  In 1972, at the first UN environmental conference in Stockholm, Stanford biologist Paul Ehrlich, linked the collapse of “organic diversity” to human population and industrial growth. In 1981, he published Extinction, explaining the causes and consequences of the biodiversity crisis and providing response priorities, starting with stabilizing human population and growth. This summer, Ehrlich, Gerardo Ceballos (University of Mexico) and their colleagues, published “Accelerated modern human–induced species losses” in Science Advances. “The study shows,” Ehrlich explains, “that we are now entering the sixth great mass extinction event.” To demonstrate that Earth is experiencing a “mass extinction event” depends on showing that current extinction rates far exceed normal “background” extinction rates. To be absolutely certain, Ehrlich and Ceballos used the most conservative estimates of current extinctions, which they found to be about 10-to-100-times faster than the background rate. There are three points worth keeping in mind:

  1. most extinction rate estimates from biologists range from 100 to 1000 times faster than background.
  2. this modern extinction rate is accelerating with each passing year.
  3. the general diversity collapse, even among species that don’t go extinct, remains equally serious for humanity.

How Humans Cause Mass Extinctions - Paul R. and Anne H. Ehrlich - There is no doubt that Earth is undergoing the sixth mass extinction in its history – the first since the cataclysm that wiped out the dinosaurs some 65 million years ago. According to one recent study, species are going extinct between ten and several thousand times faster than they did during stable periods in the planet’s history, and populations within species are vanishing hundreds or thousands of times faster than that. By one estimate, Earth has lost half of its wildlife during the past 40 years. There is also no doubt about the cause: We are it. We are in the process of killing off our only known companions in the universe, many of them beautiful and all of them intricate and interesting. This is a tragedy, even for those who may not care about the loss of wildlife. The species that are so rapidly disappearing provide human beings with indispensable ecosystem services: regulating the climate, maintaining soil fertility, pollinating crops and defending them from pests, filtering fresh water, and supplying food. The cause of this great acceleration in the loss of the planet’s biodiversity is clear: rapidly expanding human activity, driven by worsening overpopulation and increasing per capita consumption. We are destroying habitats to make way for farms, pastures, roads, and cities. Our pollution is disrupting the climate and poisoning the land, water, and air. We are transporting invasive organisms around the globe and overharvesting commercially or nutritionally valuable plants and animals.

Humans won’t survive next mass extinction – scientists — Despite populating vast swaths of the planet, and appropriating large amounts natural resources in order to survive, human beings are no more likely to survive a mass extinction event than rare or endangered species, scientists say. A team from the University of Leeds examining the effects of mass extinctions found that widespread species, like humans, are just as likely to become extinct as less populous ones. This contrasts with regular circumstances, where a populous species is more likely to survive than a rare or endangered one. The team of scientists examined the fossil records of vertebrates from the Triassic and Jurassic periods – 252 to 145 million years ago. During this period a mass extinction thought to have been caused by a volcanic eruption wiped out almost 80 percent of all living species and gave rise to the dinosaurs.  “The fact that the insurance against extinction given by a wide geographic distribution disappears at a known mass extinction event is an important result. Many groups of crocodile-like animals become extinct after the mass extinction event at the end of the Triassic era, despite being really diverse and widespread beforehand. In contrast, the dinosaurs which were comparatively rare and not as widespread pass through the extinction event and go on to dominate terrestrial ecosystems for the next 150 million years,” Dunhill said.

The Weight Of The World -- The Framework Convention on Climate Change is overseen by an organization known as the Secretariat, which is led by a Costa Rican named Christiana Figueres. Figueres is five feet tall, with short brown hair and strikingly different-colored eyes—one blue and one hazel. In contrast to most diplomats, who cultivate an air of professional reserve, Figueres is emotive to the point of disarming—“a mini-volcano” is how one of her aides described her to me.  Of all the jobs in the world, Figueres’s may possess the very highest ratio of responsibility (preventing global collapse) to authority (practically none). The role entails convincing a hundred and ninety-five countries—many of which rely on selling fossil fuels for their national income and almost all of which depend on burning them for the bulk of their energy—that giving up such fuels is a good idea. When Figueres took over the Secretariat, in 2010, there were lots of people who thought the job so thankless that it ought to be abolished. This was in the aftermath of the fifteenth COP, held in Copenhagen, which had been expected to yield a historic agreement but ended in anger and recrimination.

Government Introduces Plan To Cut Emissions From Landfills By A Third -  The Environmental Protection Agency announced plans Friday that aim to reduce landfill emissions of methane and other greenhouse gases by nearly a third, in an attempt to more tightly regulate a sector that accounts for nearly a fifth of total U.S. methane emissions. The proposals seek to update methane regulations on new and existing landfills. If enacted, the EPA says the regulations would reduce methane emissions from municipal solid waste landfills by 487,000 tons a year beginning in 2025. Since methane is about 25 times as potent a greenhouse gas as carbon dioxide, that reduction would be equal to cutting carbon dioxide emissions by 12.2 million metric tons — the amount emitted by more than 1.1 million homes. Under the proposed rules, landfills would have to start capturing two-thirds of their methane and other hazardous emissions by 2023. That’s 13 percent more than they’re currently required to capture.  The proposed regulations would apply to the more than 2,000 active municipal solid waste landfills in the United States, which together make up the nation’s third-largest source of methane emissions. These emissions are produced when organic matter, such as food waste, decomposes in a landfill. Once the EPA’s proposed rules are filed in the federal register, they’ll be subject to a 60-day public commenting period.

EPA Announces New Proposed Rule To Slash Oil And Gas Methane Emissions -- The Obama administration released a proposed rule Tuesday to regulate methane emissions from new and modified oil and gas wells across the country. How much? It’s complicated. In January, the administration announced the goal of cutting methane emissions from the oil and gas sector between 40 and 45 percent from 2012 levels by 2025. This proposal would help get the United States to that goal, but would not do it on its own. Tuesday’s proposed action focuses on new hydraulically fracked oil and gas wells. It would “require methane and VOC [volatile organic compound] reductions from hydraulically fractured oil wells, some of which can contain a large amount of gas along with oil, and would complement the agency’s 2012 standards addressing emissions from this industry,” according to an EPA factsheet. Specifically, it updates the 2012 New Source Performance Standards to set these methane and VOC guidelines for new and modified wells.EPA’s acting assistant administrator for the Office of Air and Radiation, Janet McCabe, clarified on a call with reporters that contrary to initial reports, the methane proposal would not seek to reduce methane emissions by 40 to 45 percent on its own. That target, she said, would be achieved by a set of other rule updates and initiatives which include Tuesday’s proposed rule. Pressed on how exactly the rest of that target would be met, McCabe did not point to any specific initiative the administration had identified to do that.

New Fracking Air Pollution Rule Reduces Harmful Pollution - Earthworks --Today, the Obama administration released its proposed rule to limit air pollution from fracking and other oil and gas operations. The Methane Pollution Standard is the first limits on methane emissions from new and modified facilities including well pads, compressor station, storage facilities and other infrastructure. We at Earthworks have witnessed the impacts of air pollution from oil and gas drilling for decades. But, it was only when we purchased our FLIR Gasfinder camera a year ago that we were able to see firsthand the methane and volatile organic compounds spewing from nearly every oil and gas site we visited. It was scary for us to see, and it is even scarier for communities to live with. These Clean Air Act rules come at a time when the rush to drill has scarred our landscapes and the hearts of families whose children are suffering from environment-induced asthma, nosebleeds and headaches. Fracking, and the web of infrastructure that comes with it, has reached its spidery fingers into our most vulnerable neighborhoods, far beyond the point of extraction.. The oil and gas industry has left no stone unturned, and neither can we. Better regulations to rein in this out-of-control industry are one tool in our toolbox to help reduce the harm of fracking across the country. These rules will make a difference for people from California to Texas to Ohio and Pennsylvania who are faced with oil and gas knocking on their front door.

The Clean Power Plan Is Barely Better Than Kyoto; IPPC Says: We Must Remove CO2 From the Atmosphere The EPA's Clean Power Plan is 12 percent more stringent than the Kyoto Protocol, yet since 1978, the US has emitted as much carbon dioxide as we emitted in the previous 228 years. Globally, since 1984, our civilization has emitted as much carbon dioxide as in the previous 236 years.  The new EPA carbon regulations in the Clean Power Plan require about the same carbon dioxide emissions reductions as what was proposed at the Rio Earth Summit in 1992, when we as a global society first recognized that climate pollution was a problem. What resulted was the Kyoto Protocol, and its proposal to limit carbon dioxide emissions to 7 percent below 1990 levels in the US and similar levels in other developed countries.  The grand contradiction between the latest climate science and current climate policy is that since about the beginning of the Kyoto Era, we have emitted as much climate pollution as we emitted since mankind first began altering the carbon dioxide content of our atmosphere to a noticeable degree in the mid-1700s.  The new EPA carbon regulations are a fabulously wonderful thing, but they have been a generation in the making, and the emissions reduction requirements have hardly changed during this time. Are these new regulations an appropriate solution today? The Intergovernmental Panel on Climate Change (IPCC) seems to think not.

Jewell: 'We can't switch to renewables overnight' - As manager of roughly a fifth of the nation’s land and much of its natural resources, Secretary of the Interior Sally Jewell says she tries to balance competing interests “in a smart way.” Though President Barack Obama has embraced renewable energy and is attempting to curb carbon emissions from coal-fired power plants, his administration has also allowed new oil rigs in the Arctic Ocean and has proposed new oil leases off the Atlantic coast. The Bureau of Land Management also has plans for more coal leases in Wyoming’s Powder River Basin. “We can’t switch to renewables overnight,” Jewell said Friday at a news conference in La Crosse. “We’ve all burned fossil fuels today. … We’re not in a position any time soon to turn off fossil fuels and to be dependent on renewable energy.”  Jewell said she has sought to bring “the best science” to deciding which lands are suitable for gas and oil development. “An important part of our mission is managing our public lands and waters over the long term, and that means balancing places that are too special to develop, for a variety of reasons, and looking at our landscapes holistically and understanding that, while also supporting economic activity on our public lands that reduce dependence on foreign oil,” she said. “Thoughtful development of our energy resources domestically does help provide jobs domestically and it reduces our dependence on oil that’s coming from areas that are full of conflict.”

Carbon Tax: Practicalities of Cutting a Deal - The key practical questions about a carbon tax include what should be taxed and how much is should be taxed. The what is fairly clear; the how much is fuzzier. But if advocates of a carbon tax could agree on the size and shape of such a tax, they could offer some interesting incentives for political wheeling and dealing. Donald Marron, Eric Toder, and Lydia Austin write about "Taxing Carbon: What, Why, and How" in a June 2015 exposition for the Tax Policy Center (which is a joint venture of Brookings and the Urban Institute).Discussions of climate change typically focus on carbon emissions, but there are other greenhouse gases (and non-gases, like soot) that also affect can trap heat in the atmosphere. Here's a list of the major greenhouse gases, and how much heat they trap relative to carbon. It's common in discussions of this subject to refer to all taxes on greenhouse gases as a "carbon tax," and to express the emissions of other gases in terms of "carbon dioxide equivalents." But those numbers are about the ratio of taxes on greenhouse gases relative to each other. What should the actual taxes themselves be? Economists argue that the price placed on greenhouse gas emissions should be set according to the damage caused by those emissions--in effect, consumption that leads to carbon emissions should pay the price for harm caused. But estimating the social cost of carbon emissions is very difficult, and estimates are all over the map. Marron, Toder, and Austin: 

Inconvenient Mogul: Big Oil’s Shadow War on Billionaire Steyer - Oil companies that bankrolled a $9.7 million effort in 2014 to block laws against fracking in California now are focusing their sights on Tom Steyer, the billionaire hedge-fund founder turned climate-change activist. The top individual political donor in the U.S. last year, Steyer has put millions of his $2.7 billion personal fortune into the cause, hired Governor Jerry Brown’s former top spokesman and challenged Chevron Corp. Chief Executive Officer John Watson to a public debate on gas prices. In its campaign against him, Californians for Energy Independence -- whose contributors include Chevron, Occidental Petroleum Corp. and Exxon Mobil Corp. -- has been probing possible conflicts between Steyer’s business interests and legislative advocacy, attacking him in press statements as a “billionaire super-PAC king” and shadowing his public appearances.“This is part and parcel of the way politics works right now,” “You have a small number of people who are making their presence felt in a huge way, and they become fair game.” Steyer is part of this small but growing cadre of mega-donors whose influence has grown since the U.S. Supreme Court ruling in the 2010 Citizens United case lifted limits on independent campaign spending. Now, non-candidates including Steyer, the Koch brothers and George Soros are subjects of attacks, much like politicians.

How Much Of The National Black Chamber Of Commerce’s Budget Doesn’t Come From Fossil Fuels?  -- The National Black Chamber of Commerce (NBCC), a prominent critic of environmental and renewable energy initiatives, is getting even more of its funding from fossil fuel energy companies than previously thought. According to an analysis by the Florida Center for Investigative Reporting (FCIR), the group’s funding — which had been known to include at least $1 million from ExxonMobil — can in fact be traced to several other fossil fuel companies. The FCIR reported that the NBCC’s sponsors included utilities, trade groups, and fossil fuel companies that have opposed action to cut carbon pollution: Chevron, Southern Company, Gulf Power, Koch Industries, Georgia-Pacific, and the American Chemistry Council. The ExxonMobil Foundation has disclosed the grants it provides for years, and thus has been known to be a significant funder of the NBCC. The foundations affiliated with oil giant Chevron and coal-heavy Southern Company in particular do not disclose grants were previously not public funders of the organization.  “NBCC has been shilling for the interests of big oil and and maybe coal and utilities interests going back nearly 20 years,” Kert Davies, the director of the Climate Investigations Center, told ThinkProgress. “To date, all we have been able to confirm was ExxonMobil’s financial stake in NBCC. Ultimately, stopping climate and other environmental protections are not the interests of ‘black business’, but the interests of very very big business.”

Germany Struggles With Too Much Renewable Energy -- Since the 2011 Fukushima nuclear disaster, Germany has been one of the few countries that have successfully moved away from nuclear energy. Germany has so far successfully shut down its nine units that had the capacity of generating enough power for at least 20 million homes in Europe. In fact, the contribution of nuclear power in Germany’s electricity generation has now fallen to just 16 percent and renewables are now the preferred source of electricity generation in the country. However, Germany and its neighbors are now facing an unusual problem. With the dramatic increase in green energy usage, Germany is generating so much electricity from renewables that it is finding it hard to handle it. The excess electricity that is generated is being spilled over to its neighboring countries, thereby increasing the threat of a power blackout should there be a sudden supply disruption. Although Germany has increased its renewable energy generation by almost five times in the last decade, it has failed to invest in building the necessary infrastructure to carry this energy. The excess electricity that is being generated by Germany is spilling over to Poland and Czech Republic, two countries that are investing close to $180 million to shore up their grids from Germany’s power spillage. “A huge accumulation of overflow increases the threat of a blackout. The root of the situation is allowing a huge amount of electricity to be generated regardless of the capacity of the grid,” said Zbynek Boldis of Czech grid CEPS AS. It is quite obvious that Germany needs to upgrade its network to accommodate the excess power. In fact, grid companies in Germany are set to invest close to $24 billion for upgrading their network and modify its existing high voltage power lines.

Chinese Air Pollution Kills 4,000 People Each Day (And Why It Will Kill Many More) -- It has hardly been a secret that the unprecedented level of pollutants in the Chinese air would impair life expectancy and lead to extensive health problems, but even we were surprised to find out the quantification of China's air problem: according to one study, an average of 4,000 people a day are killed in China, as a result of the dense smog. According to Bloomberg, "deaths related to the main pollutant, tiny particles known as PM2.5s that can trigger heart attacks, strokes, lung cancer and asthma, total 1.6 million a year, or 17 percent of China’s mortality level, according to the study by Berkeley Earth, an independent research group funded largely by educational grants. It was published Thursday in the onlinepeer-reviewed journal PLOS One from the Public Library of Science." “When I was last in Beijing, pollution was at the hazardous level: Every hour of exposure reduced my life expectancy by 20 minutes,” Richard Muller, scientific director of Berkeley Earth and a co-author of the paper, said in an e-mail. “It’s as if every man, woman and child smoked 1.5 cigarettes each hour.” To be sure, Chinese authorities have acknowledged the air pollution situation after heavy smog enveloped swathes of the nation including Beijing and Shanghai in recent years. As a result, they’ve adopted air quality standards, introduced monitoring stations and cleaner standards for transportation fuel while shutting coal plants and moving factories out of cities. So far, however, all the proactive measures seem to have little result.

Deadly Massive Chemical Explosion Raises Concerns of Toxic Brew Released Into the Environment -- In the wake of the deadly explosion that ripped through Tianjin, China that has claimed at least 114 lives and left 70 more still missing since last Wednesday, attention is now being turned to what might have triggered the disaster as well as the toxic chemical brew released into the environment. While the exact cause is currently unclear, we know that the blast occurred at a warehouse owned by Rui Hai International Logistics, a private company licensed to handle potentially hazardous cargo, The New York Times reported.Officials from the Tianjin Tanggu Environmental Monitoring Station reported that the company stored a number of toxic industrial chemicals—sodium cyanide, toluene diisocyanate and calcium carbide—and was licensed to handle highly combustible substances such as compressed and liquefied natural gas, the Times wrote. Deborah Read, an associate professor at Massey University’s Center for Public Health Research in New Zealand, described to the The National Business Review the dangerous nature of these three chemicals on human health. “Sodium cyanide releases hydrogen cyanide gas on contact with acids or water. Hydrogen cyanide interferes with the body’s ability to use oxygen particularly affecting the brain, heart and lungs and can rapidly lead to death,” she said. Read continued that “toluene diisocyanate irritates eyes and airways and can cause asthma and fluid in the lungs (pulmonary oedema).”

Public anger grows as China confirms hundreds of tonnes of cyanide were held at blast-hit port of Tianjin  - Chinese officials confirmed on Sunday that hundreds of tonnes of highly poisonous cyanide were being stored at a warehouse in the port city of Tianjin when it was hit by explosions last week, as authorities vowed to investigate whether any officials were guilty of dereliction of duty. The developments came as the death toll from the disaster, which has crippled one of the world’s busiest ports, rose to 112 dead and 95 still missing – 85 of them firefighters who responded to the initial blaze. Fears of toxic contamination have grown and anger at a lack of transparency by the authorities has intensified, prompting protests by families of the missing firemen. “The volume was several hundred tonnes, according to preliminary estimates,” he said. The cyanide was being handled in various ways, including being neutralised with hydrogen peroxide. About 3,000 soldiers were searching for dangerous chemicals within three kilometres of the blast site. The Supreme People’s Procuratorate had sent a team to Tianjin to investigate possible dereliction of duty, Xinhua reported. Most of the sodium cyanide at the site belonged to Hebei Chengxin, a producer of the chemical in neighbouring Hebei province, Caixin reported. A company executive identified as Wang said Hebei Chengxin had delivered the cyanide to the warehouse, owned by Ruihai International Logistics, and that Ruihai had been due to export it. Ruihai was one of the few companies permitted to handle a wide range of hazardous materials, including sodium cyanide, he said.

China explosions: New blasts hampering search in Tianjin as residents evacuated over chemical fears -  Fresh explosions are hampering search efforts at the site of Wednesday's huge blasts in Tianjin, as China rushes to evacuate residents over fears of spreading chemicals. Police have confirmed the highly toxic substance sodium cyanide was found at the site, but a complete list of chemicals is yet to be identified by authorities. More than 100 people have been confirmed dead and authorities fear for those who remain near the site. "Out of consideration for toxic substances spreading, the masses nearby have been asked to evacuate," state-run Xinhua news agency said. Police confirmed the presence of the chemical, fatal when ingested or inhaled, "roughly east of the blast site".  It did not say how much had been found or how great a risk it posed, but residents expressed concern about the air and water. "I can't smell anything strange at this stage but the sky doesn't look as good as yesterday," said 30-year-old Wang Huajing, who was displaced by the disaster.

Toxic Rain Feared In Tianjin As Death Toll Rumored At 1,400 -- The fallout from last week’s massive explosion in the Chinese port of Tianjin continues to worsen, despite Beijing’s best efforts to play down the danger to the public.  The official death toll from the apocalyptic blast - which was described by witnesses as akin to a nuclear explosion - has risen to 114. Some reports suggest the number of people confirmed killed may ultimately rise to 1,400. Some 6,000 have been displaced and more than 700 are reported injured. "My helmet was gone. It was like a different world, with flames falling like raindrops on my head.”  Speaking of raindrops, authorities now fear that storms in the area could transform sodium cyanide (which is water soluble) present on the scene into hydrogen cyanide. Here’s the CDC’s definition of hydrogen cyanide:  Hydrogen cyanide (AC) is a systemic chemical asphyxiant. It interferes with the normal use of oxygen by nearly every organ of the body. Exposure to hydrogen cyanide (AC) can be rapidly fatal. It has whole-body (systemic) effects, particularly affecting those organ systems most sensitive to low oxygen levels: the central nervous system (brain), the cardiovascular system (heart and blood vessels), and the pulmonary system (lungs).Hydrogen cyanide (AC) is a chemical warfare agent (military designation, AC). It is used commercially for fumigation, electroplating, mining, chemical synthesis, and the production of synthetic fibers, plastics, dyes, and pesticides. Hydrogen cyanide (AC) gas has a distinctive bitter almond odor (others describe a musty "old sneakers smell"), but a large proportion of people cannot detect it; the odor does not provide adequate warning of hazardous concentrations. Tianjin’s vice mayor said “around 700 tonnes” of sodium cyanide was being stored at the facility. That’s a problem because as it turns out, the warehouse was only authorized to store around 24 tonnes.

"Avoid ALL Contact" With Rain, American Embassy In Beijing Warns -- First in "China Sends In Chemical Warfare Troops, Orders Tianjin Blast Site Evacuation After Toxic Sodium Cyanide Found" and subsequently in "Poison Rain Feared In Tianjin As Death Toll Rumored At 1,400", we documented China’s frantic attempts to reassure an increasingly agitated and frightened public that the air and water are safe after last Wednesday’s deadly chemical explosion at Tianjin. Although the full environmental implications of the blast likely won’t be known for quite some time, the immediate concern is that rain could react with water soluble sodium cyanide, transforming the chemical into potentially fatal hydrogen cyanide gas. And while Beijing has already begun the censorship (some 400 Weibo and WeChat accounts have reportedly been shut down), the American Embassy isn’t mincing words. The following unconfirmed text message is said to have originated at the Embassy: For your information and consideration for action. First rain expected today or tonight. Avoid ALL contact with skin. If on clothing, remove and wash as soon as possible, and also shower yourself. Avoid pets coming into contact with rains, or wet ground, and wash them immediately if they do. Rise umbrellas thoroughly in your bath or shower once inside, following contact with rain. Exercise caution for any rains until all fires in Tianjin are extinguished and for the period 10 days following. These steps are for you to be as safe as possible, since we are not completely sure what might be in the air. Source

"Mystery" Cyanide Foam Covers Streets In China After Tianjin Storms As "Massive Fish Die-Off" Photographed --On Wednesday evening we noted that China, in what looks like an attempt to discourage investigative reports into Communist Party culpability for the explosion at Tianjin which killed more than a hundred people and injured more than 700 last week, revealed the previously unnamed majority shareholders of Tianjin International Ruihai Logistics.  The two men - a Mr. Yu and a Mr. Dong - have Party ties and admitted to using their political connections to skirt restrictions on the storage and handling of hazardous chemicals like sodium cyanide.  That admission isn’t likely to satisfy the Chinese public, which is looking for the head (figuratively speaking we hope) of someone higher up in the party, as scapegoating a few locals with tenuous Party ties doesn’t seem to constitute the type of wholesale, rigorous investigation that would indicate Beijing is serious about getting to the bottom of how 700 tonnes of toxic chemicals ended up being stored at a facility that was only licensed to warehouse a fraction of that total. In any event, the "cyanide thunderstorms" we warned were rolling into the area have now blanketed Tianjin in a "mysterious" white foam. The images are below.And as The South China Morning Post reports, some claimed the rain had burned their skin and lips, which would be consistent with a text message purported to have emanated from the American Embassy (which immediately denied its authenticity) advising workers to "avoid ALL contact" between their skin and any rain:

World Bank rejects energy industry notion that coal can cure poverty: The World Bank said coal was no cure for global poverty on Wednesday, rejecting a main industry argument for building new fossil fuel projects in developing countries. In a rebuff to coal, oil and gas companies, Rachel Kyte, the World Bank climate change envoy, said continued use of coal was exacting a heavy cost on some of the world’s poorest countries, in local health impacts as well as climate change, which is imposing even graver consequences on the developing world. “In general globally we need to wean ourselves off coal,” Kyte told an event in Washington hosted by the New Republic and the Center for American Progress. “There is a huge social cost to coal and a huge social cost to fossil fuels … if you want to be able to breathe clean air.” Coal, oil and gas companies have pushed back against efforts to fight climate change by arguing fossil fuels are a cure to “energy poverty”, which is holding back developing countries. Peabody Energy, the world’s biggest privately held coal company, went so far as to claim that coal would have prevented the spread of the Ebola virus.

Fashion Is the Second Dirtiest Industry in the World, Next to Big Oil -- “The clothing industry is the second largest polluter in the world … second only to oil,” Eileen Fisher, a clothing industry magnate, told a stunned Manhattan audience earlier this year. “It’s a really nasty business … it’s a mess.”  When we think of pollution, we envision coal power plants, strip-mined mountaintops and raw sewage piped into our waterways. We don’t often think of the shirts on our backs. But the overall impact the apparel industry has on our planet is quite grim. While Fisher’s assessment that fashion is the second largest polluter is likely impossible to know, what is certain is that the fashion carbon footprint is tremendous. A general assessment must take into account not only obvious pollutants—the pesticides used in cotton farming, the toxic dyes used in manufacturing and the great amount of waste discarded clothing creates—but also the extravagant amount of natural resources used in extraction, farming, harvesting, processing, manufacturing and shipping. While cotton, especially organic cotton, might seem like a smart choice, it can still take more than 5,000 gallons of water to manufacture just a T-shirt and a pair of jeans. Synthetic, man-made fibers, while not as water-intensive, often have issues with manufacturing pollution and sustainability. And across all textiles, the manufacturing and dyeing of fabrics is chemically intensive.Globalization means that your shirt likely traveled halfway around the world in a container ship fueled by the dirtiest of fossil fuels.

Bad Timing: Japan Opens First Nuclear Plant Since Fukushima As Neighboring Volcano Erupts - In case last week’s deadly chemical explosion in the Chinese port of Tianjin wasn’t enough to satisfy your thirst for black swan-ish disasters that could serve to accelerate the ongoing global currency wars, Japan is now warning that Sakurajima, one of the country’s most active volcanos may be set to erupt.  As Reuters notes, Sakurajima erupts "almost constantly," but based on the mountain’s "increased activity," experts say this eruption could be "larger than usual." The Japan Meteorological Agency has raised the warning level from 3 to 4 and because these arbitrarily assigned numbers are largely meaningless to the anyone who doesn’t track volcanic activity, the agency is kind enough to provide a description for each level: 4 means "prepare to evacuate." "The possibility for a large-scale eruption has become extremely high for Sakurajima," the Agency warned on Saturday. As for what fate would befall someone who failed to heed an evacuation warning, well let’s just say that molten stones "could rain down on areas near the mountain's base."But the real problem is Sakurajima’s location - it’s just 50 kilometers from the Sendai nuclear power plant. As fate would have it, last Tuesday Sendai became the first nuclear reactor to be restarted in Japan since the Chernobyl redux at Fukushima in 2011.  Critics, Reuters adds, have warned that "the plant is also located near five giant crater-like depressions formed by past eruptions, with the closest one some 40 km away"and as The Guardian points out, some experts claim "the restarted reactor at Sendai [is] still at risk from natural disasters," despite the fact that it was the first nuclear plant to pass new regulations put in place by the country’s Nuclear Regulation Authority on the heels of the disaster in 2011.

Fukushima fishing cooperative allowed Tepco to discharge the contaminated groundwater to the sea -- On 8/11/2015, Fukushima fishing cooperative officially admitted Tepco to discharge the highly contaminated groundwater to the sea. Tepco is going to start the discharge this September. Fukushima fishing cooperative had been rejecting this “sub-drain” plan. It is not clear what made them change their decision. The groundwater to be discharged is pumped up beside the reactor buildings. From Tepco’s data of 8/11/2015, Cs-134/137 density of the pumped water was 238,000 Bq/m3. Tepco states they’ll “filter” the pumped water before discharging but their nuclide analysis data covers only Cesium-134/137 and Iodine-131. The density of other nuclides such as Sr-90 is not announced.

PUCO: Not ready for FirstEnergy’s electrical security plan hearing -- Next week, the hearings regarding FirstEnergy Corp.’s security plans begin, and sadly, the Public Utilities Commission of Ohio (PUCO) is not prepared for it. Hearings for the company’s electric security plan case will start at the end of the month to help decide the rates the company can charge customers who rely on a standard power offer. As reported by the Columbus Business First, “Akron-based FirstEnergy’s plan is also notable because it includes the company’s power purchase agreement proposal. Like a similar proposal from American Electric Power Company, it outlines a plan to buy power from its own plants in a long-term arrangement that will ultimately keep the otherwise uncompetitive plants open. The power companies say the proposals, or PPAs, will benefit customers in the long-term.” The way the electric security plan will work is FirstEnergy will cover the expenses “to produce the power at the power plants,” and then pass it along to its customers. However, opponents of FirstEnergy’s PPA claim the utility’s cost projections are incorrect and in the end, its customers will have to pay more for the standard power offer than they would if they purchased their power from an open market. This is the dilemma the PUCO needs to make a decision on.

Lawsuit seeks charter initiative votes in three Ohio counties --Tish O’Dell -- Yesterday, the people of Ohio filed a lawsuit against Ohio Secretary of State Jon Husted, turning to the Ohio Supreme Court for remedy from Mr. Husted’s ruling against the right of citizens to vote on their county charter initiatives. Last week, Mr. Husted nullified that right in a decision supported by the American Petroleum Institute, the Ohio Oil and Gas Association and the Ohio Chamber of Commerce. In his decision, he stated he was "unmoved" by the arguments of Fulton, Medina, and Athens County residents seeking to place their county charter initiatives on the ballot for a democratic vote – despite their meeting administrative requirements. County residents are being inundated by fracking infrastructure projects such as wastewater injection wells and pipelines, and are turning to county charters to protect their own health, safety, and welfare. The Community Environmental Legal Defense Fund (CELDF) assisted residents to draft the county charters, and is representing residents in filing an appeal to the state Supreme Court. James Kinsman, attorney representing the plaintiffs, stated, “The peoples’ right to initiative is being trounced upon by our own elected Secretary of State, who was clearly ‘moved’ by the arguments of the oil and gas industry (perhaps their funding as well), yet not by the very people who elected him. It is the peoples’ constitutional right to vote on our own initiatives. Mr. Husted – elected to serve the people of Ohio – is instead serving the oil and gas industry.” "Secretary Husted has set himself up as Ohio's censorship goalie," said Terry Lodge, co-counsel with Kinsman. "If the 'wrong' idea comes up for a vote, he, alone, can veto to cancel the election. If the Ohio Supreme Court okays this arrangement, look for every future referendum that involves people vs. corporations to disappear through the Husted Loophole in Ohio, the 'bah-no-no' republic."

Charter committees ask state Supreme Court to allow anti-fracking proposals on the November ballot - Charter committees ask state Supreme Court to allow anti-fracking proposals o: Representatives of committees in Athens County and two other Ohio counties seeking passage of anti-fracking county charters are asking the Ohio Supreme Court to order Secretary of State Jon Husted to dismiss protests against the measures and allow them to make the Nov. 3 general election ballots in the three counties. The 10 plaintiffs in the complaint for a writ of mandamus (court order) filed it as an expedited election case, meaning a relatively accelerated schedule for briefs and evidence goes into effect. In a decision Aug. 13, Secretary of State Husted rejected petitions for charter/bill of rights proposals in Athens, Medina and Fulton counties, finding that the provisions in each of the charters relating to oil and gas development represented an attempt to circumvent state law in a manner Ohio courts already have found to violate the state constitution. Husted also ruled that submitted petitions for charter proposals aren’t valid because they “fail to provide an alternate form of government consistent with clear statutory and constitutional requirements…” The Secretary of State was considering the matter as a result of protests against the charter petitions in each of the three counties. In the Aug. 19 complaint for a court order overturning Husted’s decision, the 10 complainants, with representatives of Athens, Fulton and Medina counties, argue that Husted overstepped his authority in upholding the protests against the county charter petitions. They say the Secretary of State is forbidden constitutionally to exercise the power to nullify the charter petitions based on “his particular quibbles over their content and legality.” “Respondent’s (Husted’s) ‘invalidation’ of the three petitions is unconstitutional, arbitrary, illegal and an abuse of his legal authority,” the complaint alleges.

Fracking foes sue Ohio elections chief over ballot ruling - (AP) - Residents of Fulton, Medina (meh-DY'-nuh) and Athens counties have sued Ohio Secretary of State Jon Husted (HYOO'-sted) after he invalidated ballot proposals related to the oil-and-gas drilling technique of hydraulic fracturing, or fracking. The Community Environmental Legal Defense Fund helped the residents file suit Wednesday in the Ohio Supreme Court. They're challenging Husted's decision to remove from Nov. 3 ballots a series of "community rights county charters" that contain bans on fracking-related infrastructure projects. Those include injection wells for disposing of wastewater created in the fracking process. Responding to protests lodged against the measures, Husted said each proposal tried to circumvent state law in a way that courts have ruled violates the Ohio Constitution. The suit alleges he violated residents' guaranteed right to initiative. Husted's office had no immediate comment.

Landowners continue fight against gas pipeline - Toledo Blade — Ohio Secretary of State Jon Husted’s decision to invalidate a Nov. 3 ballot initiative undertaken by residents of Fulton, Medina, and Athens counties has been appealed to the Ohio Supreme Court.  Online records show the filing was made Wednesday with the state’s highest court by attorneys James Kinsman of Cincinnati and Terry Lodge of Toledo, who are jointly representing 10 landowners named in the complaint. Three — Renee Walker, John P. Ragan, and Elizabeth Athaide-Victor — are from the Swanton area. In their complaint, the attorneys for the landowners said Mr. Husted “is being sued in his official capacity” as secretary of state and that he is forbidden to invalidate petitions residents had signed “because of his particular quibbles over their content and legality,” adding that his action was “unconstitutional, arbitrary, illegal, and an abuse of his legal authority.” “Since the three petitions [one each for Fulton, Medina, and Athens counties] conform to the structural requirements of statute and have been proffered for their respective county ballots by more than the minimal requisite numbers of eligible electors, they must be subjected to a formal vote on November 3, 2015,” the complaint states.   The ballot initiatives were inspired by Ohio’s fracking boom and general opposition to major natural gas pipelines, including a 250-mile line that NEXUS Gas Transmission plans to install across much of Ohio and into southeast Michigan.Landowners gathered signatures to force ballot questions on a “community bill of rights” that would give them more local control over how land is used in their counties.

Ohio SOS in hot water over dismissing unconventional oil and gas ballot proposals - Ohio Secretary of State Jon Husted has been sued by 10 residents of Fulton, Medina and Athens counties after he invalidated hydraulic fracturing ballot proposals. The group is challenging Husted's decision to remove a series of ballot questions that contain bans on fracking-related oil and gas drilling projects, such as wastewater injection wells used during the fracturing process. The plaintiffs, represented by attorney Terry J. Lodge and assisted by The Community Environmental Legal Defense Fund, filed the suit with the Ohio Supreme Court on Wednesday.   The suit alleges he violated residents' guaranteed right to initiative. On August 3, ballot protests were filed with the Secretary of State’s office from Medina, Fulton and Athens electors. On August 13, the Secretary issued a seven-page decision of all ballot protests. The seven-page decision from the Secretary states: “The petitions must be invalidated on the basis that the petitions fail to provide for an alternate form of government consistent with clear statutory and constitutional requirements, and that state law preempts any authority to regulate ‘fracking’ by political subdivisions of the state, including charter counties.”

Fracking Fight Heats Up in Ohio -- With the oil and gas industry already reveling in a recent Ohio Supreme Court decision stripping local control on fracking and other extraction activities away from communities, the Secretary of State has now handed the industry another victory, opening the door for fracking infrastructure projects to spread even faster across Ohio. In a decision issued August 13, Ohio Secretary of State Jon Husted blocked citizens from voting on Home Rule Charter initiatives which include provisions on fracking infrastructure development. In response to Husted’s decision, this week the Community Environmental Legal Defense Fund (CELDF) filed a lawsuit against the Ohio Secretary of State on behalf of community members in Athens, Medina and Fulton Counties seeking to restore the initiatives to the November ballot. The complaint cites Article X, Section 3, of the Ohio Constitution which codifies the right of the people to vote on local Charter initiatives. Ohio communities are being inundated by fracking infrastructure projects – such as frack wastewater injection wells and pipelines. Injection wells have been tied to earthquakes in Ohio, with fracking activities having major impacts on water quality and global warming. Despite these impacts, Ohio communities have found their state government, rather than helping protect communities from frack injection wells and other infrastructure projects, is instead authorizing corporations to site those projects. 

The Utica is getting a billion dollar pipeline system -- When it comes to infrastructure and acquisitions, the Utica and Marcellus Shale formations in the northeast seem to take the cake, and now two huge operators in the Utica are adding to the region’s long list of pipeline systems. MarkWest Energy Partners LP and Marathon Petroleum Corp., which recently shared they will be merging, are building a gathering system together that will transport natural gas from northern Belmont and Jefferson Counties in Ohio. As reported by the Columbus Business First, “The system is pinned on a large commitment from Ascent Resources – Utica LLC, an Appalachian drilling subsidiary of American Energy Partners LP that recently changed its name from American Energy – Utica LLC. Utica shale pioneer Aubrey McClendon founded American Energy Partners in 2013. He’s now involved in legal battles over Ohio land and data disputes.” Currently, Ascent owns an estimated 280,000 acres in the Utica and Marcellus Shale formations. The company has dedicated 100,000 of its acreage to the new pipeline system MarkWest and Marathon will be constructing in Ohio. According to MarkWest, the system, which will consist of over 250 miles of pipeline, has the potential to send nearly 2 billion cubic feet of dry gas per day. The company is hoping to have the gathering system up and transporting by the end of the year.

Expert assesses risk of oil train accident in Pennsylvania -- With as many as 70 oil trains rumbling across Pennsylvania each week, the administration of Gov. Tom Wolf on Monday released a series of recommendations meant to reduce the risk of a catastrophic derailment, including reduced speeds through cities, beefed-up track inspections and a call for trackside communities to plan for an emergency. Wolf has expressed “grave concern” about the trains’ safety in the wake of several fiery crashes. CSX and Norfolk Southern carry huge volumes of crude through Pennsylvania to refineries in Philadelphia and elsewhere. The crude, from the Bakken Shale region of North Dakota, is unusually volatile. A train carrying Bakken crude derailed in Quebec two years ago, causing a fire and explosion that killed 47 people and leveled the downtown. Wolf hired Allan Zarembski, a University of Delaware professor and a specialist in railroad engineering and safety, to identify areas of high risk and to issue safety recommendations. Zarembski’s report, released Monday, contains 27 recommendations, primarily focused on inspection and maintenance of tracks and equipment, routing, speed and emergency planning.

Idea for slowing trains with oil resisted in Pa. - Gov. Tom Wolf wants trains carrying crude oil through Pittsburgh and other high-population areas in the state to stay 5 mph below the federal speed limit of 40 mph, but his office says the two major railroad companies are not looking to slow down. Concerned about the safety of up to 70 trains moving volatile crude through the state daily, Wolf’s office Monday released a report it commissioned from Allan Zarembski, director of the Railroad Engineering and Safety Program at the University of Delaware. Its 27 recommendations include dropping the speed limit, a request made to the companies. The response from Norfolk Southern and CSX has been disappointing, said John Hanger, Wolf’s policy secretary. “In other words, they haven’t agreed to adopt that,” Hanger said during a conference call on the report. Asked about the requests, CSX spokesman Rob Doolittle said the company follows federal regulations. “CSX believes that our current approaches to safely moving crude oil and all freight strikes the right balance among the many factors that contribute to safety for the specific characteristics of our network. Those factors include speed, frequency of inspections, deployment of trackside safety technology, investment in our infrastructure and routing,” he said. Norfolk Southern did not respond to questions about the speed limit.

Susquehanna River Basin Commission's study finds no impacts on streams from Marcellus Shale drilling  - The Susquehanna River Basic Commission says it has not found any impacts from Marcellus Shale gas drilling on the quality of water in streams that it has been monitoring, including several in Bradford County. Last month, the commission released a report on the data it collected at water quality monitoring stations over a three-year period in streams in some of the watersheds of the Marcellus Shale region of the Susquehanna River Basin. In 2010, the Susquehanna River Basin Commission (SRBC) began installing the monitoring stations in small, headwater streams in the Susquehanna River Basin to measure impacts on the streams from gas drilling in the Marcellus Shale, according to the report. Fifty-eight stations were installed over a two-year period, each in a different watershed, the report said. Every five minutes, equipment in the stations measured pH, temperature, dissolved oxygen, and other measurements of water quality, and the data was transmitted every two to four hours to the SRBC’s headquarters in Harrisburg.  A measurement of radioactivity was taken at the stations four times a year. The stations were intended to look for impacts on the streams from a wide range of gas drilling activities, including hydraulic fracturing and spills, according to the SRBC. After three years of continuous monitoring, the data collected “did not indicate any changes in water quality” from gas drilling activity, according to a press release issued by the SRBC, which accompanied the release of the report.

Illegal Dumping of Fracking Wastewater May Be Linked to Radioactivity in PA Creek, Experts Say  -- Recently released testing results in western Pennsylvania, upstream from Pittsburgh, reveal evidence of radioactive contamination in water flowing from an abandoned mine. Experts say that the radioactive materials may have come from illegal dumping of shale fracking wastewater. Regulators had previously found radioactivity levels that exceeded the U.S. Environmental Protection Agency’s (EPA) drinking water standards more than 60-fold in waters in the same area, which is roughly three miles upstream from a drinking water intake, but those test results were only made public after a local environmental group obtained them through open records requests. At the end of July, the West Virginia Water Research Institute released the results from its tests of water flowing from an abandoned coal mine.  “The radiation, together with higher bromide levels than you would expect to see coming out of a deep mine, point to drilling wastewater.” In April 2014, under pressure from local environmental groups, the state Department of Environmental Protection (DEP) had taken samples from the same mine, the Clyde Mine in Washington County, Pennsylvania, as it discharged into 10 Mile Creek, a popular destination for boaters and fishermen. Those tests showed one sample with radioactive materials (specifically radium 226 and radium 228) totaling 327 pci/l at and a second totaling 301 pci/l—in other words, up to 65 times the radium levels that the EPA considers safe in drinking water.

Park says pipeline proposal poses threat to cave's resources - National Park Service officials are concerned that a company's plan to send natural gas liquids through an aging natural gas pipeline near Mammoth Cave National Park may pose a threat to the cave's ecological systems. The proposal by Kinder Morgan to convert part of its Tennessee Gas Pipeline Co. operations has stirred controversy all year along a 256-mile path through Kentucky, The Courier-Journal reported ( Bobby Carson, chief of science and resource management for the park, said the 70-year-old pipeline 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.  In a recent letter to federal energy regulators, park superintendent Sarah Craighead wrote that the 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. Kinder Morgan spokesman Richard Wheatley said the company is "committed to public safety, protection of the environment and operation of our facilities in compliance with all applicable rules and regulations."

Oil and Gas Leases Killed Amid Fracking Fears - - The Second Circuit declined Wednesday to resurrect oil and gas leases that expired during New York's years-long moratorium on fracking.  Relying on an interpretation of state law from New York's high court, the appeals court affirmed the 2012 decision of a federal judge in Binghamton that the moratorium did not constitute an event that triggered a clause extending the leases.
"Because we perceive no factual disputes material to the legal question presented, we conclude that the district court correctly granted summary judgment in favor of the landowners," the unsigned opinion from the three-judge panel states.   In the early 2000s, energy companies became interested in exploring areas of New York for natural gas trapped deep in the Marcellus Shale, a geologic formation stretching east from Ohio.     In Tioga County, located between Elmira and Binghamton close to the Pennsylvania border, energy companies signed leases in 2001 with nearly three dozen landowners to extract gas from their property via fracking.       The leases with Inflection Energy, Victory Energy and Megaenergy contained identical habendum clauses - typical in standard oil and gas leases that outline a primary lease term of five years and a secondary term lasting as long as product is taken from the ground.  But when the state halted new fracking permits in 2010 until a comprehensive environmental assessment of the technique could be completed, Inflection informed the landowners that the leases' force majeure clause had been invoked - an unexpected event or government action - which extended the primary term of the habendum clause. The landowners disagreed and sued in Federal Court, contending the leases had expired on their own. The energy companies counterclaimed that the state's moratorium was a force majeure event.

Energy Facilities Siting Board takes comments on blueprints for pipeline  - Residents and elected officials took the opportunity to voice their displeasure with the proposed Northeast Energy Direct Project, an initiative of Tennessee Gas Pipeline Co., at the Energy Facilities Siting Board public comment hearing Thursday night. The hearing, at Lunenburg High School, gave the Siting Board, a Massachusetts administrative agency, the chance to collect comments and concerns about the project, which is in its pre-filing phase. The proposed natural gas pipeline would cross through the region. Tennessee Gas Pipeline Co. is a subsidiary of energy giant Kinder Morgan. Attorney Robert Shea, a member of the Siting Board, noted that the agency does not have the authority to approve of deny the project, as it falls under the Federal Energy Regulatory Commission's, or FERC, purview. Speakers addressed such topics as global warming, protecting the environment, and the importance of clean energy. Many of them also said the FERC scoping hearings to collect comments -- similar to the one held by the Siting Board -- should be delayed. FERC will hold one such scoping hearing at Lunenburg High School on Wednesday at 7 p.m. Lunenburg Board of Selectmen Chairman Jamie Toale said the Siting Board should intervene on the town's behalf. He noted "this proposal goes against current Massachusetts commitments to renewable energy.

Gov. Hassan urges feds to seek alternative route for gas pipeline - Gov. Maggie Hassan on Friday urged the Federal Energy Regulatory Commission to fully investigate alternative routes for the Kinder Morgan natural gas pipeline, and require developers to “comprehensively address” the questions and concerns of New Hampshire residents. Kinder Morgan is hoping for FERC approval to build a new natural gas transmission line through Southern New Hampshire. The company recently announced another series of open house meetings for New Hampshire residents for the project, which would also have to be approved by the New Hampshire Site Evaluation Committee. In a letter to FERC Chairman Norman C. Bay, the governor requests that FERC require the gas pipeline company to respond to a series of questions related to water and air quality, noise, safety issues and how the company will work with rural communities to enhance emergency response capabilities. Hassan also raised concerns that the project is not needed in New Hampshire, and that any regional benefits will not outweigh the impact on the 17 communities along the proposed route,  “The siting of energy transmission projects must strike a balance between potential benefits in reduced energy costs and potential negative impacts. We must work to ensure that the potential negative impacts of the proposed project do not disproportionately outweigh the benefits, particularly for the residents and communities that would bear the burden of hosting the project.”  Opponents of the pipeline have been pressuring elected officials to take a tougher stand against the project, after opposition from Massachusetts politicians forced the company to reroute its proposal through Southern New Hampshire last year.

Md. geologists to boost seismic monitoring ahead of 'fracking' - The Maryland Geological Survey, anticipating the possibility that hydraulic fracturing, or "fracking," for natural gas in the Marcellus shale deposits could increase seismic activity, plans to install a seismometer in Western Maryland. Geologists want to gather more data on natural seismic activity before a state moratorium on hydraulic fracturing ends in 2017 and what are known as "induced" earthquakes might begin. Fracking itself has not been linked to the swarms of earthquakes that have erupted in states such as Oklahoma. Geologists blame a process that disposes of briny water and other oil and gas extraction byproducts in deep wells. Maryland's geology is not considered suitable for those wells, though there are many of them in West Virginia and Pennsylvania. But the risk and uncertainty here are great enough that scientists want to know more. Geologists know relatively little about faults beneath the region, which have produced recent earthquakes such as one that rattled Anne Arundel County this month and another that damaged historic buildings across the Mid-Atlantic in 2011. Another sensor should help reveal more about formations hundreds of millions of years old beneath the eastern United States. The wells have been linked to a rise in earthquakes in Oklahoma, from 109 of at least magnitude 3 in 2013 to 585 last year. In Ohio, scientists linked a spate of 77 earthquakes in March 2014 to two oil and gas operations, prompting the state to halt activity at those sites.

'Hands Across Our Land' action aimed at WV and VA pipelines -  (AP) - Opponents of pipelines delivering fracked natural gas are joining together in Virginia, West Virginia and elsewhere in a show of solidarity. The collective action will occur Tuesday during what is called "Hands Across Our Land." In a number of locations, activists opposed to natural gas pipelines will join hands in a show of unity against hundreds of miles of proposed pipelines. Two proposed pipelines would stretch from West Virginia, through Virginia and into North Carolina. They would be delivering natural gas from Marcellus shale fields in West Virginia, Ohio and Pennsylvania. In Virginia, Hands Across Our Land events are planned in Augusta, Floyd, Franklin and Nelson counties, among others, plus Richmond and Roanoke. In West Virginia, activists will join hands in Greenbrier and Monroe counties, among other locations.

Family attacks EOG after water well explosion leaves permanent scars -- EOG Resources and several other companies are facing a lawsuit from a family that suffered damages when their water well ignited into an immense explosion due to methane from nearby fracked wells. Desmog reports that the family of four, including a four-year-old child, her parents and her grandfather, were the victims of an explosion that occurred due to their water supply being tainted with highly flammable gas from nearby oil and gas operations. “Rigorous scientific testing, including isotope testing, has conclusively demonstrated that the high-level methane contamination of the Murrays’ water well resulted from natural gas drilling and extraction activities,” the complaint, filed in Dallas County, Texas, earlier this month, states. Cody Murray, a 38-year old who previously worked in the oil and gas industry, suffered burns to his face, arms, neck and back that were so severe that he was left permanently disabled, according to the report. He is no longer able to drive because nerve damage has left him unable to grip objects properly. Cody’s young daughter, who was over 20 feet away from the pump house when it ignited, suffered first and second degree burns, as did Jim Murray, Cody’s father.  The complaint suspects two gas wells drilled by EOG Resources, roughly 1,000 feet away from the Murrays’ water well, as the source of methane. The Texas Railroad Commission has cited EOG for “discrepancies” in legally-required records for the wells’ cement casings. The RRC is currently probing the explosion. The Murray’s lawsuit, which seeks over $1 million dollars to compensate the family for their medical expenses, Cody’s disability and resulting lost job, and the loss of their farm’s water supply, is one of a growing number of legal cases surrounding fracking.

Oil lease sale Wednesday for tracts off of Texas - The federal government on Wednesday will offer 21.9 million acres off the Texas coast to oil and gas developers, though low oil prices are likely to limit interest. The last two comparable lease sales in the western Gulf of Mexico brought $109.1 million last year and $100.1 million in 2012. A March 18 sale in the far more popular central Gulf of Mexico brought the lowest number of bids since 1986. Officials said low oil prices were the reason. Since then, the price of U.S. crude has dropped $1.44 a barrel. The National Ocean Industries Association, an offshore trade group, said in a news release Tuesday that members looked forward to the lease sale “but do not anticipate jaw-dropping results under current conditions.” The group cited low prices, uncertainty over new regulations — including stronger rules proposed for equipment designed to prevent oil well blowouts — and an upward trend in lawsuits over permits and leases.

What’s Behind The Spike In Earthquake Activity Oklahoma Has Seen This Year? --  A little over eight months into the year, Oklahoma has broken a new yearly record for earthquakes. The state recorded its 587th earthquake of 3.0 magnitude or higher early this week, breaking the previous record of 585. That record was set for all of 2014, meaning that Oklahoma has now had more 3.0 magnitude or higher earthquakes so far in 2015 than it did in all of 2014. So far this year, E&E News reports, Oklahoma’s averaged 2.5 quakes each day, a rate that, if it continues, means the state could see more than 912 earthquakes by the end of this year.  Oklahoma has also experienced 21 4.0 magnitude or greater earthquakes so far this year — an increase over last year, which saw 14.  Last year, Oklahoma was the most seismically active state in the lower 48 U.S. states. Its 585 quakes were a major spike from the year before, which saw around 100 earthquakes. In 2014, the state had already surpassed its 2013 record by April. Oil and gas activity is seen as a suspect for this surge in earthquake activity, both in Oklahoma and in other oil- and gas-heavy states that have experienced swarms of earthquakes. From 1991 to 2008, Oklahoma experienced no more than three 3.0 or higher earthquakes a year. Then, in 2009, earthquake activity started to increase in the state — and judging by the records broken in 2014 and 2015, it hasn’t stopped. That increase in earthquakes since 2009 has been tied to hydraulic fracturing operations in the state — specifically, the injection of fracking wastewater into deep, underground wells. If those wells are close enough to fault lines, the activity can trigger the line to slip, which can cause an earthquake.

EPA to Propose Rules Cutting Methane Emissions From Oil and Gas Drilling - WSJ: The U.S. Environmental Protection Agency on Tuesday will propose the first-ever federal regulations to cut methane emissions from the nation’s oil and natural-gas industry, according to people familiar with the move, which is part of President Barack Obama’s climate agenda. The EPA is expected to propose regulations aimed at cutting methane emissions from the oil and gas sector by 40% to 45% over the next decade from 2012 levels, said a person familiar with the plan. That was the goal the agency said earlier this year it would pursue when it first unveiled its plans.  The move is part of a broader regulatory agenda Mr. Obama is pursuing as he seeks to make addressing climate change a legacy of his time in the White House. Earlier this month, the EPA issued final rules cutting carbon emissions from power plants 32% by 2030 based on emissions levels from 2005. Tuesday’s announcement reflects the Obama administration’s middle-ground approach toward the oil and gas industry. The Interior Department said Monday it has issued a permit to Royal Dutch Shell PLC to drill for oil and natural gas in the Arctic Ocean, providing the company a long-sought victory and angering environmentalists who say the move runs counter to Mr. Obama’s efforts to address climate change. Meanwhile, with the onset of the fracking boom, concerns over methane, a potent greenhouse gas, have grown within the administration. Methane has a warming effect on the planet more than 20 times greater than carbon dioxide, according to the EPA.

EPA will demand oil and gas to slash methane emissions nearly in half -- On Tuesday, the U.S. Environmental Protection Agency is expected to announce an unprecedented attack on methane emissions from the country’s oil and natural gas industry, according to sources familiar with the regulations. As a part of President Barack Obama’s climate policy, the EPA will propose cutting methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels over the next decade. Neither The Wall Street Journal nor The Huffington Post name the person familiar with the plan. However, the EPA did make announcements in January that aimed at setting up the nation’s first ever methane emission regulations. The new potential policy comes only a few weeks after the president unveiled the Clean Power Plan which set strict limits on emissions from coal-fired power plants. Under this plan, carbon emissions from this sector must meet a 32 percent reduction from 2005 levels by 2030.Energy leaders are sure to push back against the regulations. With the inevitable new expenses needed to capture the escaping emissions, companies will have to work with already restricted budgets due to slumping oil prices. In addition, methane emissions happen at numerous stages in oil and gas production. No one sector, up or down stream, would be solely responsible. Yet, according to EPA studies from late last year, only a small number of natural gas wells are responsible for the majority of the methane gas being released into the atmosphere during production. The reduction of methane, in such a case, would be less of a spread out burden for the industry. Researchers from the University of Texas at Austin found in one test that methane releases into the atmosphere were the lowest in the Rocky Mountain region and the highest along the Gulf Coast.

EPA's proposed new methane rules could have big impact in New Mexico - Northwestern New Mexico’s San Juan Basin, a major natural gas and coal production area, could be a chief target of a proposed federal regulation aimed at dramatically cutting methane gas emissions. The draft regulation rolled out Tuesday by the Environmental Protection Agency seeks to reduce methane emissions related to oil and gas production by 40 percent to 45 percent below 2012 levels within the next decade. The proposal, designed to cut methane emissions from new and modified natural gas wells, pipelines and other processing equipment, is part of the Obama administration’s Climate Action Plan to reduce greenhouse gases that contribute to global warming and climate change. A team of scientists recently found a methane hot spot half the size of Connecticut in the Four Corners area of the San Juan Basin. The hot spot contained some of the highest concentrations of methane in the United States, according to the scientists, who included some from Los Alamos National Laboratory. The hot spot “accounted for 10 percent of all oil- and gas-related methane emissions from the U.S.,” said Manvendra Dubey, one of the Los Alamos climate scientists involved in the study.

Colorado already has methane limits tougher than US proposal - — Strict limits on methane emissions passed a year ago in Colorado mean the state’s energy producers will not be affected by the federal government’s new plan to crack down on the powerful greenhouse gas. The Obama administration announced Tuesday that it would follow through with plans to curb methane emissions from new oil and gas wells. But Colorado’s efforts go even further, applying methane controls to both new and existing wells. Last year, it became the first state to pass limits on the gas from wells. “Our rules put people in position to meet any federal requirements,” said Will Allison, head of the state’s Air Pollution Control Division, which is part of the Health Department. The federal methane announcement was not unexpected. But the administration’s target to cut methane from oil and gas drilling by 40 to 45 percent by 2025, compared with 2012 levels, made national headlines. Colorado officials say federal authorities modeled the methane proposal on the state’s first-of-its-kind rules. Colorado’s regulations trim more than a third of air pollution from volatile organic compounds, which contribute to ozone and include methane. That’s about 92,000 tons a year. Methane, the key component of natural gas, tends to leak during oil and gas production. Although it makes up just a sliver of greenhouse gas emissions in the United States, it is far more powerful than the more prevalent gas carbon dioxide at trapping heat in the atmosphere. Some industry groups say Colorado’s methane rules have been costly and unfair to producers.

Heitkamp: EPA methane rules harmful to Bakken, industry -- Earlier this week the Environmental Protection Agency proposed new standards that would cut methane emissions from the oil and gas industry by 40 to 45 percent by 2025.U.S. Sen. Heidi Heitkamp (D-ND) said, “Energy production and clean air through reduced greenhouse gas emissions are not competing ideals, and efforts to reduce emissions don’t have to hurt our energy industry,” reports the Bakken Magazine. EPA Administrator Gina McCarthy said the standards are meant to bolster responsible energy development, transparency and accountability. As reported by the Bakken Magazine, McCarthy said, “Cleaner-burning energy sources like natural gas are key compliance options for our Clean Power Plan and we are committed to ensuring safe and responsible production that supports a robust, clean energy economy.” In response to the proposed standards, Heitkamp said she will pressure the Obama administration to support bipartisan and “commonsense solutions” which would offer greater reductions of methane emissions. She said, “We can work to reduce methane emissions – and we can do it better by working together toward an all-of-the-above energy strategy that supports our mutual goals of energy independence and reduced greenhouse gas emissions.” Heitkamp supports methods that would hasten the permit approval process for gas-gathering and pipeline projects as a means to reduce flaring.

Uncertain outlook as North Dakota tops 10,000 shale oil wells - North Dakota surpassed a milestone in June — its 10,000th shale oil well — amid a still-gloomy outlook for its petroleum industry. The industry, facing continued low crude oil prices, is finishing off previously drilled wells to get oil and some revenue flowing and to meet regulated completion timetables, state officials said Friday. But the number of rigs drilling new wells declined again. Oil producers using hydraulic fracturing completed 149 oil wells in the Bakken or Three Forks plays in June, bringing the total to 10,113. The state also has more than 2,700 legacy wells from before the shale boom. The new wells increased June’s crude oil output to 1.21 million barrels per day, up 0.7 percent over May, a pace that North Dakota officials hope can be sustained to keep oil tax revenue flowing over the next two years. But Lynn Helms, director of the state’s Division of Mineral Resources, said things could get worse. “Either we are going to have to see some better prices or we are going to see further contraction in the oil and gas industry,” he said on a conference call with reporters for the monthly release of production data.

Feds set timeline to decide on drilling lease near Glacier - U.S. government officials plan to decide this fall whether to take steps to lift the suspension of an oil and gas lease on land sacred to Native Americans or to begin the four-month process of canceling it, according to court documents filed Monday. The timeline for resolving the decades-old suspension of the lease in the Badger-Two Medicine area near Glacier National Park was created after a federal judge ordered the U.S. Department of Justice, Bureau of Land Management and Forest Service to come up with a timeline to complete their review. Baton Rouge, Louisiana-based Solenex LLC sued to lift the suspension and begin drilling this summer on the 6,200-acre oil and gas lease it acquired in 1982. The suspension has been in place since 1993 while federal officials consider the environmental and cultural impacts. U.S. District Judge Richard Leon previously denied Solenex’s request to immediately lift the suspension, but he ordered the government to come up with a timeline to end the delay.

Flying Robots Replace Oil Roughnecks  -- Oil rig inspection is a dangerous business. Traditionally roughnecks dangled from a wire, in gale-force winds if needed, to manually log wear and tear on the girders. Assessments include giant chimneys — called flare stacks — that belch fire during million-dollar-a-day shutdowns. Increasingly the industry has found that swapping abseiling humans for small drones equipped with high-definition and thermal cameras can save time, cut costs and improve safety. "These are large metal structures in a big pond of seawater. They will rust a lot, particularly in the North Sea where rigs designed to last 20 years are lasting more than 40. They are continually getting cracks and physical damage from the waves and need to be refurbished and fixed," says Chris Blackford, Sky Futures' chief operations officer. Sky Futures — headquartered in London — is a drone inspection company specializing in the oil and gas industry and counts BP, Shell, Apache, BG Group and Statoil among its clients. It's one of a handful of companies finding commercial applications for drones.

Funds For Fracking Finally Dry Up: One Last Hail Mary Pass Remains -- Is Saudi Arabia on the verge of winning the war on US Shale firms? It appears the spigot of malinvestment-subsidizing liquidity that kept numerous zombie energy firms alive has been shut off almost entirely. As oil prices return to cycle lows, so credit risk has spiked to record highs and issuance of life-giving bonds has collapsed. As Reuters reports, this has opened up opportunities for deep-pocketed private equity firms to push for restructuring or buy assets as many oil companies need cash to replenish banks' slimmed-down lending facilities, service their bonds and finance drilling of new wells to keep pumping oil and sustain cash flow. Credit risk has soared back to record levels... As public market demand for this sector has collapsed... And as Reuters reports, this has pushed Shale firms into the willing-to-deal-at-much-lower-prices private equity business... Throughout much of the crude market rout that started in mid-2014 oil firms could rely on generous capital markets investors betting on a quick recovery in prices, which made any asset sales look unattractive. But since crude prices began tanking again in early July after a partial three-month recovery, oil firms have finally started to feel the squeeze. A torrent of $44 billion in high-yield debt and share sales in the first half of this year has slowed to a trickle with oil now at just above $42 a barrel, 30 percent below its June levels and 60 percent down from June 2014, CLc1 and a more pessimistic view taking hold that global oversupply could keep oil cheap for years.The number of high-yield bond and share issues has tumbled more than two-thirds from levels seen in May, Thomson Reuters data show.

Oil Goes Down, Bankruptcies Go Up – The 5 Frackers Next To Fall (Forbes) With West Texas Intermediate crude now below $42 a barrel, the edifice of America’s oil and gas boom is finally crumbling. The number of companies in bankruptcy or restructuring has increased, and the clouds will only grow darker in the months ahead. Declining revenues, evaporating earnings and shrinking values of oil and gas reserves will put the crunch on oil companies’ ability to refinance loans, let alone borrow new cash or sell shares. Last week two companies showed that having a heroic name is no defense. Hercules Offshore, a Gulf of Mexico drilling contractor, announced it had reached a prepackaged bankruptcy with creditors to convert $1.2 billion in debt into equity and raise $450 million in new capital.  While Samson Resources on Friday said it is negotiating a restructuring that will see second lien holders inject another $450 million into the company in return for all the equity in the reorganized company. Samson is the biggest bankruptcy of the oil bust so far, and a huge black eye to private equity giant KKR, which in 2011 led a $7.2 billion leveraged buyout of the company. The deal was a classic LBO: about $3 billion in equity backed by more than $4 billion in debt. It seemed like a good idea at the time.  So who will be next next to fall? The list of troubled companies slumping toward Chapter 11 is growing. SandRidge Energy, Goodrich Goodrich Petroleum, Swift Energy, Energy XXI, and Halcon Resources have all lost more than 90% of their market value since 2014, are larded up with too much debt, and would be lucky to survive the bust.

Business, oil groups call for end of oil-export ban - Facing low prices and a supply glut, oil industry executives called for an end to a 40-year-old federal ban on crude oil exports during a Billings forum Thursday. Lifting the ban would open new markets for producers and boost the economy in Eastern Montana, panel members told a luncheon group of about 40 at the Crowne Plaza hotel. “The bottom line is that we have a glut of crude in this country, and we need to export. We have too much,” said James McCord of Bay Limited, which manufactures oil field equipment in Billings.  The oil-export ban dates back to 1975, when the United States was far behind Middle Eastern nations in oil production and facing domestic shortages. Industry advocates argue that the boom over the last seven years in hydraulic fracturing, or fracking, has increased supply and made the ban obsolete. A bill to lift the ban has passed the U.S. House, and a similar bill cleared the U.S. Senate Energy Committee in July. Last week, the Obama administration gave approval for limited exports of U.S. oil to Mexico, permitted on a case-by-case basis under existing law, according to the Houston Chronicle.

Exporting Oil Overseas Would Come At A Huge Environmental Cost, Report Finds  -- Oil exports have been a major topic of discussion in recent months, as the United States has relaxed and considered lifting its long-standing ban on exporting oil to other nations. But a new report outlines exactly how exporting oil overseas would impact the country’s environment, not just in terms of increased carbon emissions but also in terms of the risks posed by transportation and changing land use.  The report, published Friday by the Center for American Progress (CAP), lays out the environmental reasons why Congress, which is expected to vote on a bill to lift the oil export ban once it returns to session next month, should seriously examine the environmental downfalls of oil exports.  “A hasty decision to outsource U.S. refinery capacity might boost oil company profits, but it would also carry a high environmental price tag and create uncertainty for consumers,” Matt Lee-Ashley, director of the Public Lands Project at CAP and co-author of the report said in a statement. “Congress should carefully weigh the full costs and risks of outsourcing American oil.” The studies CAP analyzed predicted that oil production will increase if the crude oil export ban was lifted. These studies and data showed that an average of 26,385 new oil wells would be drilled in the U.S. each year between 2016 and 2030 if the ban is lifted — 7,600 more wells than would be drilled each year if the ban wasn’t lifted. According to the CAP report, this development means that about 137 square miles of land would be turned over to oil development each year — an area that’s larger than Utah’s Arches National Park.

Brace For More Dividend Cuts As Canada’s Oil Patch Runs Out Of Cash (Bloomberg) Dividend cuts among Canadian energy producers are poised to accelerate as cost reductions fail to boost shrinking cash flow. Companies from Canadian Oil Sands to Baytex Energy are in line for deeper payout decreases, according to analysts, after Crescent Point Energy Corp. slashed its dividend for the first time last week as crude sank to a six-year low. Just 38% of the 63 energy companies in Canada’s Standard & Poor’s/TSX Energy index had positive free cash flow, defined as operating cash flow minus capital expenditures, as of Aug. 17. That’s down from 43% in 2013, data compiled by Bloomberg show. The dwindling cash flow comes even after Canadian companies joined some US$180 billion in global cutbacks this year, the most since the oil crash of 1986, according to Rystad Energy. “. “You can get increased cash flow by cutting costs but that’s not a sustainable model. The idea dividends are a sacred cow, that’s being put on the backburner.” Companies most likely to cut their dividends include Canadian Oil Sands, Baytex and Pengrowth Energy, said Sam La Bell at Veritas Investment.  All three have already cut their dividends, though Baytex and Pengrowth will become more vulnerable if oil prices remain low as their hedges begin to roll off as soon as the second half of this year, La Bell said.   Canadian Oil Sands, which chopped its payout by 86% in January, may be better off canceling the dividend altogether as it struggles to generate cash, he said. “We know the dividend is important to our investors, but even more so is protecting the long-term value of their investment,” said Siren Fisekci, a spokeswoman at Canadian Oil Sands, in an e-mailed response. “We will continue to consider dividends in the context of crude oil prices and Syncrude operating performance.”

As Canada’s Oil Debt Soars to Record, an Industry Shakeout Looms - Canadian energy companies’ debt loads are the heaviest in at least a decade, boosting concern that some won’t survive the collapse in crude prices. Trican Well Service Ltd., Canada’s largest fracking service provider, said last week it may be unable to continue because it’s in danger of breaching the terms of its debt. It’s the latest firm to see crude’s descent to a six-year low sap the cash flow needed to meet financial obligations. Oil’s plunge has pushed a measure of the average debt burden among Canadian energy firms to the highest since at least 2002, and another measure of their ability to make interest payments to the third-lowest level in a decade, according to data compiled by Bloomberg. Facing some of the highest production costs in the world and carrying more debt than U.S. peers, the Canadian industry has become ripe for acquisitions. Energy companies in the Standard & Poor’s/TSX Composite Index had an average of 3.1 times more debt than earnings as of their latest quarterly report, the highest ratio in Bloomberg data going back to the middle of 2002. That measure, a gauge of a firm’s ability to repay its obligations where a higher number indicates greater difficulty, has surged this year amid the global oil glut that’s depressed prices and earnings. Another ratio, measuring how much greater earnings are than interest expenses, plummeted to the third least in a decade at the end of last year, suggesting there’s less money to service the borrowings. The heavy crude that many Canadian firms pump sells at almost the widest discount in a year relative to the U.S. benchmark. At $24.22 per barrel on Wednesday, the price is below the cost of production for many companies.

Climate Change Is Hurting Oil And Gas Businesses, Too  -- Dozens of tar sands developers in Alberta’s tar sands have been suspended from taking water — needed for their operations — out of local rivers, after a low flow advisory was issued.  The Alberta Energy Regulator (AER) suspended 73 licenses to temporarily divert water (TDLs) from the Athabasca, Peace, and Wabasca rivers on July 24, after unusually dry weather caused water to fall to at or below healthy maintenance levels. Now, scientists are saying this could become a regular issue for Alberta’s tar sands industry.  Tar sands mining is a type of surface mining in which the top layer of organic matter — trees and plants — is scrapped off, and heavy crude oil is filtered from the sand and clay below. Three barrels of water are needed for every barrel of oil extracted from the tar sands, according to Friends of the Earth.  “More than 90 percent of this water, 400 million gallons per day, ends up as toxic waste dumped in massive pools that contain carcinogenic substances like cyanide,” the group says. Processing the oil from tar sands is incredibly carbon-intensive, and because of tar sands, the energy sector has become Canada’s biggest source of greenhouse gases.  As global warming worsens, some regions, including Alberta, can expect more and more dry summers, scientists say.  “This is absolutely a preview of the future,” Simon Dowell, a climate scientist at the University of British Columbia, told ThinkProgress.

Enbridge mid-month apportionment adds to Canada crude woes - Canadian pipeline operator Enbridge Inc is rationing space for mid-month on its line 4/67 ex Kerrobert for August, according to a notice to shippers on Monday that was seen by Reuters. Line 4/67, which is a part of its mainline system, would be apportioned by an additional 5 percent for August, the notice said. The company said on July that line 4/67 nominations were at 29 percent apportionment for August. The mid-month apportionment piles fresh misery on Canadian crude producers, who are already struggling with outright heavy crude prices at their lowest level in at least a decade. Extra rationing of pipeline space means producers cannot ship all their nominated volumes and will likely lead to a buildup of crude in Alberta, putting further pressure on Canadian differentials. “This additional apportionment is a result of numerous unplanned outages, power curtailments, and lower-than-expected rates on the western heavy system in late July and early August,” the company said. Enbridge restarted two key Canadian crude lines last week after they were shut following a crude oil release in Missouri on Aug 11. The discount on Western Canada Select (WCS) heavy blend crude for September delivery last week hit its widest level this year following the pipeline disruptions last week and an ongoing disruption at BP Plc’s Whiting, Indiana, refinery, which is one of the biggest consumers of Canadian crude. September WCS was last trading at $19.35 per barrel below the West Texas Intermediate benchmark, putting the outright price of heavy Canadian crude at $22.52 a barrel.

Judges Nixing Keystone XL South Cases Had Tar Sands-Related Oil Investments - On August 4, the U.S. Appeals Court for the 10th Circuit shot down the Sierra Club’s petition for rehearing motion for the southern leg of TransCanada’s Keystone XL tar sands export pipeline. The decision effectively writes the final chapter of a years-long legal battle in federal courts.  But one of the three judges who made the ruling, Bobby Ray Baldock — a Ronald Reagan nominee — has tens of thousands of dollars invested in royalties for oil companies with a major stake in tar sands production in Alberta. And his fellow Reagan nominee in the Western District of Oklahoma predecessor case, David Russell, also has skin in the oil investments game. The disclosures raise questions concerning legal objectivity, or potential lack thereof, for the Judges. They also raise questions about whether these Judges — privy to sensitive and often confidential legal details about oil companies involved in lawsuits in a Court located in the heart and soul of oil country — overstepped ethical bounds.  These findings from a DeSmog investigation precede President Barack Obama’s expected imminent decision on the northern, border-crossing leg of Keystone XL. Among the companies listed on Judge Baldock’s financial disclosure located on Judicial Watch’s website for the 2012 reporting year — the year Sierra Club filed its lawsuit — are some with a financial stake in tar sands production. They include ExxonMobil subsidiary XTO Energy, BP, ConocoPhillips, Sunoco and Kinder Morgan subsidiary El Paso Production.The “j” on the forms means a value of $15,000 or less, while “k” means $15,000-$50,000. Russell’s investment portfolio for the 2011 reporting year also included tar sands-related investments in companies ranging from Continental Resources, Plains All American and ONEOK Partners.

Obama administration gives OK to Shell to drill deeper in Arctic - — The Obama administration is giving Shell permission to fully drill an exploratory oil well in the Arctic Ocean and burrow into potential oil-bearing reservoirs thousands of feet below the seafloor that previously had been off limits. The newly modified drilling permit, issued Monday by the Interior Department’s Bureau of Safety and Environmental Enforcement, gives Shell a chance to complete its Burger J well before a Sept. 28 deadline to finish the work. Shell has already been drilling the well for more than two weeks. But BSEE had ordered the company to halt after completing the top 3,000 feet, because critical emergency equipment — and the icebreaker used to deploy it — were not nearby to safeguard the work. That icebreaker, the MSV Fennica, was damaged in Dutch Harbor, Alaska, and sent to a Portland , and sent to a Portland shipyard for repairs. It arrived near Shell’s ongoing drilling in the Chukchi Sea on Aug. 11. “Now that the required well control system is in place and can be deployed, Shell will be allowed to explore into oil-bearing zones for Burger J,” said BSEE director Brian Salerno, in a statement.

President Obama Gives Shell Final Approval to Drill in the Arctic - Yesterday, President Obama said climate change puts Alaska at the “front lines of one of the greatest challenges we face this century,” and yet today he approved Shell’s plans to drill for oil in the Alaskan Arctic. The President cannot have it both ways. Announcing a tour of Alaska to highlight climate change the day before giving Shell the final approval to drill in the Arctic ocean is deeply hypocritical. This approval means the Obama administration is leaving the fate of the Arctic up to Shell this summer. But that doesn’t mean the future of the Arctic has to be in Shell’s hands. While President Obama has made some progress during his term on reducing emissions through measures like the recent Clean Power Plan, his environmental legacy will be determined by the steps that he takes to keep fossil fuels in the ground. The Obama administration should know better than to bend over backwards to approve such a reckless plan. The President has seen how big the movement to save the Arctic and to keep fossil fuels in the ground has become, and it’s only going to get bigger if he doesn’t put a stop to this catastrophic plan.

U.S. approves landmark crude oil export swaps with Mexico - – The Obama administration will allow limited sales of U.S. crude to Mexico for the first time, a senior administration official told Reuters, marking another milestone in loosening a contentious ban on exporting domestic oil. The Commerce Department is “acting favorably on a number of applications” to export U.S. crude in exchange for imported Mexican oil, the official said. Such oil swaps are one of several possible exemptions allowed in the four-decade-old law that otherwise bans most overseas shipments. The approvals come eight months after Mexico formally sought permission for a swap, a historic step for a nation where oil self-sufficiency has long been a source of pride. The shipments, likely to be lighter, high-quality shale oil, will help Mexico’s aging refineries produce more premium fuels. U.S. refiners will continue to get Mexican heavy oil, a better match for them than the deluge of light oil coming from Texas and North Dakota. The licenses, good for one year, will be formally issued by the end of August, the official said. He declined to offer further details on volumes, saying only that the number of approvals was “a handful.” Mexico’s state oil company Pemex said in January it was seeking an exchange of about 100,000 barrels per day, equivalent to only about 1 percent of current U.S. output.

The Latest: Officials: Still interest in Gulf of Mexico oil -  Federal and trade group officials say there’s still interest in Gulf of Mexico oil and gas, despite low figures from Wednesday’s lease sale for tracts off the Texas coast. Bureau of Ocean Energy Management official Mike Celata (sel-AH’-tuh) says the bureau is not considering a cut in oil company royalty payments to encourage more bidding. And he notes that the oil business tends to run in cycles. Celata says the 26 bids submitted by BHP Billiton Petroleum (Deepwater) Inc. indicate long-term potential for business in the Gulf. The big bidder in Wednesday’s oil lease sale for tracts off the Texas coast says it’s very pleased with the outcome. BHP Billiton Petroleum bid nearly $16.3 million for 26 of the 33 tracts auctioned Wednesday. Exploration president David Rainey says in an email from London, “In BHP Billiton, we believe that the Gulf of Mexico has significant remaining resource to be found.” He says that the company will invest where it sees potential profit even during hard times for the industry.

New Records Show More US Involvement in Mexico Oil, Gas Privatization Efforts as Mexican Government Says “100%” Its Idea Steve Horn - New records obtained by DeSmog shed further light on the role the U.S.government has played to help implement the privatization of Mexico's oil and gas industry, opening it up to international firms beyond state-owned company PEMEX (Petroleos Mexicanos).   Obtained from both the City of San Antonio, Texas and University of Texas-San Antonio (UTSA), the records center around the U.S.–Mexico Oil and Gas Business Export Conference, held in May in San Antonio and hosted by both the U.S. Department of Trade and Department of Commerce, as well as UTSA. They reveal the U.S. government acting as a mediator between Mexico's government and U.S. oil and gas companies seeking to cash in on a policy made possible by the behind-the-scenes efforts of then-Secretary of State Hillary Clinton's U.S. State Department. State Department involvement was first revealed here on DeSmog, pointing to emails obtained via Freedom of Information Act and cables made available via Wikileaks.  The records also call into question the claim made by Mexico's Energy Secretary, Pedro Joaquín Coldwell, that the privatization policy was “100 percent made in Mexico.” Coldwell said this in reaction to DeSmog's investigation showing heavy State Department involvement in ushering in the policy. “It is absolutely false that Hillary Clinton or any other United States government entity had anything to do with the Mexican energy reform,” Coldwell stated.   If the U.S. government had nothing to with creating the policy architecture to begin with, and its own records tell the opposite story, then it sure is shocking how involved it is now in the attempt to help U.S. companies build their profits from the new policy regime.

Don’t Consider The Environmental Impacts Of Fracking, British Government Tells Locals  - The British government has made no secret of its support for fracking.  Last year, it opened up bidding for fracking licenses on nearly half the country’s total land area. Now, as those licenses are starting to be issued, the government has warned local councils that applications must be considered in “swift process.”  But anti-fracking activism in Britain has only grown. One county already rejected a permit application this month, setting up a battle royale between national government interests and local self-determination.  Lancashire County is in northern England, just north of Manchester. In June, the council rejected a permit application from Cuadrilla, a company that intends to explore for oil and gas resources in the area.  More than 90,000 people petitioned the council to reject the application, Johnson said. Frack Free Lancashire, Greenpeace, and Friends of the Earth all campaigned heavily against the permit.  But Cuadrilla has already announced that it will appeal the permit, likely on the grounds that the council did not properly consider the issues it is allowed to look at.  “The council is only allowed to look at specific aspects with regard to planning: the use of the land, light pollution, air pollution, land use, ecology to a certain extent — whether it is near a site with special scientific interest or natural beauty,” Johnson said. “Waste produced by the site could not be taken into account.” In other words, the decision cannot be a referendum on whether fracking is safe or necessary. Water contamination — which has been a problem in the United States, Johnson noted — is not an acceptable consideration.

Hedge funds aggressively bearish towards U.S. crude – A relatively small group of hedge fund managers has placed a record bet on U.S. oil prices declining further in the months ahead. Hedge funds and other money managers had accumulated gross short futures and options positions totalling 163 million barrels in the main NYMEX light sweet crude contract by Aug. 11, according to data released by the Commodity Futures Trading Commission. The number of gross short positions was up from 59 million barrels on June 2 and closing in fast on the record 179 million barrels set back in March. The number of traders identified by the CFTC as having shorts above the reporting threshold has actually fallen slightly over the same period, from 60 to 57. The number of hedge funds with reported short positions is not especially high and well below the record 84 identified in March. But the average short position has almost tripled since June, from under 1 million barrels to almost 3 million, a record and nearly twice the 1.6 million barrels reported in March.The CFTC data is anonymised to prevent identification of individual traders so it is not possible to know whether the 57 traders with large short positions last week were the same ones as at the beginning of June or a different group. However, it seems safe to assume a relatively small group of hedge funds have made large mark-to-market profits on short positions established more than two months ago which they have yet to close out. The existence of large mark-to-market gains provides a cushion enabling hedge funds to ride out a small and short-term rise in oil prices, if they choose to do so. The shorts are betting continued oversupply, the resilience of U.S. shale production, the end of the summer driving season and autumn refinery maintenance will depress WTI prices further.

Slip-sliding: Oil could drop to $30 a barrel by end of year - Oil is slippery for a reason. It jumps and plummets. It just doesn’t stay still for long. Once in awhile, the price of oil seems to go up and down almost simultaneously, as it did in 2008. That’s when the price of crude oil hit its all-time high of $147 per barrel in the summer, only to plunge to $32 by the end of the year. Suddenly, it seems like 2008 again. Experts are predicting that oil could fall to $30 a barrel, as the European and Chinese economy tank, along with consumer demand, and the U.S. dollar strengthens. Combined with a glut in supplies, the price of crude oil is tumbling. Last week, it fell it a six-year low, at around $43 a barrel. What that means for motorists, in some parts of the U.S., is gasoline prices below $2 a gallon. The trend is there already, with fuel selling as low as $2.21 a gallon in Mount Pleasant Thursday morning. The lowest prices in the Waterloo-Cedar Falls metro area were ranging from $2.49 to $2.59, compared to a statewide average of $2.63. The trend is for prices to fall as the weather cools down and stations switch to cheaper, winter blends, beginning Sept. 15. In the fall, gasoline production typically slows in the U.S., as oil refineries undergo maintenance. Shorter supplies generally create price increases, but demand also goes down as the traditional summer driving peak season ends. This year, falling demand is predicted to outweigh declining supplies, adding more downward pressure on prices, experts say.

No Let Up In Pressure On Oil Prices: Oil prices once again dipped to new six-year lows on August 17, with WTI falling below $42 per barrel and Brent trading below $49. Low oil prices continue to inflict damage on oil producers around the world. Canada’s stock market is continuing its downward trajectory. The ruble, is nearing a six-year low and Russia’s GDP is expected to contract by 3.6 percent this year. Saudi Arabia isn’t doing quite as bad, but its economy is expected to grow at an annual rate of 2.8 percent this year, down from the 3.5 percent pace exhibited in 2014. Riyadh has also had to step up spending and borrowing to compensate for lower oil revenues.  The markets started the week with a few more bearish pieces of news. North Dakota reported a slight uptick in oil production for the month of June, undermining hopes that a deeper pullback in production would slow the slide in oil prices. Also, Japan reported that its economy actually contracted in the second quarter As one of the world’s largest crude oil consumers and importers, Japan’s figures induced a slight sell off for oil. Finally, the U.S. dollar has appreciated a bit in recent days, making commodities more expensive for other currency holders. For oil prices, there is little relief in sight for the near term.

What is the price of oil telling us? -- Market fundamentalists tell us that prices convey information. Yet, commodities such as oil--which reached a six-year low last week--stand mute. To fill that silence, many people are only too eager to speak for oil. And, they have been speaking volumes. So much information in that one price! First, as prices fell last year when OPEC refused to cut its oil production in the face of slowing world demand, the industry kept saying that it could continue to produce from American tight oil fields at around $80 a barrel and be profitable. Then, as prices fell further, the industry and its consultants assured everyone that while growth in tight oil production would slow, it would still be profitable for the vast majority of wells planned. Petroleum geologist and consultant Art Berman is probably the best representative from the skeptical camp. For many years Berman has been pointing to the high cost of getting fracked oil out of the ground. And, those costs led to negative free cash flow for most tight oil operators for several years in a row--that is, they spent considerably more cash than they took in, making up the balance with debt and stock issuance. Not surprisingly, the operators took that money and kept drilling as fast as they could. It was a recipe for oversupply and a crash, one that is now threatening the solvency of many fracking-dependent U.S. oil companies. Not to worry. Two major international oil companies, Chevron and Exxon, declared back in December that $40-a-barrel oil won't be a problem for them. One of the sources cited was Exxon CEO Rex Tillerson whose company has had trouble replacing its oil reserves for more than a decade at much higher average prices. In fact, oil majors have been cutting exploration budgets since early 2014 when oil prices were still hovering above $100.

What's happening in the oil market right now is 'unprecedented' -- The price of oil has collapsed again. And now the oil market is looking at a future that is "unprecedented." In a note to clients this week, analysts at Goldman Sachs took a look at the market and the supply glut that has been blamed for the collapse in oil prices over the last year. And as Goldman sees it, quite simply, the rules of the market have changed. "The market structure of the New Oil Order is unprecedented," the firm writes, adding that the balance of power between the market's largest and smallest companies has changed. In the past, large integrated oil companies — like BP and Exxon Mobil — and state-owned oil companies have owned the more efficient, low-cost production while smaller oil companies faced higher barriers to entry. In the past, drilling oil necessarily required huge investments in platforms and equipment; massive balance sheets or state backing were virtually required to get into the market. But with lower-cost fracking technology, this has changed. And as a result, oil supply continues to run into the market as fracking companies are able to produce oil cheaply and shut down wells quickly when they become unusable or unprofitable. And oil majors have noticed. In a note to clients this week, analysts at Credit Suisse noted that ConocoPhillips and Total have both said the cost of production for US shale will fall 30%, and that 80% of shale oil produced will make financial sense to produce with prices below $60 a barrel at the end of this year. The oil-futures market projects oil prices will bounce back to near $70 a barrel.  Credit Suisse also notes that, despite the massive drop in the US oil rig count, production has remained steady.  Meanwhile, large oil companies or countries that depend on oil revenue to meet spending commitments have continued pumping oil because they still need to bring in that revenue, almost regardless of price. This is part of why we've seen OPEC, the 12-member oil cartel led by Saudi Arabia, maintain its daily production target twice during the sharp downturn.

The Peak Oil Crisis: A $4 Trillion Hole -- Last week reporters at the Wall Street Journal sat down and did some arithmetic. They looked at how much oil was selling for in the spring of 2014 (over $100 a barrel); looked at what it is selling for today (under $50); and concluded that if prices stay low for the next three years, the global oil industry and the countries it finances will be out $4.4 trillion in revenues. As these oil companies, nationalized and publically traded, will be producing roughly the same amount of oil in the next few years, the $4 trillion will have to come mostly out of profits or capital expenditures. This is where the problem for the future of the world’s oil supply comes in. The big oil companies, especially those that export much of their production, have been doing quite well in recent years. National oil companies have earned vast profits for their political masters. Publically traded ones have developed a tradition of paying out good dividends which they are loathe to cut. This leaves mostly capital expenditures on exploring for and producing more oil in coming years to take a dive as part of the $4 trillion revenue hit. Even if oil prices of $50 a barrel or less do not continue for the next three years, this still works out to a revenue drop of $1.5 trillion a year or about three times the planned capital expenditures of some 500 oil companies recently surveyed. The International Energy Agency just came out with a new forecast saying that while current oil prices have the demand for oil products increasing rapidly, there is still so much over-production that the oil glut is expected to last for another year or more before supply/demand comes back into balance. The return of Iran to unfettered production would not help matters.

What might prompt a short-covering rally in U.S. oil price? --Hedge funds remained unusually bearish on U.S. oil prices last week even as the cost of WTI tumbled towards the lowest level since 2009. Hedge funds and other money managers held short positions in WTI-linked futures and options equivalent to more than 193 million barrels of oil, according to the U.S. Commodity Futures Trading Commission. Money managers had never held a short position that large before, except for a brief period in March, when U.S. crude stockpiles were rising fast and there were fears storage space would run out. More hedge funds expect prices to rise than the number predicting a fall, and the oil bulls have a larger position overall, amounting to nearly 310 million barrels. But the ratio of hedge fund long to short positions in WTI is just 1.6:1, down from 4.6:1 in the middle of May, and the lowest in almost five years. The ratio is very bearish, given the long bias of commodity-focused money managers (most investors want to participate in a specialist commodity fund because they think prices will rise, otherwise they will invest elsewhere). In May and June 2014, prior to the beginning of the price crash, the hedge fund long-short ratio peaked at over 14:1.

API crude oil inventories: -2.3mln barrels: American Petroleum Institute (API) crude oil inventories for the week to August 14 An inventory drawdown according to  API

  • Weekly crude stocks down 2.3 million barrels
  • Weekly crude stocks at Cushing up 389K barrels

That draw is much higher than expectations. Oil popped a few cents on the 4.30pm release but is more or less unchanged a few minutes later. If it can't go higher on a big drawdown like this its likely a bearish sign. - Note - This data is out earlier to API subscribers (at 4.30pm ET) and released publicly at 4.35pm ET. The API data is closely watched as a guide to the U.S. Energy Information Administration (EIA) data due tomorrow morning (US time). The consensus estimate for tomorrow's EIA report is currently for a drawdown of 354K barrels.

U.S. crude stocks rise, gasoline draws down as refining slows (Reuters) – U.S. crude oil inventories rose and gasoline stocks fell last week as crude imports surged while refinery problems cut runs during the summer driving demand season, data from the Energy Information Administration (EIA) showed on Wednesday. Crude inventories rose 2.6 million barrels to 456.21 million in week to Aug. 14, compared with analysts’ expectations for a decrease of 777,000 barrels. U.S. crude imports rose last week by 465,000 barrels per day (bpd) to 7.46 million bpd. “The report is bearish, with the focus squarely on crude oil and the large increase in overall inventories, due mostly to a surge in imports,”  U.S. oil prices extended losses to a fresh 6-1/2-year low after the report. U.S. September crude was down $1.85 at $40.77 a barrel at 11:41 a.m. EDT (1541 GMT), having fallen to $40.60, the lowest front-month price since March 2009. The September contract expires on Thursday. Brent October crude was down $1.81 at $47.00 a barrel. “This week’s EIA data reaffirms the bearish fundamentals that continue to mount,”  “Couple that with the stronger dollar and weakness out of China, and it’s a recipe for lower prices ahead for crude,”

Crude tumbles to six-year low after US supply gain - Oil plunged Wednesday to the lowest level in more than six years in New York after a government report showed that U.S. crude stockpiles increased unexpectedly. West Texas Intermediate slipped as much as 5.1 percent after the U.S. Energy Information Administration said crude supplies rose 2.62 million barrels last week. An 820,000-barrel decline in the stockpile had been projected by analysts surveyed by Bloomberg. Crude imports surged to the highest level since April as refineries reduced operating rates. Oil has tumbled more than 30 percent since this year’s peak close in June amid signs that producers are maintaining output even after a surplus pushed prices into a bear market. WTI could drop to $32 on the persisting global surplus, Citigroup Inc. said in a report Wednesday. “Today’s inventory build was another catalyst to move lower,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “The build was completely unexpected and the surge in imports was impressive.” WTI for September delivery, which expires Thursday, dropped $2.05, or 4.8 percent, to $40.57 a barrel at 1:37 p.m. on the New York Mercantile Exchange. Prices touched $40.46, the lowest since March 2009. The more-active October contract slipped $2.10 to $41.02.

Weekly Crude Inventory Increases More Than Expected: U.S. crude oil refinery inputs averaged about 16.8 million barrels per day during the week ending August 14, 2015, 254,000 barrels per day less than the previous week’s average. Refineries operated at 95.1% of their operable capacity last week. Gasoline production increased slightly last week, averaging over 10.2 million barrels per day. Distillate fuel production decreased last week, averaging about 5.1 million barrels per day. U.S. crude oil imports averaged over 8.0 million barrels per day last week, up by 465,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, 0.9% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 869,000 barrels per day. Distillate fuel imports averaged 201,000 barrels per day last week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.6 million barrels from the previous week. At 456.2 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 2.7 million barrels last week, and are in the middle of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 0.6 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories rose 1.1 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.8 million barrels last week.

Crude Tumbles After Biggest Inventory Build In 4 Months Despite Largest 4-Week Production Drop In 2 Years -- Following last night's API inventory 'draw', DOE reported a much larger than expected build of 2.62 million barrels in crude inventory - the biggest weekly build since April. WTI Crude prices are tumbing on the news. However, it is worth noting that US crude production fell for the 3rd wek in the last 4 to its lowest in over 3 months. This is the biggest 4-week production decline since Oct 2013. Despite the 3rd week in the last 4 of production declines... This is the biggest 4-week decline since Oct 2013. Crude prices are not helped by the fact that (as Bloomberg reports) Angola will export the most crude in almost four years in October as the OPEC member satisfies Asian demand and offsets diminished revenue from lower oil prices. Africa’s second-largest producer plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg. This compares with 1.77 million barrels a day in September.

US oil imports rise as contango encourages storage – U.S. crude imports topped 8 million barrels per day (bpd) last week for only the second time this year, spurring an unexpected rise in stockpiles and sending U.S. oil prices down to a fresh post-crisis low. The United States imported 56.3 million barrels of crude in the week ending Aug. 14, up from 53.0 million barrels the week before, according to the U.S. Energy Information Administration. The difference is equivalent to the arrival of between one and two very large crude carriers (VLCCs), tankers that can carry up to 2 million barrels each.  Higher imports largely accounted for the reported 2.6 million barrel increase in commercial crude stocks, though refinery processing also slipped as a result of problems at BP’s Whiting refinery in Indiana.  Increased imports are not particularly surprising since refiners and traders currently have a strong incentive to maximize the amount of crude in storage. The contango in futures prices implies the market will pay around 75 cents per barrel per month to store oil in the United States between September and December. At one point last week, the fourth-quarter contango was running at almost $1 per month, far above the cost of leasing tank space and financing the inventory. Refining margins for turning crude into gasoline have softened in recent days but remain at some of the highest levels in the last decade. Refiners can earn around $17 per barrel for converting every barrel of imported oil into gasoline, up from about $11 this time last year, before operating costs, depreciation and taxes. There is an enormous incentive for refiners to stock up on relatively cheap crude, maximize sales of expensive gasoline, and hedge to lock in the generous refining margin.

Oil sinks to $40, logs longest weekly losing streak in 29 years - – U.S. oil prices dived again on Friday, threatening to dip below $40 a barrel for the first time since the financial crisis and notching their longest weekly losing streak since 1986, as a drop in Chinese manufacturing rattled global markets. World stock and currency markets joined an extended rout across raw materials this week, a slump accelerated on Friday by data showing activity in China’s factory sector shrank at its fastest pace in almost 6-1/2 years in August. With deepening gloom over demand growth from the world’s second-biggest oil user, and expectations for a significant build-up in surplus oil stocks this autumn, dealers said most oil traders were unwilling to fight the tide. “The market is stuck in a relentless downtrend,” said Robin Bieber, a director at London brokerage PVM Oil Associates. “The trend is down – stick with it.” U.S. October crude fell $1.02, or 2.5 percent, to $40.29 a barrel by 11:22 a.m. EDT (1522 GMT), having touched a new 6-1/2-year low of $40.11 a barrel earlier. Front-month U.S. crude has fallen 33 percent over eight consecutive weeks of losses, the longest such losing streak since 1986.

Weekly US Oil and Natural Gas Rig Count Up by 1 to 885 - — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. this week increased by one to 885.Houston-based Baker Hughes said Friday 674 rigs were seeking oil and 211 explored for natural gas. A year ago, 1,896 rigs were active.Among major oil- and gas-producing states, North Dakota and Oklahoma each gained three rigs and Alaska, California, Kansas and Wyoming each gained one.Texas lost six rigs, Pennsylvania declined by two and Colorado, Louisiana and West Virginia each lost one.Arkansas, New Mexico, Ohio and Utah were unchanged.The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

Oil rig count climbs for 5th straight week -- The oil rig count climbed again this week, according to driller Baker Hughes. Producers brought 2 oil rigs online, taking the total count to 674. The gas rig count was unchanged at 211. Last week, oil rigs climbed for a fourth straight week, also by 2. Shortly after the release, West Texas Intermediate crude fell below $40 per barrel for the first time since 2009. With oil under $40 per barrel, markets remain sensitive to any signals that the supply glut is worsening. Here's the latest chart showing the rig count:

WTI Crude Breaks Below Historic $40 Level, Energy Credit Spikes To Record Highs After Rig Count Rise -- Well, we have a winner - Oil broke to a 3 handle before 10Y rates hit a 1 handle (just - 10Y at 2.04%) following the 5th weekly rise in rig count (+2 to 674). Energy credit risk is soaring to record highs as investors realize 'there will be blood' in all those highly-levered loans.  This is the first time the front-month crude contract traded below $40 since March 3rd 2009... just before QE was unleashed in all its asset-inflating, malinvestment-driving, zombifying glory. This didn't help:  *Saudis Likely to Keep Output Near 10M B/D Through 2016: BARCLAYS.  And then the rig count data hit..

U.S. Oil Prices Hit Fresh Six-Year Low, Dipping Below $40 a Barrel - WSJ: The price of oil in the U.S. slipped below $40 a barrel Friday for the first time since 2009 amid a growing consensus that cheap crude is here to stay. Oil investors and forecasters, who predicted early in the year that prices would recover in the second half of 2015, now say a rebound is unlikely before the second half of next year or 2017. U.S. government forecasters last week cut their oil-price estimates and see oil holding below $60 a barrel, on average, through 2016. The shift in sentiment is partly due to the resilience of U.S. oil producers, who are continuing to pump crude at near-record levels despite months of spending cuts, thanks to new efficiencies in drilling technology. An unexpected price rally in the second quarter allowed some companies to lock in profitable prices for next year and add new drilling rigs. In intraday trading, the benchmark U.S. oil price tumbled as low as $39.86 a barrel on the New York Mercantile Exchange. The futures price later pared losses to finish at $40.45 a barrel, down 2.1%, or 87 cents, on the day. Brent crude, the global benchmark, fell $1.16, or 2.5%, to $45.46 a barrel on ICE Futures Europe. The trades below $40 occurred after oil-field-services company Baker Hughes reported that the number of rigs drilling for oil in the U.S. rose for the fifth straight week.

No End in Sight for Oil Glut - WSJ: When oil prices started to edge down a year ago, most energy mavens thought the drop would be small and short-lived. Instead, the price of crude has plunged by about 60% from its 2014 peak—and suddenly looks likely to stay low for months and maybe years to come. The reason: In the global battle for market share, nobody has backed down. Nobody has even blinked. Not Saudi Arabia, not the U.S., and not even troubled producers from Russia to Iraq. Everyone who can seems locked into pumping as much oil as possible. Far from going out of business, American oil companies have stunned their global rivals by maintaining or even adding production as U.S. prices nose-dived from $100 a barrel to $70 late last year to, as of Friday, just above $40. Even more surprisingly, the Saudis have actually increased their production in the face of falling prices, in what analysts say is a pre-emptive effort to keep competitors like Iraq from stealing customers in Asia. The result is the energy-industry version of trench warfare, with producers all trying to gain an inch of market share no matter the cost. And it is producing winners and losers around the world, luring American drivers into gas-guzzling pickup trucks while sending the Venezuelan economy into chaos.  While it might make sense for producing countries or companies to cut back and erase the glut, there is no political will or business rationale to do so, analysts say, as all participants need to keep cash coming in.

Is The Oil Crash A Result Of Excess Supply Or Plunging Demand: The Unpleasant Answer In One Chart - One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10 Year have imagined. Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.

Default Wave Looms As Energy Sector Credit Risk Surges To Record High -- With oil prices pushing cycle lows and Shale firms as loaded with debt as they have ever been, the spike in energy sector credit risk should come as no surprise as the hopes of the last few months are destroyed. At 1076bps, credit risk for the energy sector has never been higher. As UBS recently warned, more defaults are looming and, as we discussed this week, private equity is waiting to pick up the heavily discounted pieces. As we noted previously, as for the defaults well, they’re on their way UBS thinks, as evidenced by recent events such as American Eagle Energy’s “Movie Gallery” moment: Where are the defaults? They're coming: we've seen Quicksilver Resources and Dune Energy, are likely to see American Eagle Energy, RAAM Global Energy, Venoco and thereafter perhaps Connacher Oil & Gas, Samson and Sabine Oil & Gas. Most E&P firms had hedges in place for 2015; defaults typically lag by about 12 months and the clock started ticking late last year. Recapping, periods of QE in the US saw US HY supply surge 50% above normal levels as issuers sought to take advantage of lower borrowing costs and investors clamored for the relatively higher yields they could get by taking on more credit risk. More recently, struggling oil producers have tapped the market in an effort to stave off insolvency as crude prices plummet, leading directly to a situation where outstanding HY energy bonds account for a disproportionate share of all outstanding debt in the space. With rates set to rise later this year, with crude prices likely to stay depressed for the foreseeable future, and with suppressed liquidity in the secondary market for corporate credit poised to bring heightened volatility, the stage may be set for a high yield meltdown.

Angola to Ship Most Crude in Four Years to Meet Asian Demand - Angola will export the most crude in almost four years in October as the OPEC member satisfies Asian demand and offsets diminished revenue from lower oil prices. Africa’s second-largest producer plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg. This compares with 1.77 million barrels a day in September. Angola slashed its budget by a quarter in response to the slump in crude prices, which have lost more than 50 percent in the past year. The African nation’s bid to recapture revenues is supported by demand in China, the world’s second-biggest oil-consumer, which imported near-record levels of crude in July. “Angola continues to profit mainly from Chinese demand, in addition to some demand from India and Indonesia,” Angolan shipments will appear especially attractive to buyers in India and China because of the current price relationship between West African supplies and Asia’s regional crude benchmark, Dubai-Oman.

Study: Brazil Offshore Subsalt Holds 176 Billion Barrels Of Oil, Gas  (Reuters) - Brazil's Subsalt Polygon, an offshore area that has already yielded some of the world's largest recent oil finds, may hold enough undiscovered petroleum and gas to supply the world's current oil needs for more than five years, researchers said. The Polygon, which covers most of Brazil's Santos and Campos offshore sedimentary basins, contains at least 176 billion barrels of undiscovered, recoverable resources of oil and natural gas (barrels of oil equivalent), according to study released last week by Cleveland Jones and Hernane Chaves of the National Institute of Oil and Gas (INOG) at Rio de Janeiro-State University. That is more than four times the 30 billion to 40 billion boe already discovered in the area. "This is a conservative estimate with a high probability of coming true, 90 percent in fact," Jones said. "In theory, total undiscovered, recoverable resources in the Subsalt Polygon could be as high as 273 billion barrels, but the higher number only has a statistical certainty level of 10 percent." Recoverable resources are exploitable using current technology, but may not be viable depending on the price of oil, the cost of equipment and the financial health of the companies that own the rights to produce them. Resources can only become reserves if they economically exploitable.

Foreign firms scramble to fix Iran's refineries once sanctions end – International oil services companies are scrambling to win contracts worth tens of billions to repair and modernize Iran’s oil refineries once sanctions are removed, with officials even laying on bus tours for visiting foreign executives. Officials from Iran’s oil refining company NIORDC, its National Petrochemical Company and the privately owned Persian Oil and Gas are holding talks with services firms to clinch projects to repair Iran’s derelict refining and petrochemical sector. Iran badly needs to complete modernisation plans that ground to a halt after sanctions hit the country five years ago over its nuclear program. The projects are worth at least $100 billion, according to sources close to firms that have held talks in Iran. The talks accelerated after a nuclear agreement between Tehran and world powers in July paved the way to lifting sanctions. Sources close to the talks said Iran is moving forward with its pre-sanctions goal to refine more of its own oil and upgrade its petrochemical plants, with a view to boosting earnings. Iranian officials have already held meetings with a string of international companies to outline their plans, and even organized group bus tours for service companies to visit refineries, according to industry sources.

No, AP, Iran doesn’t get to Inspect its own Nuclear Facilities under Deal --Eminent Iran and security expert Gary Sick pointed out in an email late Wednesday that the Associated Press just ran a shamefully inaccurate story alleging that under the UN Security Council deal with Iran, Iran would carry out some of the inspections of their own “sensitive sites.” The accord actually provides for the inspectors of the International Atomic Energy Agency always to be present at such inspections. The reason for the presence of Iranian experts is that there is a long history of outside nuclear teams being sent in by the Great Powers for espionage. I.e., the Iranian inspectors are there to keep an eye on the UN inspectors, not to cover up Iranian activities (to which the IAEA will have full access). The 1990s UN inspections of Iraq were infiltrated, for instance, by US intelligence.

Low Oil Prices Could Break The “Fragile Five” Producing Nations -- Persistently low oil prices have already inflicted economic pain on oil-producing countries. But with crude sticking near six-year lows, the risk of political turmoil is starting to rise. There are several countries in which the risks are the greatest – Algeria, Iraq, Libya, Nigeria, and Venezuela – and RBC Capital Markets has labeled them the “Fragile Five.” Iraq, facing instability from the ongoing fight with ISIS, has seen its problems compounded by the fall in oil prices, causing its budget to shrink significantly. The government is moving to tap the bond markets for the first time in years, looking to issue $6 billion in new debt.Revenues have been bolstered somewhat by continued gains in production. Iraq’s oil output hit a record high in July at 4.18 million barrels per day, up sharply from an average of 3.42 million barrels per day in the first quarter of this year. But with Brent crude now dropping well below $50 per barrel, Iraq’s finances are worsening. According to Fitch Ratings, Iraq may post a fiscal deficit in excess of 10 percent this year, and all the savings accrued during the years of high oil prices have been depleted. Low oil prices could also push Venezuela into a deeper crisis. The cost of insuring Venezuelan government bonds has hit its highest level in 12 years, indicating the growing probability of default.   For Libya, already torn apart by civil war and the growing presence of ISIS militants, low oil prices are the last thing the country needs. ISIS violently crushed a civilian rebellion last week in the coastal city of Sirte, according to Al-Jazeera. Libya’s internationally-recognized government has called upon Arab states for help in fighting ISIS, something that the Arab League has endorsed. Meanwhile, the country’s oil sector – the backbone of the economy – is producing less than 400,000 barrels per day, well below the 1.6 million barrels per day Libya produced during the Gaddafi era. In other words, Libya is selling far less oil than it used to, and at prices far below what they were as recently as last year.

The Wrong Iraq Question -- As is in vogue these days in GOP circles, John Hinderaker asks Who Lost Iraq? And, of course, he answers:  the Obama administration.  Hinderaker’s evidence is an excerpt from Lindsey Graham talking to Hugh Hewitt and I shall leave that alone and allow the reader to assess as they see fit. What strikes me, however, about the question, i.e., “who lost Iraq?” is that it assumes facts not in evidence i.e., that we “had Iraq” in the first place.  I would assume this means that at some point Iraq had a stable, sustainable government and was a firm long-term ally of the US.  None of this was ever the case, so any narrative that assumes this is to be true is based on a fallacious premise.  Certainly any notion that the emergence of ISIL could have been forestalled by some act of will by the Obama administration is absurd.

Saudis Could Face An Open Revolt At Next OPEC Meeting - OPEC next gathers December 4 in Vienna, just over a year since Saudi Oil Minister Ali Al-Naimi announced at the previous OPEC winter meeting the Saudi decision to let the oil market determine oil prices rather than to continue Saudi Arabia’s role of guarantor of $100+/bbl oil.  Despite the intense financial and economic pain this decision has inflicted on Saudi Arabia, its fellow OPEC members, and other oil producers, the Saudis have given no indication they plan to alter course. In fact, Saudis have downplayed the impact of lower prices on their country, asserting that the kingdom has the financial wherewithal to withstand lower oil prices.  Presumably swayed by Saudi equanimity, financial markets do not see the Saudis abandoning their current policy before, during, or after the upcoming OPEC meeting.  A CNBC poll of oil traders, analysts, and major fund investors, aired on CNBC August 17, showed 95 percent believing the Saudis will not alter course. Are the futures market, CNBC’s oil traders, analysts, and major fund investors, and others, being lulled into an unjustified consensus? The damage the Saudi decision has inflicted on Saudi Arabia itself provides reasons for the Saudis to change course. As the first anniversary of the Saudi decision approaches, it would be reasonable for OPEC outsiders–OPEC members, other than the Saudis and their Gulf Arab allies, Kuwait, UAE, and Qatar—to interpret Saudi policy shift as designed to serve Saudi interests and those of its Gulf Arab allies rather than their interests and those of OPEC in general.

Officials Admit ISIS, Like Al-Qaeda, Was A Creation Of US Foreign Policy -- Dr. Ahmed has been leading the way in documenting how declassified documents from the Pentagon prove that U.S. intelligence officials warned the White House that supporting al-Qaeda just to depose of Syria’s Bashir al-Assad would have serious blowback and end up funding and empowering radical Islamic extremists. The White House ignored this advice. Two years later ISIS exploded onto the scene, and the American public was once again relentlessly fear-mongered into turning its sole, determined focus toward fighting this barbaric external enemy birthed by U.S. government policy. Civil liberties and treasure must once again be bequeathed to the military-intelligence-industrial complex to combat an enemy it funded and armed in the first place. The cruel joke; however, is that just like al-Qaeda before it, ISIS was a direct creation of intentional U.S. foreign policy. The US anti-Assad strategy in Syria, in other words, bolstered the very al-Qaeda factions the US had fought in Iraq, by using the Gulf states and Turkey to finance the same groups in Syria. As a direct consequence, the secular and moderate elements of the Free Syrian Army were increasingly supplanted by virulent Islamist extremists backed by US allies. It should be noted that precisely at this time, the West, the Gulf states and Turkey, according to the DIA’s internal intelligence reports, were supporting AQI and other Islamist factions in Syria to “isolate” the Assad regime. By Flynn’s account, despite his warnings to the White House that an ISIS attack on Iraq was imminent, and could lead to the destabilization of the region, senior Obama officials deliberately continued the covert support to these factions. “It was well known at the time that ISIS were beginning serious plans to attack Iraq. Saudi Arabia, Qatar and Turkey played a key role in supporting ISIS at this time, but the UAE played a bigger role in financial support than the others, which is not widely recognized.”

Asian Currency Crisis Continues As China Holds, Malaysia Folds, & Japan Heads For Quintuple Dip Recession -- Asia got off to an inauspicious start this evening with Japan printing a disappointing 1.6% drop in GDP - heading for its fifth recession in 6 years... so much for Abenomics, but, of course, Amari spewed forth some standard propaganda that he expects Japan to recover moderately (and Japanese stocks popped modestly assuming moar QQE). Then Malaysia continued its collapse with the Ringgit down another 1% hitting fresh 17-year lows and stocks dropping further, as the Asian Currency crisis continues. Heading into the China open, offshore Yuan signaled further devaluation but the CNY Fix printed very modestly stronger at 6.3969; and following last week's best gains in 2 months, Chinese stocks are plunging at the open after Chinese farmers extend their streak of margin debt increases. Finally, WTI Crude drifted back to a $41 handle in early futures trading.

Futures Flat As Oil Drops To Fresh 6 Year Low; EM Currencies Crumble Under Continuing FX War -- It was a relatively quiet weekend out of China, where FX warfare has taken a back seat to evaluating the full damage from the Tianjin explosion which as we reported on Saturday has prompted the evacuation of a 3 km radius around the blast zone, and instead it was Japan that featured prominently in Sunday's headlines after its Q2 GDP tumbled by 1.6% (a number which would have been far worse had Japan used a correct deflator), and is now halfway to its fifth recession in the past 6 year, underscoring Abenomics complete success in desrtoying Japan's economy just to get a few rich people richer. Of course, economic disintegration is great news for stocks, and courtesy of the latest Yen collapse driven by the bad GDP data which has raised the likelihood of even more Japanese QE, the Nikkei closed 100 points, or 0.5% higher.  Chinese stocks also rose by 0.7% to just shy of 4000 as a result of margin debt soaring once more, rising by $13 billion, and the longest streak in 2 months.  What else can one say about Chinese investors except that they sure learned their lesson. And while markets are levitating around the globe, if not so much in the US for now where futures are just fractionally in the red, which we expect will change in the now patented volumeless levitation into the market open and then close, economies are grinding to a halt, as express by the price of WTI, which earlier today dropped to a fresh 6 year low of $41.64, although the black gold has since recouped some of its losses following unconfirmed reports of an explosion in Kuwait's Shuaiba refinery. Also confirming yet again just how clueless economists really are, is the following chart from the WSJ showing that at no point in the last 12 months did economists expect oil to drop as low as it is today.

Coal prices fall to 12-year lows as China, India join demand slowdown: Coal futures have fallen to 12-year lows, hit by soaring production and a slowdown in global buying, including from India and China which until recently have been pillars of strong demand. Benchmark API2 2016 coal futures last settled at $US52.85 a tonne, a level not seen since November 2003. The contract is now over 75 per cent below its 2008 all-time peak and more than 60 per cent below its most recent high following the 2011 Fukushima nuclear disaster in Japan. The steady and sharp fall in coal prices has knocked down shares of big mining companies like BHP Billiton, Glencore and Rio Tinto, and it has seen many financers exit the sector. The price fall follows a rise in output from exporters like Australia at the same time as a sharp slowdown in overseas orders from major importers like the United States, and now also China and India. Coal futures have fallen to 12-year lows, hit by soaring production and a slowdown in global buying, including from India and China which until recently have been pillars of strong demand. "Indian coal imports are now under pressure ... Both thermal and met coal imports ran at their weakest annualised rates since October 2014," Australian bank Macquarie said on Wednesday. "Such a fall might not be just a temporary blip. On the thermal coal side we have seen power plant inventories reach record high levels, domestic production growth improve significantly and demand growth slow," it added. Thermal coal is used in power plants while metallurgical coal is used to make iron ore.

China halts operations of 3 oil, gas facilities close to residences - Three Chinese energy firms were told by local authorities in China to halt operations, after massive blasts at a warehouse in Tianjin last week raised public concerns that some facilities storing hazardous materials are too close to homes and schools. The Tianjin port warehouse, which had stored about 700 tonnes of the deadly chemical sodium cyanide, was 600 meters (656 yards) from the nearest housing estate. That was closer than allowed by Chinese laws, state media says. The government of the coastal city of Hangzhou has told CNOOC Hangzhou Marketing Company to suspend its operations at a facility currently storing at least 3,000 tonnes of gasoline and diesel. There are “safety risks,” said the Hangzhou government on its website on Wednesday. No buildings were close to the site when the facility was constructed in 1989, but homes and shops as well as a primary school have sprung around it over the years, it said. Warehouses of dangerous chemicals occupying an area exceeding 500 square meters should be built at least 1,000 meters from public buildings and transportation facilities, according to regulations published by the National Safety Administration in 2001.

Chinese Stock Indexes Fall Over 6% Despite Central Bank's Cash Injection: Amid lingering worries over the country’s economic health, Chinese stocks witnessed their sharpest decline in three weeks Tuesday. The Shanghai Composite Index tumbled nearly 6.2 percent to close at 3748.16 while the smaller Shenzhen Composite Index fell 6.6 percent to 2174.42. “Investors ran for the exit when the government failed to step in to support the market,” Steve Wang, chief China economist at Hong Kong’s Reorient Financial Markets, told Bloomberg. The yuan continued its decline against the dollar Tuesday. Before markets opened Tuesday, the People’s Bank of China (PBOC) -- the country’s central bank -- set the midpoint rate at 6.3966 per dollar, firmer than the previous fix of 6.3969. However, later in the day, the currency fell to 6.4011 per dollar. Earlier on Tuesday,  the PBOC offered 120 billion yuan (about $19 billion) worth of seven-day reverse repurchase agreements, or reverse repos -- which are short-term loans to commercial lenders in the money market -- in an attempt to inject liquidity.   "There have certainly been capital outflows associated with the yuan's recent weakening and today's move by the PBOC is in response to the tightening liquidity conditions," Suan Teck Kin, an economist at United Overseas Bank in Singapore, told MarketWatch.

Chinese stocks go on wild ride as economic gloom deepens -- Chinese stock markets took a wild ride on Wednesday, tumbling and soaring in a session that made little sense other than to highlight that investors have almost no faith in a month-long government effort to stabilize them. The Shanghai and Shenzhen markets fell 3 percent in morning trade, taking their losses to more than 8 percent since investors stampeded without warning on Tuesday. But state-backed buyers later rushed in, enabling stocks to finish the day more than 1 percent higher. It is a pattern that has been repeated several times since Beijing's "national team", a coalition of state-backed financial institutions and regulators, went into action early last month with instructions to halt a crash in share prices. Investors say China's stock markets - which were never for the faint of heart - have become dysfunctional since the government's massive and unprecedented rescue effort. Prices move sharply on speculation about the national team's activities as investors focus on making quick trading profits by pre-empting its next move.

Don’t Worry About China’s Stocks—Worry About Its Housing - : It’s becoming increasingly clear that China’s economy is slowing and the authorities’ fixes are not turning it around. That means the engine that pulled the global economy out of the 2009 recession has stalled. Many people see China’s present slowdown as a possible source of the next global recession, but few seem to realize the extreme vulnerability of China’s vast housing market and the many knock-on consequences of that market grinding to a halt. I’ve just completed a comprehensive review of China’s housing market, and I now realize it’s much worse than the consensus understands. The consensus view is: sure, China’s housing prices are falling modestly outside of Beijing and Shanghai, but since Chinese households buy homes with cash or large down payments, this decline won’t trigger a banking crisis like America’s housing bubble did in 2008. The problem isn’t a banking crisis, however: it’s a loss of household wealth, the reversal of the wealth effect, and the decimation of local government budgets and the construction sector. China is uniquely dependent on housing and real estate development. This makes it uniquely vulnerable to any slowdown in construction and sales of new housing. About 15 percent of China’s GDP is housing-related. This is extraordinarily high. In the 2003-08 housing bubble, housing’s share of U.S. GDP barely cracked 5 percent.

Evaluating the Chinese Devaluation - The 2% devaluation of the Chinese yuan on Monday, and subsequent 1.6% weakening on Tuesday, was variously described as surprising and stunning. I think it was to be expected, given China’s slowing growth, although there was no particular reason to believe Monday would be the day. In evaluating the effects, one has to first place the drop in context. The devaluation against the dollar was quite marked, as shown in Figure 1. . However, it’s important to recall that the dollar has had a rapid ascent over the past year, so that the real trade weighted value of the yuan has also been rising. This is shown in Figure 2. . In other words, the devaluation has only partly reversed a marked appreciation. (Note the depiction in natural logarithms allows one to see the devaluation in context.) Already, there is talk of “currency wars”. From Washington Post: Stephen Roach, a fellow at Yale University who formerly served as a non-executive chairman for Morgan Stanley in Asia, told Bloomberg that the move raised the “possibility of a new and increasingly destabilizing skirmish in the ever-widening global currency war.” There is no doubt that this move will tend to further appreciate the dollar. China accounts for 21.3% of the weight in the Fed’s broad currency basket dollar index.[1] But as shown in Chinn (2015), several East Asian currencies already quasi-peg to the yuan, so that a weight of about 1/3 is probably more relevant. Figure 3 depicts the implied appreciation of the dollar’s value against a broad basket assuming all other bilateral weights experience zero change, and East Asian currencies move one for one with the yuan. While the impact is substantial, I think the language of “currency war” is a little overblown. In addition, it’s important to disentangle the impact on markets emanating from the policy action specifically (a weaker yuan has negative implications for US firms exporting to China) from the news component (devaluation being interpreted as Chinese policymaker worry about the economy based on insider information, e.g., here).

China's yuan slips even as central bank sets firmer midpoint - China's yuan fell against the dollar on Tuesday despite a slightly stronger midpoint set by the central bank as traders expect the currency to be under further downward pressure amid a struggling economy. The People's Bank of China set the midpoint rate at 6.3966 per dollar prior to market open, firmer than the previous fix of 6.3969. The spot market opened at 6.3923 per dollar and was changing hands at 6.4005 near midday, 58 pips away from the previous close and 0.06 percent away from the midpoint. The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. The yuan posted its biggest weekly loss on record and touched four-year lows after the central bank's surprise devaluation of its currency by nearly 2 percent last Tuesday. "We consider the fair value of the yuan based on a trade-weighted basket at around 6.4-6.5 against the dollar and expect the direction of the currency unit fluctuation to be based on the health of the economy and the movement of other currencies globally," Credit Suisse analysts said in a note on Monday.

Michael Pettis: Do Markets Determine the Value of the RMB?  - Last Tuesday the PBoC surprised the markets with a partial deregulation of the currency regime, prompting a great deal of discussion and debate about the value of the RMB. Part of the discussion was informed by a consensus developing in one part of the market that the RMB is no longer undervalued but is in fact overvalued. Why? Because if left to the “market”, that is if the PBoC stopped intervening, the excess of dollar supply over demand would force the RMB to fall. This argument is based on a pretty confused understanding of how markets work and why investors do what they do. I thought it might be useful if I were to try to lay out the issue a little more clearly, and along the way address related issues. Because it isn’t necessarily easy to tie all of the topics together in an essay, I thought it might be better if I put it in the form of a series of questions. There are two conclusions, or at least two points I would argue:

  • “Market” forces, that is the balance of supply and demand, do not always indicate the relative valuation of an asset. This is partly because there are several ways to define market forces, but mostly because we usually think of valuation in terms of economic fundamentals. An overvalued currency is one in which market fundamentals, by which I mean the valuation of assets on the basis of expected cashflows discounted at an interest rate that is not distorted, drive supply and demand.
  • Supply and demand for an asset can also be driven by what traders often call “technical” factors. These are generally changes in supply in demand caused by other than fundamental factors. When China first approved the QFII program that permitted foreign investors to buy stocks, for example, or had China’s stock markets been included in the MSCI global benchmark in June, as was expected, there was or would have been an immediate increase in demand for Chinese stocks that would have caused prices to rise for reasons that had nothing to do with an improved economic outlook.

Pettis explains why the RMB is not fundamentally overvalued -- Nobody knows China like Michael Pettis, and his latest post on the RMB doesn’t disappoint.   Before we get to the crux of his argument we should point out that FT Alphaville has long argued that the RMB was probably over rather than under valued, based on its capital account position. Understandably we were feeling a bit chipper with our analysis following last week’s depreciation, until we read Pettis this morning. The Beijing-based academic argues convincingly that the RMB is still under valued because there’s a big difference between a technical misvaluation and a fundamental one. Pettis leans to the view that the RMB’s depreciation has little to do with China attempting to stimulate trade and much more to do with qualifying for the SDR and achieving monetary freedom. The third aspect, which can be loosely summarised as the trilemma dilemma, relates to the fact it is impossible for a central bank to have a perfectly fixed exchange rate and an open capital account without forgoing control of domestic interest rates. The loosening of China’s capital account controls over the last few years has, as a consequence, forced the government to make a choice over what it would prefer to control: the FX exchange rate or domestic interest rates. Indeed, as Pettis points out: This means that as long as the PBoC intervenes in the currency, it cannot provide debt relief to struggling borrowers, and to the economy overall, by lowering interest rates without setting off potentially destabilizing capital outflows. This constraint would be even tighter if the Fed began to raise interest rates. Reform of the exchange rate mechanism restores interest rate flexibility.

Problems for China’s economy extend far beyond currency - The sudden fall in China’s currency last week spurred a lively debate about whether the move was a victory for market reform or a competitive devaluation designed to shore up flagging exports.But even those who believe the 3 per cent drop was aimed at exporters acknowledge that a weaker renminbi by itself is radically insufficient to cope with the challenges facing China’s economy. “Currency depreciation to stimulate export growth is neither useful nor necessary,” said Qu Hongbin, HSBC chief China economist. He notes that while China’s exports have fallen this year, “exporters across Asia faced the same challenge, suggesting that the underlying problem is sluggish demand in developed markets”. China’s economy officially grew at an annual rate of 7 per cent during the first half of this year, neatly in line with the government’s full-year target. However, some doubt that figure — Capital Economics, for example, reckons it is 5-6 per cent — and there are widespread suggestions that further stimulus will be needed to prevent a slowdown. Yet an export revival would boost growth only marginally. Contrary to received wisdom, China has not pursued so-called “export-led growth” for the past decade. Net exports subtracted 3 per cent from annual growth in Chinese gross domestic product on average from 2004 to 2014. Meanwhile, investment contributed an average of 52 per cent of growth each year.  The importance of investment explains why data released last week will keep Premier Li Keqiang awake at night. Fixed-asset investment grew at its slowest pace since 2000 in the first seven months of 2015, led by a collapse in property investment. Factory output in July was also barely above the four-year low touched in March.

China's August scare is a false alarm as fiscal crunch fades - The situation in China is desperate but not serious, to borrow an old Viennese saying. Countries with a tight exchange controls and state banking systems may come to grief in the long-run, but they do not face the sort of financial collapse seen in the US and Europe in 1931 or 2008. China's central bank (PBOC) has already warned that it will deploy the coercive might of the Communist regime to stop anybody smuggling money abroad under false pretexts, invoking laws covering "money laundering and terrorist financing." It said violators will be "severely punished". They will be sent to the proverbial asbestos mines of Sichuan. This is the sort of liberalisation that Xi Jinping does best.Given the sanctions and given that China has a trade surplus of $600bn or 6pc of GDP - and is therefore accumulating foreign exchange at blistering pace, ceteris paribus - there is no chance whatsoever that reserve losses will spin out of control. Jens Nordvig from Nomura says China has $3.65 trillion reserves to cover foreign currency debts of $1.135 trillion, a ratio of 322pc. This a far cry from the East Asia Crisis in 1997-1998 when the ratio was 59pc in Malaysia, 33pc in Thailand, 27pc in Indonesia, and 22pc in Korea. All these countries had current account deficits. China most emphatically does not.

China's Tianjin Blasts Echo Across Economy: With a swathe of one of the world's busiest ports in ruins, more than a billion dollars in losses, and some major multinational firms still unable to access their premises, the economic impact of the Tianjin explosions could reverberate for months. Last week's blasts triggered a giant fireball and killed 114 people, sparking fears over toxic pollutants in the city's air and water, though authorities have insisted both are safe. They also devastated a large area of the port of Tianjin, a key gateway to the world's second-largest economy and its biggest trader in goods. Among the most striking images of the disaster have been those showing countless lines of imported cars burned to a crisp, with about 10,000 new vehicles near the blast site reportedly destroyed. More than 150 companies in the Fortune 500 -- the US magazine's listing of the world's biggest firms -- have operations in the city, and its port is one of the 10 busiest globally. The city has a population of 15 million people, almost twice that of London, and an economy roughly the size of the Czech Republic. "Economic activity in Tianjin has yet to return to normal several days after the devastating explosions there,"

China stocks slump again despite signs of govt support (Reuters) - China stocks tumbled again in late trading on Thursday, underscoring fragile investor confidence in the market as worries about the world's second-largest economy persist. Trading volumes were thin, suggesting many investors stayed on the sidelines. Shares were marginally lower in the morning, as statements by a slew of companies that the government had invested in them boosted some counters. But in mid-afternoon, prices began to drop. The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 3.2 percent, to 3,761.45, while the Shanghai Composite Index lost 3.4 percent, to 3,664.29 points The SSEC is now down about 7 percent since China devalued the yuan by nearly 2 percent on Aug. 11. On Wednesday, the indexes had reversed sharp losses to end higher, as roughly 30 Chinese listed companies, many small caps, disclosed holdings by government-backed investors in an apparent attempt to sooth market panic following the previous session's 6 percent tumble.

Unemployment in China: Trying to count China's jobless - The Economist -- DESPITE all the ups and downs in China’s economy over the past decade, its official unemployment rate has remained incredibly stable. Incredible in the sense of “impossible to believe”. The registered urban jobless rate is just 4.1% now. This would seem to point to economic vigour, but the problem is that it has sat at that precise level, without moving, since late 2010. And it has stayed within an absurdly narrow range of 4.0-4.3% since 2002, even at the depths of the global financial crisis (see chart below). New research claims that the real unemployment rate might be more than twice as high. In a working paper for the National Bureau of Economic Research, Feng Shuaizhang of the Shangai University of Finance and Economics and Hu Yingyao and Robert Moffitt of Johns Hopkins University parse data from an official housing survey to construct an alternative index. They find that China’s unemployment rate averaged 10.9% from 2002-2009, nearly seven percentage points higher than the registered jobless rate over that period.

China August Manufacturing Activity Hits Lowest Level Since 2009 - WSJ: —An early gauge of China’s factory activity fell to a six-and-a-half year low in August despite China’s efforts to reinvigorate slowing economic growth. The reading released on Friday suggests Beijing may need to do more to reach its goal for the year of about 7% economic growth over 2014. “Now they need to double down on stimulus,” said Tim Condon, an economist with ING, who added that economic activity in the third quarter could fall below that annual pace. Economists said they expect Beijing will soon cut the amount of money it requires Chinese banks to hold in reserve, a move that essentially frees up funds to lend out. The data came more than a week after China’s surprise devaluation of its currency, a move that should help its exporting factories. While the devaluation will likely need more time to have an impact, the move points to Beijing’s broader concerns over the slowing pace of growth. China’s other efforts to rekindle growth include four interest-rate cuts since November, earlier reserve-rate cuts, tax breaks and accelerated infrastructure spending. The preliminary Caixin China Manufacturing Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, fell to a 77-month low in August of 47.1, compared with a final reading of 47.8 in July, Caixin Media Co. and research firm Markit said Friday. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction.

China Manufacturing PMI Plummets to 6-Year Low - China's manufacturing sector reported the lowest PMI (Purchasing Managers' Index) reading in 6 years with an August 2015 Caixin/Markit "Flash" (preliminary) survey result of 47.1. Readings below 50 reflect a contracting manufacturing sector. The low value for the survey result was a surprise. This was down from a July reading of 47.8 June reading of 49.4 and was the sixth consecutive reading below 50. Analysts surveyed by Bloomberg indicated expectations were for a reading of 49.7.  Chinese companies cut their workforce numbers again in August, and at a faster rate than in July. Every metric was weaker than in previous months except for work backlogs which were increasing, implying that employment reduction may slow unless demand for output falls even more. The entrenched disinflation and deflation in Chinese manufacturing was reflected by continuing declines in both input prices and output charges. Bloomberg says that the data has "fueled concern an economic slowdown is worsening".

China's Debt Load To Hit 250% Of GDP In 5 Years, IMF Says -- Anyone who follows China knows that the country faces a particularly vexing problem when it comes to debt. The way we explain it is simple: Beijing is attempting to deleverage and re-leverage simultaneously. Needless to say, this isn’t possible, but that hasn’t stopped China from trying, as is clear from the multitude of contradictory policies and directives that have emanated from Beijing over the course of the last nine months.  Nowhere is the confusion more apparent than in China’s handling of its local government debt problem. In an effort to skirt official limits on borrowing, the country’s provincial governments racked up an enormous amount of off-balance sheet liabilities. These loans carried higher interest rates than would traditional muni bonds and ultimately, servicing the debt became impossible. In order to help provinces deleverage, Beijing launched a program whereby high interest LGFV loans can be swapped for new local government bonds that carry substantially lower interest rates. In fact, yields on the new bonds are close to yields on general government bonds meaning provincial governments are saving somewhere on the order of 300 to 400 bps. But there’s a problem. Banks aren't particularly keen on swapping a higher yielding asset for a lower yielding one. The PBoC’s solution was to allow the new bondsto be swapped for central bank cash which the banks could then re-lend into the real economy.The problem with this is that it transforms a deleveraging effort (the local government refi program) into a re-leveraging program (the LTRO component).Shortly after the program was launched, the PBoC effectively negated the entire effort when it moved to loosen restrictions on the very same LGVF loans that caused the problem in the first place.  Admittedly, lengthy discussions about fiscal mismanagement across China’s various provincial governments doesn’t make for the most exciting reading, but it’s hugely important from a big picture perspective. Why? Here’s why:

No SDR For You: IMF Tells China To Wait At Least One Year Until Reserve Basket Inclusion --If there was any confusion as to whether the recently devalued Chinese yuan would be landing in the IMF SDR basket on January 1, the Fund just cleared it up. As Bloomberg reports, a recommended extension of the current basket to September 30, 2016 was approved by the board on August 11: IMF executive board extends current composition of its Special Drawing Rights for nine months until Sept. 30, 2016. IMF staff had recommended extending the current basket, which was due to expire Dec. 31, to minimize disruption if yuan added. Board decision gives SDR users "sufficient lead time to adjust in the event that a decision were to be taken to add a new currency to the SDR basket" Board made decision Aug. 11, IMF says in statement And from WSJ: The fund’s executive board approved an extension of the current basket of reserve currencies including in its special drawing rights, or SDRs, to September 30, 2016. The board’s action confirms an earlier proposal for a delay in the five-year re-evaluation of the basket, which doesn’t include the yuan, and it said a decision on the future basket is expected by the end of the year. And while the move supposedly won't affect the Board's decision on whether to include the yuan, it's certainly interesting that the IMF happened to decide that there's "merit in agreeing on a limited extension of the current valuation basket," the very day (or, technically the day after) China devalued.

China’s Resistance to Reform May Grow With IMF Rebuff - Political support in China for economic reform, already weakened by the specter of slowing growth, may be further dented by the International Monetary Fund’s indication this week that it won’t add the yuan to an international basket of reserve currencies for at least a year. The IMF’s disclosure, which appears to postpone a reward China has sought for its pro-market tack, follows a decision in June by index provider MSCI Inc. MSCI -2.40 % not to include China’s shares in a global stock index. The developments signal doubts that Beijing has done enough to loosen government control and open its vast financial market to the rest of the world. China, for its part, increasingly views deeper integration with global markets as problematic, analysts said. Beijing’s efforts in recent weeks to stabilize the country’s stock and currency markets, they said, suggest policy makers want to loosen only gradually and are less likely to bow to international pressure. “The government’s focus in the near term is on keeping growth at a reasonable level and controlling risks,” said one economic adviser to the Chinese leadership. With demand at home sluggish, export markets soft and the property market weak, growth in the world’s second-largest economy in 2015 is expected be the slowest in 25 years. Given their recent policies favoring stability over reform, China’s leaders have come to view the yuan’s inclusion in the IMF’s special drawing rights as increasingly unlikely, say people close to the government.

Seeking a Way through the Fog of a Currency War - John Taylor  - Many have speculated on the nature of, and the reasons for, the exchange rate regime change in China last week. While the central bank has issued press statements and answered questions about it intentions, it is useful to look at the data. First note how this change in regime compares with the regime change ten years ago when China went off the peg with the dollar. The chart below plots the percentage change in the Chinese Yuan per dollar in the two periods.  Note that both regime shifts started out exactly the same way—with a 2 percent change—appreciation in 2005 and deprecation in 2015.   But then you begin to see a real difference.  In 2005 there was virtually no change in the exchange rate as China began a very slow appreciation over a period of months and years with a temporary halt during the financial crisis.  This time, however, they let the rate move again on day 2 and on day 3, and they even let it appreciate a bit on day 4.  Of course the rate is still being managed—and we will learn more in upcoming days—but it is clearly more flexible and will be more flexible than in the years following the move in the summer of 2005. Why is China taking these new steps? Perhaps the IMF’s recent SDR analysis saying that the yuan needs to be more flexible and market sensitive is a factor, or perhaps it is the slowing Chinese economy. However, the most significant factor, in my view, relates to the recent large exchange rate movements around the world which appear to be largely due to unconventional monetary policy shifts in the United States, Japan and Europe, and the accompanying depreciations that have followed in many emerging market countries.

Currency Wars and the Threat of Deflation - The price at which you can trade American dollars for foreign currencies may seem abstract, but events unfolding right now make it important to your future income, whether you have a job and the direction of the world economy in the next few years. Around the globe, we are seeing strong downward pressure on prices, especially for commodities, prompting some governments to make their currency cheaper relative to the dollar. That suggests we may be entering a period of deflation, last experienced in a serious way in the U.S. in the Great Depression of the 1930s and the late 1800s. A deflationary spiral would represent a serious threat to the global economy. Currency war Let’s look at the currency fight. To bolster its exports, and thus jobs, Beijing last week cut the price of the yuan, relative to the dollar, by about 4 percent. More than a fifth of American trade is with China, so the relative price of the yuan and dollar matters a lot to both countries. A cheaper yuan helps China export more manufactured goods, because Americans (and others) can buy them at lower cost. This also means it will cost the Chinese more to buy American products, so fewer will be sold. In June China sold $1 billion per day more to the U.S. than it purchased. If the yuan falls 10 percent it, will make Chinese goods so much cheaper that our trade deficit with China will likely increase by about $66 billion annually. That translates into a likely loss of 190,000 to 640,000 American jobs, according to the Economic Policy Institute. Since 2000 the U.S. has lost more than 5 million manufacturing jobs, the majority of them to China.

China’s Devaluation May Be Bad News For FX Industry (Reuters) China’s currency devaluation should give a shot in the arm to global foreign exchange volumes as traders take advantage of and protect themselves against the surprise surge in volatility, but its longer-term impact on market activity may not be so benign. Investors with longer-term horizons than a day’s trading profit, from pension funds seeking stable returns to companies considering expanding overseas, will be alarmed by the prospect of wild swings in exchange rates triggered by another round of “currency wars”. Former Brazilian finance minister Guido Mantega coined the term “currency wars” in 2010. It refers to countries trying to make their exports more competitive – and ultimately boost their growth – at the expense of rivals, by weakening their exchange rates. Policymakers fear Beijing’s move could accelerate this race to the bottom, particularly as most countries, including those in the developed and industrialized world, have few growth-boosting policy tools left open to them. It’s a worry for a troubled foreign exchange industry. After years of rapid growth, which made it the world’s largest financial market and a money-spinner for big banks, trading volumes are slowly shrinking and jobs are being lost. Tighter regulation, increased automation, greater competition, and a global market-rigging scandal all suggest its glory days are over. The depressive impact on investment of a lengthy currency war would do little to restore its fortunes. “Any prolonged uncertainty in the market resulting from this, and real-money players such as pension and mutual funds will be less inclined to invest,”

Taiwan Halves GDP Forecast, Ceding Electronics Exports To China - Taiwan cut sharply its 2015 GDP growth forecast to 1.56% from 3.28% and now expects its exports to fall by 7% this year versus the previous 2.6% decline. Something big is happening here. Is Taiwan acknowledging that it is losing its comparative advantage in electronics exports? Electronics is by far the largest component in Taiwan exports, contributing to 28% of the total pie. The next closest product category is basic metals with 9% share. China is actually the biggest importer of electronics made in Taiwan, representing 42% of the total. But there are signs that China wants to develop its electronic capabilities in-house, which means they will not need Taiwanese products one day. Aviate Global‘s Douglas Morton wrote: The most recent example of this has been China Display, with the world’s largest capacity of CMOS-LPTS manufacturing, signalling “harsh supply-demand conditions” in smaller LCDs last week. Is it merely a coincidence that this comes at a time China Star (or CSOT as its known) is developing and starting mass production of in-cell products in China? In addition, as its economy slows down rapidly, China wants to pick up its exports growth again. Electronic equipment happens to be its largest category as well, with 24.4% of the total. Machines, engines and pumps come second with 17% share. Taiwan said its latest growth forecast has not taken into consideration the impact of last week’s yuan devaluation.

New Taiwan dollar plunges 0.78% to six-year low against the US dollar - The New Taiwan dollar yesterday declined 0.78 percent, or NT$0.253, in Taipei trading to close at NT$32.621 against the US dollar, deeper than other currencies in the region, central bank figures showed. The fall represented a six-year low and came after the government on Friday cut its forecast for GDP growth this year by more than half to 1.56 percent, from 3.28 percent in May. Combined turnover on the Taipei Foreign Exchange and Cosmos Foreign Exchange markets amounted to US$1.36 billion, a relatively moderate volume. “The local currency might soon drop below the NT$33 level as the central bank is likely seeking to catch up with major trade rivals in raising export competitiveness,” a currency trader at a local bank said by telephone. The South Korean won lost 0.77 percent yesterday, while the Singaporean dollar weakened 0.38 percent and the Japanese yen retreated 0.13 percent. The Chinese yuan closed down 0.04 percent, one week after the People’s Bank of China lowered its fixing guidance by 1.9 percent, jolting foreign exchange markets across the world.

Surging student loan debts a concern for slowing South Korean economy - Graduating from a four-year university course is not always something to rejoice. Especially for Korean students these days, as they now have to worry about paying off their student loans and finding jobs. With slow economic growth, more and more are taking out student loans. Outstanding student debt has surged to more than US$10 billion in the first half of 2015, according to the state-owned Korea Student Aid Foundation. “They say they will lower university tuition fees, but so far it's remained the same. Private university tuition fees are around 4,000,000 won (US$3,400) per semester on average; there's no way a student can pay that” This has triggered concerns the total debt amount could build up fast especially since students here do not have to pay them back right after graduation, but until after their income reaches a certain level. But analysts say with high unemployment, student loans are of rising concern. And it could soon turn into a bigger social problem for the Korean economy. “As more youths are getting jobs where they combine work and study, graduation and entry to society is being delayed,”  “This in turn affects the marriage age and the decrease in birth rates.” The number of unemployed among South Koreans in their twenties reached a new first-half high in 2015. About 410,000 young Koreans were unemployed in the first half of 2015 compared to 402,500 in the same period of 2000 – just after the Asian financial crisis.

Japan economy shrinks in quarter two in setback for 'Abenomics' - (Reuters) - Japan's economy shrank at an annualised pace of 1.6 percent in April-June as exports slumped and consumers cut back spending, adding pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy out of decades of deflation. China's economic slowdown and its impact on its Asian neighbours has also heightened the chance that any rebound in growth in July-September will be modest, analysts say. The gloomy data adds to signs that Japan's economy is at a standstill and heightens pressure on policymakers to offer additional monetary or fiscal stimulus later this year. The contraction in gross domestic product (GDP) compared with a median market forecast of a 1.9 percent fall and followed a revised expansion of 4.5 percent in the first quarter, Cabinet Office data showed on Monday. "If weak private consumption persists, that would be a further blow to Abe's administration, which is facing falling support rates ahead of next year's Upper House election," said Hiromichi Shirakawa, chief Japan economist at Credit Suisse. "This could raise chances of additional fiscal stimulus." Private consumption, which makes up roughly 60 percent of economic activity, fell 0.8 percent from the previous quarter, double the pace expected by analysts. It was the first decline since April-June 2014, when a sales tax hike hit consumption, as households spent less on air conditioners, clothing and personal computers. Overseas demand shaved 0.3 percentage point off growth as exports to Asia and the United States slumped.

Abe Aide Says Japan Needs $28 Billion Economic Package (Bloomberg) Japan needs an economic injection of as much as 3.5 trillion yen ($28 billion) to shore up consumption and stave off a further economic contraction, said Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe. “Households feel their income has been reduced,” Honda, 60, said in an interview Tuesday at the Prime Minister’s Office in Tokyo. “The negative legacy of the previous tax hike is waning, but increases in wages are lower than expected and prices of food and daily commodities are rising.” The world’s third-biggest economy shrank an annualized 1.6% in the three months through June as households and businesses cut spending and exports tumbled.   While the tailwind from the weaker yen and the Bank of Japan’s unprecedented monetary stimulus have helped propel stocks to an eight-year high, consumer confidence has slumped. Honda said a package of 3-3.5 trillion yen is needed to help lower-income households and pensioners. He suggested it should be delivered as subsidies such as child-care support or coupons, rather than spending on public works. Additional spending can be funded from higher-than-expected tax revenues, rather than issuing new government bonds, he said. Economy Minister Akira Amari said Monday he doesn’t expect to add fiscal stimulus, and Bank of Japan Governor Haruhiko Kuroda is counting on growth returning this quarter as he pursues a distant 2% inflation target with unprecedented monetary stimulus.

Japan expected to issue record amount of government bonds this fiscal year - The Japanese government is expected to issue a record amount of government bonds this fiscal year. Japan's Nihon Keizai Shimbun reported Thursday that the country may issue a total of 30 trillion yen or over 242 billion U.S. dollars worth of government bonds. The Japanese Treasury Department issued 232 billion dollars worth of bonds during the last fiscal year, up 24 percent from the previous year,… to procure necessary funding for fiscal year 2015. The figure represents an increase of two-and-a-half times the amount issued in fiscal year 2012,… before the Bank of Japan initiated its quantitative easing policy. The report added that the Japanese government's massive issuance of bonds is due to interest rates lingering in the low zero-percent range and growing expectations the BOJ will begin tapering, as well as the U.S. Federal Reserve's expected rate hike by the end of this year.

Japan trade deficit widens as export growth slows | The Olympian: Japan's trade deficit widened to its largest level in five months in July, adding to worries over the recovery amid weakening demand in China for chemicals, machinery and electronics. Though exports rose 7.6 percent from a year earlier, imports fell just 3.2 percent, less than forecast. The resulting 268.1 billion yen ($2.2 billion) deficit reported Wednesday compared with a deficit of 70.5 billion yen ($566 million) in June and was the biggest since Feburary. Japan's economy contracted at a 1.6 percent annual pace in April-June after a 4.5 percent expansion in the first three months of the year, sapped mainly by weaker than expected consumer spending, though exports also were a drag on growth, falling at a 16.5 percent annual pace. "The trade deficit widened in July, and should continue to rise in coming months as the weaker yen pushes up import costs," Marcel Thieliant of Capital Economics said in a research note. Lower costs for imports of oil and gas thanks to the drop in crude oil prices have reduced Japan's trade deficit in recent months. The deficit in July was therefore 72 percent lower than in the same month a year earlier. China's recent move to devalue the yuan, making its own products more price competitive in overseas markets, has further deepened unease over the trade outlook. The Japan External Trade Organization, or JETRO, issued a report Tuesday showing declining exports in the first half of the year to China, Japan's biggest trading partner.

Chinese slowdown sends ripples across Asian banks -  Asian lenders are seeing their loan books rapidly deteriorate across the region as China's slowing economy dampens trade and hurts companies that had borrowed heavily from the banks. Among 23 major non-Chinese lenders, all but 6 reported an increase in soured loans in the first half of 2015, the strongest indication yet of how China's slowdown is infecting banks' balance sheets, data compiled by SNL Financial for Reuters show. That trend accelerated in the second quarter, the banks' data show. "Second-quarter results have seen banks across Asia suffer rising bad loans after a period of historic lows in NPL levels," said Josh Klaczek, JPMorgan head of Asia financials research. "China's slowing growth has particularly hit shorter duration trade-related loans, but is likely to have a broader impact on commodity credit, given its importance as an end-user." The data indicate how banks regionwide are suffering even when, like in Indonesia, they are not lending much directly to Chinese companies, as trade across Asia stutters. Indonesian banks saw provisions against bad loans as much as triple in the first half of 2015.

Currency turmoil in emerging markets escalates - China’s devaluation is triggering drastic action from central banks in emerging markets and sharp falls in foreign exchange rates for countries from the Philippines to Colombia. With many EM countries benefiting from China’s voracious demand for commodities in recent years, last week’s surprise devaluation of the renminbi has sparked broad concern that a primary engine of the global economy is spluttering. The shift towards more flexible exchange rates in countries such as Kazakhstan and Vietnam underscores how China’s devaluation has ratcheted up pressure on emerging markets, already struggling with concerns over the commodity price collapse, a looming US interest rate hike and capital outflows. “We cannot rule out further upward FX rate adjustments over the coming months, and believe their size and timing could be correlated with further RMB FX rate adjustments,” said Dmytro Bondar, technical analyst at RBS. In the latest sign of rising EM currency stress, Kazakhstan’s tenge lost more than 20 per cent of its value after the central Asian country announced it would allow its currency to float freely. At one point, South Africa’s rand fell to its lowest level against the dollar since 2001, while Turkey’s lira and Russia’s rouble both dropped by more than 1 per cent. The Colombian peso fell 1.2 per cent against the dollar on Thursday, to a new record low.

Singapore bankers rattled by Asian moves to chase undeclared wealth | Reuters: Singapore-based wealth managers, already under pressure from a global move towards tax information sharing, face a more immediate threat as Asian countries including Indonesia and India look to chase undeclared money in the low-tax city state. A global crackdown on tax evasion launched during the 2008 financial crisis has already forced Switzerland and other European offshore hubs to surrender their prized bank secrecy. Like those centres, Singapore has committed to automatically start sharing information with foreign tax authorities from 2018, in line with an agreement signed by more than 51 countries last year that seeks to put an end to tax evasion. But Singapore banks face a more urgent challenge. Indonesia, Singapore's main source of wealth assets, is considering offering a tax amnesty to individuals willing to repatriate funds from abroad - targeting $225 billion Jakarta says is parked in Singapore alone. "Indonesia accounts for 30-50 percent of business for private banks in Singapore," a Singapore-based banker at a top global wealth manager told Reuters. "Clients are worried and asking about this, (while) accounting and legal firms are pitching to help clients structure their transactions," said another banker. Both declined to be named due to client confidentiality rules.

India’s Rupee Declines to Two-Year Low as Export Slump Deepens - India’s rupee fell to its weakest level in two years as a slump in exports drove the nation’s trade deficit to an eight-month high. The shortfall reached $12.8 billion in July as overseas shipments dropped 10.3 percent from a year earlier, official figures showed after the close of trading on Friday. Exports slipped for an eighth month, the longest run of declines since 2009. China’s surprise yuan devaluation last week reignited concern of a regional currency war as Vietnam widened the dong’s trading band. The rupee weakened 0.5 percent to 65.3125 a dollar at close in Mumbai on Monday, according to prices from local banks compiled by Bloomberg. The currency slid to 65.3750 in intraday trading, its lowest level since September 2013. Sovereign bonds were steady on Monday while the benchmark S&P BSE Sensex index of shares lost 0.7 percent. “The wider trade deficit is a matter of concern,”“Broad gains in the dollar and losses in local equities are also weighing on the rupee.” Weak exports continue to offset relief from a lower commodity imports bill for India, DBS Bank Ltd. economists wrote in a report.

Moody's cuts India's 2015 growth forecast to around 7 per cent -  Cautioning that slow reforms pace could dent growth, Moody's Investors Service today cut India's growth forecast for this fiscal to around 7 per cent from 7.5 per cent projected earlier, citing below-normal rainfall. "We have revised our GDP growth forecast down to around 7 per cent in light of a drier-than-average monsoon although rainfall was not as low as feared at the start of the season," Moody's Investors Service said in its 'Global Macro Outlook for 2015-16'. Saying India's growth outlook is resilient beyond short-term monsoon effects, Moody's has retained growth forecast for 2016-17 at 7.5 per cent. "One main risk to our forecast is the pace of reforms slows significantly as consensus behind the need for reforms weakens once the least controversial aspects of the government's plan have been implemented," Moody's said. The key reforms legislation with regard to GST and land acquisition could not be passed by Parliament in the monsoon session because of political logjam. Moody's growth projection is lower than the estimates of International Monetary Fund (IMF), which projected India to grow at 7.5 per cent in 2015-16.

Indonesia Impaled: Currency Crashes To 1998 Asian Crisis Low As Exports Crater -- On Monday we laid out the rather dire road ahead for the world’s emerging economies in the face of China’s entry into the global currency wars. The path ahead is riddled with exported deflation and decreased trade competitiveness for a whole host of emerging economies [and] all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic." Well don’t look now, but trade just collapsed for Indonesia as exports and imports plunged 19.2% and 28.4% (more than double to consensus estimate), respectively in July. Imports of raw materials dove 24%. Manufacturing and palm oil exports fell 7.1% and 2.4%, respectively, nearly tripling June’s declines. Oil and gas exports fell nearly 8%.

Vietnam devalues dong to protect exports, offset China's yuan action (Reuters) - Vietnam devalued the dong for the third time this year on Wednesday (Aug 19), as authorities sought to support a languid export sector facing fresh challenges from a surprise devaluation of the Chinese yuan. The State Bank of Vietnam, the nation's central bank, also widened the dollar/dong trading band for the second time in a week, underscoring concerns a weaker yuan could further inflame a bloated trade deficit. China, Vietnam's top trading partner, rattled global financial markets when it devalued its currency by nearly 2 per cent on Aug. 11, heightening worries of a global currency war. On Wednesday the State Bank of Vietnam lowered the official mid-point rate by 0.99 per cent to 21,890 dong per US dollar and widened the trading band to 3 per cent from 2 per cent. The dong stood unchanged at 22,085/22,105 per dollar on the interbank market at 0322 GMT, while on the unofficial market it fell to 22,250/22,400 per dollar, from 21,840/21,870 on Tuesday. Export-reliant Vietnam posted a trade deficit of US$3.53 billion (S$4.96 billion) in January-July, compared with a US$1.59 billion surplus in the year-ago period. Shipments grew 8.9 per cent in the first seven months, below the government's 10 per cent target.

TPP talks to resume in September - Deputy Minister of Industry and Trade Tran Quoc Khanh, chief negotiator of Vietnam, said on Saturday that all the parties concerned wanted to wrap up TPP talks within this year. Otherwise, the TPP accord could not reach U.S. Congress before the presidential election campaign begins in 2016. President Barack Obama wants the deal done before he leaves office. Therefore, Vietnam and 11 other countries expect talks to resume in September, according to Deputy Minister Khanh, who is in America to work with the Office of the U.S. Trade Representative over bilateral issues related to the TPP. Khanh said issues involving auto market openness, dairy products and intellectual property remained to be solved. After they are settled in bilateral talks, they would be discussed in the multilateral meeting. In bilateral negotiations, America and Japan have reached agreement on opening the automotive market in which the U.S. allows cars manufactured in Japan with domestic parts accounting for 30% to 55% to benefit from the TPP rule of origin. However, this has not been accepted by other nations such as Mexico and Canada since the U.S. market is the largest car exporter to both countries, and if Japanese cars are allowed in, it would pile great pressure on them. Similarly, New Zealand and Australia expect broader market openness for dairy products but have not yet agreed on a deal since the offers of some countries for them are not satisfactory

Asian Currency Crisis Continues As China Holds, Malaysia Folds, & Japan Heads For Quintuple Dip Recession -- Asia got off to an inauspicious start this evening with Japan printing a disappointing 1.6% drop in GDP - heading for its fifth recession in 6 years... so much for Abenomics, but, of course, Amari spewed forth some standard propaganda that he expects Japan to recover moderately (and Japanese stocks popped modestly assuming moar QQE). Then Malaysia continued its collapse with the Ringgit down another 1% hitting fresh 17-year lows and stocks dropping further, as the Asian Currency crisis continues. Heading into the China open, offshore Yuan signaled further devaluation but the CNY Fix printed very modestly stronger at 6.3969; and following last week's best gains in 2 months, Chinese stocks are plunging at the open after Chinese farmers extend their streak of margin debt increases. Finally, WTI Crude drifted back to a $41 handle in early futures trading.

No Respite for Ringgit as Stocks Slump Adds to Oil-Related Loss - The ringgit extended last week’s biggest slide in five years, the benchmark share index closed at its lowest since 2012 and bonds declined on speculation investors will dump more Malaysian assets as sentiment deteriorates. The currency traded at a 17-year low against the dollar after a probe revealed Prime Minister Najib Razak received a personal donation from the Middle East, contributing to about $3 billion of outflows from Malaysian equities this year, the most since 2008. Brent crude prices resumed their decline on Monday, putting further pressure on the oil-exporting nation’s finances as the U.S. prepares to raise interest rates. “Sentiment remains very poor towards Malaysian assets,” . “The drop in oil prices this morning, as well as the ongoing domestic political issues, mean the ringgit will stay on the back foot.” The currency dropped 0.6 percent to 4.1030 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The ringgit slid 3.8 percent last week as a devaluation in the Chinese yuan compounded losses for this year’s worst-performing Asian currency. The FTSE Bursa Malaysia KLCI Index of stocks fell 1.5 percent on Monday. Malaysia was already vulnerable to capital outflows on the back of a possible U.S. interest-rate increase even before the political scandal embroiled Najib. Overseas investors held 32 percent of the nation’s sovereign bonds in July, compared with 17 percent for Thailand, central bank data show. A rise in debt protection costs is reflecting those concerns.

Asian Islamic bonds turn to losses as confidence in leaders ebbs - The Malaysian Insider: Dollar sukuk returns are turning into losses in Asia’s biggest Islamic finance markets as confidence in government leaders sours amid a regional sell off. Indonesia’s Shariah-compliant sovereign bonds due in 2024 have dropped 3.5% since April and the 2025 Malaysian debt lost 1.9%, compared with a 2.1% decline in a Bloomberg index of emerging-market conventional government notes. In that period, the rupiah plunged 6.4%, and the ringgit 13%. In Indonesia, President Joko Widodo reshuffled his Cabinet last week as he looks set to miss his 2014 election pledge to boost annual growth to 7% and as infrastructure spending falls short. Malaysian Prime Minister Datuk Seri Najib Razak is embroiled in controversy after a probe revealed he received RM2.6 billion in donations from the Middle East. He denied taking money for personal gain and has also reshuffled the Cabinet, including removing his deputy. “They seem similar, but Indonesia and Malaysia face different sets of problems, economic compared with political,” said Jesse Liew, head of global Islamic bonds at BNP Paribas Investment Partners Malaysia, which has more than US$1 billion of assets. “Indonesia is still trying to fight the slowdown”. Indonesia’s four dollar-denominated Islamic bonds maturing from 2018 to 2024 have delivered losses of 0.05% to 3.54% since April, data compiled by Bloomberg show. That compares with gains of 3.1% to 5.6% in the first four months. In Malaysia, which also has four outstanding due 2016 to 2045, the short-maturity note has advanced 0.3%, while the rest declined 0.24% to 3.6%.

Minister says economic sabotage being used to attack Malaysia - The Malaysian Insider: Economic sabotage is being used as a very powerful weapon to attack Malaysia and undermine the credibility of the government, Communications and Multimedia Minister, Datuk Seri Salleh Said Keruak said today. Western media consultants are being paid to spin stories about alleged corrupt acts committed by Prime Minister Datuk Seri Najib Razak and that Malaysia's economy was on the verge of bankruptcy. "This is not only mischievous but treasonous as well. Economic sabotage, especially one that is engineered and financed by Malaysians, is without a doubt an act of treason," Salleh wrote in his blog today. He added that these traitors must be exposed and appropriate action be taken against them. "To strengthen this allegation, there are even efforts to attack the ringgit to 'prove' that the world has totally lost confidence in Malaysia. "The picture being presented is that a lower ringgit means that Malaysia is headed for doom. They even say that Malaysia is among those regarded as 'failed states'."  He cited economic sabotage was a very powerful weapon in bringing down governments, sometimes even more potent than military action.

Kazakhstan currency plunges by record 23pc as government relinquishes control of exchange rate -- The central Asian oil producer is the latest country to shift to a free float, following China and Vietnam Kazakhstan’s tenge plunged a record 23pc after the country relinquished control of its exchange rate, becoming the latest emerging market to abandon efforts to prop up its currency before the US raises interest rates. The country has switched to a free float and will pursue an inflation-targeting monetary policy, Prime Minister Karim Massimov told a government meeting in the capital Astana. Supply and demand will determine the exchange rate, central bank governor Kairat Kelimbetov said, adding that there will only be intervention if stability is threatened. The tenge sank to an all-time low of 256.98 per dollar, according to data compiled by Bloomberg. Central Asia’s biggest crude exporter is contending with sliding oil prices and weakening economic growth in China and Russia, its top trading partners. Most emerging-market currencies depreciated this month as China devalued the yuan and speculation of a Federal Reserve interest-rate increase spurred capital outflows. “It’s a move to prepare for the Fed rate hike,”

It Starts – Broad Retaliation Against China in Currency War  - Wolf Richter - The biggest global “tail risk” is China’s deteriorating economy and an emerging market debt crisis, according to BofA Merrill Lynch’s monthly poll of fund managers. Hot money is already fleeing emerging markets. Higher rates in the US will drain more capital out of countries that need it the most. It will pressure emerging market currencies and further increase the likelihood of a debt crisis in countries whose governments, banks, and corporations borrow in a currency other than their own. This scenario would be bad enough for the emerging economies. But now China has devalued the yuan to stimulate its exports and thus its economy at the expense of others. And one thing has become clear today: these struggling economies that compete with China are going to protect their exports against Chinese encroachment. It didn’t help that oil plunged nearly 5% to a new 6-year low, with WTI at $40.55 a barrel, after the EIA’s report of an “unexpected” crude oil inventory buildup in the US, now, during driving season when inventories are supposed to decline! Kazakhstan saw what’s happening to oil, its main export product, and to the currencies in China and Russia, its biggest trading partners. The yuan devaluation was relatively small, compared to the ruble, which is now allowed or encouraged to drop with oil. It has plunged 14% against the dollar over the past 30 days and 45% over the past 12 months, to 66.7 rubles to the dollar. With the Russian economy losing its grip, the ruble is dropping perilously close to the panic levels of last December and January.  And Kazakhstan freaked out and devalued the tenge by 4.5% today, to 197.3 per dollar, the biggest drop since that infamous day in February 2014 when the central bank let the tenge plunge 20%. The Turkish lira dropped 1.3% today to a new record low of 2.93 per dollar, now down 4% since the yuan devaluation, and 8% for the past month. Political turmoil in Turkey and its proximity to a war zone are adding totally unneeded spice to the already difficult fundamentals in its economy and in the broader emerging market.

More Bad Data From China Triggers a Global Selloff - Fears about a cooling Chinese economy are reverberating through global financial markets.A widely monitored measure of Chinese manufacturing health, the Chinese Caixin PMI, unexpectedly plunged in August from 48.2 to 47.1, triggering renewed fears that all is not well with China’s economy.A reading below 50 suggests that the manufacturing sector is contracting. As Neil Dutta, head of economic research for Renaissance Macro, wrote in a note to clients, Friday’s report was the lowest reading in sixth months, and the index has been “below the 50 breakeven level for nine of the last ten months and will likely intensify calls for additional policy accommodation.”The news didn’t just send China’s stock market tumbling, though the Shanghai Composite Index did fall 4.3%, “hitting its lowest level since March despite Beijing’s efforts to prop up the market in recent weeks,” according to a report in the Wall Street Journal. It also triggered a sell off in Europe, where Stoxx Europe 600 has been on track for its biggest weekly loss this year. In the U.S., stocks are set for another down session after Thursday’s 358-point Dow drop.In the commodities space, oil prices are headed for their eighth consecutive week of falls on Friday, the longest losing streak since 1986, according to Reuters, after the news of a sharp drop in Chinese manufacturing increased worries over the health of the world’s biggest energy consumer.

Does a Strong Dollar Hurt Emerging Markets?  --The strength of the US dollar can impact the economic activity in emerging economies in various ways. This column argues that appreciation of the dollar mitigates the impact of real GDP growth in emerging markets. The main transmission channel is through an income effect. As the dollar appreciates, commodity prices fall, depressing domestic demand via lower real income, and as a result real GDP in emerging markets decelerates. Emerging markets’ growth is expected to remain subdued, reflecting the expected persistence of the strong dollar.

Global Consumer Confidence Tumbles -- Consumer confidence deteriorated in most countries in July. While some of the deterioration was likely due to sentiment effects around the situation in Greece/Europe and the market volatility in China, rather than fundamental deterioration (which will be confirmed at the end of August if sentiment rebounds) it is worth paying attention to the trends in global consumer confidence, as it generally tends to reflect the prevailing global macro winds. Indeed, if you track the trends in consumer confidence against changes in bond yields, you can see a loose relationship (which would be logical as falling demand is consistent with falling bond yields). The further drop in oil would tend to be supportive for consumer confidence meaning we would probably would expect to see a rebound in the August numbers (which will be available in early September) – something to keep a close eye on as a warning sign for global demand.Source: AMP Capital

World Trade is Falling: The recent stock market fall appears to be in reaction to weakness in foreign economies, not domestic developments in the US. One measure to watch is world trade. from December to May world trade volume fell -3.4%. Interestingly, in the first five months of the 1971 decline trade fell -3.5%, essentially the same as this drop. The year over year growth rate is 0.4%. The year over year change in world trade has only turned negative twice sine 1990, as far back as this data series goes. For what it is worth those two declines also coincided with US recessions. For now, the critical question is how much of the weak growth abroad impact US growth. Almost certainly the impact is likely to be significant.

World shipping slump deepens as China retreats -  World shipping has fallen into a deep slump over the late summer, dashing hopes of a quick recovery from the global trade recession earlier this year and heightening fears that the six-year economic expansion may be on its last legs. Freight rates for container shipping from Asia to Europe fell by over 20pc in the second week of August, even though trade volumes should be picking up at this time of the year. The Shanghai Containerized Freight Index (SCFI) for routes to north European ports crashed by 23pc in five trading days. The storm in the shipping industry comes as the New York state manufacturing index for July plummeted to a recessionary low of minus 14.9, the lowest since the Great Recession and one of the steepest one-month drops ever recorded. The new shipments component fell to -13.8, and new orders to -15.7. A similar drop occurred in 2005 and proved to be a false alarm but the latest fall comes at a delicate moment for the world economy. There is now a full-blown August storm sweeping through global markets. The Bloomberg commodity index dropped to a fresh 13-year low on Monday and the MSCI index of emerging market equities touched depths not seen since August 2009. A closely-watched gauge of emerging market currencies has fallen for the eighth week – the longest run of unbroken declines since the beginning of the century - led by the Malaysian Ringgit, the Russian rouble and the Turkish lira.China’s surprise devaluation last week continues to send after-shocks through skittish global markets, already on edge over a likely rate rise by the US Federal Reserve in September - though this is now in doubt. The currency move was widely taken as a warning that the Chinese economy is in deeper trouble than admitted so far, a menacing prospect for exporters of raw materials and for trade competitors in Asia. It threatens to transmit a fresh deflationary impulse through the global system.

Shipping Giants Reduce Sailings on World’s Busiest Route -  Major container-shipping lines are slashing sailings on the world’s busiest shipping route between Asia and Europe as lower growth in China and a sluggish eurozone economy hurt container volumes. The late summer season is normally a peak period for container shipping as retailers stock up for Christmas sales. About 95% of the world’s manufactured goods, ranging from toys and clothing to electronics and household goods, are moved by container ships. But a glut of tonnage in the water, combined with lower demand, is proving to be one the industry’s biggest challenges in recent years. The G6 Alliance—comprising Singapore’s APL; South Korea’s Hyundai Merchant Marine; Japan’s Mitsui and NYK; Germany’s Hapag Lloyd and Hong Kong’s OOCL—said this week that it will cut 12 round-trip sailings from Asia to Europe, starting in September. That is about a sixth of the capacity it normally moves on the route in a five-week period. Earlier in August, 2M, the world’s biggest alliance in terms of capacity, consisting of Denmark’s Maersk Line and Geneva-based Mediterranean Shipping Co., said it would withdraw about 6,500 containers—about 10% of its normal capacity—from the route until further notice.“Demand has been less than anticipated, and so far it’s proving a difficult year for container shipping,” said Jonathan Roach, a container market analyst with London-based Braemar ACM Shipbroking. “Global container capacity will increase 8.6% this year with the addition of new ships, while demand will only go up between 2% and 3%. This is putting a lot of pressure on freight rates, and container lines have no choice but to cut or cancel sailings.”

What the expansion of the Suez Canal shows about shifts in global shipping -  Egypt has opened a second lane to the Suez Canal amid much fanfare. The US$8 billion dollar expansion adds 35km of new channels to the existing canal and another 35km where existing bodies of water were dredged to make way for larger ships. This will supposedly increase capacity from 50 transits a day to 97 and cut waiting times from 18 to 11 hours, which the Suez Canal Authority claims will more than double annual revenue to US$13.2 billion by 2023. By cutting the distance between Europe and Asia by 43%, the Suez Canal’s opening in 1869 dramatically lowered the cost of moving goods between the two continents. Yet in the 21st century, driven largely by growth in China’s manufacturing exports, there are now many more ships plying the sea lanes. And these ships are increasing in size. The world’s largest is the size of four football fields and can carry 19,000 20-foot cargo containers. As a result, the narrow passages that provide economical links between centres of production and consumption – like Panama, Suez and Malacca – are as much obstacles to global trade as facilitators of it. Imperatives to smooth the flow of commodities, as well as provide insulation from the disruptions of piracy, are also driving the development of alternative routes. These include the new Chinese-backed Silk Road initiative that connects China to Europe over land and sea, and the Russian-controlled Northern Sea Route through the Arctic, which is becoming more accessible as a result of climate change processes. The expansion of Suez is therefore part of a much larger picture of global growth in shipping.

New Zealand: nationwide actions protest controversial Trans-Pacific Partnership - FSRN: Twelve countries, including the United States and New Zealand, are participating in confidential negotiations on the Trans-Pacific Partnership agreement, or the TPP. Activists around the world are ringing the alarm on the TPP, saying it is far from a standard trade agreement and could threaten the sovereignty of countries that sign it. The latest round of TPP negotiations stalled in Maui, and were followed by a week of actions against the controversial trade agreement in New Zealand. Carla Green reports.  Thousands of protesters are taking to the streets across New Zealand, calling on their country to “walk away” from negotiations of the TPP. More than 2,000 people recently marched in the small New Zealand city of Dunedin, where activist Rob Stewart addressed the crowd. “We’re here to let our government know we don’t want this thing to go through. We’re here as leaders of our community, telling them, no way. Who’s with me?” Stewart asks the cheering crowd. The TPP is highly controversial, not only because of the secrecy that surrounds it, but because of leaked portions of the agreement that trade experts say could have serious negative implications for citizens of the signing countries.

Surge in emerging market capital outflows hits growth and currencies - A surge of capital gushing out of emerging markets has risen toward $1tn over the past 13 months, roughly double the amount that fled during the financial crisis amid slumping confidence in the world’s developing economies. The sustained exodus of capital reinforces concerns that emerging market economies, suffering slowing growth and weakening currencies, are relinquishing their longstanding role as locomotives for global growth to become a drag on demand instead. Analysts say the flow may accelerate following China’s currency devaluation this month and nervousness over an expected rate hike by the US Federal Reserve. Capital outflows result when investors, corporations, financial institutions and others move their money offshore, thereby applying downward pressure on the country’s currency. Total net capital outflows from the 19 largest emerging market economies reached $940.2bn in the 13 months to the end of July, almost double the net $480bn that flowed out during three quarters during the 2008/09 financial crisis, according to a compilation of official data and estimates by NN Investment Partners, an investment bank. The outflows mark a sharp reversal from the robust infusion of funds emerging markets received in the six years following the crisis as they helped invigorate a feeble global economy. From July 2009 to the end of June last year, a net $2tn in capital flowed into the 19 emerging markets, NN Investment Partners found. But as the funds cascade out, a vicious circle is triggered. Currencies tumble against the US dollar, damping demand for imports and driving down aggregate demand. In June, for example, overall emerging market imports were 13.2 per cent lower year-on-year, according a moving average compiled by Capital Economics. “The collapse in emerging market imports reflects a more fundamental drop in demand as capital outflows have forced domestic demand to shrink and lower commodity prices have eroded incomes in commodity-producing countries,”

Emerging Stocks Head for Six-Year Low as Currency Rout Deepens -  The rout in emerging-market assets deepened as stocks sank to the lowest level since 2009 and Kazakhstan abandoned its currency peg. The tenge plunged by a record and the South African rand breached 13 per dollar for the first time since December 2001 before rebounding. Russia’s ruble was poised for its longest losing streak since December. The Shanghai Composite Index fell to a two-week low as PetroChina Co. led energy companies lower. Exchange-traded funds tracking stocks from China to Indonesia declined in U.S. trading. The MSCI Emerging Markets Index lost 1.2 percent to 830.55 at 1:15 p.m. in New York, set for the lowest close since August 2009. Kazakhstan became the latest developing nation to abandon efforts to prop up its currency after China devalued the yuan. Concern over falling oil prices and slowing growth dragged most currencies down on Thursday even as traders cut bets on a Federal Reserve rate increase next month. “It’s a vicious cycle,” Nicholas Spiro, the managing director of London-based Spiro Sovereign Strategy, said by e-mail from London. “All these factors -- China, commodities, the Fed and home-grown vulnerabilities -- are all feeding on each other. The currencies under the most strain right now are those ticking most of these boxes.” Kazakhstan, which joined Vietnam in cutting the value of its currency on Wednesday, moved to a free-floating exchange rate from Thursday, Prime Minister Karim Massimov told a government meeting in Astana. Turkish stocks slid to a 10-month low and the lira gained 1 percent after falling to a record low. The currency has weakened 19 percent this year, making it year’s third-worst emerging-market currency following inconclusive elections in June and militant violence that reached the capital Istanbul Wednesday.

Emerging markets may weigh heavily on global growth -- Capital gushing out of emerging market economies has neared US$1 trillion (S$1.4 trillion) in the past 13 months, roughly double the amount during the 2008-2009 financial crisis, causing a slump in confidence in these developing nations. The sustained exodus reinforces concerns that emerging market economies, suffering slowing growth and weakening currencies, are relinquishing their longstanding role as locomotives for global growth to become a drag on demand instead, the Financial Times (FT) reported. Analysts say an expected rate hike by the United States Federal Reserve and devaluation of the Chinese yuan may accelerate the flow. "These outflows have much further to go," said senior strategist Maarten-Jan Bakkum from NN Investment Partners, an investment bank. Capital outflows result when investors, corporations, financial institutions and others move their money offshore, thereby applying downward pressure on the country's currency. Official data and estimates by NN Investment show that a total net capital of US$940.2 billion left the shores of 19 largest emerging market economies until the end of last month, almost double the net US$480 billion that flowed out during three quarters when the financial crisis happened. This was a sharp reversal from the fund infusion these markets received in the six years following the crisis as they helped invigorate a feeble global economy, the FT report said.

Doomsday clock for global market crash strikes one minute to midnight as central banks lose control - When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal. Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.  China was the great saviour of the world economy in 2008. The launching of an unprecedented stimulus package sparked an infrastructure investment boom. The voracious demand for commodities to fuel its construction boom dragged along oil- and resource-rich emerging markets.The Chinese economy has now hit a brick wall. Economic growth has dipped below 7pc for the first time in a quarter of a century, according to official data. That probably means the real economy is far weaker. The People’s Bank of China has pursued several measures to boost the flagging economy. The rate of borrowing has been slashed during the past 12 months from 6pc to 4.85pc. Opting to devalue the currency was a last resort and signalled the great era of Chinese growth is rapidly approaching its endgame. Data for exports showed an 8.9pc slump in July from the same period a year before. Analysts expected exports to fall only 0.3pc, so this was a huge miss. The China slowdown has sent shock waves through commodity markets. The Bloomberg Global Commodity index, which tracks the prices of 22 commodity prices, fell to levels last seen at the beginning of this century.

The Real Demographic Challenge -- Adair Turner -- In 2008, the UN projected the world’s population reaching 9.1 billion by 2050 and peaking at about ten billion by 2100. It now anticipates a population of 9.7 billion in 2050, and 11.2 billion – and still rising – by 2100, because fertility rates in several countries have fallen more slowly than expected (in some, notably Egypt and Algeria, fertility has actually risen since 2005). While the combined population of East and Southeast Asia, the Americas, and Europe is projected to rise just 12% by 2050 and then start falling, sub-Saharan Africa’s population could rise from 960 million today to 2.1 billion by 2050 and almost four billion by 2100. North Africa’s population will likely double from today’s 220 million. Such rapid population growth, on top of even faster increases over the last 50 years, is a major barrier to economic development. From 1950 to 2050, Uganda’s population will have increased 20-fold, and Niger’s 30-fold. Neither the industrializing countries of the nineteenth century nor the successful Asian catch-up economies of the late twentieth century ever experienced anything close to such rates of population growth. Such rates make it impossible to increase per capita capital stock or workforce skills fast enough to achieve economic catch-up, or to create jobs fast enough to prevent chronic underemployment. East Asia has gained a huge demographic dividend from rapid fertility declines: in much of Africa and the Middle East, the dividend is still missing.

Low Oil Prices And China Pull The Rug From Under Latin America -- China’s phenomenal growth over the past two decades led to boom times for other countries as well. China is a voracious consumer of all sorts of commodities – oil, gas, coal, copper, iron ore, agricultural products, and more. For countries exporting these goods, the run up in commodity prices since the middle of the last decade has been extraordinary. Nowhere is that more true than in Latin America. Countries like Brazil, Argentina, Chile, Peru, and Colombia have enjoyed strong economic growth rates because of China’s rapid expansion.  But the boom times are over. Latin America is getting hit with a double whammy: the collapse in commodity prices and the sudden economic turmoil in China. Low oil prices are hurting Latin America’s exporters. Mexico’s state-owned oil company Pemex has already slashed its budget for the year, cutting spending from $27.3 billion to $23.5 billion. Pemex has also borne the brunt of government spending cutbacks. And the much-anticipated first auction of Mexico’s offshore oil resources following a historic liberalization of its energy sector produced disappointing results, as low oil prices scared away bidders. Brazil has fared worse. Compounded by a colossal corruption scandal, Brazil’s Petrobras is drowning in debt as oil prices have plummeted. In late June, Petrobras announced it would slash spending by one-third, divest itself of billions of dollars in assets, and it lowered its long-term oil production target to just 2.8 million barrels per day (mb/d) by 2020, down from a previous target of 4 mb/d.  But no oil producer is in deeper trouble than Venezuela. The Maduro government needs oil prices well over $100 per barrel for its budget to breakeven, and it was struggling even before the collapse in oil prices. Venezuela is suffering from the highest inflation in the world, a crime rate that could be the worst in the Americas, and ordinary people are struggling to find basic foodstuffs and household items.

Beginning of a Breakdown in International Trade - Hugo Salinas Price - Mexican business magnate Hugo Salinas Price says that there are “many more” devaluations coming for China’s currency. Salinas Price thinks that many other countries will cut the value of their currencies because the world economy is in deep trouble. Salinas Price contends, “When China does this, that is very serious. Already, the United States is receiving huge quantities of Chinese goods. It has an enormous trade deficit with China, and now that they devalued, it’s going to get worse. There is going to have to be a corresponding move on the part of the United States. . . . This is going to be the beginning of a breakdown in international trade. Is the United States going to stand by because China continues to devalue? How much has the Chinese currency been devalued, not even 8%. That’s not going to help the Chinese much. When you have a devaluation, it has to be about 40%. Then it really has teeth in it. I think the Chinese will continue to devalue.” Salinas Price points out the real problem comes from countries printing money out of thin air and goes on say, “This entire fiat money circus the world has been on is coming to a head. I see many comments from diverse people, and the problems are just mounting up. You have Greece with 11 million people, and if they get this last bit of money, they will have some $400 billion of debt. How can 11 million people work off a debt of $400 billion? It just can’t be done. The people running the euro are in dreamland.”

Brazilian president under fire as tens of thousands protest in 200 cities - Tens of thousands of Brazilians took to the streets in cities across the country on Sunday, to protest against President Dilma Rousseff. Angered by a massive, unfolding corruption scandal, an economy mired in recession and harsh austerity measures, many of the protesters called for the president’s impeachment. In São Paulo, an anti-government event drew around 135,000, according to Datafolha, a polling institute. Though significant, the numbers were down on a similar event in the city in March this year, which attracted 210,000. In Brasília, police numbered the crowd at around 25,000. Demonstrations took place in more than 200 cities, including Rio de Janeiro, Belo Horizonte and Salvador. In Rio de Janeiro, thousands marched along Copacabana’s Avenida Atlântica, many dressed in the yellow and green of the Brazilian football team. The crowd followed six mobile sound-systems, each commandeered by a different protest movement, loudly broadcasting a mixture of anti-government speeches and music.

Brazil economy contraction to last through 2016: bank -- The outlook for Brazil's economy worsened Monday with GDP contraction forecast to extend into next year and inflation projections also slightly rising. A central bank survey of economists showed the economy is on course to shrink 2.01 percent this year and for the first time indicated that the contraction will continue through 2016 with a shrinkage of 0.15 percent. The survey also showed that inflation remains forecast at 9.32 percent this year, but it raised the 2016 projection for price rises to 5.44 percent from 5.43 percent. The numbers come as the world's seventh largest economy is struggling with a political crisis and a massive corruption scandal that has badly damaged state-owned oil giant Petrobras. Moody's cut Brazil's credit rating to near junk status last week, reflecting growing struggles with debt.

Brazil economic activity falls more than expected in June (Reuters) - Economic activity in Brazil fell more quickly than expected in June, central bank data showed on Wednesday, adding to evidence that the once-booming economy is suffering a painful recession. The Brazilian central bank's IBC-Br economic activity index fell 0.58 percent in June from the prior month, the bank said in a report on Wednesday. A Reuters survey of nine analysts expected a decline of 0.53 percent. A comparison of the monthly indexes showed the Brazilian economy contracted by 1.89 percent in the second quarter from the first. The IBC-Br index, a gauge of activity in the farming, industry and services sectors, is an early indicator of gross domestic product figures. IBGE, the country's statistics institute, will publish second-quarter economic activity results on Aug. 28. The Brazilian economy shrank 0.2 percent in the first quarter as investments fell for the seventh straight quarter. If confirmed by official data, the back-to-back contractions will show what most economists already know: The Brazilian economy has fallen into a deep recession.

Brazil’s Political Crisis Puts the Entire Economy on Hold (Bloomberg) -- In Brazil, General Motors has been halting factories and laying off thousands. Latam Airlines, the region’s biggest, is cutting flights. And the world’s third-largest planemaker, Embraer, is delaying its biggest new aircraft. In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus. “Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-CEO at homebuilder MRV Engenharia, in an Aug. 5 interview. In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.” Even luncheonettes are hurting. Carambola’s, a juice and sandwich shop in Sao Paulo’s financial district, saw a 30% drop during lunch starting a couple of months ago. The corner store fired two employees, and closes earlier as customers stop coming in after-hours. “People are bringing lunch from home,” Rafael Bruno da Silva, the afternoon manager, said on a recent day as a lone customer sipped coffee. “We’ve lowered the prices of juice, but it doesn’t seem to be making much of a difference.” Opposition lawmakers and many in the public are calling for the resignation of President Dilma Rousseff, whose popularity has sunk to a record low. The senate and lower house presidents are being investigated in an alleged kickback scheme that funneled money from state-run Petrobras, the world’s most indebted oil company, to political parties in the biggest corruption scandal in history.

Never mind Greece, look at Venezuela -- Via Business Insider comes this colourful map and chart of CDS spreads worldwide:  Those who thought Greek bonds would be the most expensive to insure, since everyone knows it can't pay its debts, need to think again. Venezuela is the most expensive, by a long way. Related to that is this: The yield curve has been deeply inverted all year, but yields at all maturities are now rising: When even the yield on long-dated bonds is heading for 30%, the public finances are completely unsustainable. Venezuela, of course, is monetarily sovereign, since it issues its own currency. Well, in theory. In practice it is burning through reserves at a shocking rate to support its absurd managed exchange rate system: Don't be fooled by the uptick in June. That is because China lent it some dollars. It'll get through those in short order if it continues on its present path. To be sure, Venezuela is still earning FX due to its trade surplus, but its current account is deteriorating.  Floating the currency is not really an option. The black market exchange rate is approaching 700 VEF to 1 USD. Inflation in Venezuela is officially nearly 70%, but almost certainly much more, since the central bank has provided no updates since December: some estimates put it over 100%. Whatever it is, it is undoubtedly rising fast despite the pegged exchange rate. The bolivar is currently pegged at 6.30 to the USD, though hardly anyone uses that rate: most goods are priced at one of Venezuela's secondary exchange rates. Even those substantially overvalue the bolivar.

Venezuela's currency against US dollar tumbles 737% -  The value of Venezuela's currency, the Bolivar, has nose-dived too fast and has now reached a point where it's worth less than a penny on the US dollar. The Bolivar tumbled against the US dollar over 700% during the past 12 months. A year ago, 82 bolivars were equal to one US dollar. Now, over 670 bolivars are equal to the US dollar. The bolivar against the US dollar fell 737% from 82 on 15 August 2014 to 687 on 15 August 2015. The extreme inflation rate and drop in oil prices are taking a toll on the Venezuela's economy. The nation's lifeline is oil export, which is badly hit by steep fall in oil price in the global markets. The debt repayment of $5 billion is due in October. With oil revenues dwindling by the day, Venezuela may face default this year. The inflation rate in Venezuela rose 68% last year and is likely to be three digits this year, according to forecasts made by some economists. The country will be in major trouble in repaying the food imports bills if the current situation further continues. This situation makes life of a common man very harder even to buy small things such as napkins.

Venezuela's currency is now so worthless that people are using it as napkins - There’s an image going round that sums up just how ridiculous Venezuela’s economy has become. A Reddit user uploaded a picture on Monday of a man using a 2 bolivar note to hold an empanada. According to Venezuela’s official bolivar-dollar exchange rate, the man using his money as a napkin is wasting about $US0.31 (£0.20). But on the black market, the reality is completely different. You can get 676.88 bolivars to the dollar, according to That means holding food with a 2 bolivar note costs the holder less than a third of one US cent.’s chart shows just how the value of the bolivar has plunged, with more and more units of the Venezuelan currency required to get hold of a single dollar:

Could the oil slump push Venezuela to default?: The cost of protecting against a Venezuelan default has hit record highs, leading to fears that the oil-dependent country could become the first sovereign victim of plummeting oil prices. Spreads on Venezuelan five-year credit default swaps (CDS)—derivatives that can be used to hedge against the risk of a country or corporate defaulting—are at their highest since the global financial crisis of 2007/08, indicating heightened expectations of the government failing to repay its debts. This comes at the South American country grapples with a toxic combination of U.S sanctions, recession and hyperinflation, with economic mismanagement and a 50 percent collapse in oil prices bringing it to its knees.  Markit fixed income analyst, Neil Mehta, warned that the "first sovereign casualty of the oil price slump may be on the horizon" and told CNBC that Venezuela's CDS spread implied a 96 percent chance of a default in the next five years and a 69 percent probability in the next 12 months. "The outlook doesn't look good," . "Certainly, a default is what credit markets are implying."

More Argentine discovery shenanigans - Much has been going on, although little has actually happened, in the litigation against Argentina. For instance, the court has allowed the plaintiffs to file an amended complaint seeking an injunction blocking payments on the recently-issued BONAR 2024s (USD-denominated, Argentine law bonds). That may prove important, for it's a step toward blocking Argentina from issuing any foreign currency debt, anywhere within the great orange blob known as "places-that-are-not-New-York." But no injunction yet; Argentina has not yet filed an answer to the complaint.  Plaintiffs have also continued efforts to find executable Argentine assets. I'm interested in the role that sovereign immunity plays in the debt markets, and a development yesterday captured my attention. Readers may recall that, in a 2014 case involving Argentina, the U.S. Supreme Court considered the extent to which a creditor holding a money judgment can use U.S. discovery rules to force disclosure of a sovereign's assets around the globe. The Court ruled against Argentina, thereby opening the door to potentially expansive discovery into the nature and location of the sovereign's assets worldwide. After losing in the Supreme Court, Argentina persisted in refusing to turn over much of the discovery requested by plaintiffs. Yesterday, the district judge sanctioned Argentina by ordering that "any property of the Republic of Argentina in the United States except diplomatic or military property is deemed to be used for commercial activity." U.S. law permits creditors of a foreign state to seize only assets that are "used for a commercial activity" in the country. The district court's order deems all Argentine assets (other than military or diplomatic assets) to satisfy this criterion. In one sense, this is a complete end-run around the statute. By restricting enforcement to commercial assets, the law minimizes the ability of private creditors to create diplomatic headaches for the U.S. government. On the other hand, the sanctions order is analogous to a so-called adverse inference, where the court treats certain facts as established because the sovereign's discovery misconduct has made the facts impossible to prove.

Russia struggles to shrug off China slowdown - Russians shrug at the thought of a 3 per cent currency devaluation, such as the renminbi experienced last week. After all, the rouble experiences similar swings almost daily. But as Russia puts ever greater weight on its ties with China as part of President Vladimir Putin’s strategy of “pivoting to Asia”, the slowdown in the Chinese economy is not so easy to shrug off.  Russia this month reported that its recession deepened in the second quarter, with the economy contracting 4.6 per cent year on year. China is Russia’s single largest trade partner, accounting for $30.6bn of imports and exports in the first half of the year. That figure represents a 28.7 per cent fall from a year earlier, according to Russian customs data. However, Russia’s trade with China has declined less than with other countries, meaning that China has increased its share of Russia’s trade from 10.8 per cent to 11.4 per cent. Oleg Kouzmin, an economist at Renaissance Capital in Moscow, says the sheer size of China’s economy means the country will continue to represent an opportunity for Russia, even in an environment of slower growth. “In physical amounts, the volumes of their exports is still considerable. They’re still buying a lot from Russia,” he says. Moreover, Mr Kouzmin points out that the focus on increasing economic ties between the two countries is primarily a political project built on grandiose deals, such as the 30-year gas export contract signed between Gazprom and CNPC last year. “To a large extent it’s a politically driven decision,” he says. “Politics doesn’t get scared by all this stuff about GDP.”

Russia's Troubled Economy Shows No Signs of Recovery - --Russia's troubled economy showed no signs of recovery in July as falling oil prices continued to hurt the commodity-dependent country, data showed Wednesday. Retail sales in Russia, which rely on the main growth driver of consumer demand, fell 9.2% on the year in July after growing by 1.6% in the same month a year ago. In the first seven months of 2015, retail sales declined by 8.1%, data from the Federal Statistics Service showed. Data also showed that gross domestic product shrank by 3.4% in the first half of 2015. Earlier this month, data showed economic contraction deepened to 4.6% in the second quarter from 2.2% seen in the first three months of the year. Underpinning the view that the recession will be prolonged, capital investment plunged 8.5% on the year in July after falling by 7.1% in the preceding month. While the government still expects the economy to contract by as much as 3% this year, the Bank of Russia said last week it will present a new set of economic forecasts on September 11. The revision is likely to paint a bleaker economic outlook, given than Brent crude prices are heading toward $48 per barrel from levels of around $60 seen earlier this year. The data also showed Wednesday that real wages, or salaries adjusted for inflation, fell 8.2% in July compared with the same month a year ago after falling by 7.2% in June. Real disposable incomes declined by 2% in July. To address the economic difficulties, the central bank is widely expected to trim interest rates further this year.

Russians hit hard by falling rouble - Russians are experiencing the first sustained decline in living standards in the 15 years since President Vladimir Putin came to power. The rouble has fallen by half against the US dollar, driven by the plunging price of oil - the lifeblood of Russia's economy. As a result, prices of imported goods have shot up. Making matters worse are the retaliatory bans that Russia placed on food imports after the United States and European Union imposed sanctions for its actions in Ukraine, a policy that took a turn for the weird this month when the government destroyed thousands of tonnes of what it said were illegally imported foodstuffs, including cheese and peaches.  The reduced supply means what remains costs more, even if it is locally produced. The sanctions have also driven up the cost of borrowing for Russian firms but they have not had a direct role in the inflation that is raiding Russian pocketbooks. Inflation has reduced the purchasing power of Russian wages by more than 8 per cent in the second quarter, compared with the same period last year, according to Russia's central bank at the end of last month. And in a sign that the worst is far from over, the economy contracted by 4.6 per cent in the second quarter, compared with last year, and entered its first recession since 2009.

Falling ruble leaves Russian carmakers with nowhere to turn (Reuters) - A steep decline in the rouble has hammered Russian carmakers by driving up the cost of the foreign parts they rely on, forcing them to raise prices at home and making them uncompetitive abroad. After a decade of annual sales growth in excess of 10 percent, the Russian car industry is now a victim of an economic crisis fueled by lower oil prices and Western sanctions over Moscow's role in the Ukraine crisis. Domestic car sales have halved from their peaks in 2012-2013 when during some months the country ranked ahead of Germany as Europe's largest car market by sales, and the eighth biggest in the world. It now ranks only fifth in Europe and 12th globally. The ruble's decline has pushed up Russian carmakers' costs as - unlike rivals in other leading carmaking nations - they heavily depend on imported parts, which they pay for in dollars and euros. Back in 2012-2013 the rouble was trading at around 30 per dollar; the current rate is about 65 - which effectively makes imported parts about twice as expensive. This has forced automakers to raise prices - a desperate move in a country where the economy shrank by 4.6 percent in the second quarter of 2015. Employers have cut staff and wages, while annual food price inflation is running at over 20 percent, leaving many Russians with little money for big purchases.

Putin Aide Who Called Shock Rate Cut Sees Pause Near $40 Oil - Andrey Belousov went largely unheeded the last time he forecast a shift in monetary policy. Now President Vladimir Putin’s top economic aide is lending weight to a growing consensus that Russia’s easing cycle is wearing out. The central bank may pause its interest-rate cuts after five decreases this year if oil prices fall to $40 a barrel, Belousov said in an interview on Tuesday. Traders have started to predict a rate increase, with forward-rate agreements signaling borrowing costs will rise by 28 basis points in the next three months, according to data compiled by Bloomberg. “Given that we have no other comments from the central bank, Belousov’s statements should be taken seriously” “If the situation on the foreign-exchange market changes as a result of a significant drop in oil prices -- to $40 a barrel, with fluctuations between $40 and $45 -- then the central bank will probably halt the process of cutting the rate,” Belousov said by phone. Oil’s decline of more than 30 percent since June is rippling through the recession-hit economy of the world’s biggest energy exporter, forcing policy adjustments as the ruble trades near a six-month low. The central bank, led by Governor Elvira Nabiullina, has lowered its benchmark by a cumulative six percentage points to 11 percent this year after an emergency increase in December. Belousov, a former economy minister who replaced Nabiullina as Putin’s aide after she took charge of the central bank in 2013, was among the first officials to broach the possibility of a rate cut in January. Days later, the Bank of Russia shocked traders and analysts alike with a decrease that was among the most abrupt policy reversals by major central banks since 1990.

Moody's warns growth for G20 countries remains grim in 2015 - No country will benefit from plunging oil prices - apart from the Americans. According to a report from credit rating agency Moody's, the global economy will not benefit from falling oil prices in neither this year or the next. Defying a report from the National Institute of Economic and Social Research (NIESR) this week, Moody's kept its growth forecasts for the G20 countries unchanged. Global GDP is set to grow at the same rate as last year by just under 3% in both 2015 and 2016. "Lower oil prices should, in principle, give a significant boost to global growth," said Marie Diron, the author of the report and a Senior VP at Moody's. "However, a range of factors will offset the windfall income gains from cheaper energy." Although, the US economy is tipped to get a boost from cheaper oil, Moody's warned that a slowdown from the Eurozone, China, and Brazil will hold back economic activity. The Eurozone caused the greatest concern for Moody's. The rating agency said it expected its GDP to grow by just 1% in 2015 and 1.3% in 2016. "In the euro area, the fall in oil prices takes place in an unfavourable economic climate, with high unemployment, low or negative inflation and resurgent political uncertainty in some countries, " Diron said. A China slowdown is also set to hit global economic growth as higher energy taxes and government-controlled prices in some energy and transport sectors will dampen the impact of lower oil prices.

TTIP controversy: Secret trade deal can only be read in secure 'reading room' in Brussels - The European Commission is making the secret Transatlantic Trade and Investment Partnership (TTIP) trade deal even more secret, introducing a new rule that means politicians can only view the text in a secure 'reading room' in Brussels. An investigation by German news site Correct!v has revealed that the Commission is cracking down on TTIP security following a series of leaks, purportedly by EU member states who had accessed information on the deal electronically. EU Trade Commissioner Cecilia Malmström has said that no more reports on TTIP negotiations will be sent to Member States because of "important vulnerabilities in the last rounds of negotiations".   Officials were told of this change in policy on July 24th at a meeting in Brussels in which the Commission explained that the documents had "been submitted to databases of [member states'] national parliaments" meaning that "hundreds of people have actually uncontrolled access". And so the Brussels 'reading room' appears to be the solution, where national and EU representatives will have to go if they want to find out what's happening to the TTIP text.

Eurozone outlook dim for economists: Mario Draghi’s trillion-euro boost for the euro area isn’t proving sufficient to lift economists’ confidence in the region’s recovery. Barely a quarter of the respondents in a survey see the currency bloc’s outlook improving in the short term. That’s the lowest level since the European Central Bank (ECB) started its stimulus programme to buy €60 billion ($67 billion) a month of debt through September next year. The ECB has brought record-low borrowing costs, a flood of cash and an export-boosting currency drop to the euro area, yet economic growth unexpectedly slowed last quarter. Central bank policy makers have already expressed disappointment over the pace of the recovery and pledged to do more if needed, leaving some economists debating whether they’ll act. "The ECB may be forced to strengthen its language and, if insufficient, put its money where its mouth is," said Elwin de Groot, a senior market economist at Rabobank International in Utrecht, Netherlands. "Let me stress that we haven’t reached that point just yet." In the survey, carried out before gross domestic product data for the euro area and its biggest economies were published on Friday, just 28 per cent of respondents said the region’s outlook will improve in the short term. That’s down from 50 per cent in July and 83 per cent in March, when quantitative easing (QE) started. More than two-thirds of economists in the latest survey said the outlook will remain unchanged.

With a Third Greek Bailout in Place, Questions About Snap Elections Arise  -- After the Eurogroup’s blessing of a new Greek bailout deal, Greece’s short term financial problems appear to be temporarily resolved. With the first 26-billion-euro installment, the country will be able to pay its debts until mid October and the compromised Greek banks will receive 10 billion euros, which will soon be followed by another 15 billion after a stress test in the fall. Attention now turns to the country’s uncertain and unstable political landscape. Various reports claim it is very likely that Greek Prime Minister Alexis Tsipras will ask the Greek parliament for a vote of confidence. A vote of confidence requires more than half of the parliament’s favor, while the participation of at least two fifths of parliament members is required for a valid voting session. If all Greek parliament members vote, the government will need the support of 151 MPs. If the government is unable to secure the parliament’s confidence, Tsipras will have to either call snap elections, most likely to be scheduled for the end of September, or form a new government that will garner the support of other parties in parliament.

Greece needs further debt relief after third bailout deal in five years, says IMF chief - Greece needs more significant debt relief from its creditors, the head of the International Monetary Fund said, after the bankrupt country accepted tough conditions to secure its third bailout deal in five years. The first €26bn of a package worth more than three times that will be disbursed within days after the government in Athens grudgingly approved the agreement at the end of a marathon debate, and Germany backed down on its opposition to rescuing Greece. However, the IMF managing director, Christine Lagarde, told eurozone ministers the deal did not go far enough in tackling the woes of a country grappling with a steadily shrinking economy and a growing debt burden. “I remain firmly of the view that Greece’s debt has become unsustainable,” Lagarde said. She called on Europe to make “concrete commitments … to provide significant debt relief, well beyond what has been considered so far”.  Lagarde also said she will not commit the IMF to joining the latest bailout until the board has reviewed the agreement, probably in the autumn. Officials said they want to see more details about reforms, particularly to pensions, but the delay will also give European leaders time to consider their stance on debt relief. Germany holds more Greek debt than any other eurozone country and has repeatedly rejected any “haircut” on what Athens owes, but is also keen to keep the IMF involved in the bailout.

The Greek Debt Deal’s Missing Piece -  At long last, European creditor nations and Greece have reached an agreement on a third bailout in five years.The bailout, which was approved by Greece’s Parliament on Friday, included familiar details: In return for an infusion of 86 billion euros, or $95 billion, Greece has promised to increase taxes, cut spending and enact measures to make its economy function more efficiently.But there was one glaring omission. As it stands, none of that new money flowing into Greece will come from the agency that has, until now, played a crucial role in virtually every bailout, in Greece and elsewhere around the world: the International Monetary Fund. That is because the I.M.F. says that Greece was simply incapable of repaying its staggering debt. Yet the accord reached last week makes no effort to reduce that burden. If you agree with the I.M.F.’s reasoning, you might have to conclude that despite all of the seemingly ironclad provisions of the agreement imposed by eurozone creditors, Greece will be no more able to honor the deal or to repay its new loans than it has been in other bailouts.  . The Greek debt drama has had its share of twists and turns. Alliances have shifted, rivalries have deepened, and the back-room maneuverings have been appropriately Byzantine. But the I.M.F. shift from being Greece’s most persistent scold to its main advocate for a break on its debt has been among the most intriguing developments so far.

EU aims to lure Greek deposits back to banks with bail-in shield - Euro-area finance ministers shielded Greek bank depositors from any losses resulting from the restructuring of the nation’s financial system, as part of Friday’s deal on an 86 billion-euro ($96 billion) bailout. Senior bank bondholders will be in the crosshairs if Greek lenders tap into any of the financial stability funds set aside in the new bailout. Euro-area finance ministers agreed to a deal that would next week place 10 billion euros in Greece’s bank recapitalization fund, with another 15 billion euros available if needed. “Bail-in of depositors will be explicitly excluded” from European Union rules to make private investors share the cost of fixing troubled banks, Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem told reporters after the six-hour meeting in Brussels. By shielding all depositors, the euro area will protect small and medium-sized enterprises who have more than 100,000 euros in their accounts and aren’t covered by government deposit insurance, Dijsselbloem said. This prevents “a blow to the Greek economy” that ministers wanted to avoid, he said. Instead, the focus will turn to bond investors. “When so much money must be invested in banks, in the first place, banks must take part of the risks,” Dijsselbloem said. Alpha Bank AE’s 400 million euros of 3.375 percent notes due 2017 traded at 70.5 cents on the euro Friday to yield 25.4 percent. Those securities are up from a low this year of 27.5 cents in July.

Tsipras likely to call confidence vote after party revolt - The Greek government appears likely to call a confidence vote following a rebellion among lawmakers from the ruling SYRIZA party over the country's new bailout deal, senior ministers said on Monday. Energy Minister Panos Skourletis described such a parliamentary vote as "self-evident" following Friday's rebellion when almost a third of SYRIZA deputies abstained or voted against the agreement. With SYRIZA's left wing showing little sign of returning to the party fold, Skourletis also raised the possibility of early elections should Prime Minister Alexis Tsipras lose a confidence motion. Tsipras had to rely on opposition support to get the bailout deal through parliament, and another minister argued that elections would be a way of achieving political stability. Greece's political turmoil has raised uncertainty over how the government will implement the bailout deal, which demands profound economic reform and tough austerity policies, without a workable majority. The government has said its priority is to secure a start to funding from international creditors under the bailout program, Greece's third in five years, so that Athens can make a 3.2 billion euro debt repayment to the European Central Bank on Thursday.

EU calls on Greece to stick with reforms as Tsipras called snap election: The European Commission urged Greece to stick to commitments it has made to reform its economy as Prime Minister Alexis Tsipras called a snap election within hours of new EU bailout cash arriving in Athens. "It is crucial that Greece maintains its commitments to the euro zone," said Dutch Finance Minister Jeroen Dijsselbloem, who as chair of his euro zone peers, led talks on a new 86 billion-euro facility agreed last Friday. "I recall the broad support in the Greek parliament for the new program and reform package and I hope the elections will lead to even more support in the new Greek parliament. Hopefully these elections will take place relatively soon so Greece can take important next steps in October, as foreseen."Brussels had been braced for an election since Tsipras won parliamentary support last week to fulfill euro zone lenders' conditions only with opposition backing, following a revolt by nearly a third of lawmakers from his left-wing Syriza bloc. The new election, eight months after Tsipras swept to power on now-broken promises of ending lender-imposed austerity, injects renewed uncertainty into Greek policies. But some senior EU officials stressed that the vote could reinforce reforms. "Swift elections in Greece can be a way to broaden support for ESM stability support program," tweeted Martin Selmayr, the chief-of-staff to Commission President Jean-Claude Juncker.

Greek crisis: Syriza rebels break away to form political group - Rebels within Greece’s ruling party, the leftwing Syriza movement led by the prime minister, Alexis Tsipras, have announced they are breaking away to form a separate entity called Popular Unity. Angry at what they see as a betrayal of Syriza’s anti-austerity principles, the 25 MPs announced their intention to form a new party in a letter to parliament the day after Tsipras resigned to pave the way for snap elections next month. Led by the former energy minister, Panagiotis Lafazanis, the new movement will be the third-largest group in the Greek parliament and could conceivably receive a mandate to try to form a new government. Tsipras announced his resignation in a televised address on Thursday night. He said he felt a moral obligation to put Greece’s third international bailout deal, and the further swingeing austerity measures it requires, to the people. Last week he piloted the punishing deal through the Greek parliament, but suffered a major rebellion when nearly one-third of Syriza MPs either voted against the package or abstained. Tsipras is gambling that he will be able to silence the rebels and shore up public support for the three-year bailout programme.

PASOK refuses to back Tsipras in any confidence vote - socialist PASOK party joined the main opposition on Sunday in saying it would not back Prime Minister Alexis Tsipras if he calls a confidence vote following a rebellion in the governing party over a new bailout deal. Tsipras had to rely on opposition groups including PASOK to win a parliamentary majority on Friday in favour of the 86 billion euro bailout program, Greece's third with international creditors since 2010. By contrast, Tsipras suffered the biggest rebellion yet among anti-bailout lawmakers from his leftist SYRIZA party, forcing him to consider a confidence vote that would pave the way for early elections if he loses. PASOK made clear that while it had backed the government over bailout for the sake of saving Greece from financial ruin, that support would not extend to any confidence vote in the coming weeks. The party blamed Tsipras and Panos Kammenos, who leads the minority partner in the coalition government, for the fact that Greece had to take yet another bailout with tough austerity and reform conditions demanded by the euro zone and IMF. "The government has signed the third and most onerous bailout. All the negative consequences for the country and its citizens bear the signatures of Mr Tsipras and Mr Kammenos," the party said in a statement. "We have no confidence in the Tsipras-Kammenos government and of course will not give it if we are asked."

Prospect of confidence vote, snap polls unclear amid rumors of Parliament closing - The prospects of an imminent vote of confidence in the government and of snap elections in September appeared to be played down Tuesday by sources close to Prime Minister Alexis Tsipras who indicated that the priority is to honor commitments to creditors. Government sources had indicated after last Friday’s parliamentary vote on the new bailout that Tsipras would seek a vote of confidence once the country had paid off a 3.2-billion-euro debt to the European Central Bank on August 20. But Tuesday the tone seemed to change, prompting broad speculation that a confidence vote might no longer be on the cards and that early elections will more likely be held in late October or November following a first review of the new program and when the prospect of debt relief is likely to be more tangible. Sources close to Tsipras indicated Tuesday that no final decisions will be taken before Friday. However, speculation swirled that authorities were planning to close Parliament’s plenary in the coming days and begin reduced summer sessions to legislate a series of prior actions demanded by Greece’s creditors. The move would allow Tsipras to limit the influence of rebels in his leftist SYRIZA party, as he can control the appointment of the 100 members of the summer sessions. It would push back snap elections, which the country’s creditors clearly do not want, fearing that the new program will not be implemented. Such a tactic would also certainly prompt a vehement response from SYRIZA’s radical Left Platform, and from outspoken Parliament Speaker Zoe Constantopoulou.

Germany backs Greek bailout as Tsipras mulls early polls - The German parliament approved a third bailout for Greece on Wednesday after Finance Minister Wolfgang Schaeuble said the country should get "a new start", while in Athens the government agonized over whether to call a snap election. The Bundestag vote cleared one of the final obstacles to Greece getting funding so that it can make a 3.2 billion-euro debt repayment to the European Central Bank on Thursday. But a sizeable number of conservative lawmakers rebelled against Chancellor Angela Merkel, objecting to pouring yet more billions into Greece. The Dutch parliament also gave its blessing to the Greek rescue, while the board of the euro zone's bailout fund in a teleconference approved disbursing the first tranche of funds under the new Greek program. In Athens, Prime Minister Alexis Tsipras and his inner circle debated whether to take on anti-bailout rebels in his own radical left Syriza party by calling a parliamentary confidence vote or to go straight to early elections. Popular misgivings about more aid for Athens run deep in Germany, the euro zone country which has already contributed most to Greece's two previous bailouts since 2010. But Tsipras secured the third program by promising to impose reform and austerity policies that are so onerous that a sizeable number of Syriza lawmakers rejected the deal in parliament last Friday.

German Parliament Approves Third Greek Bailout, Opposing Votes Drop --With a Greek payment to the ECB due tomorrow, there was no doubt that Germany's parliament would ratify the Third Greek bailout, and the only question was whether political opposition to a Greek rescue would be larger or smaller than expressed in the last such Bundestag vote on July 17. Sure enough, following a speech by Schauble urging his fellow MPs to give Greece a "chance for a new start", moments ago the German parliament approved the third bailout with 454 votes for, 113 against - of which 63 were Merkel's lawmakers - and 18 abstentions.  Curiously, the No votes declined compared to to the last such vote on July 17. Here is the comparison:  And with that the Third Greek bailout is sealed, and Europe can resume paying Greece so it can promptly repay Europe, and perpetuate the can kicking cycle for a few more months, until Greece once again realizes virtually none of the money will make its way into the Greek economy, and a new political crisis re-emerges.

Snap polls look certain, Tsipras set to decide date - Prime Minister Alexis Tsipras appears to have decided that Greece should hold early elections but has not yet taken a decision on when they should be, sources said on Wednesday. Tsipras is listening to advice from government colleagues who are recommending that the polls should be held within September as well as those advocating that the snap elections should not be called before early October. Kathimerini understands that one set of advisers is urging the prime minister to move swiftly and call a ballot for September 20 or 27 at the latest so the government can overcome the internal rift that has opened up within SYRIZA. The other group has advised Tsipras not to consider elections before October 11 so the government has a chance to implement its new bailout agreement with lenders, build trust with them and perhaps clear the adjustment program’s first review. “It is clear there are issues we have to deal with. We do not deny that,” said government spokeswoman Olga Gerovasili. “These are issues that have to do with the government’s stability and to what extent it is in a position to ensure that the parliamentary and governmental process flows smoothly.”

Alexis Tsipras to 'Step Down and Call Snap Elections' -- The Greek prime minister, Alexis Tsipras, has decided to step down and call snap elections for 20 September, government officials said. Once he submits his resignation the prime minister would be replaced by the president of Greece’s supreme court, Vassiliki Thanou-Christophilou – a vocal bailout opponent – who would oversee the elections as the head of a transitional government.  Tsipras won parliamentary backing for the tough bailout programme last week by a comfortable margin despite a large-scale rebellion among members of his ruling leftwing Syriza party, nearly one-third of whose 149 MPs either voted against the deal or abstained. Syriza governs in a coalition with the rightwing, anti-austerity party Independent Greeks (Anel).  The revolt by hardliners angry at what they view as a betrayal of the party’s pledge to fight austerity left Tsipras short of the 120 votes he would need – two-fifths of the 300-seat assembly – to survive a censure motion and he was widely expected to call a confidence vote this week or next. Tsipras appears to have calculated that it was better to call the elections early, before the effects of the new bailout measures – including further pension cuts, VAT increases and a “solidarity” tax on incomes – started to make themselves felt.   Under Greece’s complex constitutional laws, President Prokopis Pavlopoulos cannot immediately call an election if Tsipras resigns, but must first consult the other major parties to see if they could form a government – a near impossibility given the current parliamentary arithmetic.Recent opinion polls have put support for Syriza at around 33-34%, making it by far the country’s most popular party – but not popular enough to govern without a coalition partner. No polls have been published since then, but Syriza insiders remain optimistic.

Far left splits from Tsipras as Greece heads to elections - Rebels opposed to Greece's international bailout walked out of the leftist Syriza party on Friday, formalising a split after its leader Alexis Tsipras resigned as prime minister and paved the way for early elections. Greece's president gave the conservative opposition a chance to form a new government following Tsipras's resignation on Thursday, but the country appears almost certain to be heading for its third election in as many years next month. Tsipras is hoping to strengthen his hold on power in a snap election after seven months in office in which he fought Greece's creditors for a better bailout deal but had to cave in and accept more onerous terms. One day after money began flowing from Greece's third bailout program, a much-needed period of political and economic certainty remained as elusive as ever, drawing concerned calls from the euro zone that Athens must stick to commitments given under the rescue deal. Far left Syriza members, who oppose the promises of yet more austerity and economic reform that Tsipras made to secure 86 billion euros ($97 billion) in bailout loans, broke away to form a new party. A deputy speaker of parliament announced the new party would be called Popular Unity and headed by former Energy Minister Panagiotis Lafazanis, who was fired by Tsipras earlier this year for refusing to back the government.

Greece pays ECB on maturing government bond- govt source: - Greece made a 3.2 billion euro ($3.56 billion) payment to the European Central Bank on a maturing government bond on Thursday, tapping cash from its first disbursement of bailout money, a senior government official said. "The payment was made, the funds are on their way," the official told Reuters, declining to be named. Greece received the first tranche of funds from its new bailout loan on Thursday after the European Stability Mechanism approved a rescue of up to 86 billion euros on Wednesday. The first tranche amounts to 13 billion euros, of which about 12 billion euros will be used to pay down debt, including an earlier bridge loan and the maturing Greek government bond held by the ECB. The initial tranche was paid in cash. Another 10 billion euros for the recapitalisation of banks was sent to a segregated account in the form of ESM notes.

Greek Liquidation Sale Begins: German Company Wins Privatization Bid For 14 Greek Regional Airports - A German company, airport operator FRAPORT won the bid to operate and maintain 14 regional airports, considered to be top of the top in Greece. With an offer of 1.23 billion euro, the consortium of Fraport-Slentel (a unit of Greek energy group Copelouzos) won the bid to lease the regional airports for 40+10 years. Among the 14 regional airports are those on most popular tourist Greek islands like Mykonos, Rhodes, Kos, Santorini and Corfu. It is the first privatization deal under SYRIZA-ANEL coalition government and the biggest privatization deal in Greece since beginning of the crisis and the bailout programs in 2010. The Deal: Total €1.23 billion for the whole period of lease. Annual rent of €22.9 million per year. 25% of the before tax, interest, revenues amortization and fees for Civil Aviation Authority. Pledge to invest €330 million to upgrade the airports in the first four years and a total of €1.4 billion for the next four decades. (source)

Greece is for sale – and everything must go -- I've just had sight of the latest privatisation plan for Greece. It's been issued by something called the Hellenic Republic Asset Development Fund – the vehicle supervised by the European institutions, which has been tasked with selling off an eye-watering €50 billion of Greece's ‘valuable assets’. This document, dated 30 July, details the goodies on sale to international investors who fancy buying up some of the country. We've attached it to this blog to give a flavour of what’s up for grabs at the moment. Fourteen regional airports, flying into top tourist hubs, have already gone to a German company, but don’t panic because stock in Athens airport is still on the table, as well as Athens' old airport which is up for a 99 year lease for redevelopment as a tourism and business centre.  Piraeus and Thessaloniki ports are up for sale – the former case has caused the chief executive to resign and industrial action has begun. A gas transmission system looks likely to be sold to the government of Azerbaijan, but there’s still a power and electricity company, the postal service, a  transport utility which allows trains and buses to run, the country’s main telecommunications company, a 648 km motorway, and a significant holding in the leading oil refiner, which covers approximately two-thirds of the country’s refining capacity. Holdings in Thessaloniki and Athens water are both on sale – though public protest has ensured that 50% plus 1 share remains in state hands.  Finally there are pockets of land, including tourist and sports developments, throughout Greece. 

Weight levels dropped in Greek children during the economic crisis -- A new study indicates that for a 2.5 year period shortly before and during the early years of the Greek economic crisis, the prevalence of overweight and obesity decreased in Greek schoolchildren. This was accompanied by an increase in the prevalence of normal weight children and a slight increase in the prevalence of underweight children. Because this study coincided with the eruption of the Greek economic crisis, it suggests that the changes may be related to the suboptimal conditions that a significant percentage of the Greek population lived in during that period. Additional studies are needed to verify, or refute, the effect of the economic crisis on the weight status of Greek children. "If our results are verified by other studies, they would suggest that economic crises have a rapid adverse effect in the weight of the most vulnerable population, i.e. the children," said Dr. Anastasios Papadimitriou, senior author of the Acta Paediatrica study.

Greece’s Missing Drivers of Growth -- Analyses and discussions of Greece’s economic situation usually begin—and often end—with its fiscal policy. The policies mandated by the “troika” of the European Commission, the European Central Bank and the International Monetary Fund have undoubtedly resulted in a severe contraction that will continue for at least this year. But little has been said about the private sectors of the economy, and why they have not offset at least part of the fiscal “austerity.” Consumption spending is linked to income, so there is no relief there. But what about the other sources of spending, investment and net exports? Investment expenditures provide no counterweight, as they have plunged in the years since the global financial crisis. The same phenomenon took place in other countries in the southern periphery of the European Union, but the change in Greece’s investment/GDP ratio between its pre-crisis 2007 level and that of 2014 was an extraordinary decline of 16 percentage points at a time when GDP itself was falling: {graphs under the fold}

Italy’s massive debt obstacle preventing economy from growing faster?: With Italy periodically setting new records for total government debt — both in real terms and as a percentage of Italy’s slow-growing gross domestic product (GDP) — many observers are starting to ask whether the debt is hindering growth prospects. The conventional wisdom is that a country’s debt is not a problem as long as the economy grows faster than the debt. That would keep value as a percentage of GDP falling and it makes sense that a larger economy can afford to service a larger debt. In the case of Italy, the debt-to-GDP ratio dropped slightly in June, but it remains on a gradual upward trend for the year as a whole. The economy is expected to grow between 0.5 percent and 0.7 percent this year, while the latest forecasts predict debt will be around 1.0 percent higher at the end of the year than it was at the end of 2014. The country set an all-time record when its national debt reached 2.2 trillion euros ($2.4 trillion) in May. The figures for June showed a small drop (the overall debt remains above 2.2 trillion euros), but that was mostly due to lower borrowing costs. With a higher-than-usual number of bonds having come due in July, economists say new record debt levels will be set between now and the end of the year. “There’s a debate between economists about the role of measuring debt or debt compared to GDP,”  “The most important indicator is obviously debt to GDP, but there are studies that show that growth is slowed when debt gets to around 100 percent of the GDP.” In Italy, it’s approaching 135 percent of GDP, according to Eurostat.

Germany May Receive Up To 750,000 Asylum Seekers This Year (Reuters) Germany expects up to 750,000 people to seek asylum this year, a business daily cited government sources as saying, up from a previous estimate of 450,000, as some cities say they already cannot cope and hostility towards migrants surges in some areas. The influx has driven the issue of asylum seekers high up Germany’s political agenda. Chancellor Angela Merkel has tried to address fears among some voters that migrants will eat up taxpayers’ money and take their jobs. The number of attacks on refugee shelters has soared this year. The interior ministry declined to comment on the figures reported in the Handelsblatt but is set to issue its latest predictions this week. Its previous estimate for asylum applications in 2015 was already double those recorded in 2014. Germany is the biggest recipient of asylum seekers in the European Union, which has been overwhelmed by refugees fleeing war and poverty in countries such as Syria, Iraq and Eritrea. There is also a flood of asylum seekers from Balkan countries. Almost half of the refugees who came to Germany in the first half of the year came from southeast Europe. Along with a shortage of refugee lodgings in cities including Berlin, Munich and Hamburg, Germany also struggles to process applications, which can take over a year. Merkel has long said this must be accelerated.

Hungary Deploys ‘Border Hunters’ to Keep Illegal Immigrants Out (WSJ) Hungary’s government said Tuesday it will deploy police units of “border hunters” at its frontier with Serbia to keep illegal immigrants out of the country amid a flood of refugees from the Middle East and North Africa. The head of the prime minister’s office said several thousand police will be placed along Hungary’s 175-kilometer border with non-European Union member Serbia, where most of the migrants enter the country. Hungary “is under siege from human traffickers,” Janos Lazar told a press briefing, adding that the police “will defend this stretch of our borders with force.” The government will also tighten punishments for illegal border crossing and human trafficking, steps aimed at “defending the country,” he said. “[Migrants’] demands to be let in to then take advantage of the EU’s asylum system are on the rise, aggressiveness is increasing. Police have seen that on several occasions,” Mr. Lazar added. The majority of the migrants, whom the government labels as illegal immigrants, are refugees from war-torn Afghanistan, Syria and Iraq, according to human-rights groups. Hungary has registered some 120,000 asylum requests so far this year, an increase of almost 200% from last year. This year’s total could reach 300,000, the country said last week. “Hungary is joining Italy and Greece as the member states most exposed, on the front line” of migration, Dimitris Avramopoulos, EU commissioner in charge of migration, said Friday.

"Insouciance Rules The West" - Paul Craig Roberts - Europe is being overrun by refugees from Washington’s, and Israel’s, hegemonic policies in the Middle East and North Africa that are resulting in the slaughter of massive numbers of civilians. The inflows are so heavy that European governments are squabbling among themselves about who is to take the refugees. Hungary is considering constructing a fence, like the US and Israel, to keep out the undesirables. Everywhere in the Western media there are reports deploring the influx of migrants; yet nowhere is there any reference to the cause of the problem. The European governments and their insouciant populations are themselves responsible for their immigrant problems. For 14 years Europe has supported Washington’s aggressive militarism that has murdered and dislocated millions of peoples who never lifted a finger against Washington. The destruction of entire countries such as Iraq, Libya, and Afghanistan, and now Syria and Yemen, and the continuing US slaughter of Pakistani civilians with the full complicity of the corrupt and traitorous Pakistani government, produced a refugee problem that the moronic Europeans brought upon themselves. Europe deserves the problem, but it is not enough punishment for their crimes against humanity in support of Washington’s world hegemony. In the Western world insouciance rules governments as well as peoples, and most likely also everywhere else in the world. It remains to be seen whether Russia and China have any clearer grasp of the reality that confronts them.

Unemployed young people will be sent to work boot camp, says minister - Cabinet Office minister Matt Hancock has denied that a government plan to send young unemployed people to boot camps to prepare them for work was a form of punishment. “We are penalising nobody because nobody who does the right thing and plays by the rules will lose their benefits,” he told BBC Radio 4’s Today programme on Monday. “In fact this is about giving more support to young people.” The senior Conservative, who heads David Cameron’s earn or learn taskforce, will set out plans for jobseekers aged between 18 and 21 to be placed on an intensive activity programme within the first three weeks of submitting a claim. They will get an initial three-week intensive course of practising job applications and interviews, which will then be regularly reviewed by a dedicated job coach. The new requirements, outlined on Monday, will be in place by April 2017 as part of a wider policy, first announced by Cameron before the election, that jobless 18- to 21-year-olds would be required to do work experience as well as looking for jobs or face losing their benefits.

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