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

Saturday, August 8, 2015

week ending Aug 8

U.S. Fed buys $7.7 billion of mortgage bonds, sells none | Reuters: The Federal Reserve bought $7.684 billion of agency mortgage-backed securities in the week from Jul. 30 to Aug. 5, compared with $5.274 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday. In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS. The New York Fed said on its website the Fed sold no mortgage securities guaranteed by Fannie Mae, Freddie Mac or the Government National Mortgage Association, or Ginnie Mae, in the latest week. It sold none the prior week.

How Is Normalization of Monetary Policy Going to Work? - . Louis Fed - In its "Policy Normalization Principles and Plans," announced in September 2014, the FOMC laid out a program that would ultimately allow the Fed to conduct monetary policy in essentially the same way it did before the beginning of the financial crisis. The principles and plans outline a sequence of actions by which normalization will be achieved:

  1. "Liftoff"—The FOMC will raise its interest rate target when it deems there is no longer as great a need for monetary accommodation. Liftoff is expected to happen sometime later in 2015, but, again, the timing of liftoff will be data-driven, not calendar-dependent.
  2. End "reinvestment"—The FOMC wishes to ultimately reduce the Fed's balance sheet to a size such that the quantity of interest-earning liabilities (including bank reserves) is small, as was the case before the financial crisis. Reinvestment is the process of replacing assets on the Fed's balance sheet as they mature; so, when reinvestment ends, the balance sheet will begin to shrink. 
  3. Shrink balance sheet—Balance-sheet reduction will occur slowly, with no plans to sell assets, though this option has not been ruled out. The Fed's assets will decline as Treasury securities and mortgage-backed securities (MBS) mature. While Treasuries mature at a predictable rate, MBS do not, as this depends on the rate at which the mortgages backing the MBS are refinanced and on mortgage defaults.

Federal Reserve Board economists estimate that the normalization process will take about seven years once it starts.

Fed Doesn’t Demand Wage Growth Before Increasing Interest Rate -- Federal Reserve officials have fuzzy views on how wage growth fits in with their objectives for the economy. They would like to see wages growing faster. It would give them confidence that the economy is closer to their dual goals of producing healthy job growth and modestly rising inflation. But the linkages between wages, jobs and inflation are unclear, and so they’re not banking on faster wage growth materializing. A recent paper by Fed board economists Ekaterina Peneva and Jeremy Rudd finds little evidence that the ups and downs of wages had large effects on broader consumer price trends either before or after the 2007-2009 recession. “Wage developments are unlikely to be an important independent driver of (or an especially good guide to) future price developments,” they conclude. Fed chairwoman Janet Yellen is well aware of all this research. In a speech in March, she laid out the connections she sees between wages, jobs and inflation and how they fit into her plans for short-term interest rates: “The outlook for wages is highly uncertain even if price inflation does move back to 2 percent and labor market conditions continue to improve as projected. For example, we cannot be sure about the future pace of productivity growth; nor can we be sure about other factors, such as global competition, the nature of technological change, and trends in unionization, that may also influence the pace of real wage growth over time. These factors, which are outside of the Federal Reserve’s control, likely explain why real wages have failed to keep pace with productivity growth for at least the past 15 years. For such reasons, we can never be sure what growth rate of nominal wages is consistent with stable consumer price inflation, and this uncertainty limits the usefulness of wage trends as an indicator of the Fed’s progress in achieving its inflation objective.”

Atlanta Fed’s Lockhart: Fed Is ‘Close’ to Being Ready to Raise Short-Term Rates - WSJ: Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September. “I think there is a high bar right now to not acting, speaking for myself,” Mr. Lockhart said in an interview with The Wall Street Journal. He is among the first officials to speak publicly since the Fed’s policy meeting last week, at which the central bank dropped new hints that a rate increase is coming closer into view, a point he sought to underscore. Mr. Lockhart is watched closely in financial markets because he tends to be a centrist among Fed officials who moves with the central bank’s consensus, unlike those who stake out harder positions for or against changing interest rates. His comments are among the clearest signals yet that Fed officials are seriously considering a rate increase in September. “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead,” he said at a conference table in a room adjacent to his Atlanta office. His comments follow those of James Bullard, president of the St. Louis Fed, who said in an interview with the Journal on Friday, “we are in good shape” for a rate increase in September.

Why the Economy Is Not Ready for an Interest Rate Increase - editorial - New York Times -  The Federal Reserve talked up the economy last Wednesday, in a statement that emphasized improvements in employment, housing and consumer spending. Unfortunately, the optimism is misplaced. On Thursday, the Commerce Department reported that from April through June, the economy grew at an annual rate of 2.3 percent — a modest pace, especially given the expectation of a bigger rebound from weather-related poor growth in the first quarter.. Given the depth of the recession that preceded the current recovery, growth in the 2-percent range has not been enough to pull up wages. That point was driven home on Friday, when the Labor Department reported a slowdown in wages and benefits in the second quarter. In a healthy economy, a more or less steady drop in the unemployment rate — as has occurred in the United States — would translate into rising wages and higher prices. If significant or sustained, such increases would be cause for the Fed to raise interest rates. But so far, no such increases have appeared, and, as a result, most working people have not yet recovered all of the lost ground from the recession or raised their living standards. Fed policy makers know all that. A recent leak of documents from the Fed shows that its staff economists have forecast more of the same modest growth and inflation for years to come. Nonetheless, the Fed seems determined to raise interest rates before the end of this year. Fresh data between now and then may cause it to delay. And any move in interest rates, if it comes, is expected to be tiny. But an increase, however small, would signal that Fed policy makers are basically satisfied with the economy’s performance. Coupled with Congress’s long failure to provide adequate fiscal support to the economy, that message would be a setback for Americans who are still not getting ahead.

Job Growth Steady in July, Possibly Easing Path for Fed Action -  The American economy added 215,000 jobs in July, a respectable gain that could raise the comfort level of policy makers at the Federal Reserve as they consider the timing of their long-awaited move to raise interest rates.The American economy delivered pretty much what was expected last month in terms of hiring, giving the Federal Reserve one more piece of evidence that conditions are strong enough to support an increase in the interest rate.The pace of employment growth was steady, if not spectacular; the economy added 215,000 jobs in July. While not as robust as the gains recorded in May and June, Friday’s Labor Department report came in within 10,000 jobs of what forecasters had predicted, a notable feat of consistency in an economy that employs nearly 150 million people.The unemployment rate was unchanged at 5.3 percent. If the current pace of job growth can be maintained, economists expect the jobless rate to sink below the crucial 5 percent level by late 2015 or early 2016. With the job market generally moving in the right direction, the Fed is likely to stay the course in its plans to raise short-term interest rates soon. Fed officials haven’t given a definitive signal, but they’ve indicated that a rate increase is possible at the next Fed meeting in September or at their last meeting of the year in December.

Solid U.S. jobs report bolsters case for Fed rate hike - U.S. employment rose at a solid clip in July and wages rebounded after a surprise stall in the prior month, signs of an improving economy that opened the door wider to a Federal Reserve interest rate increase in September. Nonfarm payrolls increased 215,000 last month as a pickup in construction and manufacturing jobs offset further declines in the mining sector, the Labor Department said on Friday. The unemployment rate held at a seven-year low of 5.3 percent. Payrolls data for May and June were revised to show 14,000 more jobs created than previously reported. In addition, the average workweek increased to 34.6 hours, the most since February, from 34.5 hours in June. "We view this report as easily clearing the hurdle needed to keep the Fed on track for a September rate hike. The bar for not moving now is much higher," said Rob Martin, an economist at Barclays in New York. The Fed last month upgraded its assessment of the labor market, describing it as continuing to "improve, with solid job gains and declining unemployment." The U.S. central bank said its policy-setting committee anticipated it would be appropriate to raise lending rates when it has seen "some further improvement" in the jobs market. It has not raised rates since 2006. 

So the Job Market Is Strong, But There’s Still Plenty of Slack -- Friday’s jobs report revealed that the unrounded overall unemployment rate, at 5.26%, has finally dropped below its prerecession average, a point underscored in a blog post by Jason Furman, chairman of the White House Council of Economic Advisers. So we’re now fully recovered from the recession, right? The labor market is cranking and the Federal Reserve is sure to pull the trigger on higher rates in September to keep the economy from overheating, right? Well, not quite. Look below the topline unemployment rate and the picture becomes murkier. Yes, slack in the overall labor market has been absorbed. But as a chart below (created by Mr. Furman’s shop) points out, there is still plenty of labor market slack among certain groups. The share of long-term unemployed workers is still 34% higher than it was before the recession, although it’s come down noticeably. And the much-scrutinized “U-6” unemployment rate, a broader indicator that includes those stuck in part-time jobs and discouraged workers, is still 14% above where it stood. The unemployment rates for women and Hispanics are also slightly higher than they were before the recession, Mr. Furman notes.There are two ways to look at this. The optimistic view would note that while some measures of labor market slack remain high, they’re all moving in the right direction. And since the recession was so severe, it’s only normal that some more vulnerable groups in the labor market should take longer to recover. A more pessimistic observer would argue it’s hard to make the case that the labor market is fully healed when it’s still so hard for those who have been unemployed six months or more to get a job. So where does the Fed fall in all this? It’s hard to say for sure. While economists generally agree that Friday’s report puts the central bank firmly on track to raise rates next month, it’s clear that Fed Chairwoman Janet Yellen remains troubled by stubbornly high levels of slack.“The lower level of the unemployment rate today probably does not fully capture the extent of slack remaining in the labor market–in other words, how far away we are from a full-employment economy,” she said in a speech last month in Cleveland. Nothing in today’s data is likely to lead her to change that assessment.

Slow Wage Growth is Certainly Not a Sign of the “Some Further Improvement” Needed for the Fed to Raise Rates - Arguably, the most important measure for the Federal Reserve as they decide whether to raise rates in September is nominal average hourly earnings. Over the year, average hourly earnings rose only 2.1 percent, in line with the same slow growth we’ve seen for the last six years. And wages for production/nonsupervisory workers rose even more slowly, at 1.8 percent over the year. The annual growth rates are slow by any measure, but are certainly far below any reasonable wage target. Wage growth needs to be stronger—and consistently strong for a solid spell—before we can call this a healthy economy. As shown below, nominal wage growth since the recovery officially began in mid-2009 has been low and flat. This isn’t surprising—the weak labor market of the last seven years has put enormous downward pressure on wages. Employers don’t have to offer big wage increases to get and keep the workers they need. And this remains true even as a jobs recovery has consistently forged ahead in recent years.  Pressure is building on the Fed to reverse its monetary stimulus by raising short-term interest rates, slowing the recovery in the name of stopping wage-fueled inflation. Fortunately, the Fed has said that their decision to raise rates will be “data driven.” The data clearly show that the economy has not improved enough.

Inflation Paranoia as a Tribal Marker - Paul Krugman -- Derp — views that just keep being repeated in the face of overwhelming contrary evidence — has always been with us, but the derp quotient has really soared since the crisis of 2008, which made nonsense of doctrines too dearly held to be reconsidered. This is especially true of inflation derp: has any prominent figure who warned of runaway inflation from the Fed’s efforts admitted having learned anything from being wrong year after year?It seems increasingly clear to me that what we’re looking at here has nothing to do with intellectual discourse as we normally understand it. It is, instead, about tribal identities: there’s a certain kind of person who rails against policies that debase the dollar, and that kind of person admires others who do the same no matter how wrong their predictions and disastrous their financial advice. As I said in a brief note on Ron Paul, it’s a form of Madoff-style affinity fraud, even if the perpetrator of the scam believes his own derp. But the thing is, it’s not just the libertarians who do this sort of thing. Awesomely, Richard Fisher, now retiring as president of the Dallas Fed, is apparently regarded as an intellectual giant — he “rose to the status of being a deity in Texas” — despite a track record of being wrong again and again.  Why all the respect for what would ordinarily be considered a record of repeated bad judgment coupled with a lamentable unwillingness to learn from experience? The answer, surely, is that within the conservative tribe issuing dire warnings against inflation is considered virtuous whether or not they are right; it’s a way of showing that you’re their kind of guy, that you belong to the tribe.

The PCE Price Index Still Remains Disappointingly Below Target - The Personal Income and Outlays report for June was published this morning by the Bureau of Economic Analysis. The latest data includes annual revisions for the previous three years and the first five months of 2015.  The latest Headline PCE price index year-over-year (YoY) rate is 0.23%, down from a revised 0.31% the previous month. The latest Core PCE index (less Food and Energy) at 1.29% is essentially unchanged from the previous month's 1.27% YoY. The general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since Early 2013, Core PCE Price Index has hovered in a narrow YoY range around 1.5%. For six months beginning in April 2014 it rose to a plateau slightly above the range has since dropped to a lower range around the 1.3% level. The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when Core PCE hovered in a narrow range around its interim low. The second string highlights the lower range of the past nine months. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. Also included is an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The two percent benchmark is the Fed's conventional target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. The most recent FOMC statement now refers only to the two percent target.

Inflation Misses Fed’s 2% Target for 38th Straight Month - The latest inflation figures aren’t making the Federal Reserve’s job any easier. Consumer-price growth has been running below the Fed’s 2% target for three years, and June was yet another month of weakness, the Commerce Department said Monday. The price index for personal-consumption expenditures, the Fed’s preferred inflation measure, rose 0.2% in June from a month earlier, the Commerce Department said. From a year earlier, prices were up just 0.3%. That’s far below the 2% target that the Fed believes would be indicative of stability and healthy economic growth. Inflation has run below the Fed’s target for 38 consecutive months. Core prices, which exclude volatile food and energy costs, ticked up 0.1% from a month earlier and 1.3% from a year ago. Economists surveyed by The Wall Street Journal had expected core prices to climb 0.1% in June from a year earlier. Sluggish growth in the U.S, weak overseas economies and depressed oil prices are behind the low inflation numbers. The persistently low inflation rate is weighing on Fed officials as they debate when to raise short-term interest rates. The Fed has indicated it could start to lift rates as early as September, but officials have said they want to be confident that inflation is headed toward its objective. Overall inflation has risen in recent months, though barely. The 0.3% year-over-year gain in overall prices in June followed a 0.2% increase in May and a 0.1% increase in April. Core inflation, meanwhile, has been locked in at 1.3% for six months.

Q2 GDP 2.3% As Reivisions Cause Q1 GDP To Go 0.6% Positive -- For the second quarter GDP bounced back to 2.3%. The BEA revised the national accounts back three years and now Q1 GDP is 0.6% instead of the -0.2% previously reported. The revisions may have improved Q1 2015 Gross Domestic Product, but on average, lowered GDP for the last three years by 0.3 percentage points. From 2011 to 2014 real GDP was 2.0% instead of the previous average of 2.3%. That's quite a stunt in economic growth overall. As a reminder, GDP is made up of: Y = C + I + G + (X - M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*. GDP in this overview, unless explicitly stated otherwise, refers to real GDP. Real GDP is in chained 2009 dollars. Tthe below table shows the GDP component comparison in percentage point spread from Q1 to Q2. Lest we forget, trade data is always delayed and we believe imports will be revised much higher, potentially causing a Q1 GDP contraction.  Consumer spending, C recovered from Q1 and contributed almost two percentage points to Q2's 2.3% GDP. Motor vehicles came back with a 0.26 percentage point contribution. Durable goods overall was a 0.53 percentage point contributio. Consumer spending services added 0.95 percentage points with health care by itself adding 0.31 percentage points to GDP. That is an enormous growth of spending just on health care. Below is a percentage change graph in real consumer spending going back to 2000. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). Imports and Exports, M & X, were a small 0.13 percent point positive GDP growth contribution.  This is a huge improvement from last quarter, yet we must caution, trade data is always revised, usually negatively, with the next GDP revision.  Exports were a 0.67 percentage points as imports were -0.54 percentage points.

BEA Deflates Its Way to Second Quarter Growth -- In their first estimate of the US GDP for the second quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.32% annualized rate, up +1.68% from a revised +0.64% growth rate for the first quarter (and up over 2.49% from the -0.17% contraction rate previously reported). Follow up: The revision to the first quarter's "final estimate" was accompanied by revisions to all quarters back through 2012. On average the revisions trimmed about a quarter of a percent (-0.22%) from previously reported growth rates. However, several quarters were more materially revised -- with nearly -2.0% shaved off the growth rate for the third quarter of 2012, and another -1.5% removed from the grow rate previously reported for the third quarter of 2013. A table showing all of the revisions to the historic headline numbers is provided below. For the newly reported second quarter nearly all of the BEA's major categories of economic activity had positive contributions to the headline number. Consumer goods contributed +1.04% to the headline, while consumer services added +0.95%. Exports provided +0.67% (up +1.48% from a revised -0.79% contraction in the prior quarter), while imports removed only -0.54% from the headline (some +0.58% better than the revised -1.10% impact in the first quarter). Fixed investment provided a positive contribution (+0.14%), as did governmental spending (also +0.14%). Inventories were nearly unchanged (-0.08%), resulting in a +2.40% growth rate for the BEA's "bottom line" real final sales of domestic product. Real annualized per capita disposable income was reported to be $37,846, some -$364 per year less than the previously reported $38,210 per annum. All of that downside came as a result of revisions to the prior quarter's data, which was revised downward by -$437 (over a full percent). Meanwhile, the household savings rate plunged to 4.8% -- down -0.7% from the previously reported 5.5%.  For this revision the BEA assumed an annualized deflator of 2.04%. During the same quarter (April 2015 through June 2015) the inflation recorded by BLS in their CPI-U index was 3.52%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline number would show a more modest +0.89% growth rate.

Q2 2015 GDP Details on Residential and Commercial Real Estate - The BEA released the underlying details for the Q2 advance GDP report today. Last Thursday, the BEA reported that investment in non-residential structures decreased slightly in Q2.  The decline was due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration declined from a $112.5 billion annual rate in Q1 to a $81.1 billion annual rate in Q2. Excluding petroleum, non-residential investment in structures increased at a 6.8% annual rate in Q2 (solid growth).  The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level. Investment in offices increased in Q2, is down about 33% from the recent peak (as a percent of GDP) and increasing from a very low level - and is still below the lows for previous recessions (as percent of GDP). . Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 54% from the peak. The vacancy rate for malls is still very high, so investment will probably stay low for some time. Lodging investment increased in Q2, and with the hotel occupancy rate near record levels, it is likely that hotel investment will increase further in the near future. Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 57%. The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes). Investment in single family structures is now back to being the top category for residential investment. Home improvement was the top category for twenty consecutive quarters following the housing bust ... but now investment in single family structures has been back on top for the last 7 quarters and will probably stay there for a long time.

Go-go economy becomes so-so economy: U.S. faces dimmer future absent big fixes - — Millions of Americans who want a full-time job still can’t find still one. Worker paychecks are barely keeping ahead of inflation. And governments at all levels are struggling to prevent future costs from spiraling out of control. All of these ailments can be traced to one malady: slow economic growth. The U.S. is in a straitjacket. Sure, the economy has been growing steadily at a 2% clip since a recovery began in mid-2009. But the U.S. is expanding well below its historic growth rate of 3.3%. And it hasn’t topped the 3% mark in a decade — the longest barren stretch in modern times. Politicians have taken notice. They’ve seized on the dull performance of the U.S. economy as they jockey to capture the White House in 2016. Republican contender Jeb Bush has publicly made the goal of a 4% economy the early rallying cry of his campaign. Read: What Republicans are saying about the economy Forget 4%. Virtually every economist of any political stripe says it’s an impossible dream. Most are doubtful the U.S. can regularly achieve 3% growth again. And even those who do disagree on what needs to done. What’s at stake is the very future of America. Without faster growth the U.S. can’t create enough jobs for those who want to them, and Americans will have to get used to much smaller increases in their paychecks. The middle class could shrink and poor would be even worse off.

GDP Shocker: Atlanta Fed Sees Q3 Growth At A Laughable 1% --The Atlanta Fed's Q1 and Q2 GDP forecasts were virtually spot on with what the BEA ultimately reported. Which is why if its accuracy persists, not only the Fed, but Wall Street strategists suddenly have a very big headache on their hands. Moments ago, the Atlanta Fed just released its much anticipated first estimate for Q3 GDP. It was a doozy, at just 1.0%, or more than 2% below the consensus sellside estimate. If this is confirmed, not only are all rate hike bets off, but one may as well start the countdown to the recession, and more importantly, QE4. From the Atlanta Fed: The first GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 1.0 percent on August 6. The model projects that lower inventory investment will subtract 1.7 percentage points from third quarter real GDP growth. Real GDP grew 2.3 percent in the second quarter according to the advance estimate from the U.S. Bureau of Economic Analysis. In short, if confirmed, not only is this a disaster for the economy, but an even bigger disaster for the Fed which has now pegged itself into a rate hike hole, and can only unpeg it by destroying what little credibility it has left.

This Recovery Really Is Different --Calling this the “worst economic expansion since World War II” is like saying the ebola virus is the worst cold you ever had. At some level you might be technically correct, but you end up communicating confusing, even misleading, information. This keeps coming up, despite a wealth of evidence that provides more appropriate context about the crash and subsequent recovery. A column in Real Time Economics is typical of the genre: Since the recession ended in June 2009, the economy has advanced at a 2.2% annual pace through the end of last year. That’s more than a half-percentage point worse than the next-weakest expansion of the past 70 years, the one from 2001 through 2007. While there have been highs and lows in individual quarters, overall the economy has failed to break out of its roughly 2% pattern for six years. The key that something is wrong is in the outlier status of the data. “More than a half-percentage point worse than the next-weakest expansion” is an enormous, Bob Beamon-like smashing of the earlier record. To better understand this data requires some context, which today’s column will provide. First, the specifics: By just about every economic metric, this has been a mediocre, subpar recovery. For the first few years following the end of the recession in June 2009, employment increased slowly. Wages to this day have been little changed. Retail sales have been inconsistent; housing has seen soft sales numbers, while price increases have been a function of a lack of inventory caused by limited amounts of home equity and immobility as a consumer try to reduce debt. Gross domestic product growth has been weak and lacking in consistency.  When we discuss expansions, we typically are referring to the later half of a typical economic contraction-expansion cycle. However, that huge outlier is a clue that we are using the wrong data set. The post-World War II recession recoveries are the wrong frame of reference; the proper one is the much more severe set of credit-crisis collapses and recoveries.

Recovery without Military Keynesianism - Thursday’s GDP release incorporated an annual data revision extending back to 2012. In this recovery, output is 4% lower (in log terms) than the corresponding point in the previous recovery. In Ch.2009$, 2015Q2 output was 92.9 billion lower (at quarterly rates). The comparison (in log levels, normalized to troughs) is shown in Figure 1.  The gap falls to 2.9% when per capita GDP is compared. One interesting aspect of the slow recovery is the fact that government spending has been particularly low, as others have pointed out [1] (and contra common perceptions). Perhaps, more interesting is the source of the government spending that pushed output growth in the 2000’s: defense.  In other words, most of the slower growth in an accounting sense can be attributed to lower defense spending. Does this mean we should embark upon another war? After all, the same voices who argued for invading Iraq have also argued for taking military action against Iran (e.g.., John Bolton). I do believe doing so would add to aggregate demand. Figure 3 (from this post) shows how much we spent up to FY2012 in real terms. However, believe it or not, there are other ways of boosting aggregate demand, even when restricting oneself to spending on goods and services – and that’s spending on directly productive assets, such as infrastructure. To make this point concrete, note that in dollar terms, overall government spending more than accounts for the GDP differential. GDP was 371.7 Ch.09$ billion (SAAR) lower than the corresponding point in the previous recovery. Government spending on goods and services was 559.4 Ch.09$ billion less. As noted in this post, a big program of spending on infrastructure would clearly benefit the economy both on the supply and demand side. And yet, there is no evidence of movement here, particularly given the refusal of certain elements to consider more tax funding for such measures.[2]

A Closer Look at the Decline in Government Expenditures: This tweet generated a number of questions that sent me back to the data for a closer look. In the process I gained a few insights that I discuss below. These comments draw upon an excel file that compiles all the relevant BEA data and is accessible here.  First, I want to be clear what the figure above is measuring. It is the sum of government spending, transfer payments, and interest payments across all levels of government. So it is a thorough measure.   I learned, however, that it has one shortcoming: it subtracts out depreciation of fixed government capital which means it actually understates total dollar expenditures. Below is an updated version of this measure that corrects for this practice. As you can see this correction is not too large, it adds only a few basis points and does not change the sharp decline seen since 2010. The huge run up in total government expenditures during the crisis is largely gone.  Most of the decline comes from reductions in federal government expenditures though there is a non-trivial reduction in state government expenditures too. Many commentators seemed curious as to what was driving the sharp decline in expenditures. The figure below partially answers this question by decomposing total government expenditures (at all levels of government) into four categories: consumption and investment spending, transfer payments, interest on debt payments, and other.  Because of the sequester I was not surprised to see the sharp decline in government spending. I was surprised, though, to learn transfer payments have not come down that much. I was expecting the rise in transfers to be temporary, tied to the business cycle. That seems to be the case for some transfer programs like  programs like unemployment insurance and SNAP.  Maybe the increase in transfer payments reflects the ongoing growth of social security and medicare against a denominator (NGDP) that never has returned to its pre-crisis trend.  The big takeaway, then, is that even though the overall level of total government expenditures as percent of GDP has come back down to pre-crisis levels it composition appears to have permanently changed.

Treasury says it can stay below debt limit briefly past end of October - Treasury Department officials said Wednesday that extraordiary measures now in place will keep the federal government from hitting the debt ceiling for at least a brief time after Oct. 30. Last month, Treasury Secretary Jacob Lew told Congress that the debt ceiling would not be hit before end of October. Treasury officials said the department will have to temporarily reduce the level of Treasury bill issuance over the next few months as the debt ceiling nears. Treasury announced that it will auction $64 billion in notes and bonds next week in its regular quarterly-refunding auctions. The auction size is unchanged from the May refunding.

McConnell's vow: No more government shutdowns -- Senate Majority Leader Mitch McConnell (R-Ky.) says he will not allow a government shutdown this fall and has pledged to begin talks “at some point.” McConnell on Tuesday said he is willing to negotiate with Democrats to solve the funding impasse, after refusing for weeks to participate in the budget summit they have been calling for. “Let me say it again, no more government shutdowns,” he told reporters. He added that he would find a way forward “through negotiations.” “We have divided government. The different parties control the Congress, control the White House, and at some point we’ll negotiate the way forward,” he said. The government's budget authority expires at the end of September, and Democrats are warning of a shutdown because the Senate has failed to pass any appropriations bills as lawmakers disputed levels for defense and nondefense programs. “We should have rolled up our sleeves weeks ago and started this conversation between the House, the Senate and the White House to come up with a budget for America that is fair,” said Senate Democratic Whip Dick Durbin (Ill.).  New York Sen. Charles Schumer, the third-ranking member of the chamber's Democratic leadership, warned Republicans would risk a shutdown by trying to add controversial policy provisions, such as a proposal to defund Planned Parenthood, to a year-end spending bill. “If they try to add extraneous riders and say, 'You have to keep those riders,' important riders where there’s great disagreements in the country ... they’re headed for a government shutdown,” he said.

Fed Up with Stagnant Wages and Corrupt Politicians | The Economic Populist: For the past 40 years, our political leaders have not only allowed, but have deliberately effectuated economic polices that have crammed most of the profits generated by ordinary working people into the pockets of those at the very tippy-top of the income ladder — by conspiring against organized labor, giving preferential tax breaks to the very wealthy, and by allowing bad trade deals to offshore our best jobs. And in a Catch-22, these politicians rigged the election system to keep themselves in power. Then afterwards, when they're done screwing us over while "serving" in government office, they go to work as corporate lobbyists to screw us over even more. Now, because of stagnant wages over the last several decades (because are "job creators" are so cheap and greedy), both of the Social Security trust funds have been under-funded; while those who reaped most of the wealth, have escaped paying their fair share of taxes. And despite all the evidence we have of income inequality, our crumbling infrastructure, our bankrupt cities, and the overall general decline of our nation — these same politicians continue to make a very dire situation for most Americans even worse. That's why regular working people (on both the left and the right) are getting so fed up — and why people such as Bernie Sanders and Donald Trump have had such great public appeal; because they know we're fed up.

Jimmy Carter: The U.S. Is an ‘Oligarchy With Unlimited Political Bribery’  -- Former President Jimmy Carter had some choice words for our form of government, post-Citizen’s United, on my radio program last week. When I asked him his thoughts on the state of American politics since five right-wing justices on the U.S. Supreme Court opened the doors to “unlimited money” in our political discourse via Citizens United, Carter was blunt and to the point.  President Jimmy Carter: The United States is an Oligarchy… http://t.co/IyJAjJa15z “It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members. “So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over.” I asked him then what might change things and he said it would take a “horrible, disgraceful” corruption scandal (think Nixon) that would “turn the public against it [Citizens United] and maybe even the Congress and the Supreme Court.” Carter added, “The incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody who’s already in Congress has a lot more to sell to an avid contributor than somebody who’s just a challenger, so it benefits both parties.”

Dynamic Scoring in Action: Unwarranted Certainty | Jared Bernstein | On the Economy: Once the Republicans took the majority in Congress, they instructed the budget scorekeepers to do “dynamic scoring:” building macroeconomic feedback effects into their revenue estimates from proposed changes to tax policy. Because economists broadly assume that taxes distort decisions about activities with growth impacts, like labor supply or capital investment, cutting taxes often generates more growth in macro models. Since cutting taxes also loses revenue, a key motivation behind dynamic scoring is to make tax cuts look cheaper than they are under static scoring, which omits such feedback effects. If this all makes you nervous, it should. There is a potential fistful of thumbs on that scale, from reckless tax cutters to questionable modeling assumptions to a level of uncertainty that should, IMHO, be left out of the official scores. There’s nothing wrong with asking the scorekeepers to give you a range of dynamic estimates, but given how unsure we are about the magnitude of such estimates, there’s something quite wrong with building them in to the scores thus and the future budget baseline. Well, thanks to the Joint Committee on Taxation, we now have one of these dynamic scores firmly in hand. In this case, the JCT scored the cost of the “tax extenders,” that big bunch of preferential tax rules for businesses and individuals, like credits for research, energy, and investments that must be renewed every few years to stay alive (this proposal is for a two year extension). Because they’re not assumed to continue, the cost of the extenders—the revenue lost to the Treasury—is not included in the budget baseline. And because there’s very little in the way of revenue offsets in the proposed extension, it adds $97 billion to the 10-year budget deficit.

CBO Aug 7, 2015: Monthly Budget Review for July -- Monthly Budget Review for July 2015 The federal government’s budget deficit amounted to $463 billion for the first 10 months of fiscal year 2015, CBO estimates. That deficit was $2 billion larger than the one recorded during the same period last year. If not for shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the 10-month period would have declined by $41 billion. On the basis of the government’s revenues and spending so far this fiscal year, CBO expects that the annual deficit will total about $425 billion, which would be less than the $486 billion that the agency projected in March. CBO will publish new multiyear budget projections later in August.  Hmm. $61 billion improvement over four months. Pretty significant however you slice it. And maybe puts some context on 75 year projections put out either by SSA or CBO.

Winning in Maui: TPP Ministerial Negotiations Fail, with No Date Set for the Next Round -- Sadly, or not, the TPP sausage made in Maui proved unpalatable to many trade ministers; not merely the casing, but the filling. Here’s the “Joint Statement by TPP Ministers” emitted by the United States Trade Representative. I’ll quote most of it so you can savor it: We, the trade ministers of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam announce that, after more than a week of productive meetings, we have made significant progress and will continue work on resolving a limited number of remaining issues, paving the way for the conclusion of the Trans-Pacific Partnership negotiations. Ministers and negotiators leave Hawaii committed to build on the momentum of this meeting by staying in close contact as negotiators continue their intensive engagement to find common ground. Negotiators will also continue to work to formalize the achievements that have been made this week. In this last stage of negotiations, we are more confident than ever that TPP is within reach and will support jobs and economic growth. The flaccidity of the language — “more than a week of,” as opposed to X days, “productive meetings,” as if there were ever any other kind, “paving the way,” “intensive engagement,” “within reach” — is remarkable even by American standards, and matched only by the superb irony of “committed to build on the momentum of this meeting.” What momentum? Crucially, note that the text isn’t even agreed at staff level! (“continue to work to formalize”)[1]. And as Inside Trade tartly notes, the ministers “ended a four-day meeting without even an agreement in principle.”  How did the TPP fail in Maui? And why? And what next?

Eyes on Trade: Yet Another ‘Final’ TPP Ministerial and Again No Deal; Not Surprising Given Growing Controversy Over TPP Threats Here and in Other Nations: The fourth “final” TPP ministerial without a deal means the clock has run on possible U.S. congressional votes in 2015. No deal means the TPP is thrown into the political maelstrom of the U.S. presidential cycle and with opposition building in many countries there are reduced chances that a deal will ever be reached on a pact that U.S. Trade Representative Michael Froman declared to be in its “end game” in 2013 but that has become ever more controversial since. It’s good news for people and the planet that no deal was done at this final do-or-die meeting given the TPP’s threats to jobs, wages, safe food, affordable medicines and more. Only the beleaguered negotiators and most of the 600 official U.S. trade advisors representing corporate interests wanted this deal, which recent polling shows is unpopular in most of the countries involved. This ministerial was viewed as a do-or-die moment to inject momentum into the TPP process, so this Maui meltdown in part reflects how controversial the TPP is in many of the involved nations and how little latitude governments feel to make concessions to get a deal. The intense U.S. national political battle over trade authority was just a preview of the massive opposition the TPP would face once members of Congress and the public see the specific TPP terms that threaten their interests. Given the damaging impacts that some TPP proposals could have for many people, it’s not surprising that the same set of issues including investor-state dispute resolution and medicine patents as well as market access issues like sugar, dairy, and rules-of-origin on manufactured goods like autos remain deadlocked given they will determine whether a final pact is politically viable in various TPP countries.

The Trans-Pacific Partnership issues in-depth -  There are hundreds if not thousands of issues to resolve within the nearly 30 chapters of the proposed Trans-Pacific Partnership pact, which would cover more than 40 percent of world economic output. Here are some that have received the most attention:

Election Cycles Cloud Future of Trade Talks - WSJ: The U.S. and 11 other Pacific nations trying to hammer out a sweeping trade agreement notched progress in high-level talks in Hawaii but now face a renewed mix of thorny issues complicated by election seasons in the U.S. and Canada. A snowballing dairy fight threatened to derail the deal last week as top ministers also grappled with an economically larger issue on how automobiles can be produced and traded within the proposed trade bloc. That disagreement pits Japan against the countries of the North American Free Trade Agreement. In the U.S., current and former officials concede that it is now unlikely the TPP can be completed and voted on in Congress this year as the Obama administration hoped, before the peak of a presidential campaign that is already highlighting objections to the deal from unions, environmental groups and some conservatives. Meanwhile, Canada, the third-largest economy in the group after the U.S. and Japan, embarked on an 11-week election season Sunday that could make it hard for Prime Minister Stephen Harper’s government to agree on opening up the country’s protected dairy markets to more imports from the U.S. and New Zealand. Ministers’ inability to clinch a deal in Hawaii means the Canadian government takes on a high-stakes balancing act and the country’s dairy farmers will face more uncertainty about their fate under the Pacific deal, called the Trans-Pacific Partnership, or TPP. “The fact that they didn’t get anything done this week is a big problem for everybody,”

Contrary To What You’ve Heard, TPP Will Undermine US Law — Including Supreme Court Decisions -- One of the key lines of pure unadulterated bullshit spread by the USTR concerning the Trans Pacific Partnership (TPP) agreement is that it won't lead to significant changes in US law. That's just wrong. As KEI points out, it's pretty clear that the current text would completely undermine key Supreme Court rulings concerning state sovereign immunity from intellectual property disputes. Zack Struver and Tazio De Tomassi created a short video explaining why: The specific issue is that, under the 11th Amendment to the Constitution, state governments are given "sovereign immunity" from most legal issues in federal court. And, when it comes to things like patents, the Supreme Court decided that Congress could not pass a law that takes away such sovereign immunity from the states.  In practice, this means state governments -- including things like research universities -- are able to infringe on patents in the public interest, claiming sovereign immunity in state courts against such claims. We've pointed out in the past how hypocritical it is that state universities frequently use such sovereign immunity claims to avoid lawsuits, while at the same time being some of the most aggressive patent trolls in going after others (with the University of California being a prime example). However, it is the law of the land and in the Constitution that sovereign immunity on things like patents cannot be abridged. Yet, as the video above notes, the TPP appears to get rid of that, and would open up states, at the very least, to these international corporate sovereignty tribunals (also known as Investor State Dispute Settlement, or ISDS, tribunals). In other words, the USTR may single-handedly undermine the Constitution's 11th Amendment, overturning Supreme Court precedent on the subject in a deal negotiated entirely in secret, with patent holders (who hate the sovereign immunity protections) as the key advisors. That's not how our government is supposed to work.

Cables Show Hillary Clinton's State Department Deeply Involved in Trans-Pacific Partnership - Democratic presidential candidate Hillary Clinton on Thursday attempted to distance herself from the controversial 12-nation trade deal known as the Trans-Pacific Partnership. During her tenure as U.S. secretary of state, Clinton publicly promoted the pact 45 separate times -- but with her Democratic presidential rivals making opposition to the deal a centerpiece of their campaigns, Clinton now asserts she was never involved in the initiative. "I did not work on TPP," she said after a meeting with leaders of labor unions who oppose the pact. "I advocated for a multinational trade agreement that would 'be the gold standard.' But that was the responsibility of the United States Trade Representative." But at a congressional hearing in 2011, Clinton told lawmakers that "with respect to the TPP, although the State Department does not have the lead on this -- it is the United States Trade Representative -- we work closely with the USTR." Additionally, State Department cables reviewed by International Business Times show that her agency -- including her top aides -- were deeply involved in the diplomatic deliberations over the trade deal. The cables from 2009 and 2010, which were among a trove of documents disclosed by the website WikiLeaks, also show that the Clinton-run State Department advised the U.S. Trade Representative’s office on how to negotiate the deal with foreign government officials. In recent months, labor, environmental, public health and consumer advocacy groups have campaigned against the TPP, saying the pact is a stealth attempt by corporations to tilt the rules of international commerce in their favor. They have specifically criticized provisions in the deal -- which are secret but have periodically leaked -- that they say would empower corporations to use international tribunals to attempt to overturn public interest laws. The groups represent many core Democratic Party constituencies that Clinton has been courting in her White House bid, which explains why in the lead-up to the party's primary she has suddenly depicted herself as a critic of the deal.

The Economist: The TPP is Dead - Yves Smith - The chief economist of The Economist magazine, Simon Baptist, believes that the Trans-Pacific Partnership (TPP) trade deal is dead following the failure of final round negotiations in Hawaii last week. Here’s Baptist’s latest commentary on the TPP from his latest email newsletter: The latest talks on the Trans-Pacific Partnership (TPP) did not end well and election timetables in Canada and the US mean that the prospect of a deal being ratified before the end of 2016 (at the earliest) is remote. The usual problem of agricultural markets was prominent, headlined by Canada’s refusal to open its dairy sector. For New Zealand—one of the four founder countries of the TPP, along with Brunei, Chile and Singapore—this was a non-negotiable issue. Dairy was not the only problem. As usual, Japan was worried about cars and rice, and the US about patent protection for its pharma companies.The TPP was probably doomed when the US joined, and certainly when Japan did. It then became more of a political project than an economic one. Big trade agreements had hitherto focused on physical goods, while the TPP had an aim of forging rules of trade beyond this in intellectual property, investment and services.  The next step for the TPP, if anything, is whether a smaller group—such as the founding four —will break away and go ahead on their own, with a much smaller share of global GDP involved, and in the hope that others will join later. Yves here. This conclusion is even more deadly than it seems, particularly coming from a neoliberal organ like the Economist.  What is intriguing and heartening about the Economist verdict isn’t merely that the TPP is dead. It’s that it’s so dead that for it to be revived, it would have to be in radically different form, with a much smaller group of countries. And if I read the Economist piece correctly, the “founding four” does not include Japan, which joined the negotiations late. Japan’s famously powerful farmers are not likely to sign up for a deal that encroaches on the island nation’s beef and rice lobbies. And it’s hard to see how anyone would take a Pacific political or economic pact all that seriously that did not have China or Japan as members.

The declining impact of U.S. income taxes on wealth inequality -- A growing number of papers measuring U.S. wealth inequality and its continuing growth were published over the past year. One of those key papers, by economists Emmanuel Saez of the University of California-Berkeley and Gabriel Zucman of the London School of Economics, finds that the share of wealth held by the top 0.1 percent of families in the United States grew from about 7 percent in the late 1970s to 22 percent in 2012. Yet it’s important to note that Saez and Zucman’s results and similar estimates look at the distribution of wealth before accounting for the impact of taxation. A new paper looks at the post-tax distribution of wealth and finds that the federal income tax system is doing significantly less to reduce wealth inequality than in the past. And there are signs that the federal tax system in recent years might actually be increasing wealth inequality. The paper by economists Adam Looney at the Brookings Institution and Kevin B. Moore at the U.S. Federal Reserve looks at trends in wealth inequality from 1989 to 2013 using data from the Fed’s Survey of Consumer Finances. ... Looney and Moore’s analysis is, as they note, the first attempt to analyze trends in post-tax wealth inequality. So their paper is just the beginning of the investigation into this area. But if their results hold up they would have strong implications for how we think about the tax code and wealth inequality.

The Republican Candidates Agree that the System is Rigged for the Rich -  William K. Black -- The Republican debate last night revealed one area of broad agreement among Americans – we now live in a system of crony capitalism that is systematically rigged to favor the ultra-wealthy.  That is all the more remarkable as an admission because the Republican candidates are overwhelmingly (and increasingly) funded by the ultra-wealthy.  It is also remarkable because the Republican policy prescription for crony capitalism is to make the ultra-wealthy wealthier at the expense of the American people.  This last point is logical, but obscene. This article focuses on the broad agreement among Republican candidates for the presidency that the system is rigged on behalf of the wealthy, particularly those in finance, and that this harms our economy, people, and democracy.  Exhibit one, of course, is Donald Trump.

How to Repeal the Tax Loophole That Allows Companies to Hide Their Profits in Offshore Accounts -America has an immense pool of money that can be put to work closing the nation’s extreme inequality gap. Since the first corporate income tax was enacted in 1909, Congress has imposed a penalty tax on corporations that hoard cash. The current penalty for domestic firms found to be hoarding cash is 20 percent on top of the 35 percent corporate tax rate. Tens of thousands of small businesses have paid this in the past century, but no large publicly traded companies have done so. The same penalty used to apply to profits held offshore, but three decades ago Congress gave multinationals a way to defer taxes by converting profits into royalties paid to corporate affiliates. Section 531 waives the excess earnings for “a passive foreign investment company.” Repealing the exemption for profits moved offshore would force companies to close these deferral accounts and repatriate the funds. That action cannot, as corporate lobbyists tell Congress, damage investment for two reasons. First, new laws cannot affect past behavior, only future conduct. Second, Congress can let corporations avoid the penalty tax provided the repatriated profits are invested in new plants, equipment, and research. Even better, it could also waive the penalty on repatriated funds paid broadly as bonuses to nonexecutive employees. That would generate income and payroll taxes and infuse the economy with spending money, which in turn would generate more economic activity. Congress can also tailor the rules to make sure the money is not wasted through stock buybacks—which buoy the holdings of senior executives, who get about two-thirds of their compensation from stock and stock options—or from dividends that will flow to a minority of Americans. In 2012 American corporations worldwide held $14.6 trillion in cash and other liquid assets, IRS data show. That cushion was so plush that it equaled the entire output of the US economy from January through Thanksgiving that year. It also totaled more than four years of federal spending.

Why 99% of trading is pointless - - An astonishing $32 trillion in securities changes hands every year with no net positive impact for investors, charges Vanguard Group Founder John Bogle. Meanwhile, corporate finance — the reason Wall Street exists — is just a tiny slice of the total business. The nation's big investment banks probably could work for less than a week and take the rest of the year off with no real effect on the economy. "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings," Bogle told Time in an interview. "What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources." It's a lot of money, $32 trillion. Nearly double the entire U.S. economy moving from one pocket to another, with a toll-taker in the middle. Most people refer to them as "stock brokers," but let's call them what they are — toll-takers and rent-seekers. Rent-seeking as an occupation is as old as the hills. In exchange for working to build up credentials and relative fluency in the arcane rules of an industry, one gets to stand back from actual work and just collect money.  Ostensibly, the job of a financial adviser is to provide advice. Do you actually get that from your broker? It is worth anything? Research shows, over and over, that stock brokers can't do much of anything demonstrably valuable. They don't know which stocks will go up or down and when. They don't know which asset classes will outperform this year or next.

Treasury to SEC: You’re Flying Blind on the $4.1 Trillion Hedge Fund Risks -  The Dodd-Frank financial reform legislation just celebrated its fifth anniversary on July 21 and the gaping holes it left in the promise to protect our Nation from another systemic financial crash are becoming clearer every day. No other agency has done more to highlight these growing risks than the Office of Financial Research (OFR), created under Dodd-Frank as a unit of the U.S. Treasury. In its most recent report, it provides the stunning news that private hedge funds in the U.S. now control one-third of all assets under management in the financial services industry – a stunning $4.1 trillion when leverage is included. In February of this year, OFR released a jaw-dropping report showing dangerous levels of systemic and interconnected risk among some of the same Wall Street players that held pivotal roles in the crash of 2008. The report found that five Wall Street banks had high contagion index values — Citigroup, JPMorgan, Morgan Stanley, Bank of America, and Goldman Sachs. On June 11, OFR released a paper warning that banks were up to their old tricks again, using dodgy “capital relief trades” with unknown counterparties in order to hold less capital than would otherwise be required against potential losses. And regulators remain in the dark about the extent of these trades because the banks have reporting loopholes.Last Thursday, the OFR was back on its bully pulpit again, this time warning that transparency as to what hedge funds are really up to is as clear as mud, despite efforts under Dodd-Frank to provide greater visibility on the levels of systemic risk they might be introducing into the financial system. The report makes the startling finding that assets under management (AUM) at hedge funds, adding in the leverage factor, as of December 2013 “was about $4.1 trillion, in sharp contrast with the approximately $2.6 trillion industry aggregate AUM estimated from public sources as of that date.”

Meet the Hedge Funders and Billionaires Who Pillage Under the Shield of Philanthropy -- Lynn Parramore - America’s parasitical oligarchs are masters of public relations. One of their favorite tactics is to masquerade as defenders of the common folk while neatly arranging things behind the scenes so that they can continue to plunder unimpeded. Perhaps nowhere is this sleight of hand displayed so artfully as it is at a particular high-profile charity with the nerve to bill itself as itself as “New York’s largest poverty-fighting organization.” British novelist Anthony Trollope once wrote, “I have sometimes thought that there is no being so venomous, so bloodthirsty as a professed philanthropist.” Meet the benevolent patrons of the Robin Hood Foundation. The Robin Hood Foundation, named for that green-jerkined hero of redistribution who stole from the rich to give to the poor, is run, ironically, by some of the most rapacious capitalists the country has ever produced — men who make robber barons of previous generations look like small-time crooks. Founded by hedge fund mogul Paul Tudor Jones, the foundation boasts 19 billionaires on its leadership boards and committees, the likes of which include this sample of American plutocracy: Hedge fund billionaire Steven A. Cohen, who, when he is not being probed for insider trading  (his company, SAC Capital Advisors, pled guilty to securities and wire fraud) is busy throwing parties for himself worthy of a Roman emperor at his Hamptons palace and bragging about his $700 million art collection. He suspends a 13-foot shark in formaldehyde from the ceiling his office, perhaps as an avatar of his business practices. Billionaire Home Depot founder Ken Langone, who threatened to turn off the charity donations if Pope Francis dared to continue criticizing capitalism and inequality, and also likened the plight of the wealthy in America to Nazi Germany. The GOP megadonor doesn’t care for bank regulation and it’s no surprise that he is the main booster for New Jersey Governor Chris Christie’s presidential bid, as his plan to shred Social Security is a fond wish of the tycoon’s.Hedge fund billionaire Stanley Druckenmiller, funder of right-wing causes who dedicates himself to spreading deficit hysteria and ginning up generational warfare on college campuses by trying to convince young people that they are being robbed by seniors using Social Security and Medicare. A long-time anti-tax crusader and supporter of such anti-labor enthusiasts as Wisconsin Governor Scott Walker, Druckenmiller warned President Obama that any attempt to tax the rich to pay for social services for the poor would be futile.

Investigating The Trading Activity Of Collateralized Loan Obligations Portfolio Managers - NY Fed - Unlike mortgage-backed and home equity-backed securities, collateralized loan obligations (CLOs), whose collateral is predominantly corporate loans, are slowly but steadily recovering. This revival, illustrated in the chart below, spotlights again a sector of nonagency structured finance that has been scrutinized for its investment practices. This post investigates the trading activities of CLO collateral managers. Understanding their investment strategies is crucial to assessing their effectiveness as financial intermediaries, including their role in financing leveraged buyouts, corporate recapitalizations, project finance, and their impact on bank loan underwriting standards. It is also relevant to the recent debate concerning the potential perils of the reemergence of CLOs.

Moody’s warns over lending crackdown threat to refinancing - FT.com: Highly indebted companies could struggle to refinance their debts as a result of the US crackdown on risky bank lending, according to a new report from Moody’s that warns of the “unintended consequences” of loan regulation. Leveraged loans — the loan equivalent of junk bonds — were heavily criticised for their role in the 2008 financial crisis. In 2013 new guidelines restricted the terms on which banks could lend along with the amount. “We’re worried about who’s going to be there to refinance some of these very leveraged companies,” said Christina Padgett, senior vice-president at the credit rating agency. Tougher loan conditions could make life difficult for otherwise healthy companies, she added. “If you’re challenged to de-lever and then you have to refinance with higher pricing it will just leave even less capital available for investing in the business,” said Ms Padgett.  Leveraged lending guidelines were designed to lower bank exposure to risky loans and reduce systemic risk. They set deadlines for repayment of debt and say banks should only “originate” loans up to six times earnings before interest, tax, depreciation and amortisation. In November, the Office of the Comptroller of the Currency and the Federal Reserve clarified the guidelines to make it clear originating a loan included refinancing of existing loans. The agencies estimated $255bn, or 33.2 per cent, of existing leveraged loans fell foul of the guidelines and were termed “criticised”.

U.S. officials eye risks from high frequency trading in bonds | Reuters: High-frequency trading in the U.S. government bond market carries risks that threaten the ability of the market to function as well as the ability of investors to fairly value assets, two government officials said on Monday. The impact of high frequency trading has come under increased scrutiny since the "flash crash" last October, in which U.S. Treasuries registered wild price swings in just a 12-minute period. Critics of high-frequency trading, a computerized strategy that can move billions of dollars in fractions of a second, blame it for causing excessive price swings in the bond market, which is already facing a decline in liquidity. Federal Reserve Governor Jerome Powell acknowledged the innovation that high frequency trading has brought to the bond market, but he questioned how investors could value the long-term value of a bond or any asset. "If trading is at nanoseconds, there won't be a lot of 'fundamental' news to trade on or much time to formulate views about the long-run value of an asset; instead, trading at these speeds can become a game played against order books and the market rules," Powell said, speaking on a panel at a conference on U.S. bond market structure sponsored by the Brookings Institute. Antonio Weiss, counselor to the U.S. Treasury secretary, was blunter. "The constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic," he said in a speech prepared for deliver to the panel.

S.E.C. Approves Rule on C.E.O. Pay Ratio - After a long delay and plenty of resistance from corporations, the Securities and Exchange Commission approved in a 3-to-2 vote on Wednesday a rule that would require most public companies to regularly reveal the ratio of the chief executive’s pay to that of the average employee.Representatives of corporations were quick to assail the new rule, which will start to take effect in 2017, saying that it was misleading, costly to put into practice and intended to shame companies into paying executives less.But the ratio, cropping up every year in audited financial statements, could stoke and perhaps even inform a debate over income inequality that has intensified in recent years as the wages of top earners have grown far more quickly than anyone else’s.Fifty years ago, chief executives were paid roughly 20 times as much as their employees, compared with nearly 300 times in 2013, according to an analysis last year by the Economic Policy Institute.“We have middle-class Americans who have gone years without seeing a pay raise, while C.E.O. pay is soaring,” said Senator Robert Menendez, the New Jersey Democrat who helped insert the pay ratio rule into the 2010 Dodd-Frank overhaul of financial regulation. “This simple benchmark will help investors monitor both how a company treats its average workers and whether its executive pay is reasonable.”

Why Putting a Number to C.E.O. Pay Might Bring Change - It is a confounding truth about outsize executive pay — all past attempts to rein it in have failed.So why does anyone expect a different outcome from the Securities and Exchange Commission’s new rule requiring disclosure of the gap between what a company’s chief executive is paid and what its rank-and-file workers earn?I put that question to some experts on executive pay; several of them gave intriguing reasons to be optimistic that this rule may actually do something to curb over-the-top pay.Their thinking goes like this: Because the rule will generate an easily graspable and often decidedly shocking number, it may energize a cadre of new combatants in the executive pay fight. And because these newcomers — company employees, state governments and possibly even consumers — will most likely be more vocal on the matter than institutional investors have been, the executive pay bubble might actually start to deflate.“The pay ratio was designed to inflame the employees,” “When they read that number, employees are going to say, ‘Why is this person getting paid so much more than me?’ I think the serious discontent will force boards to reconsider their organizations’ pay schemes.” The rule, which passed the commission on a 3-to-2, party-line vote, has been five years coming. Under the Dodd-Frank law, the S.E.C. had to come up with a regulation requiring large public companies to calculate the difference between what their top executives receive in compensation and the median pay level for their other employees.

More Stalling Tactics from SEC Chair Mary Jo White on CEO-Worker Pay Ratio -- The Dodd-Frank financial reform legislation was signed into law five years ago to address the Wall Street abuses that led to the greatest financial crash since the Great Depression in 2008 and 2009. One of the requirements of that law was for the Securities and Exchange Commission to implement a rule making corporations publicly disclose the ratio of their CEO’s pay to the median worker’s pay. Yesterday, after being publicly humiliated over not putting the law into force, the SEC finally adopted the rule. But it won’t go into effect until corporations complete their 2017 fiscal year, meaning it will be stalled for almost another three years. Back on June 2, Senator Elizabeth Warren sent a scathing letter to SEC Chair Mary Jo White, berating her on a laundry list of broken promises. Warren told White: “You have now been SEC Chair for over two years, and to date, your leadership of the Commission has been extremely disappointing.” Among the long list of complaints was that the SEC Chair had failed to implement the CEO pay-ratio rule. Two days ago, Richard Trumka, President of the 12.5 million member AFL-CIO, published an OpEd at CNN, furthering calling out the SEC for its foot-dragging. Trumka wrote: “We have submitted a Freedom of Information Act request about the scheduling of final action on this rule. “Public disclosures show that S&P 500 CEOs made 373 times the average rank-and-file worker in the United States in 2014. But we will not know the actual ratio at each individual company until the SEC enforces the CEO-to-worker pay rule.”

Republican Rank-and-File Line Up Against Financial Regulation - naked capitalism - Yves here. Let us not kid ourselves that the Democratic party is also for the most part out to gut financial regulation, as exemplified by Democratic party SEC chairman Mary Jo White stalling on Dodd Frank rule-making and regularly granting waivers to sanctions mandated under Dodd Frank. Or how about Janet Yellen, who had a complete deer-in-the-headlights look when Elizabeth Warren challenged her for failing to take on banks that had not delivered living wills, and comes up with lame justifications for Fed subsidies to banks?  The only reason that there is more space between Congressional Republicans and Democrats than usual is the pro-business, pro-bank “blue dog” wing of the Democratic party has gotten deservedly slaughtered in the last two Congressional elections for selling out what used to be the American middle class. So the more progressive-minded survivors are a bigger faction on a relative basis than they once were. This Real News Network interview with Bill Black covers both a critical slice of the history of financial regulations (or more accurately, its rollback) as well as some of the current dynamics.

New York Department of Financial Services Slams Bank Fixer Promontory Group, Hitting it in Its Profits and Reputation -  Yves Smith - We documented at considerable length in 2013 how bank regulatory consultant Promontory Group played a huge, and hugely lucrative role, in overseeing a foreclosure review process mandated by the Office of the Comptroller of the Currency and the Fed for Bank of America and PNC Bank. In both cases, we showed, based on detailed accounts from multiple whistleblowers, including documents, that Promontory orchestrated a coverup by both banks (see here for the executive summary from the series and here and here for details on Promontory’s role).  Both the fact that the foreclosure reviews were turning into a fee feeding frenzy for the consultants (Promontory earned twice Goldman’s revenues per employee on that assignment alone, despite never finishing the job) and that ProPublica had started publicizing the sham process at Bank of America led to the abrupt shutdown of the reviews, with no objective basis for paying out borrowers who’d asked for reviews of their foreclosures. A decision by the New York State Department of Financial Services appears to be finally crimping the wings of this powerfully placed bank fixer. We’ve attached the DFS’ report into its investigation into Promontory’s conduct on the case that put the DFS on the map, that of its order against Standard Chartered for long-standing money-laundering abuses, most notably with Iran, in which Standard Chartered admitted to having at least $250 billion of transactions out of compliance. The British bank initially paid $340 million in fines to the DFS alone, and then due to exhibiting serious ‘tude as well as failing to remedy its behavior (which it then unconvincingly tried to depict as a mistake), the DFS fined Standard Chartered for an additional $300 million.

Former trader given 14 years prison for market manipulation - A British judge sentenced a former Citibank and UBS trader to 14 years in prison Monday after a jury found him guilty of masterminding the manipulation of a key interest rate, the London Interbank Lending Rate, or Libor. Judge Jeremy Cooke sentenced 35-year-old Tom Hayes, who specialized in products pegged to yen-denominated Libor, after jurors found him guilty of manipulating the rate from 2006 to 2010. He was charged with conspiring with other traders — but he says he was made a scapegoat for a common practice. "What this case has shown is the absence of that integrity which ought to characterize banking," Cooke said. "You, as a regulated banker, succumbed to temptation in an: A British judge sentenced a former Citibank and UBS trader to 14 years in prison Monday after a jury found him guilty of masterminding the manipulation of a key interest rate, the London Interbank Lending Rate, or Libor. Judge Jeremy Cooke sentenced 35-year-old Tom Hayes, who specialized in products pegged to yen-denominated Libor, after jurors found him guilty of manipulating the rate from 2006 to 2010. He was charged with conspiring with other traders — but he says he was made a scapegoat for a common practice. "What this case has shown is the absence of that integrity which ought to characterize banking," Cooke said. "You, as a regulated banker, succumbed to temptation in an unregulated activity because you could." Libor is a key rate that banks use to borrow from each other. Revelations that it was rigged shook the markets because the rate affects what many people pay when they take out loans, such as a car loan. Hayes is the first to be convicted by a U.K. jury of Libor rigging. Prosecutor Mukul Chawla said Hayes "behaved in a thoroughly dishonest and manipulative manner" and called him the ringmaster at the center who told others what to do and rewarded them for their "dishonest assistance." "The motive was a simple one: it was greed," he said.

Libor Trader Sentenced to 14 Years for Market Manipulation. So What About His Bosses? -- Yves Smith - On the one hand, it’s gratifying to see someone, finally, prosecuted for a highly profitable financial fraud, as opposed to “rogue traders” like Jerome Kerviel who get the book thrown at them for the crime of losing boatloads of money. On the other, it’s clear that the bosses of the trader in question, Tom Hayes, recently of UBS and Citi, had to have known what he was up to, at least if they were doing the job that supposedly goes along with their lofty pay levels.The short version of the story: at least as the prosecution successfully told the story, Hayes was the central actor in yen-related Libor bid-rigging from 2006 to 2010, working in concert with traders and salesmen at other banks. The scale of his production makes this claim credible: $260 million in revenues for UBS over three years, which led banks like Lehman and Goldman to try to bid him away. The very fact that Hayes brought in such high levels of revenues (which I assume were gross trading profits; raw churn would not make him an Object of Poaching), presumably with some consistency, in a market with high transparency and thin spreads should be a huge red flag to management that the profits couldn’t possibly all be legit. We discussed that as long as the top brass has plausible deniability in terms of fig-leaf level risk controls, they can pretend to be have done what was prudent while actually being in on the fact that they’ve chosen to put the inmates in charge of the asylum.  In fact Citi, a bank that a colleague describes as “run by monkeys” nevertheless figured out that Hayes was up to no good less than a year after hiring him out of UBS. That demonstrates that that attentive management could have told that Hayes was up to no good. While the authorities didn’t announce their probe until March 2011, the giant American bank may have gotten wind in advance that they were sniffing around and started looking to see if its house was in order.

So Tom Hayes Is Guilty. Who Else Is? - James Kwak - Tom Hayes was a trader at UBS and Citigroup who was very, very good … at rigging LIBOR. This week, he was convicted in the United Kingdom of conspiring to manipulate the benchmark interest rate and sentenced to fourteen years in prison. There’s little doubt that Hayes was guilty as charged. In his defense, he argued that he had no idea what he was doing was wrong. But contrary to what some armchair attorneys think, that doesn’t matter. In general, the famous mens rea (guilty mind) requirement isn’t that you know you are breaking the law at the time; it suffices if (a) you know you are doing a thing and (b) that thing is against the law. There’s no question that Hayes knew he was conspiring to rig LIBOR, and that’s enough for the prosecution. And on one level, it’s good that he was convicted and got a stiff sentence. That prospect should help deter criminal activity of all kinds by bankers and traders who have historically been shielded by prosecutors’ unwillingness to go after individual defendants (except in insider trading cases). But … Tom Hayes as the evil architect of the LIBOR-fixing scheme? Not so much. As in so many cases, there are only two logical possibilities. Either Tom Hayes’s bosses at UBS and Citi knew what he was doing, in which case they are guilty as well. Or they didn’t know about a widespread conspiracy being conducted across the electronic communications systems of some of the most technologically sophisticated companies in the world, in which case they are recklessly incompetent.

Another Private Equity Scam – Tax Receivable Agreements --Yves Smith - As one tax expert put it, “Private equity is a tax gimmick with an acquisition attached.” We’re going to discuss a very big tax gimmick that virtually no private equity investors seem to be aware of. The failure of private equity general partners to publicize a tax scheme that on paper should benefit their limited partners strongly suggests that it does not pass the smell test.  This gimmick, um, device, is called a tax receivable agreement. When a private equity firms sells a company via an IPO, in some cases (more on the particulars soon), it has the IPO entity enter into a contract called a tax receivable agreement (TRA) with a predecessor entity. As a portfolio company executive who modeled TRAs put it: What happens is the PE firms end up having an asset stream of 29% to 32% of the company’s income before tax for a long period (I calculated it could be 15 or more years) even after they have sold all of their interest in the company.* Needless to say, this is a ginormous amount to suck out. From the New York Times on TRAs in 2013: “It drains money out of the company that could be used for purposes that benefit all the shareholders,” said Robert Willens, a corporate tax and accounting expert in New York. Perversely, because the TRA is booked as a liability to the IPO company, payments on the TRA are not treated as an expense, but as a debt payment, so they reduce the company’s economic value (its free cash flow, which is the bedrock measure of what a company is worth) without hitting its income statement.  A competent buyer would negotiate a price reduction for a company encumbered with a TRA, as he would for any unfavorable tax attribute. But IPO investors, being a not terribly attentive lot, don’t haircut the price the way a private party would.

Citigroup’s Unchecked Crime Wave Proves that America Is Headed in the Wrong Direction -  Citigroup, the bank that played a central role in bringing America to its knees in 2008; received the largest taxpayer bailout in the history of finance to resuscitate its insolvent carcass; pleaded guilty to a felony count of rigging foreign currency trading in May and was put on a three year probation – is now under a string of criminal and civil investigations. On August 3, Citigroup filed its quarterly report (10Q) with the Securities and Exchange Commission (SEC). Instead of reporting a pristine slate free of transgressions as one would expect from a felon on probation, Citigroup reported that it had settled allegations of money laundering with the Federal Deposit Insurance Corporation and the Commissioner of the California Department of Business Oversight involving its Banamex USA unit. The bank was, as typical, able to pay a penalty of $140 million and avoid an admission of guilt. What Citigroup did not report on its 10Q is that it is also under another criminal money laundering probe by the Justice Department for its Mexican-based Banamex unit, according to a Bloomberg Business report. On July 24, Bloomberg reported the following: “The U.S. Justice Department is investigating whether Citigroup Inc. let customers move illicit cash through its Mexico unit, setting the bank’s biggest international operation in the path of an expanding money-laundering probe.” Citigroup’s 10Q was filed on August 3 while the Bloomberg report was filed 10 days earlier, indicating that subpoenas had been issued to the company. Why Citigroup did not report the new investigation is unknown. Citigroup has a serial history of money laundering allegations, as Wall Street On Parade reported in 2013. Also during the month of July, Citigroup reached a settlement with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau (CFPB) over charges of bilking its credit card customers. The CFPB charged Citigroup’s commercial bank, Citibank, with a raft of illegal acts, including charging credit card customers for fraud and identity theft services that were never provided, and deceptive marketing practices to bilk customers out of illegal fees. The bank was ordered to return $700 million to 8.8 million customers and pay a penalty of $35 million.

Goldman Sachs agrees $270m settlement with mortgage bond investors: US banking major Goldman Sachs is on the verge of settling another lawsuit over its dealings with mortgage-backed securities (MBS) in the run-up to the 2008 financial crisis.In the latest development, the bank has agreed to pay around $270m (£173m, €246m) to settle a lawsuit brought by Pension funds led by NECA-IBEW Health & Welfare Fund of Illinois, who invested in residential MBS underwritten by it, according to media reports.After the prices of the securities collapsed amid the 2008 financial crisis, the investors sued Goldman Sachs, alleging that the bank had misled them about the safety of the securities.The agreement has not been signed yet and is expected to be disclosed as soon as 3 August, people familiar with the matter told Bloomberg.Goldman Sachs and many of its rival banks have faced a number of lawsuits in connection with MBS, and they had to shell out billions of dollars in settlements and fines. In a separate development on 31 July, Citigroup, Goldman Sachs and UBS received court approval for a $235m settlement of a lawsuit related to mortgage securities sold by the former Residential Capital before the global financial crisis.

Banks Reported Little Change In Their Standards On Commercial And Industrial Loans In The Second Quarter Of 2015. - The July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that, on balance, banks reported little change in their standards on commercial and industrial loans in the second quarter of 2015. In addition, banks reported having eased some loan terms, such as spreads and covenants, especially for larger firms on net. Meanwhile, survey respondents also reported that standards on commercial real estate (CRE) loans remained unchanged on balance. On the demand side, modest to moderate net fractions of banks indicated having experienced stronger demand for commercial and industrial (C&I) and CRE loans during the second quarter. Regarding loans to households, banks reported having eased lending standards for a number of categories of residential mortgage loans over the past three months on net. Most banks reported no change in standards and terms on consumer loans. On the demand side, moderate to large net fractions of banks reported stronger demand across most categories of home-purchase loans. Similarly, respondents experienced stronger demand for auto and credit card loans on net. Responses to a set of annual questions on the level of lending standards suggested that banks' lending standards relative to longer term norms were notably different across major loan types. Domestic and foreign banks generally reported that standards for all categories of C&I loans remained either easier than or near the midpoints of their ranges over the past decade. After reporting that standards had eased on the quarterly surveys over the course of the past year, domestic banks also generally indicated that standards on most types of CRE loans were now somewhat easier than or near the midpoints of their ranges. However, despite shifts toward somewhat more accommodative credit policies for most types of loans to households over the past few years, moderate fractions of banks continued to report that the levels of standards for all types of residential real estate (RRE)  loans and consumer loans to subprime borrowers were at least somewhat tighter than the midpoints of their bank's longer-term ranges.

Fed Survey: Banks reports stronger demand for Home-purchase loans and CRE Loans --From the Federal Reserve: The July 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices Regarding loans to businesses, the July survey results indicated that, on balance, banks reported little change in their standards on commercial and industrial (C&I) loans in the second quarter of 2015. In addition, banks reported having eased some loan terms, such as spreads and covenants, especially for larger firms on net. Meanwhile, survey respondents also reported that standards on commercial real estate (CRE) loans remained unchanged on balance. On the demand side, modest to moderate net fractions of banks indicated having experienced stronger demand for C&I and CRE loans during the second quarter. Regarding loans to households, banks reported having eased lending standards for a number of categories of residential mortgage loans over the past three months on net. Most banks reported no change in standards and terms on consumer loans. On the demand side, moderate to large net fractions of banks reported stronger demand across most categories of home-purchase loans. Similarly, respondents experienced stronger demand for auto and credit card loans on net.

Share of Seriously Underwater Foreclosure Properties Drops to New Low in Q2 2015 --  RealtyTrac (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q2 2015 U.S. Home Equity & Underwater Report, which shows that as of the end of the second quarter there were 7,443,580 U.S. residential properties that were seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — representing 13.3 percent of all properties with a mortgage. The second quarter underwater numbers were up from 7,341,922 seriously underwater homes representing 13.2 percent of all homes with a mortgage in the previous quarter — making Q2 the second consecutive quarter with a slight increase in both the number and share of seriously underwater properties — but were down from 9,074,449 seriously underwater properties representing 17.2 percent of all homes with a mortgage in the second quarter of 2015. The number and share of seriously underwater homes peaked in the second quarter of 2012 at 12,824,729 seriously homes representing 28.6 percent of all homes with a mortgage. “Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13 percent of all properties with a mortgage,” said Daren Blomquist, vice president at RealtyTrac. “However, the share of homeowners with the double-whammy of seriously underwater properties that are also in foreclosure is continuing to decrease and is now at the lowest level we’ve seen since we began tracking that metric in the first quarter of 2012.”

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

MBA: Mortgage Applications Increase in Latest Weekly Survey, Purchase Index up 23% YoY - From the MBA: Refinance, Purchase Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 4.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 31, 2015. ... The Refinance Index increased 6 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index increased 3 percent compared with the previous week and was 23 percent higher than the same week one year ago.  “Refinance activity was the highest since May when rates were last at this level. The increase in purchase activity was also notable for this time of year, up 23 percent relative to a year ago.”The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.13 percent, its lowest level since May 2015, from 4.17 percent, with points decreasing to 0.34 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. Even with the increase in activity, refinance activity is very low. 2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 23% higher than a year ago.

June 2015 CoreLogic Home Prices Year-over-Year Growth Rate Now 6.5%. Home Price Growth Continues. -  CoreLogic's Home Price Index (HPI) shows that home prices in the USA are up 6.5% year-over-year year-over-year (reported up 1.7% month-over-month). There is considerable backward revision in this index which makes monthly reporting problematic. CoreLogic HPI is used in the Federal Reserves's Flow of Funds to calculate the values of residential real estate. This is the 40th consecutive month of year-over-year increase. Dr. Frank Nothaft, chief economist at CoreLogic stated: The tightness of the for-sale inventory varies across cities. Throughout the U.S., the months' supply was 4.8 months in the CoreLogic home-listing data for June, but varied greatly across cities. In San Jose and Denver, there was only 1.6 months' supply of homes on the market, whereas Philadelphia had a 7 months' supply and Providence had a 6.6 months' supply,. The stronger appreciation was registered in cities with limited inventory and strong homebuyer activity, such as San Jose and Denver.  Anand Nallathambi, president and CEO of CoreLogic stated: The rate of home price appreciation ticked up in May with gains being fairly widely distributed across the country. Importantly, higher home prices over the past couple of years have spurred increases in new single-family construction. Sales of newly built homes during the first five months of 2015 were up 23 percent from a year ago, and as rising values build equity for homeowners, we expect to see more existing homes offered for sale in the coming year.

Mortgage News Daily: Mortgage Rates at 4% - From Matthew Graham at Mortgage News Daily: Mortgage Rates Surprisingly Calm After Jobs Report Most lenders continue to quote conventional 30yr fixed rates of 4.0% on top tier scenarios, but with slightly lower closing costs today. The more aggressive lenders are increasingly able to quote 3.875% after these sorts of moves, though others are still stuck at 4.125% unless bond markets improve a bit further.As of today, rates have improved for 3 straight weeks. ...Here is a table from Mortgage News Daily:

CoreLogic: House Prices up 6.5% Year-over-year in June - The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports National Home Prices Rose by 6.5 Percent Year Over Year in June 2015 CoreLogic® ... today released its June 2015 CoreLogic Home Price Index (HPI®) which shows that home prices nationwide, including distressed sales, increased by 6.5 percent in June 2015 compared with June 2014. This change represents 40 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased by 1.7 percent in June 2015 compared with May 2015. Including distressed sales, 35 states and the District of Columbia were at or within 10 percent of their peak prices in June 2015. Fifteen states and the District of Columbia reached new price peaks—Alaska, Arkansas, Colorado, Hawaii, Iowa, Kentucky, Nebraska, New York, North Carolina, North Dakota, Oklahoma, South Dakota, Tennessee, Texas and Wyoming. The CoreLogic HPI begins in January 1976. Excluding distressed sales, home prices increased by 6.4 percent in June 2015 compared with June 2014 and increased by 1.4 percent month over month compared with May 2015. ... This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.7% in June (NSA), and is up 6.5% over the last year. This index is not seasonally adjusted, and this was a solid month-to-month increase. The second graph is from CoreLogic. The year-over-year comparison has been positive for forty consecutive months. The YoY increase had been moving sideways over most of the last year, but has picked up a little recently.

Goldman: "What's Keeping the Kids at Their Parents' Homes?" -- A few excerpts from a research note by Goldman Sachs economists David Mericle and Karen Reichgott: What's Keeping the Kids at Their Parents' Homes? The share of 18-34 year-olds living with their parents rose about four percentage points (pp) during the recession and its aftermath, resulting in a few million extra "kids in the basement." This group accounts for the bulk of the recent shortfall in household formation and represents a potentially large pool of pent-up demand for homebuilding. While the share of young people living with their parents began to decline in 2014, the decline has stalled over the last six months ... To what extent do current labor market conditions explain the elevated rate of young people living with their parents? ... We find that this current labor force status "composition effect" accounts for about 1.3pp, or roughly one-third of the "excess" kids living with their parents. ... What accounts for the rest? Part of the explanation is likely that the legacy of the recession wears off only gradually ...Three other factors might also have played a role. First, researchers at the New York Fed and the Fed Board have found evidence that rising student debt and poor credit scores have contributed to the elevated share of young people living with their parents. Second, the median age at first marriage has increased at a faster than usual rate since 2007 ... Third ... rent-to-income ratios are at historic highs, especially for young people. The future trajectory of these three factors is less clear, suggesting that the share of 18-34 year-olds living at home might not fully return to pre-recession rates. The pool of "excess" young people living at home is so large that even if only two-thirds ever move out and even if this process takes another decade, trend household formation would likely fall near the upper end of our 1.2-1.3mn forecast range. Combined with a 300k annual rate of demolitions, such a scenario would imply a trend demand for new housing units of about 1.6mn per year, well above the current sub-1.2mn run rate of housing starts.

Goldman Is Confused: If The Economy Is Recovering, Then How Is This Possible -- Following last week's news that household formation jumped and was revised higher, the logical consequence is that young Americans living in their parents' basement must finally be moving out. They are not.  In fact, as the chart below from Goldman shows, Millennials are doing anything but moving out, a development that has left Goldman's economists stumped. Below is a chart showing that the share of young people (18-34) living with parents has held steady over the last half year, and close to the highest since the financial crisis. This is how Goldman frames its confusion: "The share of young people living with their parents--which rose sharply during the recession and its aftermath--finally began to decline in 2014. But over the last six months, this decline seems to have stalled." But the economy is recovering, jobs are plenty, credit is available to all. How can this be??? Unless... it is all baseless propaganda meant simply to inspire confidence in rigged data. Unpossible, right? Well, even Goldman is no longer so sure: We find that the share of young people living with their parents has increased relative to pre-recession rates for all labor force status groups, not just the unemployed and underemployed. Overall, above-average youth underemployment rates alone account for about one-third of the increase in the share of young people living with their parents, and lagged effects of the recession probably account for a bit more. 

Those grownup kids in the basement: I don’t think they’re going anywhere too soon - OK, the economy is growing more slowly than we’d like, but why? I recently pointed out that weak investment is partly to blame, noting that our slow rate of capital investment “explains the almost two-thirds of the decline in U.S. productivity growth.”  But weak investment is not wholly a matter of capital equipment used in production. It’s also about residential investment, i.e., home buying.  And here, a new analysis by researchers at Goldman Sachsprovides some eye-catching figures that help explain this part of the problem. The figure above (not from the GS analysis) just shows residential investment as a share of GDP. The housing bubble and bust are evident, but note how slowly this share is climbing back to its historical mean relative to past downturns. Well, this GS figure helps explain why. It shows the sharp uptick in the share of 18-34 year-olds living “in the basement” of their parents’ homes. The data don’t go back too far but the magnitude of the increase certainly seems unprecedented. The trend appears to have plateaued but it has yet to come down much. So, why this spike in the share of grown kids living at home? Does it have something to do with Peter Pan-ism (“I’ll never grow up.)? That would be interesting, if not disconcerting, but no, I think it’s the economy and student debt. Based on GS estimates and adding in inertia, the tough job market may explain half of the increase in the figure above (and thus, part of the slow trek back to the mean in the first figure up top). By inertia, I mean that once you’re re-ensconced in your old room with the Madonna posters still on the wall, it probably takes more than a tick down in the jobless rate to blast you outta there. Second, there’s an interesting and important role in these developments for the historically large stock of student debt. The figure below, from a Federal Reserve Bank study, plots the correlation between the increase in student debt among college grads and the increase in “co-residence”—the nice way of saying “kids in the basement.” The fit is moderately solid and their more detailed analysis finds that increased student debt explains as much as a third of the increase in co-residence.

Millennial Housing 2015: Walkability Wins Out As Cities Grow, Suburbs Urbanize For New Generation -- Millennials, or people between the ages of 18 and 34, prefer walking to driving by a greater margin than any other generation, according to poll results released this week by the National Association of Realtors and the Transportation and Research and Education Center at Portland State University. It’s a trend the U.S. has been seeing for years -- in 2010, only about 70 percent of 19-year-olds had driver’s licenses, compared to 87 percent in 1983. This theme has transferred over into real estate. More than half of the respondents to the realtor association's survey said “sidewalks and places to take walks” were “very important” factors in deciding where to live, with 41 percent saying they want to be within an easy walk to other places in a community. Millennials prioritize finding alternatives to driving, improving public transit and creating communities where cars aren’t necessary. Many say they’d rather rent a smaller place in a walkable area than a big place in a non-walkable area. Young people like walking for a variety of reasons, not the least of which is finances, said Jennifer Dill, a Portland State professor who worked on the study. Millennials can avoid paying for car insurance, gas and parking if they walk, bike or take public transit. If they can get somewhere cheaper or faster, they will. Helping the environment is just a happy side effect

Construction Spending increased 0.1% in June  The Census Bureau reported that overall construction spending increased slightly in June: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during June 2015 was estimated at a seasonally adjusted annual rate of $1,064.6 billion, 0.1 percent above the revised May estimate of $1,063.5 billion. The June figure is 12.0 percent above the June 2014 estimate of $950.3 billion. Private spending decreased and public spending increased: Spending on private construction was at a seasonally adjusted annual rate of $766.4 billion, 0.5 percent below the revised May estimate of $770.0 billion ... In June, the estimated seasonally adjusted annual rate of public construction spending was $298.2 billion, 1.6 percent above the revised May estimate of $293.5 billion. Note: Non-residential for offices and hotels is generally increasing, but spending for oil and gas has been declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending. As an example, construction spending for private lodging is up 42% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 16% year-over-year.

Construction spending grows at fastest rate in nearly a decade - Construction spending in June recorded the highest year-over-year growth rate since 2006, according to an analysis by the Associated General Contractors of America. Association officials cautioned, however, that those spending gains could be at risk unless all levels of government strengthen programs to develop the construction workforce, according to a press release. "Spending rose strongly in June from a year ago for all major construction categories — private nonresidential, residential and public," said Ken Simonson, the association's chief economist. "Although the initial estimate for June showed minimal growth from May, totals for May and April were revised upward by large amounts." Construction spending in June totaled $1.065 trillion at a seasonally adjusted annual rate, 12 percent higher than in June 2014, Simonson said. He noted that the year-over-year growth rate was the strongest since March 2014, indicating a faster pace of construction spending overall. The June total was the highest level since July 2008 and was 0.1 percent higher than the May total following an upward revision of $28 billion in that figure. The April total was also revised higher, by $18 billion. Other details from the press release are below: Private nonresidential spending in June decreased 1.3 percent from May but rose 15 percent from a year earlier, while private residential spending increased 0.4 percent for the month and 13 percent over 12 months. Public construction spending rose 1.6 percent from the month before and 8.0 percent from 12 months earlier.

Construction Spending Growth Is Weak or Strong - You Choose. - The headlines say construction spending grew below expectations. The backward revisions make this series very wacky. Our view is that if the data is correct - this was a strong growth month.  Econintersect analysis:

  • Growth accelerated 2.5 % month-over-month and Up 12.2% year-over-year.
  • Inflation adjusted construction spending up 10.3% year-over-year.
  • 3 month rolling average is 10.4% above the rolling average one year ago, and up 1.6% month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.

This month's headline statement from US Census: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during June 2015 was estimated at a seasonally adjusted annual rate of $1,064.6 billion, 0.1 percent (±1.5%)* above the revised May estimate of $1,063.5 billion. The June figure is 12.0 percent (±2.1%) above the June 2014 estimate of $950.3 billion. During the first 6 months of this year, construction spending amounted to $482.7 billion, 8.0 percent (±1.5%) above the $446.8 billion for the same period in 2014.  Spending on private construction was at a seasonally adjusted annual rate of $766.4 billion, 0.5 percent (±0.8%)* below the revised May estimate of $770.0 billion. Residential construction was at a seasonally adjusted annual rate of $371.6 billion in June, 0.4 percent (±1.3%)* above the revised May estimate of $370.0 billion. Nonresidential construction was at a seasonally adjusted annual rate of $394.8 billion in June, 1.3 percent (±0.8%) below the revised May estimate of $400.0 billion.  In June, the estimated seasonally adjusted annual rate of public construction spending was $298.2 billion, 1.6 percent (±2.6%)* above the revised May estimate of $293.5 billion. Educational construction was at a seasonally adjusted annual rate of $67.2 billion, 0.2 percent (±5.1%)* above the revised May estimate of $67.1 billion. Highway construction was at a seasonally adjusted annual rate of $90.9 billion, 1.2 percent (±6.3%)* above the revised May estimate of $89.8 billion.

Hotels: Best Week Ever, On Pace for Record Occupancy in 2015 --From HotelNewsNow.com: STR: US hotel results for week ending 25 July The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 19-25 July 2015, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy increased 1.5% to 79.1%. Average daily rate for the week was up 5.1% to US$125.04. Revenue per available room increased 6.6% to finish the week at US$98.91. The 79.1% occupancy rate reported for last week was the best week on record (the four week average will peak in August).  For the same week in 2009, ADR (average daily rate) was $98.13 and RevPAR (Revenue per available room) was $65.77. ADR is up 25% since July 2009, and RevPAR is up 50%!  The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate will be high during the summer travel season.The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and above last year. Right now 2015 is above 2000 (best year for hotels), and 2015 will probably be the best year ever for hotels.

BEA: Personal Income increased 0.4% in June, Core PCE prices up 1.3% year-over-year -- From the BEA, the Personal Income and Outlays report for June:  Personal income increased $68.1 billion, or 0.4 percent ... in June, according to the Bureau of Economic Analysis. .. Real PCE -- PCE adjusted to remove price changes -- decreased less than 0.1 percent in June, in contrast to an increase of 0.4 percent in May. ... The price index for PCE increased 0.2 percent in June, compared with an increase of 0.3 percent in May. The PCE price index, excluding food and energy, increased 0.1 percent in June, the same increase as in May.  The June price index for PCE increased 0.3 percent from June a year ago. The June PCE price index, excluding food and energy, increased 1.3 percent from June a year ago.  On inflation: the PCE price index was up 0.3% year-over-year (the decline in oil prices pushed down the headline price index).  However core PCE is only up 1.3% year-over-year - still way below the Fed's target.

June 2015 Inflation Adjusted Personal Income and Expenditures Mixed With Significant Backward Revision: The data this month showed relatively strong income growth, but weaker expenditure growth. With significant backward revisions this month, the data looks weaker than at first glance.

  • The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, income trend is up and expenditures are down.
  • Real Disposable Personal Income is up 3.0% year-over-year (3.2% last month), and real personal expenditures is up 2.9% year-over-year (3.4% last month)
  • this data is very noisy and as usual includes moderate backward revision (detailed below) - this month was the annual revision so there was moderate change throughout.
  • The advance estimate of 2Q2014 GDP indicated the economy was expanding at 2.3% (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - income and expenditure must grow at the same rate.
  • The savings rate continues to be low historically, but improved this month over a significantly downwardly revised previous month.

The inflation adjusted income and consumption are "chained", and headline GDP is inflation adjusted. This means the impact to GDP is best understood by looking at the chained numbers. Econintersect believes year-over-year trends are very revealing in understanding economic dynamics. Per capita inflation adjusted expenditure has exceeded the pre-recession peak - but growth has been weak in 2015.

Real Personal Spending Growth Weakest Since Feb, Savings Rate Rises -- The good news, personal income rose a better than expected 0.4% MoM (flat to the previous month's revised lower growth). The 'meh' news, personal spending rose just 0.2% - meeting expectations - but slowing its growth dramatically from the 0.7% revised May data. And the bad news, real personal spending was unchanged in June, its weakest growth (or lack of it) since February. This means the savings rate rose from 4.6% in May to 4.8% in June - its second lowest in 2015 (but increasing just as The Fed hopes for excape velocity consumption confirmed by their rate hikes in a circular logic fallacy). Charts: Bloomberg

June Real Disposable Income Per Capita Rose a Fractional 0.16% -  With the release of today's report on June Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The June nominal 0.39% month-over-month increase in disposable income drops to 0.16% when we adjust for inflation. The year-over-year metrics are 2.61% nominal and 2.28% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000.  Nominal disposable income is up 62.5% since then. But the real purchasing power of those dollars is up only 21.8%.

U.S. Consumer Credit Picks Up in June - Americans took on consumer debt at a faster pace in June, suggesting a firming labor market and low gas prices may finally be prying open consumers' wallets. Outstanding consumer credit, a reflection of nonmortgage debt, rose $20.74 billion or at a 7.3% annual rate in June, the Federal Reserve said Friday. That's a slight increase from May, when it increased at an upwardly revised annual rate of 5.9%, but less than April's 7.6% pace. Economists surveyed by The Wall Street Journal had expected a $17 billion increase in June. Revolving credit, mostly credit cards, rose at a 7.4% annual rate, a jump from May when it rose at an annual rate of 2.1%. Nonrevolving credit, made up largely of auto and student loans, rose at a 7.3% annual rate, a slight acceleration from May's upwardly revised rate of 7.2% and April's unrevised 6.2% growth pace. U.S. employers added 215,000 nonfarm jobs in July, the Labor Department reported on Friday. Gross domestic product, the broadest measure of economic output, grew at a seasonally adjusted annualized rate of 2.3% in the second quarter. But some economists still question whether Americans will pick up their spending at a time of stagnant wages, despite nearly five straight years of job growth. Consumer spending accounts for more than two-thirds of U.S. economic output, serving as an important driver of economic growth.

Fed: Credit card balances rise for a 4th straight month: Revolving debt in the United States has risen for the fourth straignt month, surging past the $900 billion mark, the Federal Reserve said Friday. The nation's revolving debt balance -- primarily composed of credit card balances -- hit $906.5 billion, an increase of about $5.5 billion, according to the Federal Reserve's preliminary G.19 report on consumer credit. This growth spurt leaves card balances at the highest level since February 2010. The annualized growth rate now rests at 7.4 percent. Outstanding student loans outstanding now total $1.26 trillion, up about $1 billion from March, the most recent month on record. Auto loan balances have now reached $994.3 billion, a $22.1 billion increase from March. The Fed reports student and auto loan debt at the end of each calendar quarter. Overall, total consumer debt rose $20.7 billion in June to about $3.42 trillion -- an annualized increase of 7.3 percent. This balance includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected fluctuations. Amid growing debt balances, consumer spending growth decelerated in June, indicating economic growth may have lost some momentum at the end of the second quarter. Total spending increased by $25.9 billion (0.2 percent) in June which is the smallest gain since February, according to the Commerce Department. The most recent growth figures are also weak compared to May's revised $90.8 billion growth.

Chain Store Sales August 6, 2015: Amid what is described as consumer apathy, July was a weak month for chain stores which are reporting lower rates of year-on-year sales growth compared to June. Sales were so soft that some chains are scaling back their sales and earnings forecasts. The results unfortunately point to a back-to-back decline for next week's ex-auto ex-gas reading of the July retail sales report.  Monthly sales volumes from individual department, discount, apparel, and drugstore chains are usually reported on the first Thursday of each month. Chain store sales correspond with roughly 10 percent of retail sales. Chain store sales are an indicator of retail sales and consumer spending trends. There is no official composite number for each month's sales, merely sales figures for individual chains. Also, which chains release monthly numbers varies over time as corporate policies sometimes change in regard to providing monthly numbers to the public in addition to quarterly data.

US Consumer Spending Declines For Third Consecutive Month, Down 5 Of Past 7 Months -- There is (double) seasonally-adjusted, goal-seeked and revised (since 1976) consumer spending data as reported by the government and meant to validate administration policies, and then there is Gallup's polling of 15,217 US adults who are asked to self-report on their daily spending patterns. For those who prefer unbiased, accurately reported data, it should come as no surprise to those who have been observing the recent swoon in the economy, that according to Gallup data, July was the third month in a row in which the average American spent less than they did in the same month a year ago, confirming that the US economy is if not in a recession then certainly no longer growing. Furthermore, as the chart below shows and confirms the already week retail spending data, of the 7 months in 2015, 5 have seen a decline in consumer spending year over year. The July Y/Y decline of $3, was also the largest decline for the mid-summer month since 2008. Also, the $91 July self-reported daily spend was $13, or more than 10%, lower compared to what Gallup survey respondents said they spent just before the financial crisis, when the number was $104. July spending has yet to top his pre-recession print.

Chart Of The Day - Americans Are Not Happy -- --Readers of this site don’t need me to tell you, but the following statistics from the Wall Street Journal prove that despite record stock prices and non-stop propaganda, fewer and fewer people are believing the hype. We learn that: On a benchmark measure of Americans’ unease, 65% of those surveyed said the country is on the wrong track. That is the highest level of unease since November 2014, and nears the levels seen at other historical moments of voter discontent. In May 1992, after H. Ross Perot had launched his populist independent run for president, 71% said the country was on the wrong track. In September 2007, when frustration with President George W. Bush was peaking, wrong-track sentiment was 63%. The new poll also found increased pessimism about the economy: 24% said they thought the economy would get worse over the next year, up from 17% in December. Now, here’s that chart:

Gas Prices Could Drop $1 From Last Year - -- Gasoline prices are down $0.85 from last year to $2.65 for the average gallon of regular nationwide, and they have fallen for 19 straight days. The trend, likely to continue to take prices down, could push gas $1 lower year over previous year. After a few months of increase, the drop could produce another advantage for the typical American driver. According to analysts at the AAA, drivers are paying the lowest averages since 2009. They say: The national average has steadily dropped, yet volatility continues to characterize several regional markets due to unexpected drawdowns in supply. While some states may not experience significant price drops as a result of regional supply and distribution issues, the national average is expected to keep moving lower leading up to the Labor Day holiday, barring any unexpected spikes in the price of global crude oil or unexpected disruptions to domestic production. In the past, these events primarily have been trouble in Middle East oil producers and gas prices low enough to undermine the profits of fracking companies in the United States.

Twin Trillion-Dollar Bubbles Prompt Dramatic Rise In Non-Mortgage Debt --Don’t look now, but the US is staring down not one but two trillion-dollar bubbles, both of which have been documented here extensively.  The first is the US auto loan bubble which has ballooned to $900 billion on the back of loose underwriting standards. Don’t believe easy credit is behind the inexorable rise in auto loan debt? Consider the following Q1 statistics from Experian which we never tire of showing:

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

Sitting behind the auto lending boom is Wall Street’s securitization machine which will churn out around $100 billion in auto loan-backed paper this year (for perspective, that accounts for around half of total projected consumer ABS issuance). The longer the Fed-driven hunt for yield persists, the more demand they’ll be for this paper and the more demand there is, the easier it will be to get a car loan and larger the bubble will become.  Meanwhile, the nation’s student debt bubble has reached epic proportions, with students and former students laboring (or perhaps "not laboring" is more appropriate given what we know about how difficult it is for degreed millennials to find good jobs) under a debt burden that averages $35,000 per student and totals a staggering $1.2 trillion in aggregate. As we’ve detailed exhaustively, debt service payments on these loans are causing delays in household formation and driving up demand for rentals in a market that’s already red hot thanks to the fact that the collapse of the housing bubble turned a nation of homeowners into a nation of renters. 

U.S. Light Vehicle Sales increased to 17.5 million annual rate in July --Based on a WardsAuto estimate, light vehicle sales were at a 17.5 million SAAR in June. That is up 6.4% from July 2014, and up 3.3% from the 17.0 million annual sales rate last month. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for July (red, light vehicle sales of 17.5 million SAAR from WardsAuto). This was above to the consensus forecast of 17.2 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. This was another strong month for auto sales. It appears 2015 will be the best year for light vehicle sales since 2001.

Light Vehicle Sales Per Capita: A New Look at the Long-Term Trend  For the past few years we've been following a couple of transportation metrics: Vehicle Miles Traveled and Gasoline Volume Sales. For both series we focus on the population adjusted data. Let's now do something similar with the Light Vehicle Sales report from the Bureau of Economic Analysis. This data series stretches back to January 1976. Since that first data point, the Civilian Noninstitutional Population Age 16 and Over (i.e., driving age not in the military or an inmate) has risen 62%. Here is a chart, courtesy of the FRED repository, of the raw data for the seasonally adjusted annualized number of new vehicles sold domestically in the reported month. This is a quite noisy series, to be sure. The absolute average month-over-month change is 4.5%. The latest data point is the preliminary July count published by Motor Intelligence, which shows a seasonally adjusted annual rate of 17.55 million units, a 2.6% increase from the previous month. WardsAuto puts the July number at 17.46 million. The first chart shows the the series since 2007, which illustrates the dramatic impact of the Great Recession. The blue line smooths the volatility with a six-month moving average, which helps us visualize the trend. In the chart above, the latest moving average value is 5.1% below is record high in May 2000. Here is the same chart with two key modifications:

  • We've created a per-capita version using the FRED's CNP16OV series for the adjustment.
  • We've indexed the numbers so that the first data point, January 1976, equals 100.

The moving-average for the per-capita series peaked in February 1979. Thirty-five-plus years later, it is now down 29.1% from that August 1978 peak month.

Here Is The Reason Why GM's July Car Sales Smashed Expectations -- Moments ago GM impressed everyone once again when it reported that in the month of July it sold 272,512 cars in the US, or a 6.4% jump compared to a year earlier. This was an impressive beat to consensus expectations of just a 0.6% increase. What caused this jump? On one hand the relentless surge in reckless debt-financing for car purchases continues to be a major factor, and as Housing Wire reports (what we have covered extensively in the past) "auto debt accounted for 81% of the increase in overall non-mortgage debt among mortgage holders over the past 4 years." But at this point it isn't just government-funded loans to subprime car purchasers. At this point it is the government itself which is buying GM cars hand over fist, thereby engaging in yet another indirect bailout of the formerly bankrupt automaker, which was bailed out by none other than the US government. To wit from GM's monthly sales report: Fleet deliveries in July were down 20 percent year over year, as the company continues to execute its plan to reduce sales to rental customers and grow commercial and government deliveries. Government sales were up 38 percent, with deliveries to state and local governments up 59 percent. Commercial deliveries were up year over year for the 21st consecutive month. Rental deliveries were down 36 percent. So fleet and rental deliveries plunging but who stepped up? Why the US government itself.

As phone companies ditch copper, they nix the ability to call during blackouts - The Federal Communications Commission (FCC) on Thursday put several new rules in place to regulate telecom companies looking to move away from the old copper wires that have carried voices across town and around the world for more than a century. But, until this week’s decisions, if you wanted to know what was going on with your carrier’s network decisions, you’d need to go online to the FCC’s website and try to find your answers. Now, your phone company has to tell you, directly. Phone companies have been making the move to fiber optic cable for a while now, says Mark Wigfield from the FCC’s Media Relations Office. Some companies have even been considering entirely wireless networks, even for that phone you still plug into the port in your kitchen wall. Mr. Wigfield says that there are many benefits to this move, not the least of which is the ability to receive high-speed Internet service over the same lines on which you make a phone call. But, the move away from copper may be cause for some concern. The biggest benefit to those old copper wires is that they carry their own electricity. So, when the power goes out, you can still make a call as long as your phone unit itself is still in operation. This is not so with fiber. “The Commission took this fact very seriously, especially as it related to 911 calling,” says Wigfield. “That means that the new rules include a mandate that requires phone companies to make direct-to-consumer offers of power backups.” Wigfield says that these backups would be at the consumer’s expense, but at least they would know exactly what they needed and where to get it.

U.S. factory orders rebound on strong demand for aircraft | Reuters: New orders for U.S. factory goods rebounded strongly in June on robust demand for transportation equipment and other goods, a hopeful sign for the struggling manufacturing sector. The Commerce Department said on Tuesday new orders for manufactured goods increased 1.8 percent after declining 1.1 percent in May. "We are moving past the very weak period for the manufacturing sector from early on this year, but that activity has yet to meaningfully increase," said Daniel Silver, an economist at JPMorgan in New York. Factory activity has been stymied by a strong dollar and spending cuts in the energy sector after last year's sharp plunge in crude oil prices. Tepid global demand also has weighed on manufacturing, which accounts for about 12 percent of the domestic economy. Those factors have eroded the profits of multinational companies like Caterpillar Inc (CAT.N), Procter & Gamble, the world's largest household products maker, and Whirlpool, the global home appliances giant. Though there are signs that the energy spending drag is easing, the dollar's strength will likely remain a constraint. The dollar has gained 15 percent against the currencies of the United States' main trading partners since June 2014.

Factory Orders Rise 2nd Time in 11 Months, Led by Aircraft; The "Bounce" in Five Pictures  - Factory orders rose for only the second time in eleven months, in line with the Consensus EstimateFactory orders rose nearly as expected in June, up 1.8 percent for only the second gain in the last 11 months. The durable goods component, initially released last week, is unrevised at plus 3.4 percent in a gain distorted by aircraft orders but one that does reflect a pop higher for capital goods. The non-durables component, data released with today's report, rose 0.4 percent on order gains for oil and chemicals. Orders for civilian aircraft jumped 65 percent in the month following, in routine up-and-down fashion for this component, a 32 percent downswing in May. Industries reporting respectable gains include 0.5 percent for furniture and 0.6 percent for motor vehicles as well as a 1.5 percent gain for machinery. Orders for energy equipment bounced back 5.5 percent after sinking 25 percent in May. Year-on-year, energy equipment is down 51 percent. Looking at totals again, shipments rose a very solid 0.5 percent with shipments of core capital goods up 0.3 percent. The latter, which is a key reading that excludes aircraft, isn't spectacular but is still a solid gain for business investment. Unfilled orders, which have been in contraction most of the year, were unchanged in June. Inventories rose 0.6 percent in a build that falls in line with shipments, keeping the inventory-to-shipments ratio at a manageable 1.35... This was a decent but not spectacular report and only the second in nearly a year. A chart of new orders and shipments provides a good perspective. Here are a few more charts from Fred, all showing notable weakness on a year-over-year basis.

June 2015 Manufacturing Improves But Still Far from Good: US Census says manufacturing new orders improved. Our analysis agrees. Unadjusted unfilled orders' growth continues shrinking year-over-year. No matter how you cut the data, it is soft. US Census Headline:

  • The seasonally adjusted manufacturing new orders is up 1.8% (after la8st month's revised decline of 0.2%) month-over-month, and down 3.6% year-to-date.
  • Market expected month-over-month growth of +0.7% to +2.5% (consensus +1.7%) versus the reported +1.8%.
  • Manufacturing unfilled orders unchanged month-over-month, and up 4.6% year-over-year.

Econintersect Analysis:

  • Unadjusted manufacturing new orders growth accelerated 3.8 % month-over-month, and down 4.5 % year-over-year
  • Unadjusted manufacturing new orders (but inflation adjusted) up 0.3 % year-over-year - there is deflation in this sector.
  • Unadjusted manufacturing unfilled orders growth declined 1.1% month-over-month, and up 4.6% year-over-year
  • As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production was growth decelerated 0.1% month-over-month, and up 1.9% year-over-year.

US Recession Imminent As Factory Orders Plunge For 8th Consecutive Month -- For the 8th month in a row, US factory orders fell YoY. Down 6.2% in June, this is the longest streak of declining factory orders outside of a recession in history. MoM, factory orders rose 1.8% - as expected - the most since May 2014 but historical orders and shipments were revised lower. Much of the MoM gain was driven by a 21% rise in defense aircraft shipments. Inventories contonue to rise leaving inventories-to-shipments ratios at cycle highs.Would have been considerably worse if not for a 21% rise in Defense aircraft orders... thank the Keynesian gods for war!!! Charts: Bloomberg

June Durable Goods: A Revised Update - The Preliminary Report on Manufacturers’ Shipments, Inventories and Orders released today by the Census Bureau gives us a revised look at the Advance Report on Durable Goods issued last week. This update has more extensive data on factory orders. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in June, up following two consecutive monthly decreases, increased $7.7 billion or 3.4 percent to $234.9 billion, virtually unchanged from the previously published 3.4 percent increase. This followed a 2.3 percent May decrease.Transportation equipment, also up following two consecutive monthly decreases, led the increase, $6.7 billion or 9.3 percent to $78.5 billion.New orders for manufactured nondurable goods increased $1.0 billion or 0.4 percent to $243.6 billion. Download full PDF The latest new orders headline number at 3.4% percent was above the Investing.com estimate of 3.0% percent. This series is down -3.0 percent year-over-year (YoY). If we exclude transportation, "core" durable goods came in at 0.6 percent month-over-month (MoM), a bit above the Investing.com estimate of 0.5 percent. However, the core measure is down -4.9 percent YoY. If we exclude both transportation and defense for an even more fundamental "core", the latest number was up 0.7 percent MoM, but down -3.5 percent YoY. Core Capital Goods New Orders (nondefense capital goods used in the production of goods or services, excluding aircraft) is an important gauge of business spending, often referred to as Core Capex. It posted a 0.7 percent monthly gain, However, it is down -7.1 percent YoY. For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of Durable Goods New Orders minus Transportation and Defense with those two components stacked on top. We've also included a dotted line to show the relative size of Core Capex.

Rail Week Ending 01 August 2015: Traffic Down 1.8% in July: Week 30 of 2015 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. Intermodal traffic contracted year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction. This analysis is looking for clues in the rail data to show the direction of economic activity - and is not necessarily looking for clues of profitability of the railroads. The weekly data is fairly noisy, and the best way to view it is to look at the rolling averages which are in contraction for over three months. The following chart is for railcar counts (not including intermodal). A summary of the data from the AAR: Carload traffic in July totaled 1,376,411 carloads, down 6.5 percent or 95,295 carloads from July 2014. U.S. railroads also originated 1,331,888 containers and trailers in July 2015, up 3.5 percent or 45,538 units from the same month last year. For July 2015, combined U.S. carload and intermodal originations were 2,708,299, down 1.8 percent or 49,757 carloads and intermodal units from July 2014.  In July 2015, six of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with July 2014. This included: grain, up 6.2 percent or 5,921 carloads; crushed stone, sand, and gravel, up 1 percent or 1,227 carloads; and coke, up 6.1 percent or 1,176 carloads. Commodities that saw declines in July 2015 from July 2014 included: coal, down 12.5 percent or 69,519 carloads, petroleum and petroleum products, down 13.6 percent or 10,691 carloads; and primary metal products, down 13 percent or 7,167 carloads. Excluding coal, carloads were down 2.8 percent or 25,776 carloads in July 2015 from July 2014.

Trade Deficit increased in June to $43.8 Billion -- The Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.8 billion in June, up $2.9 billion from $40.9 billion in May, revised. June exports were $188.6 billion, $0.1 billion less than May exports. June imports were $232.4 billion, $2.8 billion more than May imports. The trade deficit was close to the consensus forecast of $43.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through June 2015. Imports increased and exports were mostly unchanged in June. Exports are 14% above the pre-recession peak and down 4% compared to June 2014; imports are at the pre-recession peak, and down 2% compared to June 2014. The second graph shows the U.S. trade deficit, with and without petroleum. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products (wild swings earlier this year were due to West Coast port slowdown). Oil imports averaged $53.76 in June, up from $50.76 in May, and down from $96.41 in June 2014. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $31.5 billion in June, from $30.1 billion in June 2014. The deficit with China is a large portion of the overall deficit.

Trade Balance Up 2.9B from Revised May Headline -- The International Trade in Goods and Services is published monthly by the Bureau of Economic Analysis with revisions that go back several months, with data going back to 1992. This report details U.S. exports and imports of goods and services.  Since 1976, the United States has had an annual negative trade deficit. Here is an excerpt from the report: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.8 billion in June, up $2.9 billion from $40.9 billion in May, revised. June exports were $188.6 billion, $0.1 billion less than May exports. June imports were $232.4 billion, $2.8 billion more than May imports. The June increase in the goods and services deficit reflected an increase in the goods deficit of $2.9 billion to $63.5 billion and a decrease in the services surplus of less than $0.1 billion to $19.7 billion.  Year-to-date, the goods and services deficit increased $1.6 billion, or 0.6 percent, from the same period in 2014. Exports decreased $33.4 billion or 2.9 percent. Imports decreased $31.8 billion or 2.2 percent. This series tends to be extremely volatile, so we use a six-month moving average. Today's headline number of -43.84B was worse than the Investing.com forecast of -42.80B.

June 2015 Trade Data Is Mixed With Imports Growing and Exports Declining: A quick recap to the trade data released today paints a mixed picture. The general situation is that imports grew and exports declined. The unadjusted three month rolling average value of imports and exports decelerated month-over-month,. Many care about the trade balance (which grew marginally relative to last month), but trade balance simply has little correlation to economic activity. Note that inflation adjusted data paints a prettier picture economically. Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported marginally up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth acceleration of 6.8% month-over-month (unadjusted data). The rate of growth 3 month trend is decelerating. Exports of goods were reported marginally down, and Econintersect analysis shows unadjusted goods exports growth deceleration of (not including services) 3.3% month-over month. The rate of growth 3 month trend is decelerating.  The marginal decrease in seasonally adjusted exports was generally across the board. Import decrease was due to industrial and consumer goods. The market expected a trade deficit of $-44.4 B to $-40.5 B billion (consensus $43.0 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $43.8 billion. It should be noted that oil imports were up 22 million barrels from last month, and down 15 million barrels from one year ago. The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

US June Trade Deficit Surges 7% To $43.8 Billion As Strong Dollar Slams Exports, Imports Rise -- Moments ago the BEA reported that the June international trade deficit spiked by 7.1% from $40.9 billion in May (revised) to $43.8 billion in June, as exports decreased and imports increased. The previously published May deficit was $41.9 billion. The goods deficit increased $2.9 billion from May to $63.5 billion in June. The services surplus decreased less than $0.1 billion from May to $19.7 billion in June. As a result of the jump in the USD, exports of goods and services decreased $0.1 billion, or 0.1 percent, in June to $188.6 billion. Exports of goods decreased $0.2 billion and exports of services increased $0.1 billion.

  • The decrease in exports of goods mainly reflected decreases in capital goods ($0.8 billion) and in industrial supplies and materials ($0.6 billion). An increase in consumer goods ($0.8 billion) was partly offsetting.
  • The increase in exports of services mainly reflected an increase in other business services ($0.1 billion), which includes research and development services; professional and management services; and technical, trade-related and other services and increases in several categories of services of less than $0.1 billion. A decrease in transport ($0.2 billion), which includes freight and port services and passenger fares, was mostly offsetting.

But while GDP boosting outbound trade declined, inbound rose rose: imports of goods and services increased $2.8 billion, or 1.2 percent, in June to $232.4 billion. Imports of goods increased $2.7 billion and imports of services increased $0.1 billion.

  • The increase in imports of goods mainly reflected increases in consumer goods ($1.7 billion) and in industrial supplies and materials ($1.2 billion). A decrease in capital goods ($1.3 billion) was partly offsetting.
  • The increase in imports of services mainly reflected an increase in travel (for all purposes including education) ($0.2 billion) and increases in several categories of services of less than $0.1 billion. A decrease in transport ($0.2 billion) was mostly offsetting.

The United States' Huge Trade Deficit...with Europe [!] -- Unbeknownst to many, the United States is now running a gargantuan trade deficit with yet another trading partner that's quite relaxed about competitive devaluation at the moment with its own version of quantitative easing--Europe. The US running an enormous trade deficit with China and some other Asian nations is old hat. What's weird is that opportunist politicians courting the American labor union vote haven't engaged in more demagoguery against the vile, er, Europeans. The United States in June posted a record trade deficit in goods with the European Union, a sign of the sharp divergence in fortunes between the two regions.  The overall U.S. trade deficit, which includes services, climbed 7.1% to a seasonally adjusted $43.8 billion in June, the government said Wednesday. The upturn largely reflected an all-time high in imports such as autos, drugs and commercial aircraft from Europe, whose goods are cheaper to buy because of a weakened currency [my emphasis]. The goods deficit with the EU jumped nearly 16% in June to an unadjusted $14.5 billion. Earlier in the summer the continent was wracked by another crisis involving heavily indebted Greece that was only resolved, at least for now, by a controversial “rescue” plan after the EU came to the very brink of losing its first member. The latest flareup in Greece cast another cloud of uncertainty over Europe. The upturn in the US trade deficit has been attributed to the aforementioned sliding euro which makes American exports dearer and European imports cheaper: With the Federal Reserve on the cusp of the first interest-rate increase since 2006, the dollar could remain strong for months to come. I've always been fascinated with Americans' willingness to bash non-white people, especially Asians, for trade transgressions and so on. What if the main offenders though are Westerners like themselves, i.e., Western Europeans? It's certainly harder to demagogue against them than "foreign" Japanese, Chinese, etc. So, even if the former are largely to "blame" for the rising US trade deficit, it doesn't really get that much press.

ISM Manufacturing index decreased to 52.7 in July -- The ISM manufacturing index suggested expansion in July. The PMI was at 52.7% in July, down from 53.5% in June. The employment index was at 52.7%, down from 55.5% in June, and the new orders index was at 56.5%, up from 56.0%. From the Institute for Supply Management: July 2015 Manufacturing ISM® Report On Business®  "The July PMI® registered 52.7 percent, a decrease of 0.8 percentage point below the June reading of 53.5 percent. The New Orders Index registered 56.5 percent, an increase of 0.5 percentage point from the reading of 56 percent in June. The Production Index registered 56 percent, 2 percentage points above the June reading of 54 percent. The Employment Index registered 52.7 percent, 2.8 percentage points below the June reading of 55.5 percent, reflecting growing employment levels from June but at a slower rate. Inventories of raw materials registered 49.5 percent, a decrease of 3.5 percentage points from the June reading of 53 percent. The Prices Index registered 44 percent, down 5.5 percentage points from the June reading of 49.5 percent, indicating lower raw materials prices for the ninth consecutive month. Comments from the panel reflect a combination of optimism mixed with uncertainties about international markets and the impacts of the continuing decline in oil prices." Here is a long term graph of the ISM manufacturing index. This was below expectations of 53.7%, and indicates slower manufacturing expansion in July.

ISM Manufacturing Index: 31st Consecutive Month of Expansion - Today the Institute for Supply Management published its monthly Manufacturing Report for July. The latest headline PMI was 52.7 percent, a decrease of 0.8% from the previous month and below the Investing.com forecast of 54.7. This was the 31st consecutive month of expansion. Here is the key analysis from the report: "The July PMI® registered 52.7 percent, a decrease of 0.8 percentage point below the June reading of 53.5 percent. The New Orders Index registered 56.5 percent, an increase of 0.5 percentage point from the reading of 56 percent in June. The Production Index registered 56 percent, 2 percentage points above the June reading of 54 percent. The Employment Index registered 52.7 percent, 2.8 percentage points below the June reading of 55.5 percent, reflecting growing employment levels from June but at a slower rate. Inventories of raw materials registered 49.5 percent, a decrease of 3.5 percentage points from the June reading of 53 percent. The Prices Index registered 44 percent, down 5.5 percentage points from the June reading of 49.5 percent, indicating lower raw materials prices for the ninth consecutive month. Comments from the panel reflect a combination of optimism mixed with uncertainties about international markets and the impacts of the continuing decline in oil prices." Here is the table of PMI components.

ISM Manufacturing Slumps To 3-Month Lows Led By Plunge In Employment - It appears ISM Manufacturing data has been 'leaked' early and is reportedly printing 52.7 in July, down from 53.5 prior and missing expectations. This is the weakest print since March as the Q2 bounce is now officially dead. Both imports (lowest since Jan 2013) and new export orders (lowest in 3 years) declined as employment tumbled. In fact every subcomponent fell aside from new orders, production, and supplier deliveries with order backlogs at their lowest since Nov 2012. The bounce is dead... with broad-based weakness.... Charts: Bloomberg

ISM Non-Manufacturing Index increased to 60.3% in July -- The July ISM Non-manufacturing index was at 60.3%, up from 56.0% in June. The employment index increased in July to 59.6%,up from 52.7% in June. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: July 2015 Non-Manufacturing ISM Report On Business® . "The NMI® registered 60.3 percent in July, 4.3 percentage points higher than the June reading of 56 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 64.9 percent, which is 3.4 percentage points higher than the June reading of 61.5 percent, reflecting growth for the 72nd consecutive month at a faster rate. The New Orders Index registered 63.8 percent, 5.5 percentage points higher than the reading of 58.3 percent registered in June. The Employment Index increased 6.9 percentage points to 59.6 percent from the June reading of 52.7 percent and indicates growth for the 17th consecutive month. The Prices Index increased 0.7 percentage point from the June reading of 53 percent to 53.7 percent, indicating prices increased in July for the fifth consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in July. The majority of the respondents continue to have a positive outlook on business conditions and the overall economy. This is reflected directly by a number of new highs for some of the indexes." " This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was well above the consensus forecast of 56.2% and suggests much faster expansion in July than in June. Very strong.

ISM Non-Manufacturing: 66th Consecutive Month of Growth -  Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 60.3 percent, up 4.3 percent from last month's 56 percent. Today's number came in above the Investing.com forecast of 56.2 percent. Here is the report summary: "The NMI® registered 60.3 percent in July, 4.3 percentage points higher than the June reading of 56 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 64.9 percent, which is 3.4 percentage points higher than the June reading of 61.5 percent, reflecting growth for the 72nd consecutive month at a faster rate. The New Orders Index registered 63.8 percent, 5.5 percentage points higher than the reading of 58.3 percent registered in June. The Employment Index increased 6.9 percentage points to 59.6 percent from the June reading of 52.7 percent and indicates growth for the 17th consecutive month. The Prices Index increased 0.7 percentage point from the June reading of 53 percent to 53.7 percent, indicating prices increased in July for the fifth consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in July. The majority of the respondents continue to have a positive outlook on business conditions and the overall economy. This is reflected directly by a number of new highs for some of the indexes." Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

ISM Services Index Shows Sector Blowout -  The July 2015 ISM Non-manufacturing report shows a services sector growth blowout.  The overall index increased by +4.3 percentage points, to 50.3%, a record high.  The NMI is also referred to as the services index.  New orders increased by 3.4 percentage points.  Employment also had a blowout with a 6.9 percentage point increase.  The report hits decade highs in many subcategories and the employment index closely models the BLS employment figures. The comments from survey respondents quotes were all positive and implied growth.  Only the Avian flu was mentioned as still impacting the egg supply.  Generally speaking a value above 50 for NMI indicates growth, below 50 indicates contraction.  The below table shows the ISM non-manufacturing indexes.  Below is the graph for the non-manufacturing ISM business activity index, or current conditions, what we're doin' now meter.  Business activity is at the highest level since December 2004.   Here is the ISM's ordered services sector business activity list: The 14 industries reporting growth of business activity in July — listed in order — are: Educational Services; Arts, Entertainment & Recreation; Public Administration; Wholesale Trade; Finance & Insurance; Retail Trade; Health Care & Social Assistance; Utilities; Real Estate, Rental & Leasing; Accommodation & Food Services; Management of Companies & Support Services; Construction; Transportation & Warehousing; and Information. The two industries reporting a decrease in business activity in July are: Professional, Scientific & Technical Services; and Mining.

ISM Services Spikes To 10 Year Highs Despite Markit "Hope" Plunge To 3-Year Lows -- ISM Services soared to its highest sicne 2005 - printing 60.2, beating expectations by the most on record - with the biggest MoM jump in employment in history. Does that sound in any way realistic? Markit Services PMI printed above its preliminary level at 55.7 for a small bounce after 3 straight months lower. However, more problematic is the plunge in 'hope' as busines outlook tumbles to its lowest since June 2012. As Markeit notes, while the headline may be encouraging, "dig a little deeper and there are causes for concern which could worry policymakers into deferring any tightening of policy."  But as Markit notes, it's not all ponies and unicorns...“At face value, the sustained robust expansion signalled in July augurs well for a rate hike later in the year, possibility as early as September assuming the labour market continues to improve in the meantime.“However, dig a little deeper and there are causes for concern which could worry policymakers into deferring any tightening of policy.“Growth has clearly slowed compared to this time last year, and a further drop in service sector companies’ optimism about the year ahead to one of the lowest seen over the past five years indicates that firms are expecting growth to slip further in coming months. Hiring could soon wane unless business confidence picks up again soon.“The survey also illustrates how the strong dollar and falling oil prices add to the argument for holding off with any tightening of policy. Rates of inflation of both firms’ input costs and selling prices eased in July amid lower import costs and falling global commodity prices. The strong dollar is also continuing to hurt export performance, dampening economic growth prospects.”

Weekly Initial Unemployment Claims increased to 270,000 -- The DOL reported: In the week ending August 1, the advance figure for seasonally adjusted initial claims was 270,000, an increase of 3,000 from the previous week's unrevised level of 267,000. The 4-week moving average was 268,250, a decrease of 6,500 from the previous week's unrevised average of 274,750. There were no special factors impacting this week's initial claims. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Job Cuts Soar To Highest Since September 2011 After Mass Army Terminations, Highest YTD Layoffs Since 2009 -- While we await for the BLS to report another seasonally adjusted Initial Claims report which will be near multi-decade lows, a far more disturbing report was released moments ago by outplacement consultancy Challenger Gray, which has done a far better job of compiling true layoff data, and which reported that in July there was a whopping 105,696, up 136% from the 44,842 job cuts in June, and the highest in nearly four years, or since September 2011, which the last time there were more than more than 100,000 layoffs. Worse, the July surge brings the year-to-date job cut total to 393,368, which is 34 percent higher than the 292,921 cuts announced in the first seven months of 2014. This represents the highest seven-month total since 2009, when 978,048 job cuts were announced amid the worst recession since the Great Depression. Finally, this was the worst July for layoffs in over a decade. And while we expect energy-sector terminations to take center stage in the coming months following the resumed plunge in energy prices, the July surge in layoffs came from an unexpected source: the US Army.According to Challenger, more than half of the July job cuts were the result of massive troop and civilian workforce reductions announced by the United States Army. The cutbacks will eliminate 57,000 from government payrolls over the next two years.

ADP: Private Employment increased 185,000 in July - From ADP: Private sector employment increased by 185,000 jobs from June to July according to the June [July] ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Goods-producing employment rose by 8,000 jobs in July, after adding 13,000 in June. The construction industry added 15,000 jobs in July, down from 17,000 last month. Meanwhile, manufacturing added 2,000 jobs in July, after gaining 9,000 in June.  Service-providing employment rose by 178,000 jobs in July, down from 216,000 in June. month. The 19,000 new jobs added in financial activities was an increase from last month’s 12,000. ... Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but it has moderated since the beginning of the year. Layoffs in the energy industry and weaker job gains in manufacturing are behind the slowdown. Nonetheless, even at this slower pace of growth, the labor market is fast approaching full employment.” This was below the consensus forecast for 210,000 private sector jobs added in the ADP report.   The BLS report for July will be released Friday, and the consensus is for 212,000 non-farm payroll jobs added in July.

ADP Employment Tumbles To 2015 Lows -- Following June's small-business-driven better-than-expected rise in ADP employment, July printed a stunningly weak 185k against expectations of 215k - the biggest miss since March. This is around the lowest level of the year and lowest since Q1 2014. It is also 20% lower than the 232K ADP print a year ago, and the weakest July print since 2013: all signs screaming QE4 a rate hike is imminent. Sure enough small business exuberance in June turned to pessimism in July as gains rose at half the pace for firms less than 50 people. Manufacturing jobs were also weak (8k goods producing vs 178k services). The question now is what will The Fed need as an excuse to raise rates given that employment is no longer their crutch, printing below economists' lowest estimate. From the report: Payrolls for businesses with 49 or fewer employees increased by 59,000 jobs in July, half of the June number. Employment among companies with 50-499 employees increased by 62,000 jobs, down from 78,000 the previous month. Employment gains at large companies – those with 500 or more employees – increased sharply from June, adding 64,000 jobs in July, up from 34,000. Companies with 500-999 added 17,000 jobs after adding 28,000 jobs in June. Companies with over 1,000 employees added 47,000 jobs, almost eight times the weak 6,000 added the previous month.

July 2015 ADP Job Growth at 185,000 - Below Expectations: ADP reported non-farm private jobs growth at 185,000. The rolling averages of year-over-year jobs growth rate remains strong but is in a downtrend.

  • The market expected 190,000 to 260,000 (consensus 210,000) versus the 185,000 reported. These numbers are all seasonally adjusted;
  • In Econintersect's July 2015 economic forecast released in late June, we estimated non-farm private payroll growth at 180,000 (unadjusted based on economic potential) and 225,000 (fudged based on current overrun of economic potential);
  • This month, ADP's analysis is that small and medium sized business created 66% of all jobs;
  • Manufacturing jobs grew by 2,000;
  • 96% of the jobs growth came from the service sector;
  • June report (last month), which reported job gains of 237,000 was revised down to 229,000;
  • The three month rolling average of year-over-year job growth rate has been slowing declining since February 2015 - it is now 2.3% (down from 2.4% last month)

ADP changed their methodology starting with their October 2012 report, and ADP's real time estimates are currently worse than the BLS. Per Mark Zandi, chief economist of Moody's Analytics: Job growth is strong, but it has moderated since the beginning of the year. Layoffs in the energy industry and weaker job gains in manufacturing are behind the slowdown. Nonetheless, even at this slower pace of growth, the labor market is fast approaching full employment.

Anticipating the Employment Report for July: ADP Number Disappoints -- The economic mover and shaker this week is tomorrow's employment report from the Bureau of Labor Statistics.  Today we have the July estimate of 185K new nonfarm private employment jobs from ADP, down from the June's 229K, which is a downward revision from 237K. Also, the May number was revised downward by 6K. The 185K estimate came in well below the Investing.com forecast of 215K for the ADP number. The Investing.com forecast for the forthcoming BLS report is for 223K nonfarm new jobs (the actual PAYEMS number). Here is an excerpt from today's ADP report: "July employment growth was slower than June, but is still in line with what we have seen since the first of the year,” said Carlos Rodriguez, president and chief executive officer of ADP. “Notably, large businesses with more than 500 employees had their strongest job gains since last December and were almost double the June number.”  Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but it has moderated since the beginning of the year. Layoffs in the energy industry and weaker job gains in manufacturing are behind the slowdown. Nonetheless, even at this slower pace of growth, the labor market is fast approaching full employment.” Here is a visualization of the two series over the previous twelve months.

Gallup US Payroll to Population August 6, 2015: The U.S. Payroll to Population employment rate (P2P), as measured by Gallup, was 45.5 percent in July, unchanged from the previous month, and the highest rate Gallup has measured for any July since tracking began in 2010. The P2P measurements for the past two months tie for the second-highest recorded by Gallup after October 2012, when P2P hit 45.7 percent. This increase in P2P rates in the summer months is in line with an expected seasonal rise in full-time employment, though the baseline trend is higher in 2015 than it has been in the past two years. The percentage of U.S. adults participating in the workforce in July was 66.9 percent. While this is 0.3 percentage points higher than July of last year and at least 0.6 points lower than the rate measured in any other July since Gallup began tracking it in January 2010. Since that time, the workforce participation rate has remained in a narrow range, from a low of 65.8 percent to a high of 68.5 percent. Gallup's unadjusted U.S. unemployment rate was 6.1 percent in July, up nominally from June's 6.0 percent, but still near the 5.8 percent low point from December 2014 in Gallup's five-year trend. However, after years of gradual decline, Gallup's unemployment measurement has not substantially changed from the 6.3 percent measured in July 2014. Gallup's U.S. unemployment rate represents the percentage of adults in the workforce who did not have any paid work in the past seven days, for an employer or themselves, and who were actively looking for and available to work. Gallup's measure of underemployment in July is 14.2 percent, the lowest level recorded since Gallup began tracking it daily in 2010. Gallup's U.S. underemployment rate combines the percentage of adults in the workforce who are unemployed (6.1 percent) and those who are working part time but desire full-time work (8.1 percent).

July Employment Report: 215,000 Jobs, 5.3% Unemployment Rate - From the BLSTotal nonfarm payroll employment increased by 215,000 in July, and the unemployment rate was unchanged at 5.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in retail trade, health care, professional and technical services, and financial activities. ... The change in total nonfarm payroll employment for May was revised from +254,000 to +260,000, and the change for June was revised from +223,000 to +231,000. With these revisions, employment gains in May and June combined were 14,000 higher than previously reported. ... In July, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.99. Over the year, average hourly earnings have risen by 2.1 percent. . The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 215 thousand in July (private payrolls increased 210 thousand). Payrolls for May and June were revised up by a combined 14 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In July, the year-over-year change was over 2.9 million jobs. That is a solid year-over-year gain. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate was unchanged in July at 62.6%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio was unchanged at 59.3% (black line).The fourth graph shows the unemployment rate.  The unemployment rate was unchanged in July at 5.3%

US Private Payrolls Increase 210k In July - US companies added 210,000 workers in July, the Labor Department reports. The gain matches Econoday.com’s consensus forecast. Although last month’s increase in private-sector payrolls was modestly below June’s 227,000 gain, today’s update continues to reflect a solid 2%-plus trend advance in year-over-year terms. The annual pace is still decelerating, but fractionally so. The bottom line: the labor market continues to expand at a healthy pace and for the moment the trend looks poised to endure. In turn, the case for a near-term rate hike by the Federal Reserve looks a bit stronger today. Nonfarm payrolls increased 2.43% last month vs. the year-earlier level. That’s the lowest annual rise in nine months, but the decline from February’s year-over-year peak of 2.71% has been gradual. Given the bullish signals in jobless claims lately, which have recently touched 40-year lows, it’s reasonable to assume that private payrolls will continue to increase at a 2%-plus rate for the foreseeable future. In turn, there’s enough forward momentum in that pace to keep the jobless rate ticking lower. Accordingly, business-cycle risk for the US economy remains low. That’s been true for some time, of course, as the periodic macro updates at CapitalSpectator.com have emphasized (see here and here, for instance). “Trend job growth is rock solid,” says Ryan Sweet, a senior economist at Moody’s Analytics. “It’s more than sufficient to continue to chip away at the slack that’s left in the job market.” In turn, today’s data suggests that the Federal Reserve remains on track to start raising interest rates, if only slightly, in the near term. “I think there is a high bar right now to not acting, speaking for myself,” Atlanta Fed President Dennis Lockhart recently told The Wall Street Journal.“It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.”

July Jobs Report – The Numbers - U.S. employers added a seasonally adjusted 215,000 jobs in July, while the unemployment rate held at 5.3%, the Labor Department said Friday. Economists surveyed by The Wall Street Journal had forecast a gain of 215,000 jobs and a 5.3% unemployment rate. Employers added 215,000 jobs in July, marking the 58th consecutive month of job gains, the longest stretch on record. Employers have added an average of 211,000 new jobs a month this year, a slightly slower pace than last year, when they added an average 240,000 a month over the same period. Hiring slowed earlier this year as harsh winter weather and a West Coast ports slowdown put a damper on economic growth.  The headline unemployment rate remained at 5.3%, as a steadily improving job market drew more people into the labor force. The unemployment rate has been steadily dropping since it hit its recent peak of 10% in October 2009. A broader measure of unemployment that includes those who are stuck in part-time jobs or who have given up looking for work over the past month fell to 10.4%. While that’s down from the peak of 17.1% in early 2010, it’s still higher than it was before the recession, a sign that the labor market might still have some slack to make up. Average hourly earnings of private-sector workers rose 0.2% to $24.99 in July. Over the past year, wages have risen 2.1%, on par with the pace of much of the expansion. Economists and Federal Reserve officials have been closely monitoring wage growth for indications that the labor market has tightened following years of job creation. A pickup in wage growth could be a sign that the economy is nearing full employment and could make central bank officials more confident in a September increase in interest rates. July’s report suggests payrolls continue to creep up even though they still have a way to go. 62.6% The labor-force participation rate stayed the same last month at 62.6%, suggesting there remains quite a bit of slack in the labor market. The participation rate–the share of the population either working or actively looking for work–has been dropping for several years and currently stands at levels last seen in 1977. That’s partly because baby boomers are retiring in droves but also because discouraged unemployed workers are dropping out of the labor force. Economists have been looking for some improvement in the participation rate as a sign that the labor market has improved enough to draw discouraged workers back in.

Establishment Survey +215K Jobs, Household Employment Survey +101K, Part-Time Employment -760K, Labor Force +69K  - Today's job report (for July) once again showed a divergence between the household survey and the establishment survey.  The divergence was not as large as last month, but was in the same usual direction: The establishment survey was stronger than the household survey. Household survey employment rose by 101,000 while the establishment survey shows an increase of 215,000 jobs.  Last month the household survey showed a decline in employment of 56,000 while the establishment survey shows a gain of 233,000 jobs. One huge standout in the household data was a huge drop in part-time employment. Involuntary part-time employment declined by 180,000 while voluntary part-time employment shrank by 589,000. The decline of 180,000 in involuntary part-time employment was enough to knock the U-6 unemployment rate down by 0.1% to 10.5%.  To show the volatility in this series, last month, voluntary part-time employment rose by 519,000 while part-time for economic reasons declined by 147,000.  Did 760,000 people really gain full-time employment from part-time status? No chance, but there's the number. Note that last month's rise in voluntary part-time employment of 519,000 nearly matches this month's decline by 589,000.  BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +215,000 - Establishment Survey
  • Employment: +101,000 - Household Survey
  • Unemployment: -33,000 - Household Survey
  • Involuntary Part-Time Work: -180,000 - Household Survey
  • Voluntary Part-Time Work: -589,000 - Household Survey
  • Baseline Unemployment Rate: +0.0 to 5.3% - Household Survey
  • U-6 unemployment: -0.1 to 10.4% - Household Survey
  • Civilian Non-institutional Population: +213,000
  • Civilian Labor Force: +69,000 - Household Survey
  • Not in Labor Force: +144,000 - Household Survey
  • Participation Rate: +0.0 to 62.6 - Household Survey

Job Growth Remains Strong in July - Dean Baker - Weak wage growth and low EPOPs indicate persisting slack in labor market.  The Labor Department reported the economy added 215,000 jobs in July, while the overall unemployment rate was unchanged at 5.3 percent. The unemployment rate for African Americans fell from 9.5 percent to 9.1 percent, the lowest level since February of 2008. The employment-to-population ratio (EPOP) remained unchanged at 59.3 percent for the population as a whole and 55.8 percent for African Americans. While the unemployment rate has been falling sharply in the last four years, the EPOP has moved much less, having risen by just 1.1 percentage points from its low point in 2011. Only a small portion of this decline can be explained by demographics as the EPOP for prime-age men (ages 25-54) is still down by almost three percentage points from its pre-recession level. This is almost certainly an indication of ongoing weakness in the labor market.  Most of the other data in the household survey showed little change. The median duration of unemployment spells remained constant, while the average duration and share of long-term unemployment both increased slightly, but were still below May levels. The share of unemployment due to voluntary quits increased to 10.2 percent, the same as the March level. There has been an interesting shift in the age distribution of employment growth in the last year. Earlier in the recovery, workers over age 55 had accounted for the bulk of growth in employment. This group accounted for 68.1 percent of employment growth from July of 2010 to July of 2013; however, they account for just 42.7 percent of employment growth over the last two years.This is primarily a story of lower employment growth among women over age 55. Employment growth for women over age 55 had averaged 679,000 in the two years from July 2011 to July 2013; it has averaged just 374,000 in the last two years. This likely reflects the impact of the Affordable Care Act, as many pre-Medicare age women no longer need to rely on their jobs to get insurance for themselves or family members. Younger workers, between the ages of 25-34, may have been the beneficiaries of this decision as there has been a notable uptick in employment growth among this group.In addition to the healthy job growth in July, the increases for May and June in the establishment data were also revised up slightly to bring the 3-month average to 235,000. However, there is still no evidence of this job growth leading to wage pressures. The average hourly wage rose 5 cents in July, but this followed a drop of 1 cent in June. This brings the annual growth rate for the last three months compared to the prior three months to just 1.9 percent, compared with a 2.1 percent increase over the last year.

Jobs Report for July: Solid job gains, no wage pressures  - Payrolls increased by 215,000 last month and the unemployment rate held steady at 5.3%, according to this morning’s jobs report from the BLS. It’s a solid report, showing that the labor market continues to gradually tighten. Yet by a number of important metrics, most notably the absence of faster wage growth, the report suggests that the job market’s steady progress is not generating inflationary pressures. Most industries added jobs, revisions added 14,000 jobs to May and June’s tallies, and average weekly hours ticked up slightly. The share of involuntary part-timers, an important indicator of slack, fell slightly, to 6.3 million. That’s still an elevated number for this measure, but it’s down by over 1 million workers from a year ago. Thus, the more inclusive underemployment rate, which includes part-timers who want full-time work, ticked down to 10.4%, the lowest it has been since June 2008. At the same time, the closely watched wage gauge remains stuck in neutral, up 2.1% over the past year.  What about more recent trends? If I average the wage over the last three months, and take an annualized growth rate over the prior three months, I get…wait for it…1.9%.  In other words, by this, and by the majority of other wage metrics, the tightening labor market is not creating inflationary wage pressures. Why not? One reason is that the job market is not as tight as the 5.3% unemployment rate implies. The historically low labor force participation rate was unchanged in July, after falling 0.3 tenths of a percent in June. And while underemployment is coming down, it’s still elevated. Thus, the message to the Fed re the job market: love it and leave it alone. The ongoing recovery is generating a steady flow of job creation with no obvious evidence, either in actual data or expectations, of the need to “tap the breaks” with a rate hike. Employment increased broadly across the industries (64% of industries added jobs, an uptick from the prior two reports). Though the strong dollar has been holding back jobs in export sectors in recent months, manufacturing did a bit better in July, adding 15,000 jobs, exclusively in non-durables (durable manufacturing shed 8,000 jobs). Still, thus far this year, factory jobs are up by about 50,000 compared to over 100,000 over the comparable period last year.

BLS Jobs Situation Mixed in July 2015. Growth Rate of Employment Continues to Slow. - The BLS jobs report headlines from the establishment survey was at expectations. The unadjusted data shows growth is lower than last year with continued almost insignificant deceleration of year-over-year rate of growth. Overall, this report paints a mixed picture.

  • The rate of growth for employment continued to decelerate this month (red line on graph below).
  • The unadjusted jobs added month-over-month was normal for times of economic expansion but less than last year.
  • Economic intuitive sectors of employment were showing some growth.
  • This month's report internals (comparing household to establishment data sets) was inconsistent with the household survey showing seasonally adjusted employment growing 101,000 vs the headline establishment number of growing 215,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
  • The household survey added 69,000 people to the workforce.
  • A summary of the employment situation:
  • BLS reported: 215K (non-farm) and 210K (non-farm private). Unemployment unchanged at 5.3%.
  • ADP reported: 185K (non-farm private)
  • In Econintersect's July 2015 economic forecast released in late June, we estimated non-farm private payroll growth at 180,000 (unadjusted based on economic potential) and 225,000 (fudged based on current overrun of economic potential);

Prime-Age Employment-to-Population Ratio Remains Terribly Depressed - My former colleague, Heidi Shierholz, used to call the prime-age employment-to-population ratio (EPOP) her desert island measure, if she could only take one with her. Today, I decided to take a closer look. My crude drawings on an otherwise straightforward graph are my attempt to illustrate three important points about trends in the prime-age EPOP. (Side note: I use prime age here, i.e. 25–54 year olds, to remove structural trends like baby-boomer retirement. And, for those nerdy enough to want to know, my drawings eliminate the ability to see the data behind this chart. For the data series, please see here.) The most obvious point is the huge nose dive prime-age EPOP took during the Great Recession. The green circle shows the slow climb as the recovery began to take hold. We had a couple years of solid job growth, and that’s a fairly decent pace for the EPOP recovery. Then, early this year, the EPOP stalled out (see the red circled region). The prime-age EPOP hit 77.3 percent in February, then stagnated for four months at 77.2 percent, and fell slightly to 77.1 in July. This would be a terrible new normal for the economy, for the American people.

Americans Not In The Labor Force Rise To Record 93.8 Million, Participation Rate At 1977 Level - While the Fed is digesting what the X-13 Arima seasonally adjusted payrolls number means for the future of US interest rates, the devastation of the US labor force continues.  In what was an "modestly" unpleasant July payrolls report, yet somewhat better than June's flagrant disappointment, the fact is that the number of Americans not in the labor force rose once again, this time by 144,000 to a record 93,770,000 million, with the result a participation rate of 62.6% which remains at a level more indicative of the September 1977 economy. End result: with the civilian employment to population ratio flat from last month's 59.3%, one can once again easily discern on the chart below why there will be no broad wage growth any time soon, which will merely allow the Fed to engage in its failed policies for a long, long time, or - at worst - hike by 25 bps just so it can, like BOJ in 2000 and the ECB in 2011, cut promptly thereafter and/or unleash QE4.

At 38-year low, participation rate may have found footing - — It’s an odd thing to say for a number at a 38-year low, but it looks like the percentage of Americans who participate in the labor market has found its footing. In July, the labor-force participation rate stayed at 62.6%. The rate — alluded to last night by Republican presidential candidates in a televised debate bemoaning the state of the economy — hasn’t veered from a 0.6 percentage point range in nearly two years. This low participation in the workforce — due to a combination of an aging population, discouraged workers and other factors — has important implications for the U.S. economy and the ability of the U.S. to finance its spending.  Much of the decline stems from the growing number of baby boomers, who naturally are retiring. The number of people who are 65 years and over, without a disability, who are not in the labor force rose to 24.7 million in July — a rise of about 5 million people since 2008. “Some of the decline in the participation rate is demographic in nature, as older workers have lower participation rates (even though their participation rates are rising, an increasing share of older workers with lower absolute participation rates weighs on the overall measure),”

The Hole in the Middle of the Jobs Report - The jobs report for July, released on Friday, showed steady if unspectacular job growth. The economy created 215,000 jobs, in line with average job creation so far this year. The growth in July was centered in retail, restaurants and other low-paying service jobs, though there was also encouraging growth in higher-paying fields, including construction and finance. What was lacking — in July, as in every other month in the past several years — was any appreciable growth in wages. Average hourly earnings for all private-sector employees rose by 0.5 cents, to $24.99. Take away the minority of employees who are bosses, and the increase was just 0.3 cents, to $21.01 an hour, or $42,000 a year for a full-time job. Over all, the average annualized growth rate for wages over the past three months comes to 1.9 percent, barely outpacing inflation. Job growth without pay raises is a discouraging sign of slack in the job market. For example, the share of the population age 25 to 54 that is working is stuck at recession-era levels and, worse, has stopped improving in the past five months. That suggests a dearth of job opportunities for a pool of potential workers that is larger than indicated by the relatively low unemployment rate of 5.3 percent. It also points to the continuing need to stimulate the economy, create jobs and raise wages. At the bottom of the pay ladder, this could be done through minimum-wage increases; at the middle rungs, it would help to update and enforce labor laws on overtime and benefits.

The July Jobs Report in 12 Charts - The U.S. economy added 215,000 jobs in July, continuing a steady expansion. Friday’s report from the Labor Department showed few changes from the prior month on a range of measures, including the unemployment rate, at 5.3%, and the labor-force participation rate. The economy has added around 2.9 million jobs over the past 12 months. That’s down slightly from earlier this year, when the 12-month paced surpassed three million, but it is still well ahead of the 2.5 million jobs added for the year ended July 2014. Job growth over the past three months reached its highest level since February, with an average 235,000 jobs added per month. Meanwhile, the unemployed rate held steady at 5.3%. A broader gauge of underemployment, which includes workers who have part-time positions but say they would like full-time jobs, ticked down to 10.4%. The economy is very different for college graduates, who face only a 2.6% unemployment rate, compared with 5.5% for those who have no education beyond high school and 8.3% for those who did not complete high school. The share of Americans in the labor force—that is, those who are working or looking for work, has remained at the lowest level since 1977. The share of Americans with jobs has risen slightly in the past five years, but remains lower than before the recession. One reason for the decline in labor-force participation has been the aging of the U.S. population and the retirement of baby boomers. When looking only at workers between ages 25 and 54, labor-force participation is at 80.7%. That’s still down from before the recession, as is the share of workers with jobs. The report provided few signs of accelerating wage inflation. Average weekly earnings rose 2.4% from a year earlier, but that mostly reflected slightly more hours worked in July. Hourly wages were 2.1% higher than a year earlier. The vast majority of jobs added since the recession officially ended in June 2009 have been full-time positions. More than 8 million more full-time jobs have been added. Still, more than 8 million full-time jobs were lost during the recession, which began in December 2007. The U.S. has nearly recovered all of those lost full-time jobs. Half of all unemployed workers have been without work for 11.3 weeks. The share of the unemployed who have been without work for more than half a year has been gradually decreasing. But even five years since the recession officially ended, today’s share of the the long-term jobless is higher than any of the previous three recessions. The level of workers who are considered long-term unemployed is still higher than it was in December 2007, when the recession ended, but it has been coming down steadily.

July Employment Report Comments and more Graphs - This was a solid employment report with 215,000 jobs added, and employment gains for May and June were revised up slightly. There was even a little wage growth, from the BLS: "In July, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.99. Over the year, average hourly earnings have risen by 2.1 percent." Weekly hours increased slightly in July. A few more numbers: Total employment increased 215,000 from June to July and is now 3.7 million above the previous peak. Total employment is up 12.4 million from the employment recession low. Private payroll employment increased 210,000 from June to July, and private employment is now 4.2 million above the previous peak. Private employment is up 13.0 million from the recession low. In July, the year-over-year change was just over 2.9 million jobs. Note: The unemployment rate at 5.3%, and still little real wage growth - and a higher than normal level of people working part time for economic reasons - indicates slack in the labor market. My view, partially based on demographics, is that the unemployment rate can fall below 5% without a significant pickup in inflation.  Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle. The 25 to 54 participation rate declined in July to 80.7%, and the 25 to 54 employment population ratio declined to 77.1%. As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth increased 2.1% YoY - and although the series is noisy - it does appear wage growth is trending up a little.  Wages will probably pick up a little more this year.

Chinese Textile Mills Are Now Hiring in Places Where Cotton Was King --Twenty-five years ago, Ni Meijuan earned $19 a month working the spinning machines at a vast textile factory in the Chinese city of Hangzhou. Now at the Keer Group’s cotton mill in South Carolina, which opened in April, Ms. Ni is training American workers to do the job she used to do. Once the epitome of cheap mass manufacturing, textile producers from formerly low-cost nations are starting to set up shop in America. It is part of a blurring of once seemingly clear-cut boundaries between high- and low-cost manufacturing nations that few would have predicted a decade ago.  Textile production in China is becoming increasingly unprofitable after years of rising wages, higher energy bills and mounting logistical costs, as well as new government quotas on the import of cotton. At the same time, manufacturing costs in the United States are becoming more competitive. In Lancaster County, where Indian Land is located, Keer has found residents desperate for work, even at depressed wages, as well as access to cheap and abundant land and energy and heavily subsidized cotton. Politicians, from the county to the state to the federal government, have raced to ply Keer with grants and tax breaks to bring back manufacturing jobs once thought to be lost forever. The prospect of a sweeping Pacific trade agreement that is led by the United States, and excludes China, is also driving Chinese yarn companies to gain a foothold here, lest they be shut out of the lucrative American market.

Black Unemployment Rate Dips Below 10 Percent in 11 of 24 States Measured in Second Quarter -- In June 2015, the national unemployment rate was 5.3 percent, down 0.2 percentage points since the end of the first quarter in March 2015. Yet, even as the recovery moves ahead slowly, conditions vary greatly across states and across racial and ethnic groups. In June, state unemployment rates ranged from a high of 7.4 percent in West Virginia to a low of 2.6 percent in Nebraska. Nationally, African Americans had the highest unemployment rate, at 9.5 percent, followed by Latinos (6.6 percent), whites (4.6 percent), and Asians (3.8 percent). Following is an overview of racial unemployment rates and racial unemployment rate gaps by state for the second quarter of 2015. We provide this analysis on a quarterly basis in order to generate a sample size large enough to create reliable estimates of unemployment rates by race at the state level. We only report estimates for states where the sample size of these subgroups is large enough to create an accurate estimate. In the second quarter of 2015, the white unemployment rate was lowest in Nebraska (1.8 percent) and highest in West Virginia (7.0 percent), as shown in the interactive map, which presents state unemployment rates by race and ethnicity.  During the second quarter of 2015, the national African American unemployment rate dipped below 10 percent for the first time in seven years. The African American unemployment rate was lowest in Tennessee (6.9 percent), surpassing Virginia as the state with the lowest black unemployment rate (a distinction Virginia had held since the third quarter of 2014), and highest in the District of Columbia (14.2 percent). By way of comparison, although 6.9 percent is the lowest black unemployment rate in the country, it is essentially the same as the highest white unemployment rate (West Virginia’s). Tennessee was one of only 11 states where the African American unemployment rate was below 10 percent in the second quarter of 2015.

Black Unemployment Falls Below 10%, Still Twice the Rate for Whites - We know that the economic recovery’s effects have been unevenly felt. The recovery has been kind to those who invested in certain stocks or whose title begins with the word “chief.” It’s been less charitable to certain groups, like African American workers, whose unemployment rates have lingered in the double-digits for most of the past eight years. For the first time since 2007, the national unemployment rate for African Americans dipped below 10 percent in the second quarter of 2015, according to the Labor Department. Despite that improvement, at 9.5 percent, it’s still nearly twice the national average of 5.3%, and more than double the 4.6% rate for whites. Overall, only 11 states had African American unemployment rates below 10%, according to an analysis by Valerie Wilson, director of the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy. Only eight states have seen unemployment rates for black workers fall below pre-recession levels. In Alabama, the African unemployment rate is more than twice what it was pre-recession: 10.9%, compared with less than 5% throughout 2007. The nationwide average masks wide variations between states and between races. For example, Tennessee has the lowest unemployment rate for black workers, at 6.9%. But that’s about the same rate as the state with the highest unemployment rate for whites, West Virginia, where unemployment stood at around 7% for the quarter. Similarly, the ratio of unemployment rates for black and white workers swings from the low end in Tennessee, where the black unemployment is 1.2 times that of whites, to a ratio of 5.1 in Washington, D.C. Dr. Wilson attributes the especially high rate of black unemployment to the District’s concentrated urban population, which she said is not entirely comparable to state populations. Why the gap? Dr. Wilson points to education and work experience as two major factors. Twenty-two percent of blacks had completed four years of college in 2014, versus 32% of whites, according to the Census Bureau.

Job insecurity is the new normal. Here's how it's affecting your family life - After World War II, there was a golden era when Americans, especially those that had an education, could expect to have a job and keep it until retirement and retire with an adequate pension. Those days, which Allison Pugh, professor of Sociology at University of Virginia, refers to as the "20-year career and a gold watch" model, are over. Between a competitive global market, recession and job automation, and a switch to part-time and contingent workers, Americans now live in a culture of perpetual job insecurity, where they are easily laid off, at both high and low-level jobs, and can expect to switch jobs, or locations, at least a half dozen times during their careers. Last year, Hewlett-Packard eliminated 34,000 jobs, and JC Penney and Sprint announced cuts, while JP Morgan Chase has cut 20,000 from its workforce since 2011. In double-earner families, at least one parent reports feeling "insecure" about their job, and in almost half of those both think their job is insecure. This dynamic creates a constant tension for workers, who are beset by uncertainty. It has bred what Pugh calls the "one-way honor system," in which workers are beholden to employers, but employers are not, says Pugh. At the same time, the churn at work parallels changes in intimacy. Partnerships dissolve and reform much more rapidly than they did 50 years ago. Divorce rates have plateaued since the 1980s, but 20 percent of marriages end within five years, and so do co-habitators. These have implications for stability.

Why has real median household income declined in the prime working age demographic? It doesn't look like lack of jobs -- Real median household income for those in the prime working age demographic of 25-54 has been in decline on a secular basis since the late 1990s. Why? Further, when the latest jobs report is released tomorrow, the debate about why wages have been so lagging will inevitably continue.  A number of commentators will, incorrectly, point to the decline in real median household income as proof that wages have fallen.  As I have pointed out many times, however, households headed by those of retirement age, 65 or higher, have a median income only a little over half ($35,000) of those of prime working age ($60,000).  With the burgeoning number of retiree households, on a secular basis median household income is likely to decline for quite awhile. But what about prime working age households, those headed by somebody aged 25 -54?  As shown in Doug Short's graph, those too have declined from about 1998 through the last year measured, 2013:   As I have already written, a good and more current proxy for this measure is the Employment Cost Index (a median measure), adjusted for inflation, and then further adjusted by the employment-population ratio for ages 25-54: But that still doesn't entirely resolve the issue.  Why has the employment-population ratio of all ages 25-54 gone down on a secular basis since the late 1990s? One often-mentioned theory is that they are dropping out of the labor force because they can't find work. If so, however, that should be reflected in the measure of those "Not in Labor Force, Want a Job Now."

Where Did the GDP "Growth" Go? Not into Wages: How can the economy grow by roughly one-third in real dollars while real median household income drops like a rock? Based on gross domestic product (GDP), the U.S. economy has grown smartly since 2000: GDP rose from 10,031 in 2000 to 17,840 in mid-2015. That's an increase of 77.8%. If we adjust GDP for inflation, we get what's known as real GDP, which increased 31.6%: from 12,360 in 2000 to 16,270 in mid-2015. This works out to a real annual increase of about 1.9% annually. It would be natural to expect full-time employees' wages and salaries to rise at about this same rate as the economy expanded. But real median weekly earnings (wages and salaries) increased a grand total of $7 in the past 15 years: from $334 per week to $341 per week. If wages and salaries had risen at the same 1.9% annual rate of real GDP growth, median weekly earnings would be $443, not $341. That's $102 more per week. But weekly median earnings for full-time workers rose only $7 per week, not $102 per week. In other words, the growth in real GDP hasn't trickled down to wages and salaries.Real household income--which includes both earned income and unearned income such as dividends and interest--has plummeted 8.5% since 2000. This is a striking contrast with real GDP growth of 31.6%: the economy has expanded 31.6% after adjusting for inflation, while real median household income has declined 8.5%. If real median household income had grown at the same 1.9% annual rate of GDP, it would now be $75,000 a year, rather than $52,000.

Wage Growth Accelerating? By How Much? Total Compensation and the Obamacare Effect - On July 24, the Conference Board asked the question: Is Wage Growth Accelerating?  The Board's answer was "All signs point to Yes!" You might think that this is a pretty straightforward question to answer, but it’s not. There are many measures of wage growth, and they don’t all point in the same direction.For example, we can compare the year-over-year wage growth in recent years (Chart 1)according to four different measures, three from the US Bureau of Labor Statistics: the Employment Cost Index (wages and salaries), average hourly earnings (Establishment Survey), median weekly earnings (Current Population Survey), and the new Atlanta Fed Wage Growth Tracker. Some of these measures show a significant pickup, but some show no acceleration at all. What should we make of this? Fresh data may provide a clue.  Economists were stunned on Friday July 31 when the Employment Cost Index came in at 0.2% vs. the Bloomberg Consensus ECI estimate of 0.6%. Worse yet, the year-over-year ECI gain plunged from 2.6% to 2.0%.  In a shocking result, the employment cost index rose only 0.2 percent in the second quarter which is far below expectations and the lowest result in the 33-year history of the report. Year-on-year, the ECI fell 6 tenths to plus 2.0 percent which is among the lowest readings on record. The record low for this reading is plus 1.4 percent back in the early recovery days of 2009 when, apparently unlike today, there was enormous slack in the labor market.

Wage growth and the health of the U.S. labor market - Increasing wage growth is a sign that workers have increased bargaining power with their employers. As the labor market tightens, employers have a smaller pool of unemployed workers from which to potentially hire. So if they want to hire already employed workers, they have to offer them a higher wage or salary. There are no signs of this kind of increased bargaining power in the U.S. labor market. Annual nominal wage growth, measured by the U.S. Bureau of Labor Statistics’ average hourly earnings statistic, has been hovering around two percent over the past five years, merely keeping pace with inflation. But there was hope that accelerated wage growth is just around the corner, at least according to another metric compiled by the Bureau of Labor Statistics, the Employment Cost Index. In the first quarter of 2015, the index seemed to be accelerating, with a 2.6 growth rate registered over the past 12 months. That acceleration looked even larger for private-sector workers, jumping to 2.8 percent. Alas, the latest release of the index this past Friday seems to have squashed belief in more swiftly accelerating wage growth. According to data for the second quarter of 2015, overall compensation grew at a 2 percent rate over the past 12 months, with compensation growth for private-sector workers going up by only 1.9 percent over the same time period.

Why last week's poor median wage report should set your hair on fire about the next recession - Beginning 3 years ago, I identified poor wage growth  as the shortfall in the economy that worries me the most. And it still worries me, even though there has been some modest improvement. Why? Because unless there is enough of a cushion, the next recession, whenever it comes, there is a significant danger of outright wage deflation. And as we know from the Great Depression, outright wage deflation means that payments on previously contracted debts become, in real terms, higher. This can lead to a vicious spiral of debt-deflation, whereby more and more people fall behind on debt, leading to a further economic contraction, more unemployment, and even more wage deflation, and so the cycle repeats. In the last 7 recessions, beginning in 1970, the median decline in wage growth has been  -2.1%. Which means, to have a cushion against wage deflation in the next recession, whenever it comes, we want to start out with nominal YoY wage growth substantially more than 2%.  That's where the poor +.2% growth in median wages in the 2nd quarter is important.  First of all, it is important to keep in mind the difference between real, inflation-adjusted numbers and nominal rates.  Even with last week's clunker, the YoY trend in real, inflation-adjusted median wages appears to still be positive:  That same positive trend is apparent when we measure by real average hourly wages: which in the first half of 2015 have been among the best since 1980. The improvement, as I have noted many times, is primarily about the change in the price of Oil. So the meme that *cyclical* wage growth should improve if the labor market continues to tighten is likely correct, despite the poor ECI report last week. The problem comes when we examine wages from a very long term, secular viewpoint, in nominal terms. Here's a graph from the Wall Street Journal, showing the nominal quarterly change in median employment costs, going all the way back to 1982:

Excited about an upcoming raise? Don’t be. - One day, American workers will get a raise. Today, though, wasn't that day. After months of wages maybe, possibly, don't-jinx-it, starting to rise, any momentum disappeared on Friday. The Employment Cost Index rose at its slowest pace since records began in 1982, just 0.2 percent. In the past year, the ECI is only up an anemic 2 percent, down from the 2.6 percent it was three months ago. And it's the same story no matter what wage measures you look at. Average hourly earnings are also up 2 percent the past 12 months, after zigging and zagging around that level for basically six years now. There's just no wage pressure at all, even though unemployment is a relatively healthy 5.3 percent. Emphasis, though, on the word "relatively." As economists Danny Blanchflower and Andrew Levin point out, the jobs picture isn't quite as rosy as the unemployment rate says it is, since there's still so much "shadow unemployment." Those are people who either want full-time work but can only find part-time jobs, or want to work but have given up looking for now. And it turns out that they put significant downward pressure on wages, too. In other words, it isn't a mystery why wages haven't started to rise like they normally do when unemployment get this low, because unemployment isn't really as low as it looks. The upshot is that interest rates will probably stay at zero for awhile longer.

BLS: actually, excluding incentive pay, wages grew at +.6% in both Q1 and Q2 -- Worth repeating, from John Jansen at Across the Curve: "I wanted to make a few observations on the ECI report following our conversation with the BLS....  The sharp deceleration in the growth rate of the wages and salaries component (which accounts for about 70% of total compensation) was driven by a sharp falloff in incentive pay this quarter versus Q1.... Excluding commission sale incentives, wages and salaries were unchanged at a solid 0.6% q/q pace in both quarters."  Wow!  So it turns out the poor ECI may not have been poor at all. There were supersized bonuses paid out in Q1 that, seasonably, weren't paid out in Q2.  I just wish the BLS would include crucial information like that in their report, instead of giving it out privately in phone conversations, in this case to a representative of TD Securities, leading to this trading advice by the analyst, which was passed on to Jansen:

When Women Out-Earn Men - NY Fed  - We often hear that women earn “77 cents on the dollar” compared with men. However, the gender pay gap among recent college graduates is actually much smaller than this figure suggests. We estimate that among recent college graduates, women earn roughly 97 cents on the dollar compared with men who have the same college major and perform the same jobs. Moreover, what may be surprising is that at the start of their careers, women actually out-earn men by a substantial margin for a number of college majors. However, our analysis shows that as workers approach mid-career, the wage premium that young women enjoy in these majors completely disappears, and males earn a more substantial premium in nearly every major. We discuss some of the possible reasons why the gender wage gap widens as workers progress through their careers.

The New Overtime Salary Threshold Would Directly Benefit 13.5 Million Workers: How EPI’s Estimates Differ from the Department of Labor’s -- An estimated 13.5 million workers would directly benefit from the Department of Labor’s proposal to raise the salary threshold under which salaried workers are eligible for overtime pay regardless of their duties. This figure, the methodology for which is detailed in an EPI technical paper (Estimating the Number of Workers Directly Benefiting from the Proposed Increase in the Overtime Salary Threshold), is based on the economy of 2014 and would be somewhat greater in 2016. According to our analysis, most of these 13.5 million workers would newly gain overtime (OT) pay eligibility while the others would have their rights strengthened. Americans’ paychecks have not kept pace with their productivity in part because millions of lower-middle-class and even middle-class workers are working overtime but not getting paid for it. President Obama directed the Labor Department to modernize the rules that require employers to pay workers time-and-a-half if they work overtime. On June 30, 2015, the department issued a proposed rule to raise the overtime threshold from $455 per week, or $23,660 per year, to a “standard salary level equal to the 40th percentile of earnings for full-time salaried workers,” which is $921 per week in 2013 dollars, or $933 per week adjusted to 2014 dollars. The Notice of Proposed Rulemaking (NPRM), published July 6, 2015, in the Federal Register, invited interested parties to submit written comments on the proposed rule at www.regulations.gov on or before September 4, 2015. If the rule is implemented, the new salary threshold would be an estimated $50,440 in 2016.

4.7 Million Millennials Would Directly Benefit from Raising the Overtime Salary Threshold to $50,440 - In July, the Department of Labor proposed raising the overtime salary threshold from the current $23,660 to $50,440 in 2016. If implemented, this new overtime salary threshold would directly benefit 13.5 million salaried workers, most of whom would gain new rights to overtime eligibility. As the figure below shows, 2.0 million salaried workers between the ages of 16-34 (otherwise known as millennials) are currently covered by the overtime salary threshold. Raising the salary threshold to $50,440 would directly benefit 4.7 million millennials, with most of them gaining new rights to overtime eligibility, and bring the number of millennials covered by the overtime salary threshold to 6.7 million. While millennials represent 28 percent of the total salaried workforce, they would represent 35.2 percent of the 13.5 million salaried workers directly benefiting from the proposed higher overtime threshold. The proposal to raise the salary threshold will therefore disproportionately help younger workers, those entering the years in which they are likely to form new families.

The Assault on America’s Unions Continues: Proving that the Domino Theory is alive and well, one more domino fell last week when the Michigan Supreme Court ruled, 4-3, that public sector employees could continue to bask in the superior wages, benefits and working conditions that their union contract provided, but weren’t required to pay their “fair share” of union dues. Not one penny of it.Previously, taking a perfectly reasonable “no freeloaders allowed” stance, the courts had ruled that workers in an agency shop (where employees aren’t required to join the union representing them) still had to pony up full or partial union dues to defray the costs of the collective bargaining process—the very process that yielded the attractive wages and benefits that caused them to seek employment in a union shop in the first place.But with the Michigan Supreme Court’s decision, that sense of fair play and “agrarian justice” has been totally blown out of the water. Not only are freeloaders no longer vilified or scorned as slimy opportunists, they’re being presented as champions, as “patriots,” as Free Market heroes.One could argue that the Michigan Court’s screwball decision is tantamount to the Roman Catholic Church being forced to accept lemon-sucking atheists into the priesthood on the grounds that rejecting them would be a violation of their civil rights.

Are average Americans better off now than in 2008? - One of my overarching themes is that the Progressive economic case is inequality, not Armageddon.  When the share of income and wealth held by the top 1% and top .01% balloons, the remainder of society stagnates or suffers. But that does't mean that the economy is always and everywhere going to hell for the bottom 99%.  Their economic position can be improving during economic expansions - just not enough to overcome the long term pressures on the middle and working class. I mention this because elsewhere there has been a brief Doomgasm brought about by the poor nominal increase in median wages during the second quarter (about which I'll have more to say in a separate piece).  The challenge has been laid down in a political sense, with the refrain, "are people better off than they were in 2008?" Let's take a look at that using the metrics of wages, income, and wealth.

Model shows how surge in wealth inequality may be reversed: For many Americans, the single biggest problem facing the country is the growing wealth inequality. Based on income tax data, wealth inequality in the US has steadily increased since the mid-1980s, with the top 10% of the population currently owning about 73% of the country's wealth. In a new paper published in PLOS ONE, researchers have quantitatively analyzed several of the major factors that affect wealth inequality dynamics, and found that the most crucial factor associated with the recent surge in wealth inequality since the '80s has been the dramatic decrease in personal savings, followed closely by a large increase in the dominance of capital income over labor income. Taking these findings a step further, the researchers showed in their model that reversing these two trends can prevent and even reverse a further increase in wealth inequality in the future. The researchers hope that the findings will lead to policies that reproduce these results in the real world. But progress in this area may not even have to rely solely on policy changes, as the researchers note that the 2008 financial crisis has caused Americans to save more money, potentially bringing an opportunity to restrain some of the growth in wealth inequality.

Mapping The Rising Poverty Of The U.S. -- Concentrated poverty in the neighborhoods of the nation's largest urban cores has exploded since the 1970s. The number of high poverty neighborhoods has tripled and the number of poor people in those neighborhoods has doubled according to a report released by City Observatory... As Gizmodo explains, the following maps created by Palmer use red and green arrows to indicate growth in wealth and poverty between 1970 and 2010. Green lines point down to indicate a decrease in poverty, while red lines slope up to represent a growth in poverty. Their length indicates the size of the change.  As City Observatory concludes, To be poor anywhere is difficult enough, but a growing body of evidence shows the negative effects of poverty are amplified for those who live in high-poverty neighborhoods - places where 30 percent or more of the population live below the poverty line. Quality of life is worse, crime is higher, public services are weaker, and economic opportunity more distant in concentrated poverty neighborhoods.

One of Republicans’ top ideas could actually do the opposite of what they want - The candidates who will share the stage at this week's GOP primary debate are likely to agree on at least one thing: Congress should focus on securing the border with Mexico, not debating the legal status of this country's 11 million undocumented immigrants. “The first thing is to secure our borders,” Donald Trump said recently when asked about the unauthorized population. “After that, we’ll have plenty of time to talk about it.” It's a common view among members of his party, including Sen. Marco Rubio (R-Fla.), a rival for the presidential nod. Yet some economists and demographers who have studied Mexican immigration suggest that stricter security at the border could actually increase the number of undocumented immigrants in the country. One group of researchers estimates that by 2010, increased border enforcement over the decades had increased the number of unauthorized migrants in this country by 44 percent. Crossing the border has become more difficult, but not difficult enough to prevent many Mexican families from settling here. Yet if the border were less heavily policed, some experts argue, many migrants would be crossing it illegally, traveling between their homes and families in Mexico and temporary jobs here. Given security at the border, some of these itinerant workers have decided to simplify things by staying here permanently, the reasoning goes.

Is radical leftism a trap for minorities? - -- I was struck by Cornell West's negative reaction to Ta-Nehisi Coates' new book, Between the World and Me. This line in particular caught my attention: Coates can grow and mature, but without an analysis of capitalist wealth inequality, gender domination, homophobic degradation, Imperial occupation (all concrete forms of plunder) and collective fightback (not just personal struggle) Coates will remain a mere darling of White and Black Neo-liberals, paralyzed by their Obama worship[.]I've seen a bit of this idea among humanities folks before - the idea that the only way that racial minorities will win true freedom is with a revolution that overthrows capitalism. I kind of think that this idea is a trap that helps keep minorities down. First of all, I agree with Jamelle Bouie that racial disparities in America - and everywhere, really - are about a lot more than class. Attempts to define the struggle of black people for social equality as simply one more case of the eternal Marxian struggle of the proletariat against the capitalist overclass fundamentally miss a lot of the important reasons why black people struggle in America. It's not just because they're poor and capitalism hurts the poor. (This is also the glum conclusion of the protagonist in the novel Invisible Man, who joins a communist-type organization called the Brotherhood, only to realize that racism can't really be understood through the lens of class conflict.)

Days of Revolt: The Black Prophetic Tradition -- naked capitalism - Yves here. In this Real News Network interview, I wish Chris Hedges and Cornel West had defined what they mean by “prophetic tradition,” since they assume viewers are familiar with their positions. Nevertheless, this notion is useful as a way of identifying the ideas and images that have helped oppressed people develop the will and the means for taking action against their oppressors. The concern with morality leads to a desire for purity and a tendency to force-fit messy problems and political landscapes into a black/white frame. By contrast, effecting change means being willing to make compromises, to settle if you have to for “good enough now,” recognizing that there are real costs to staying with the current trajectory. This site has a analytical bent because we believe in getting policy right, and are concerned that a lot of superficial approaches not only run the risk of making things not net better (or being cleverly co-opted by incumbents to cut the pie even more in their favor. But at the same time, people are spurred to action not by appeals to the intellect but appeals to emotion. A true “prophetic” orientation would envision a desired future state and be flexible as to the means (tactics and policies) for getting there. As West puts it: How do you straighten your back up? How do you tell the truth? How do you bear witness? How do you organize? How do you mobilize? How do you generate forms of resistance and resiliency in the face of some very, very ugly forms of terror and trauma and stigma?

Ten years on, Hurricane Katrina's scars endure for black New Orleans | Reuters: A decade after Hurricane Katrina, New Orleans seems to have found its rhythm again: the French Quarter is choked with tourists, construction cranes tower over the skyline, and hipsters bike to cafes in gentrifying neighborhoods. But recovery has been uneven in the city, which took the brunt of the 2005 storm that killed more than 1,800 people and was the costliest in U.S. history. Many properties still bear physical scars from the hurricane, particularly in poorer African-American neighborhoods. Social, demographic and political changes still ripple through the city. In the mostly black Lower Ninth Ward, devastated by the flooding, Charles Brown is still attending services in his pastor's nearly empty living room, waiting for the day when Mount Nebo Bible Baptist Church is rebuilt. The black population of the city, long a hub of African-American culture, has plummeted since Aug. 29, 2005, the day Katrina swept in from the Gulf of Mexico and overwhelmed the levees meant to prevent flooding in the low-lying city. Income gaps between blacks and whites have widened. Many African-American neighborhoods and the businesses supporting them have not fully recovered.

America’s Un-Greek Tragedies in Puerto Rico and Appalachia -- Krugman - On Friday the government of Puerto Rico announced that it was about to miss a bond payment. It claimed that for technical legal reasons this wouldn’t be a default, but that’s a distinction without a difference. So is Puerto Rico America’s Greece? No, it isn’t, and it’s important to understand why. Puerto Rico’s fiscal crisis is basically the byproduct of a severe economic downturn. The commonwealth’s government was slow to adjust to the worsening fundamentals, papering over the problem with borrowing. And now it has hit the wall. ... But ... while the island’s economy has declined sharply, its population, while hurting, hasn’t suffered anything like the catastrophes we see in Europe. ... Why have the human consequences of economic troubles been muted? The main answer is that Puerto Rico is part of the U.S. fiscal union. When its economy faltered, its payments to Washington fell, but its receipts from Washington — Social Security, Medicare, Medicaid, and more — actually rose. So Puerto Rico automatically received aid on a scale beyond anything conceivable in Europe. A recent report argues that its economy is hurt by sharing the U.S. minimum wage, which raises costs, and also by federal benefits that encourage adults to drop out of the work force. But the evidence that minimum wages or social benefits are really a problem is, as one careful if older study put it, “surprisingly fragile.” Notably, Puerto Rico’s low rate of labor force participation probably has more to do with outmigration than with welfare: when job opportunities dry up, young, able-bodied workers move elsewhere, while the least employable stay in place. ...  What this tells us is that even for a part of the United States, too much austerity can be self-defeating. It would, in particular, be a terrible idea to give the hedge funds that have scooped up much of Puerto Rico’s debt what they want — basically to destroy the island’s education system in the name of fiscal responsibility.

Puerto Rico Makes Only 1% Of Required Payment On Public Finance Corporation Bonds - Full Statement - Over the weekend Puerto Rico was supposed to make a modest principal and interest payment of some $58 million due on Public Finance Corp. bonds, which however few expected would be satisfied. As a reminder, on Friday, Victor Suarez, the chief of staff for Governor Alejandro Garcia Padilla, said during a press conference in San Juan that the government simply does not have the money.  Moments ago Melba Acosta, president of the Government Development Bank, confirmed as much, when he announced that only $628,000 of the $58 million payment, or just about 1%, had been paid. Below is the full statement from Acosta on the service of PFC Bonds:

Puerto Rico just defaulted for the first time in its history - Aug. 3, 2015: The commonwealth paid a mere $628,000 toward a $58 million debt bill due Monday to creditors of its Public Finance Corporation. This will hurt the island's residents, not Wall Street. The debt is mostly owned by ordinary Puerto Ricans through credit unions. "This was a decision that reflects the serious concerns about the Commonwealth's liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico," Puerto Rico's Government Development Bank president Melba Acosta Febo said in a statement. The default is a historic moment in Puerto Rico's economic "death spiral," a term the island's governor, Alejandro Garcia Padilla, has used. The island is struggling with about $70 billion in total outstanding debt, and its economy is in recession. Padilla has put together a team to come up with a plan to restructure Puerto Rico's debt crisis by the end of the summer. Related: Who owns Puerto Rico's debt? It is hitting people especially hard. Puerto Ricans are leaving the island in droves in search of jobs and stability. Unemployment is high, the economy is shrinking and the future looks shaky.

Puerto Rico Has Another Debt Worry on Horizon: While Puerto Rico's first bond default in its history reverberated through the financial markets on Tuesday, another move by the cash-poor island may provide a clue to where the next trouble spot lies. After openly acknowledging on Monday afternoon that it had not made a $58 million bond payment, the government quietly disclosed in a financial filing later that afternoon that it had temporarily stopped making contributions of $92 million a month into a fund that is used to make payments on an additional $13 billion in bond debt.Unlike the bond payments that went into default on Monday, the ones coming due are on general obligation bonds—the kind many investors have been led to believe would never go into default because the issuer's full faith, credit and taxing authority stand behind them. Despite some cutbacks, the United States government continues to pump tens of billions of dollars into Puerto Rico to support health care, subsidized housing and policing. Puerto Rico issued such bonds over the years to raise money for a variety of government projects, and investors bought them eagerly because the island's constitution explicitly guaranteed that such bonds would be paid. The general obligation payment due to bondholders on Sept. 1 is for a mere $5 million, an amount so small that even if the redemption fund is empty at that point, Puerto Rico could still produce the cash right out of general revenue. It would presumably want to do so because of the constitutional requirement. But a much bigger payment on the general obligation bonds, about $370 million, comes due on Jan. 1.

Most Americans say their children will be worse off - Barely more than one in 10 (13%) American adults believe their children will be better off financially than they were when their career reached its peak and just over half (52%) believe their children will have less disposable income than they did in the future, according to a survey of more than 1,100 American adults released Wednesday by life insurer Haven Life and research firm YouGov. What’s more, just 20% of Americans believe their children will have a better quality of life when they reach their age.  “For the baby boomer generation, pocket money from mom and dad was only part of their early childhood,” says Yaron Ben-Zvi, co-founder and chief executive of Haven Life. “Today’s parents are increasingly prepared to worry about and provide for their children’s financial well-being well far into their adulthoods.” (In fact, 40% of millennials say they get some kind of financial help from their parents, according to an April 2015 Bank of America/USA Today survey of 1,000 kids and 1,000 parents.) Why do parents believe that their children are faced with bigger financial challenges? They are saddled with more student loan debt than previous generations. The number of borrowers who default (those who are at least nine months past due) rose to 1.2 million annually in 2012 from around 500,000 per year a decade ago, according to the Federal Reserve Bank of New York. And many young people — especially those living in big cities — are still priced out of the housing market.  Studies also show that the better start children have in life in terms of financial support and education, the more likely they are to surpass their parents’ earnings. Children raised in low-income American families are more likely to have very low incomes as adults, while children raised in high-income families can anticipate a much bigger jump in income, according to a report — “Economic Mobility in the United States” — released last month by researchers at Stanford University.

Report: In most states, you don’t need a high school diploma to home-school kids - Just 13 states require home-school instructors to have minimum qualifications, in most cases a high school diploma. The other 37 states have no such requirement, according to a recent report by the Education Commission of the States that highlights wide variations in rules governing home-schooling across the states.Twenty-three states have attendance requirements for home-schooled students, and fewer than half of states — 20 — require an assessment of home-schooled students’ academic progress. Just 12 states require home-schooled students to take a standardized test, a marked departure from federal K-12 law that requires annual testing of all students in grades 3 through 8 and once in high school. New Mexico does set minimum qualifications for home-school instructors, but it does not evaluate students or require them to take a standardized test. Though home-school rules have received criticism for being too lax, many home-school advocates say that their movement is built on the notion of trusting parents to understand and provide the best education for their children. “A parent does not have to be highly educated in order to home-school successfully, but regardless of academic credentials, the motivation to further one’s self-education needs to be there,” home-schooling proponent John Rosemond wrote in his syndicated column Thursday.

Being unpopular with the opposite sex at school 'boosts your GPA by 0.4': Researcher claims those who are ignored through their education end up smarter - It may seem rough at the time, but having no friends of the opposite sex in high school can boost your test results by almost half a grade, a scientific paper has claimed.According to a Californian professor, boys who only have a few female friends and girls who only know a few boys are much more likely to do well during their high school years.During on a study of more than 20,000 students, Dr Andrew J Hill found that those with a substantial majority of friends their own sex got a GPA 0.4 higher than those who did not.  In a paper for the American Economic Journal, Hill, an economics professor at the University of Southern California, compared answers about the friendship groups of children from more than 80 schools in a large-scale study from the mid-1990s.After making adjustments for other variables, the results showed a strong correlation between being friendly with the opposite sex and doing worse in class.

Texas Schools Caught Manipulating Quotes To Push Christianity On Students -- A public school district in Eastern Texas is under fire amid allegations it made up quotes by famous figures in order to promote Christianity to its students, posting them to the walls of the four schools in the district. The Mount Vernon Independent School District is accused of misattributing quotes to George Washington and Ronald Reagan among others and faces demands to remove the false statements from its walls. “It is impossible to govern a nation without God and the Bible,” George Washington said—according to the district. “Within the covers of the Bible are the answers for all the problems men face,” it claims Ronald Reagan opined.The Freedom from Religion Foundation, a non-profit organization, says these quotes are false. It recently wrote a letter to the school district asking that they correct their misattributions. Staff Attorney Sam Grover called the alleged R eagan quotedubious, and, incidentally, intellectually lazy since that is not a direct quotation.” In a letter to the district, healleged it, along with other quotes, had been taken out of context to promote Christianity specifically.

Indiana public school punishes 7-year-old with ‘banishment’ for not believing in God: lawsuit: lawsuit recently filed against a teacher at Forest Park Elementary School in Indiana alleged that a 7-year-old student was “banished” from sitting with other students at lunch after he revealed that he did not believe in God. According to the lawsuit obtained by The Washington Post, second grade teacher Michelle Myer interrogated the student, who was identified with the initials A.B., about his religious beliefs after he told his classmates on the playground that he did not go to church because he did not believe in God. As a result, the child was ordered to sit by himself during lunch for a three-day period. “The defendant’s actions caused great distress to A.B. and resulted in the child being ostracized by his peers past the three-day ‘banishment.'” “Ms. Meyer asked A.B. if he had told the girl that he did not believe in God and A.B. said he had and asked what he had done wrong,” the lawsuit explained. “Ms. Meyer asked A.B. if he went to church, whether his family went to church, and whether his mother knew how he felt about God… She also asked A.B. if he believed that maybe God exists.” Several days later, Meyer sent A.B. to talk to another adult at the school, who “reinforced his feeling that he had done something very wrong,” the lawsuit said.

MORE reaction: SB School Board relaxes GPA standards: --- The community continues to weigh in on a controversial policy to lower GPA standards for high school student-athletes. "Really, I think it should be a non-issue," said Cindy Misener, a retired teacher from Riley High School. The South Bend Community School Corp. Board of Trustees voted Monday night to relax the academic standards for students to be eligible to participate in school sports. The current 2.0 GPA requirement was lowered to 1.5 for freshman, 1.67 for sophomores and 1.85 for juniors. The requirement remains at 2.0 for seniors. Students are also required to pass 70 percent of their classes. The change comes 6 years after the 2.0 benchmark was originally set. "If we can keep another student from dropping out because of sports and academics, then that's helpful for South Bend Schools," Misener said on Tuesday.

Swedish Privatization of Education Fails - This is important. Amazingly, socialist Sweden attempted radical partial privatization of its schools with about one fourth of students now attending publicly financed privately managed schools (roughly charter schools). This daring reform was followed by a dramatic decline in scores on the PISA international standardized test including the largest decline in math scores of all PISA countries. It is very odd that Sweden tried this. It is important that it failed. I have long argued that even if something works in Nordic countries, it is irrational and nordtopian to believe it will work elsewhere. If charter schools failed in Sweden presumably because of moral hazard and a lack of team spirit, then they can fail anywhere. Also, as in the case of health insurance and Medicare vs Medicare advantage, these data cast doubt on the widespread presumption that the private sector is always more efficient than the public sector.

Inflation Nation: College Textbook Prices Soar 1000% Since 1977 -- Wondering why the drop-out rate from college is so high? One reason could be that a stunning 65% of students avoided buying textbooks due to the cost. As NBCNews reports, textbook prices have risen over three times the rate of inflation from January 1977 to June 2015, a 1,041 percent increase - dwarfing the government's official CPI data. Just as government-subsidized healthcare has 'enabled' dramatic rises in the costs of drugs so government-subsidized education has sparked hyperinflation-esque pricing in college textbooks. As NBCNews reports, students hitting the college bookstore this fall will get a stark lesson in economics before they've cracked open their first chapter. Textbook prices are soaring. Some experts say it's because they're sold like drugs. According to NBC's review of Bureau of Labor Statistics (BLS) data, textbook prices have risen over three times the rate of inflation from January 1977 to June 2015, a 1,041 percent increase. "They've been able to keep raising prices because students are 'captive consumers.' They have to buy whatever books they're assigned," said Nicole Allen, a spokeswoman for the Scholarly Publishing and Academic Resources Coalition. In some ways, this is similar to a pharmaceutical sales model where the publishers spend their time wooing the decision makers to adopt their product. In this case, it's professors instead of doctors. "Professors are not price-sensitive and they then assign and students have no say,"

Fed Finally Figures Out Soaring Student Debt Is Reason For Exploding College Costs -- Back in May 2014, in one of its patented utterly worthless "analyses" (that cost taxpayers several tens of thousands of dollars) the San Francisco Fed, home of such titans of central planning thought as Janet Yellen, asked "is it still worth going to college." Not surprisingly, its answer was yes after some contrived mathematics that completely forgot to include just one thing: debt. At the time, we had the following comment: Oddly enough, having perused the paper several times, and having done a word search for both "loan" and "debt" (both of which return no hits), we find zero mention of one particular hockeystick. The math became so clear even economists, even Fed economists, finally figured it out: Federal student loans allow Americans to borrow at below-market rates with scant scrutiny of their credit and no assessment of their ability to repay. Meanwhile, federal Pell grants, which help low-income college students and don’t need to be repaid, more than tripled to more than $30 billion a year between 2001 and 2012. Education tax credits roughly quadrupled to about $20 billion a year. The cost of getting a degree similarly exploded. From 2000 to 2014, consumers’ out-of-pocket costs for college and graduate-school tuition rose 6% a year, on average, according to the Labor Department’s consumer-price index. By comparison, medical-care inflation looks meek at an average 3.8%. Overall consumer prices climbed 2.4% a year.  And so on. What is most embarrassing about this above is not that what has been patently common sensical has finally been confirmed, but that the this was so confusing to the "smartest central planners in the room", it took them years upon years, and not only faulty analysis (thank you San Fran Fed) to finally get it right.

Why Obama's Favorite Student Debt "Relief" Program Will Cost Taxpayers $100 Billion --A few months back, we called the government’s Income Based Repayment plans, or IBR, "the student loan bubble’s dirty little secret." As the name implies, the idea with IBR is that monthly student debt service payments are based on the borrower’s disposable income. The less money one makes, the less one has to pay. Each monthly installment under the program counts as a "qualifying payment", and after 300 of these, the balance of the loan (assuming it’s not paid off after 25 years), is forgiven. Perhaps the most interesting thing about this scheme is that it allows for "payments" of zero. Here’s what we said back in April: After 300 "qualifying monthly payments" — so after 25 years of payments — any remaining balance is forgiven and legally discharged. The interesting thing about this is that if the calculated payment is zero, it still counts as a "qualifying monthly payment." That is, if, based on the borrower’s financial situation, he/she is not required to make an actual cash payment for a period, that period still counts towards the 300 "payments" needed to have the balance of the debt discharged, meaning that in the end, borrowers could end up paying substantially less than principal (taxpayers eat the balance) and are effectively allowed to remain in a perpetual state of default while avoiding actual payment default along the way. Needless to say, when borrowers elect to enter an IBR plan, the payment streams from their loans become far more unpredictable, which is why suddenly, Moody’s and Fitch can’t figure out how to rate student loan-backed paper. The best (and most hilariously absurd) idea yet comes from Citi, who suggested last month that Moody’s should consider scrapping the whole idea of loan maturity, because after all, one can't really default on a loan with an indeterminate maturity date so if you just amend the bond indentures and extend the legal maturity date to infinity, you don’t have to downgrade the ABS.

The Empiricist Strikes Back -- The Washington Post had a story yesterday about the Department of Education's look at how student loan servicers deal with the Servicemembers Civil Relief Act and its protection to members of the Armed Forces. Senator Elizabeth Warren is drawing on her years of empirical research to question the methodology and the resulting conclusions of the study. (In a warning strike for the Empiricist, Senator Warren and some colleagues asked just why it was taking a large government agency well over a year to conduct a study--a credible claim from someone who conducted several large empirical studies, largely with the help of a few research assistants.) As a professor, Warren conducted several large empirical studies, each gathering hundreds of variables on a sample of  more than 1,000 families in bankruptcy. She is miffed that the Department of Education only conducted a detailed review of 55 cases (out of a universe of 20,000). A prior DOJ investigation concluded that 60,000 servicemembers paid too much interest on their student loans, resulting in a $97 million settlement with Sallie Mae and its former subsidiary Navient. Yet, the Department of Education apparently uses a very different legal standard for determining compliance with Servicemembers Civil Relief Act than the Department of Justice. Not surprisingly, with a tiny sample and a narrow analysis, the Department of Education concluded all was well and good. But as Senator Warren well understands as an empirical researcher, what you find depends on where your look--and if you have your eyes open! Her staff report details other concerns in a report , which reads more like something you'd find on SSRN or in a social science journal than the typical sound-bites of Washington press releases.  Senator Warren had to defend her research methodology and findings, and she always rose to the occasion. Having an Empiricist in Congress means you can expect someone reading your report, not accepting the conclusions. 

Debt-Locked: Student Loans Force Millennials to Delay Life Milestones - Student loan debt can cost you more than principal and interest. It can mean postponing major milestones of adulthood.  A survey by Bankrate.com released Wednesday found that 56 percent of people aged 18 to 29 have put off major life events like getting married, purchasing a car or home, or saving for retirement, because of student debt. Older people were not immune to the ills of student debt either. Forty-five percent of those 30 and older said educational loans hampered their financial life, according to the survey of 1,000 people in July.  "Student debt is a drag on the economy," said Steve Pounds, a Bankrate financial analyst. "If people aren't buying homes, aren't buying cars and aren't saving for retirement, it's going to have a detrimental effect."   Despite the high levels of student debt, Americans are becoming more optimistic about the value of a college education, according to a separate survey.  Fifty-two percent of respondents said a college education is a good financial investment, according to Country Financial Group's latest financial security index, up from 48 percent in 2014. It's the first time in seven years that the percentage of people who thought a college education was a good investment has increased. One-third of parents still have student debt of their own, according to a recent survey by the College Savings Foundation, but 51 percent of parents said saving is their top strategy for funding their children's college costs. That's up from 45 percent in last year's survey. Of the 800 parents surveyed by the foundation, one-third had a 529 college savings plan, which gives users a tax-advantaged way to invest and pay for college costs.

Don’t blame Medicaid for most of the rise in state and local health care spending  - Health care spending growth has moderated in recent years, but it’s still putting tremendous strain on state and local governments. A recent analysis by The Pew Charitable Trusts revealed that it consumed 31 percent of state and local government revenue in 2013, nearly doubling from 1987. But Medicaid — the state-based health care program for low-income Americans — is not the chief culprit. Health care benefits for public employees and retirees, not Medicaid, account for a majority of the growth in state and local health care spending. Adjusted for inflation, spending for those health care benefits rose 447 percent between 1987 and 2013. Medicaid spending rose a great deal as well, but not as much, 386 percent. Analysis by Donald Boyd of The Brookings Institution suggests that Medicaid will not be the main driver of state and local health care spending growth, despite expansion of the program under the Affordable Care Act. That’s because a large proportion of Medicaid costs is paid by the federal government, including 100 percent of the costs of the Medicaid expansion through 2016, trending down to 90 percent by 2020 and holding at that level thereafter. (And, despite what you may have heard, the findings of a recent report from government actuaries do not change this story.) Medicaid spending growth per enrollee is also much lower than that for private coverage. According to the Congressional Budget Office, per-person Medicaid spending growth has been below that of Medicare and other sources since 1975. Between 1990 and 2012, Medicaid spending outpaced the overall economy by only 0.1 of a percentage point, while overall health spending grew 1.1 percentage points faster than the economy.

Puerto Ricans Brace for Crisis in Health Care - — The first visible sign that the health care system in Puerto Rico was seriously in trouble was when a steady stream of doctors — more than 3,000 in five years — began to leave the island for more lucrative, less stressful jobs on the mainland.Now, as Puerto Rico faces another hefty cut to a popular Medicare program and grapples with an alarming shortage of Medicaid funds, its health care system is headed for an all-out crisis, which could further undermine the island’s gutted economy.On an island where more than 60 percent of residents receive Medicare or Medicaid — an indicator of Puerto Rico’s poverty and rapidly aging population — the dwindling funds have set off outpourings of concern among patients and doctors, protest rallies and intense lobbying in Washington. And while the crisis is playing out most vividly today, its cause dates back decades and stems, in large part, from a vast disparity in federal funding for health care on the island compared with the 50 states. This disparity is partly responsible for $25 billion of Puerto Rico’s $73 billion debt, as its government was forced to borrow over time to keep the Medicaid program afloat, according to economists.

McCain bill would let all veterans seek care outside VA - Stripes: Just before Congress leaves town for a month, Sen. John McCain introduced a bill Thursday that could increase the controversy over how to fix the Department of Veterans Affairs, proposing that all veterans be eligible to have private care paid for by their VA insurance. Currently, veterans who live more than 40 miles from a VA facility and those who face long wait times can apply to seek medical care in the private sector on their VA insurance. That was part of the Veterans Access, Choice and Accountability Act of 2014, a three-year pilot program that McCain, R-Ariz., championed as a way to give veterans faster, more convenient access to health care and to make it easier to fire senior VA officials. McCain’s latest bill would make the choice card pilot program permanent and erase the qualifications in the 2014 law, opening the option to every VA eligible veteran. “This would help remove uncertainty from within the VA, among providers, and especially among our veterans, while sending a strong signal to all Americans that this program is here to stay,” McCain said in a released statement. “More than a year after the VA scandal first came to light and a year since VA reform legislation was signed into law, wait times are still too long and veterans are still not getting the care they have earned and deserve.”

Has the Affordable Care Act increased part-time employment? - We examine the impact of the Affordable Care Act (ACA) on part-time employment. Because the ACA’s employer health insurance mandate applies to individuals who work 30 or more hours per week, employers may try to avoid the mandate by cutting workers’ hours below the 30-hour threshold in order to avoid having to provide them with health insurance. Although the employer mandate only went into effect in 2015, many observers have argued that forward-looking employers began to shift towards a part-time workforce well in advance of the mandate. To test this hypothesis, we examine relative shifts across two categories of part-time workers (25–29 hours and 31–35 hours). We find some evidence of a shift from the 31–35-hour category into the 25–29-hour category after the passage of ACA in March 2010. However, that shift is not more pronounced among low-wage workers or among workers in industries and occupations most likely to be affected by the mandate. Thus, there is little evidence that the ACA has caused the shift across hours categories, or led to an increase in part-time employment. However, the ACA could cause a shift towards part-time work in the future as the mandate takes effect.

Planned Parenthood fight hits Congress — and the wider impact is unclear: omen’s health group Planned Parenthood, under attack by anti-abortionists posting hidden-camera videos online, will be the focus of a partisan showdown on Monday in the U.S. Senate, with any wider influence on voters from the charge still unclear. Congressional Republicans are trying to cut off Planned Parenthood’s federal funding. The effort followed the release of videos by the Center for Medical Progress, an anti-abortion group, that have reinvigorated America’s abortion debate as the 2016 presidential campaign shifts into high gear.The Senate plans to hold a procedural vote on Monday on a Republican proposal to cut off the funds. Democrats are expected to block it, extending the confrontation. Planned Parenthood has hundreds of family planning and reproductive health centers nationwide. It gets up to $500 million per year in Medicaid contributions, and up to $60 million in federal funds for family planning services. U.S. law tightly restricts applying federal funds to abortions. Millions of women, many young and single, rely on Planned Parenthood for healthcare beyond abortions and family planning, including breast and cervical cancer screenings. The group contributed nearly $1.6 million to candidates in the 2014 elections who backed abortion rights, said the Center for Responsive Politics, a campaign finance watchdog.

60% of the CEOs of America’s “Great Health Systems” Have No Educational Background in Health Care  We have noted that US health care has been taken over by generic managers.  A recent article about the CEOs of purportedly some of America’s best hospitals provides some quantitative data. A few days ago, Becker’s Hospital Review published a list of the educational background of the CEOs of the “50 great health systems to know | 2015,” (at least according to Becker’s.  The article noted that their educational experiences took place at, Ivy League schools, small liberal arts colleges, Big Ten universities, law schools, medical schools and more.That is nice, but I decided to simply look at how many of the CEOs had educational backgrounds in medicine, other health care professions, public health, or the biomedical sciences. 16 (32%) had medical doctorates.  26 (52%) had a business administration degree, all but one at the master’s level, and one a doctorate.   The rest had various masters  and doctoral degrees in other fields.   Note that two of the MDs also had MBAs, and one had a JD (law degree). The business administration degrees included MBAs, but also degrees in health, hospital administration.  Of those with these degrees, one also had a bachelors degree in pharmacy, and one in biology. One CEO was listed as attending a nursing school, but no degree or certificate from that experience was listed.  In any case, the majority, more than 60% of the CEOs of some of America’s most prestigious hospitals (by at least one measure) clearly had no educational background in medicine, another health profession, public health, or biomedical science.  Again, this demonstrates that the top leaders of the top US health care organizations are more often management, rather than medicine, health professional.

What the hell are we doing? – Vitamin D edition  -- From JAMA Internal Medicine, “Treatment of Vitamin D Insufficiency in Postmenopausal Women: A Randomized Clinical Trial“: What we have here is a randomized controlled trial of Vitamin D supplementation in 230 postmenopausal women 75 years of age or younger who had diagnosed Vitamin D deficiency but no osteoporosis yet. Seems like this is the population where Vitamin D supplementation would work. There were three arms: placebo, low-dose supplementation, and high-dose supplementation. Women were followed for a year.  Ready for the results? In the high dose arm, calcium absorption went up 1%. It went down 1.3% in the placebo arm. It went down more, or 2%, in the low-dose arm. So… I don’t know. And in other results? There was no impact in spine, mean total-hip, mean femoral neck, or total-body bone mineral density. There was no effect on trabecular bone score. No effect on muscle mass. No effect on functional tests. There were no changes in falls, number of people who fell, physical activity, or functional status. So… what are we doing? Maybe we’d see results long after one year, but in what? From the Editor’s note: Of more clinical importance, neither dose of cholecalciferol improved bone density, strength, muscle mass, functional status, or fall rate. It is possible that treatment beyond 1 year would result in better outcomes, but these data provide no support for use of higher-dose cholecalciferol replacement therapy or indeed any dose of cholecalciferol compared with placebo. If supplementation with a vitamin for an actual deficiency of that vitamin has no impact on bone measurements and actual outcomes, then what’s the point? Maybe deficiency doesn’t mean what we think it does. Giving people the supplements seems to make no sense. I’m baffled.

Media Hypes Praluent, the Next Expensive “Blockbuster” Not Yet Shown to Benefit Patients -- Here we go again.  The same month that it approved Entresto (look here), the US Food and Drug Administration approved a new PCSK9 inhibitor cholesterol lowering agent, alirocumab, immediately marketed as the pricy Praluent by Sanofi and Regeneron, and heralded by a blast of media hype.  Yet the evidence that this drug benefits patients is lacking, and critical review of the one big published randomized controlled trial of it raises many concerns.The TIME coverage started with this headline, This New FDA-Approved Cholesterol Drug is a Game Changer The New York Times article by Andrew Pollack quoted Katherine Wilemon,  It represents a new era of hope for us. The Washington Post article started with, The Food and Drug Administration on Friday approved the first in a new class of cholesterol-busting drugs that many doctors believe will trigger a breakthrough in reducing the incidence of strokes and heart attacks, which kill hundreds of thousands of Americans each year. USA Today reported, The drugs are predicted to be blockbusters many times over, adding billions of dollars to prescription drug costs, said Steve Miller, senior vice president and chief medical officer at Express Scripts, a leading pharmacy benefit manager.Another NY Times article by Gina Kolata directly described the drug as powerful almost beyond belief. Praluent would cost about $14,600 a year.  Naturally, those selling it saw this as a bargain. Yet a close reading of the one large published randomized controlled trial of alirocumab(1) belays the hype beyond that.  Patients should not be subject to treatments whose benefits do not clearly outweigh their harms.  The Robinson et al article focused on reductions in measured cholesterol, particularly LDL cholesterol.  The new drug certainly did seem to clearl reduce cholesterol, particularly LDL cholesterol.  However, these are only the results of laboratory tests.

Effective Ovarian Cancer Treatment Underused Because It Involves Generic Drugs -- That was one explanation in an NYT article on the limited use of direct injection of chemotherapy into the abdomen, even though there is clear evidence of this being an effective way to extend the life of ovarian cancer victims. The article notes that there has been some increase in the use of this method since the National Cancer Institute made a clinical announcement promoting its merits in 2006, but still only 50 percent of patients receive the treatment. The piece offers the use of generic drugs, which don't provide large profit margins as one explanation: "Dr. Markman [the president of medicine and science at Cancer Treatment Centers of America] said that when a treatment involves a new drug or a new device, manufacturers eagerly offer doctors advice and instructions on its use. But this treatment involves no new drugs or devices, so no one is clamoring to educate doctors about it. They are on their own to learn, and to train their nurses, a commitment that will take time and money." This is an interesting, if tragic, example of the ways in which patent monopolies reduce the quality of health care. They push people towards the use of patent protected drugs even in situations where they may not be the most effective form of treatment. This problem is widespread, even if the consequences may not always be as serious.

Another health care fail, in ovarian cancer treatment. Best in the world, my ass. - There are some days I just want to quit. From today’s NYT: In 2006, the National Cancer Institute took the rare step of issuing a “clinical announcement,” a special alert it holds in reserve for advances so important that they should change medical practice. In this case, the subject was ovarian cancer. A major study had just proved that pumping chemotherapy directly into the abdomen, along with the usual intravenous method, could add 16 months or more to women’s lives. Cancer experts agreed that medical practice should change — immediately. Nearly a decade later, doctors report that fewer than half of ovarian cancer patients at American hospitals are receiving the abdominal treatment. So we have a treatment that is proven to work (unlike say, Vitamin D for so many things), but we’re underusing it. Why? The article highlights a number of reasons. It’s harder to give drugs into the abdomen than it is to give them intravenously. Some doctors still don’t believe the results. And, yes, it takes longer and uses generic drugs, so oncologists would make less money doing it.

MIND diet may slow brain from aging by 7.5 years -- While cognitive abilities naturally diminish as part of the normal aging process, it may be possible to take a bite out of this expected decline.  Eating a group of specific foods known as the MIND diet may slow cognitive decline among aging adults, even when the person is not at risk of developing Alzheimer's disease, according to researchers at Rush University Medical Center. This finding is in addition to a previous study by the research team that found that the MIND diet may reduce a person's risk in developing Alzheimer's disease. The recent study shows that older adults who followed the MIND diet more rigorously showed an equivalent of being 7.5 years younger cognitively than those who followed the diet least. The results of the study recently were published online in the journal Alzheimer's & Dementia: The Journal of the Alzheimer's Association. Martha Clare Morris, ScD, a nutritional epidemiologist, and colleagues developed the diet, whose full name is the Mediterranean-DASH Diet Intervention for Neurodegenerative Delay. As the name suggests, the MIND diet is a hybrid of the Mediterranean and DASH (Dietary Approaches to Stop Hypertension) diets. Both diets have been found to reduce the risk of cardiovascular conditions, like hypertension, heart attack and stroke."Everyone experiences decline with aging; and Alzheimer's disease is now the sixth leading cause of death in the U.S., which accounts for 60 to 80 percent of dementia cases. Therefore, prevention of cognitive decline, the defining feature of dementia, is now more important than ever," Morris says. "Delaying dementia's onset by just five years can reduce the cost and prevalence by nearly half."

India: The Pharmacy of the World Where 'Crazy Drug Combinations' Go Unregulated: India has been called the pharmacy of the world. Many generic drugs are made there and much of its drug production is exported internationally. Thousands of fixed dose combination (FDC) drugs – where two or more drugs are combined in a set ratio in a single dose form, usually a tablet or capsule – are formulated, made and sold within India. Follow up: Many FDCs are safe and effective. They are used in situations where both the drug combination and the doses needed are standardised and stable, for example, in the treatment of HIV, for Parkinson’s disease and in contraceptive pills. However, in a study investigating these drugs in India, we found thousands of FDCs on the market made up of formulations never approved for marketing by the national regulator, the Central Drugs Standard Control Organisation, and that were likely to be more harmful than beneficial to patients. As two pharmacologists in India, writing in response to our study put itOne can find any crazy drug combination which could give nightmares to any doctor who has some understanding of the concept of the rational use of medicine. It is simply beyond comprehension of any rationalist. Even antimicrobials are being combined weirdly, which is a grave challenge for crusaders against antimicrobial resistance.

There Is No Science of Big Agriculture  -- There is no valid science underlying Big Agriculture’s practices, just empiricism. While propped up by cheap, plentiful fossil fuels and aquifer water, along with massive government subsidies, Big Ag has been successful at concentrating power and wealth, maximizing poison usage for profit and for poison’s own sake, building a modern commodified agricultural input sector (aka agribusiness), and attaining three desirable (from the corporate point of view) socioeconomic outcomes: dispossessing and disenfranchising vast numbers of people by driving them off the land, rendering this mass available as inexpensive industrial labor, providing cheap calories for this proletariat.   Industrial agriculture is based on a completely false and anti-scientific view of nature. It comprehends nature as a machine with discrete, interchangeable, mass-producible parts. This comes from 19th century agricultural dogma which decreed that all plant growth and health is based on three nutrients: Nitrogen (N), phosphorus (P), potassium (K). The dogma holds that only these three important nutrients are necessary and sufficient for plant growth. This led to what organic agriculture pioneer Albert Howard called “the NPK mentality”, which would reduce all natural processes to simple manipulations of a few variables, preferably supplied synthetically and from off the farm. Once you’ve simplified everything that way, and done so in a way which recognizes only a few readily industrialized factors as meaningful, your path is open to organize everything according to the rhythms of industrialization, mechanization, corporate organization, and power and wealth accumulation.

Federal Judge Rules Idaho Ag-Gag Law Unconstitutional - On Monday, a federal judge ruled that an Idaho law that prohibits the secret filming of animal abuse at agricultural facilities is unconstitutional, potentially calling into question the validity of such laws across the country. U.S. District Court Judge B. Lynn Winmill found that the law violates the First Amendment, writing in his 29-page ruling that “prohibiting undercover investigators or whistleblowers from recording an agricultural facility’s operations inevitably suppresses a key type of speech because it limits the information that might later be published or broadcast.” The Idaho law is the first “ag-gag” law to be struck down in court — and since the law was struck down on federal constitutional grounds, Leslie Brueckner, senior attorney for Public Justice, which served as co-counsel for the plaintiffs in the case, is hopeful that the ruling will set strong precedent for other challenges to ag-gag laws across the country. Seven other states have enacted similar laws, including North Carolina, whose state legislature recently overrode Gov. Pat McCroy’s veto to pass a law that makes it easier for businesses to sue someone that enters a nonpublic area in order to obtain workplace secrets or document workplace violations. Of the remaining states with similar laws, only Utah’s has so far been challenged in court.

Washington state farmland finds out-of-state buyers: "We're getting a lot of interest where they want to move out of California into Washington, Oregon and Idaho," said John Knipe, president of Knipe Land Co. in Boise, Idaho. "Often they have to sell the California property to do that." Knipe said water availability is seen as "a very big factor" when potential investors are looking at farmland. Portions of Washington, Oregon, Idaho and Montana are currently in severe or extreme drought conditions, according to the latest U.S. Drought Monitor. The Drought Monitor released Thursday stated that "the lack of mountain snowpack has contributed to record and near-record low-stream flows across much of the Pacific Northwest, with tinder-dry conditions resulting in the closing of the forests in northern Idaho." "The first thing people ask about is the water when they're looking to buy," said Knipe, a broker who specializes in farm and ranch properties. "We especially get a lot of Californians asking that question. Some say, 'My gosh it looks dry here, too.' Certainly not as bad as California but some of this country is in a water shortage."

Roberts vs Kahn on adaptation in agriculture -- Mike Roberts: Matthew Kahn, author of the cheeky book Climatopolis: How Our Cities will Thrive in the Hotter Future, likes to compliment our research (Schlenker and Roberts, 2009) on potential climate impacts to agriculture by saying it will cause valuable innovation that will prevent its dismal predictions from ever occurring.  Matt has a point, one that has been made many times in other contexts by economists with Chicago School roots. Although in Matt’s case (and most all of the others), it feels more like a third stage of denial than a serious academic argument. It’s not just Matt. Today, the serious climate economist (or Serious?) is supposed to write about adaptation. It feels taboo to suggest that adaptation is difficult. Yet, the conventional wisdom here is almost surely wrong. Everyone seems to ignore or miscomprehend basic microeconomic theory: adaptation is a second or higher-order effect, probably as ignorable as it is unpredictable.  Matt Kahn: Michael Roberts is a top agricultural economist.  Here is his Google Scholar page.    As I continue to think about the economics of climate change adaptation, I now recognize that much of the "doom and gloom" is based on a type of behavioral economics model of investment under uncertainty.  As a product of the Lucas and Prescott "Investment under rational expectations", I have a much different view point. ... It appears to me that general equilibrium theorists need to teach partial equilibrium empiricists about their core model.  Partial equilibrium thinkers implicitly assume that production will continue to take place at its current location and that price signals do not guide investment choices. With these restrictions, they can focus on "one equation" models analyzing how output co-moves with temperature.   By zeroing out thousands of behavioral responses (such as moving farming to another location or growing a more robust crop or hedging risk), such an analysis is bound to yield scary numbers in terms of "costs from BAU".

My township calls my lawn ‘a nuisance.’ But I still refuse to mow it. - The un-mowed plants in our yard attract plant-eating bugs and rodents, which in turn attract birds, bats, toads and garter snakes that eat them. Then hawks fly in to eat the snakes. Seeing all this life emerge in just one growing season made me realize just how much nature manicured lawns displace and disrupt. There are 40.5 million acres of lawn in the United States, more than double the size of the country’s largest national forest. We disconnect ourselves from wildlife habitat loss by viewing it as a problem caused by industry and agriculture. But habitat loss isn’t a problem happening out there somewhere; it’s happening in our own back yards. This has serious consequences. About 95 percent of the natural landscape in the lower 48 states has been developed into cities, suburbs and farmland. Meanwhile, the global population of vertebrate animals, from birds to fish, has been cut in half during the past four decades. Honey bees, which we depend on to pollinate our fruits and other crops, have been dying off at an unsustainable rate. Because one in three bites of food you take requires a pollinating insect to produce it, their rapid decline is a threat to humanity. Monarch butterflies have been even more affected, with their numbers dropping 90 percent since the 1990s. Butterflies are an important part of the food chain, so ecologists have long used them to measure the health of ecosystems. Nature preserves and parks are not enough to fix the problem; much of wildlife is migratory and needs continuous habitat to thrive.  Natural yards can act as bridges between the larger natural spaces.

Drought stunts tree growth for four years, study says --Trees could take up to four years to return to normal growth rates in the aftermath of a severe drought, a new study finds. With the frequency and severity of droughts likely to increase with climate change, we might not be able to rely on forests to absorb as much of our carbon emissions, the researchers say. Forests hold almost half of the carbon found on the Earth's surface, storing it in their woody trunks and branches. Studies show that forests are sensitive to droughts, causing tress stress and limiting how much they can grow and store carbon.During the European heatwave in 2003, for example, tree and plant growth fell by 30%. That meant the land surface in Europe actually produced more carbon dioxide than it absorbed that year. The new study, published in Science, suggests that it takes longer for trees to recover after a severe drought than previously thought. Using data from the International Tree Ring Data Bank, researchers analysed tree growth at over 1,300 sites across the northern hemisphere countries. The sites are predominantly in North America and Europe, and oak and pine trees make up the majority of the species the researchers considered. Tree rings provide a handy estimate of how quickly a tree has grown. As a tree grows, it puts on extra layers of wood around its trunk, creating a new ring each year. The quicker a tree grows, the bigger the gap between tree rings from one year to the next. The researchers measured tree growth under normal conditions and during periods following a severe drought, and calculated an index that indicates whether growth has sped up or slowed down. This is known as the drought's "legacy" effect. A positive legacy means growth increased, while a negative one means it slowed down.

Forests suck up less carbon after drought -- Climate scientists forecast sea levels to rise anywhere from one to four feet by the end of the century. That's a pretty big range. And there's a good reason for that: there's a lot of uncertainty baked into climate models.  Take, for example, the way climate models predict how trees respond to drought. "Drought in these models is treated as a light switch"—either on or off—“but in the real world we know that drought damages trees, and it can take a while for trees to repair this damage and recover."  William Anderegg and his colleagues examined tree ring data from more than 1,300 sites around the world. And by comparing the rings with known drought records they found that trees don't simply kick back into gear as soon as rains return. Drought actually puts the trees' water transport systems under a huge amount of tension, he says, causing air bubbles to leak in, which damages or blocks those pipes. "I often compare this to a sort of a heart attack for a tree. That in some cases it can be lethal and in some cases they can repair that blockage."  That drought 'hangover' causes tree growth to lag five to ten percent below normal for several years following the dry spell. "This is a problem because forests currently take up about 25 percent of human emissions of CO2, which is an incredible break on climate change.” And the less CO2 the trees are able to take up—the warmer it gets. The thing this study makes clear, is that predicting climate change… is hard. "It's really hard. These models have an incredibly challenging task of representing processes that occur from a leaf scale to a continent scale in space. And from several seconds to hundreds of years or at least a hundred years in time." But maybe a better understanding of how much carbon trees soak up—and how much they don't—will make climate forecasting just a little bit easier.

Puerto Rico Extends Water Restrictions as Drought Worsens - — A deepening drought in Puerto Rico that has affected 2.5 million people forced the government on Wednesday to extend severe water rationing measures to more communities that are already struggling with an economic crisis.Another 180,000 customers will now receive water only every third day, raising the total facing 48-hour cuts in service to 400,000, as the U.S. territory's main reservoirs continue to shrink, according to the island's water and sewer company."We have to keep the water that's available under control," said Alberto Lazaro, the company's executive director.Nearly 13 percent of Puerto Rico is under an extreme drought and another 39 percent under a severe one, according to The National Drought Mitigation Center.July was the fourth driest month on record in San Juan since 1898, with only 1.60 inches (4 centimeters) of rain, said Carlos Anselmi, a meteorologist with the National Weather Service.So far this year, it has rained as much as 12 inches (31 centimeters) less than usual in San Juan, and as much as 20 inches (51 centimeters) less in some areas at the Carraizo reservoir, he said.Forecasters blame the El Nino phenomenon, a warming of the tropical Pacific that affects global weather and has led to a quiet Atlantic hurricane season, which began in June and ends in November.

Tiny endangered fish highlights California drought conflicts - California's historic drought could wipe out a tiny, endangered fish that's played an outsized role in the state's water wars. The delta smelt lives in the Sacramento-San Joaquin River Delta, the West Coast's largest estuary that supplies water to Central Valley farms and millions of Southern California residents. The silvery, finger-sized fish has been in trouble for years, but the four-year drought is helping to push the smelt to the brink of extinction. And it threatens several other native fish species, including the longfin smelt, green sturgeon and winter-run Chinook salmon. In July, a key index of delta smelt abundance hit zero for the first time since the survey began in 1959. Researchers found a handful of smelt, but the number was too small to register on the population gauge. "The delta smelt is basically on its last legs right now. We'll be lucky if it survives the coming year," said Peter Moyle, a fish biologist at the University of California, Davis who has been studying the fish for four decades.

Prolonged Drought and Wildfires? Massive CA Fire Jumps 20,000 Acres Overnight; Water Outing Website; 240-Year Drought? --Restaurants in California are not supposed to serve water unless asked. Will that make much of a difference? The answer is no, but what about car washing, sprinklers, etc.? To pressure citizens to not waste water, California Launches "Drought Shaming" WebsiteCalifornia is launching a website that lets residents tattle on water wasters, from neighbors with leaky sprinklers to waiters who serve water without asking. California has multiple restrictions on water use, including banning washing cars with hoses that don't shut off and restricting lawn-watering within two days of rainfall. But enforcement varies widely across the parched state. Residents can send details and photos of water waste at www.savewater.ca.gov. MarketWatch reports Massive California Fire Jumped 20,000 Acres OvernightA wildfire that has been raging in northern California since last Wednesday jumped 20,000 acres overnight, and has now charred 47,000 acres and is threatening 6,300 homes. Fire officials say the massive blaze, called the Rocky Fire, in the Lower Lake area north of San Francisco is only 5% contained. Already it has destroyed 24 homes and 26 outbuildings. Google Maps and CAL Fire created this California Fires Map. California's drought is so bad that Thousands Have No Running Water. Thousands of people in California's Central Valley are feeling the drought much more acutely, because water has literally ceased running from their taps. The drought in these communities resembles a never-ending natural disaster, says Andrew Lockman, manager of the county's Office of Emergency Services.

California fires: Evacuation orders given to 13,000 - BBC News: Evacuation orders have been given to 13,000 people in California as firefighters struggle to contain some 20 wildfires. Some 9,000 firefighters worked throughout Monday in steep terrain and rugged conditions, officials said. The biggest blaze - the so-called Rocky fire north of San Francisco - has already consumed more than 90 square miles (233 sq km) of land. On Monday afternoon the fire jumped a highway that had been containing it. Firefighters were still trying to contain the Rocky Fire into Monday evening Officials say it continues to move fast The fire has left a trail of destruction in its wake Officials described its rate of growth as unprecedented after it tripled in size over the weekend. At least 24 homes were destroyed as the blaze was whipped up by winds that fuelled the flames, our correspondent says. "I've never seen a fire act like this one," evacuee Vicki Estrella said. "It's amazing the way that thing spread. There was smoke 300ft (91m) in the air." Four years of drought in the western US have left the landscape tinder dry. Coupled with unseasonably humid conditions, lightning strikes and gusting winds, this has posed a severe challenge for fire fighters and water-dropping aircraft. While some progress has been reported in tackling the blazes, partially due to a slight fall in temperatures, there is no rain forecast. Other parts of the western US are also seeing wildfires. More than 300 people were moved from the path of a fire in Washington state, while another burned over 15,000 acres in Oregon.

California’s Largest Fire Is Moving At An ‘Unprecedented’ Rate -- Wildfires continue to rage in California, where the largest of the 21 blazes covered 65,000 acres Tuesday morning and has killed at least one person.  Four other people have been killed this fire season in California, which started early this year and has been exacerbated by drought and high temperatures. There are also active wildfires in Oregon, Washington, Wyoming, and Alaska.  At least two dozen homes have been destroyed by the Rocky Fire in Northern California, which jumped Highway 20 — a planned containment line — on Monday night. The blaze is only 12 percent contained and is not expected to be contained for at least another week, according to CAL FIRE, the state’s fire department. The Rocky Fire burned 20,000 acres in five hours, an “unprecedented” rate, according to Daniel Berlant, chief of public information for CAL FIRE.  “We’ve been running fires here since the beginning of January,” Berlant said on KFBK radio Tuesday morning. The fire season “never really ended last year,” he added, blaming the four years of drought in the state. He said thousands of homes are still threatened. But not only do fires present a risk to the lives and homes of people in the affected areas, fires also dangerous to human health, studies have shown. Anyone whose air has ever been inundated with smoke and particulate matter from a nearby (or hundreds of miles away) fire knows how difficult it can be to breathe in that situation. Research released earlier this summer found a link between heart problems and particulate matter from fires.

Northern California wildfire grows further after jumping highway -  California's biggest and fiercest wildfire of the year grew larger as it raged for a seventh day through drought-parched land north of Napa Valley wine country after jumping a highway that authorities hoped would slow its advance. The blaze, dubbed the Rocky Fire, has charred some 67,000 acres, destroyed more than 50 buildings and displaced thousands of residents since erupting last week in the rugged canyons and foothills east of the town of Clearlake, about 110 miles north of San Francisco. Nearly 7,000 structures, mostly homes, were listed as threatened, with more than 13,000 people placed under evacuation orders or advisories, according to the California Department of Forestry and Fire Prevention (Cal Fire). What sparked the Rocky Fire was uncertain, but the blaze is one of nearly two dozen conflagrations that erupted across the state following thousands of dry lightning strikes in recent days, the bulk of them in northern California. All of the blazes have been fed by thickets of vegetation left desiccated by four years of drought.

Frightening Interactive Wildfire Map Shows That the West Is on Fire  -- Climate Central, a dedicated team of scientists and journalists researching climate change, has put together an interactive map that shows in real time the active wildfires in the U.S. Each flame icon indicates an active wildfire. Climate Central explains: Hover over a given fire to see its name, and if you zoom in you’ll be able to see the outline of the area that’s burning—the so-called fire perimeter. If you click within the perimeter, a window pops up showing the fire’s size in acres, the amount by which the perimeter has grown or shrunk over the past 24 hours, the fraction of the fire that has been contained and other data. There’s also a link to an even more detailed report.  A few months ago, experts predicted that this season would be the worst one yet for wildfires and so far it’s shaping up to be. Alaska, in particular, has seen an astounding number of fires with a record area burned this year. So far this year, fires have burned nearly 5 million acres, an area the size of Connecticut. Climate Central reports that because of climate change, Alaska is entering a new era for wildfires. And it’s not just Alaska, but the entire West, as evidenced by the map above. Due to high temperatures, record low snowfall and an epic drought, this year is the second-highest for total acreage burned in at least the past 25 years, according to data from the National Interagency Fire Center.The interactive map is based on data from the Geospatial Multi-Agency Coordination Group. The information is updated daily from reports by fire managers on the scene, satellite imagery and GPS data, among other sources.

NASA’s 14 Second Video Says It All  - NASA produced a video last week that helps visualize what we already know to be true. The first half of this year has been a really wet one overall for the eastern and southeastern U.S. and a very dry one for the West and Southwest. This year is expected to be the hottest on record and May and June already smashed records for heat and rainfall in many parts of the country. We know that with climate change, heavy downpours are increasing, especially in areas that already receive abundant rainfall, while drought-prone states like California and the rest of the West continue to be mired in an epic drought. The video is from NASA’s Global Precipitation Measurement constellation of 12 satellites, which can sense 13 different types of precipitation, including snow and light rain. Just like a typical radar image, green indicates lower levels of precipitation with yellow, red and purple indicating increasingly higher levels.Oklahoma, Texas and other parts of the Southeast witnessed insane amounts of rainfall this past spring. A series of storms in late May “provided 200 to 600 percent more May rainfall than normal, set all-time monthly records, and obliterated a drought that had gripped the region for five years,” reports Climate Central. In June, the remnants of Tropical Storm Bill added to the dousing in that region. The storm brought rainfall totals to more than 75 inches in areas that normally see 40 inches for the entire year. In contrast, the West has seen very little precipitation overall. Though it appears that Washington and Oregon saw a fair amount, it’s deceiving. “While it looks like parts of the Cascades have received a fair amount of precipitation, the visualization is missing one key indicator of drought: temperature,” says Climate Central. “And on that front, Washington and Oregon have dealt with particularly high temperatures, leading to what scientists have termed a ‘wet drought.'”

Lake Erie’s Enormous Algae Bloom Is Back -- For the second year in a row, a harmful algae bloom is beginning to form in Lake Erie — and the National Oceanic and Atmospheric Administration has predicted that this year’s algae bloom could rival that of 2011, the most severe bloom on record. During that record bloom, close to 20 percent of Lake Erie was covered by a green-tinged algae — technically cyanobacteria, a type of aquatic bacteria that uses photosynthesis to create energy and thrives in warm conditions. In a 2013 Ecowatch report, scientists from Oregon State University called it “the cockroaches of the aquatic world.” This is the same type of algae that disrupted the Ohio city of Toldeo’s water supply for three days last summer, prompting officials to issue a tap water ban. In large amounts, an algae bloom can produce a harmful toxin known as microcystin, which, if consumed, can cause dizziness, nausea, vomiting, diarrhea, and liver damage. Boiling doesn’t kill the toxin — it just makes it worse. “Last summer’s Toledo water crisis was a wake-up call to the serious nature of harmful algal blooms in America’s waters,” Jeff Reutter, senior advisor to Ohio State University’s Sea Grant program and Stone Laboratory, said at a NOAA press conference in July. “This forecast once again focuses attention on this issue, and the urgent need to take action to address the problems caused by excessive amounts of nutrients from fertilizer, manure and sewage flowing into our lakes and streams.”

The Big-Ag-Fueled Algae Bloom That Won't Leave Toledo's Water Supply Alone -- The citizens of Toledo, Ohio, have embarked upon their new summer ritual: stocking up on bottled water. For the second straight year, an enormous algae bloom has settled upon Lake Erie, generating nasty toxins right where the city of 400,000 draws its tap water. It's a kind of throwback to Toledo's postwar heyday, when the Rust Belt's booming factories deposited phosphorus-laced wastewater into streams that made their way into Lake Erie, feeding algae growths that rival today's in size. But after the decline of heavy industry and the advent of the Clean Water Act, there's a new main source of algae-feeding phosphorus into the beleaguered lake: fertilizer runoff from industrial-scale corn and soybean farms. (Background here.)  As I reported last August, the trouble is that freshwater blooms produce a toxin called microcystin, which can trigger nausea, vomiting, diarrhea, severe headaches, fever, and even liver damage. For three days last year, microcystin in Toledo's water exceeded federal limits, and the city had to urge residents not only to avoid drinking it, but also to use bottled water to wash dishes and bathe infants. Toledo has since implemented an early warning system near its water intake for monitoring potential microcystin contamination in Lake Erie—one, it hopes, will prevent a repeat of last year's don't-drink-the-water event by giving the city time to run its carbon-filtration system when toxin levels at the source spike. The filtration system does work to push microcystin levels to below the legal limit, said Justin Chaffin, research coordinator for Ohio State University's Ohio Sea Grant program, which coordinates efforts to monitor the lake's algae blooms. The problem, he said, is that it costs thousands of dollars per day to run.

Toxic Algae Blooming in Pacific from California to Alaska Is Affecting Your Seafood -- A vast bloom of toxic algae off the West Coast is denser, more widespread and deeper than scientists feared even weeks ago, according to surveyors aboard a National Oceanic and Atmospheric Administration research vessel. This coastal ribbon of microscopic algae, up to 40 miles wide and 650 feet deep in places, is flourishing amid unusually warm Pacific Ocean temperatures. It now stretches from at least California to Alaska and has shut down lucrative fisheries. Shellfish managers on Tuesday doubled the area off Washington’s coast that is closed to Dungeness crab fishing, after finding elevated levels of marine toxins in tested crab meat. So-called “red tides” are cyclical and have happened many times before, but ocean researchers say this one is much larger and persisting much longer, with higher levels of neurotoxins bringing severe consequences for the Pacific seafood industry, coastal tourism and marine ecosystems. Dan Ayres, coastal shellfish manager for the Washington Department of Fish and Wildlife, said the area now closed to crab fishing includes more than half the state’s 157-mile-long coast, and likely will bring a premature end to this year’s coastal crab season.   The survey data should provide a clearer picture of what is causing the bloom which is brownish in color, unlike the blue and green algae found in polluted freshwater lakes. Marine detectives already have a suspect: a large patch of water running as much as 3 degrees centigrade warmer than normal in the northeast Pacific Ocean, nicknamed “the blob.”

Gulf of Mexico dead zone 11th biggest, bigger than predicted - — An area in the Gulf of Mexico with too little oxygen to keep sea creatures alive is the 11th largest measured and nearly 18 percent bigger than predicted earlier this year. It has gotten so big because heavy June rains throughout the Mississippi River watershed carried nutrient-rich runoff from farms and other human activities into the gulf, federal and state scientists said Tuesday. Those nutrients, mainly nitrogen and phosphorus, feed algae and other one-celled plants that die and fall to the bottom, where their decomposition uses up oxygen. This year’s dead zone is about as big as Connecticut and Rhode Island combined, covering 6,474 square miles, said Nancy Rabalais, who has measured the low-oxygen area for 31 years and is now director of the Louisiana Universities Marine Consortium. It also extends higher than usual above the bottom, and much of the area has even less oxygen than usual, she wrote in her annual report. The cutoff for the low-oxygen condition, known as hypoxia, is less than 2 milligrams of oxygen per liter of water. Much of the hypoxic area had less than half that much, often very close to zero, Rabalais wrote. “In 2001, state and federal bureaucrats set a goal of reducing the size of the Dead Zone to 1,950 square miles by 2015,” said Matt Rota, senior policy director for the nonprofit Gulf Restoration Network. “Well, here we are at 2015, and we are over three times that goal.”

1 Million Gallons of Mine Waste Turns River in Colorado Orange -- The Animas River in southwest Colorado turned bright orange on Wednesday after a mining and safety team working on behalf of the U.S. Environmental Protection Agency (EPA) spilled a million gallons of mine waste from the abandoned Gold King Mine in San Juan County.  According to the AP, the team was working with heavy equipment to secure an entrance to mine when they accidentally triggered the large gush that reportedly caused the Cement Creek’s water levels to rise two to three feet. “The project was intended to pump and treat the water and reduce metals pollution flowing out of the mine,” EPA spokesman Rich Mylott said in a statement. San Juan County health officials said that the acidic mine water associated with the release contains high levels of sediment and metals. EPA teams are conducting sampling and visual observations and monitoring river conditions over the next several days. David Ostrander, director of EPA’s emergency response program in Denver, noted that the acidic sludge could irritate the skin. In a precautionary measure, nearby residents have been warned by local officials to avoid consuming the water as the deluge made its way to La Plata County, Colorado yesterday. In particular, the city of Durango—which uses the river as a secondary source of water during the summer—has been advised to stop pumping raw water from the river, the Durango Herald reported.

Entire Colorado river turns YELLOW after one million gallons of waste leaks from disused gold mine - but authorities insist there's no danger -- A federal mine cleanup crew has accidentally unleashed a million-gallon mine-waste spill down a river in southwest Colorado - turning the water bright yellow.The US Environmental Protection Agency said the team was working with heavy equipment to secure an entrance to the Gold King Mine, near Durango, when the waste was unleashed into Cement Creek.The creek runs from Silverton, Colorado, into the Animas River before flowing into the San Juan River in New Mexico and joining the Colorado River in Utah. Officials say that the spill does not pose a threat to drinking water. However, wildlife is under threat because the river's acidity has increased 100-fold. Animal owners were advised to keep dogs and livestock out of the affected water.. 'The project was intended to pump and treat the water and reduce metals pollution flowing out of the mine,'  The EPA's coordinator for the Gold King Mine project, Hays Griswold, told The Durango Herald that he'd thought only five feet of water was being held behind the collapsed entrance to the mine.He was going to install a pipe to remove the trapped contaminated water, which had been leaking slowly into the creek. However, when Griswold's crew made a hole in the mine tunnel, he noticed water seeping through the dirt. It eroded the dirt and burst forth. 'There was no stopping it at any time,' he said. The polluted water 'was held behind unconsolidated debris near an abandoned mine portal', said the EPA in a statement.   Durango resident Lisa Shaefer said she was near the mine Wednesday when a mine bulwark broke and sent a torrent of water downstream that raised the water level two to three feet in Cement Creek. The wall of water carried rocks and debris and made a roar as it pushed through a culvert, she said. 'What came down was the filthiest yellow mustard water you've ever seen,' she told the newspaper. 

Arizona Apache Mobilize Against Bill Which Hands Sacred Native American Land To Mining Company — The San Carlos Apache Tribe held a celebratory dinner on July 27 to welcome back members of the Apache Stronghold caravan after a two-week journey from the tribe’s reservation in Bylas, Arizona, to Washington, D.C. The Apache Stronghold formed in December in response to a last-minute legislative provision included in the the National Defense Authorization Act of 2015. The provision at issue in the annual Defense Department funding bill grants Resolution Copper Mining, a subsidiary of Australian-English mining giant Rio Tinto, a 2,400-acre land parcel which includes parts of the Tonto National Forest, protected national forest in Arizona where it will create the continent’s largest copper mine. Some of those lands are considered sacred by multiple Native American communities, including the Oak Flat campground. The area is not recognized as part of the San Carlos Apache Reservation, but it has historically been used by the Apache for trading purposes and spiritual ceremonies. “This is appalling, this would not happen at any other holy place in the world,” Reddog Rudy, an Apache Stronghold supporter with the Xicano, Ute and Pinoy Nations, told MintPress News. “If someone tried to extract minerals from the Vatican or from Jerusalem it would be seen as an abomination.”

Native Alaskans Study and Clean Up a Legacy of Pollution - — America’s Far North cherishes its image of wild purity in a landscape so vast it can sometimes seem barely touched by people. But the roughly 600 military installations across Alaska — some dating from World War II, others built during the Cold War — tell a different story, in polluted sites that were never fully cleaned up, and the related health problems that have lingered and festered.Bases and listening posts scattered from the far northern tundra to remotest atolls of the Aleutian Islands used or stockpiled cleaning solvents and pesticides, chemical warfare agents and unexploded ordnance. Some was left behind in remote or unpopulated areas when geopolitical tensions eased and bases were abandoned, others were merely fenced off with signs and warnings.One of the biggest and most polluted military sites is here on St. Lawrence Island in Alaska’s farthest western reaches close to the former Soviet Union. Here, a 4,800-acre radar station, Northeast Cape, bristled with electrical components containing polychlorinated biphenyls, better known as PCBs, that were later linked to cancer and banned in many countries. Tiny fish living downstream from the site, eaten by birds and larger fish that islanders harvest for food, are loaded with PCBs, scientific tests have found. And PCB levels in residents are multiple times higher than in most other places in the nation, studies show.

Climate pressures lead to rise in 'new-age orphans' in India's delta: Eleven-year old Srijita Bhangi sits in the waiting room of the jetty boat that connects her island home in Khulna to the mainland Sundarbans, near India's border with Bangladesh. After spending a few days with her elderly grandparents - an effort to lift her most recent spell of depression - she is travelling back to the school hostel where she has lived since her parents left two years ago to find work in a garment factory 1,000 kilometres (620 miles) away, in Tamil Nadu. Since then she has seen them only once, and the school lodging has effectively become her new home.As climate change brings sea level rise, growing salinity in water and more dangerous storm surges to the low-lying and already economically depressed Sundarbans region, a rising number of parents are migrating elsewhere in search of work, with mothers increasingly joining fathers away from home, experts say. Most migrants hope to one day to bring their children with them. But poor accommodation near new jobs, language barriers and a lack of childcare mean few children can make the move right away. That has led to a staggering surge in children left behind in school hostels or with elderly grandparents - and a rising epidemic of childhood depression, malnutrition and vulnerability to child trafficking, local doctors and aid workers say. They term the left-behind children "new-age orphans". "The number of children suffering from depression has increased dramatically. We have to treat them for various mental disorders now that were unthinkable even five years ago," said Dr. Amitava Choudhury, a medical doctor who has worked in the Sundarbans for 18 years.

Killer Heat Grows Hotter around the World -- Millions of people around the world are experiencing a scorching summer, as records are broken and thermostats climb this week in parts of Europe. Temperatures in Paris and Brussels exceeded 90 degrees Fahrenheit at a time of year when 70-degree weather is the norm, according to Accuweather.com. In Bandar-e Mahshahr, Iran, temperatures climbed to 115 °F last week. The temperature, together with high humidity, felt like 163 °F to hapless people directly exposed to the weather, according to Accuweather. That is the second-highest known “heat index” value ever recorded, said Maximiliano Herrera, a climatologist and weather aficionado who maintains one of the world’s most comprehensive datasets of extreme temperatures. The highest heat-index value ever recorded was 174 °F in 2003 in Dhahran, Saudi Arabia, he said. The highest air temperature in an inhabited area was recorded in Gotvand and Dehloran, Iran, and Turbat and Sibi, Pakistan, in the 1990s, when the thermostat climbed to 127.4 °F (53 degrees Celsius), Herrera said. In June, Pakistan experienced a heat wave so severe that more than 1,229 people died. A month earlier, temperatures in parts of India climbed up to 113 °F, killing at least 2,500 people. Including June, four months out of the first six in 2015 have broken global temperature records. July appears to be tracking the trend, even as a strong El Niño has formed, which will exacerbate global temperatures.

Europe again slathered with all-time record heat; Berlin has hottest day on record  --Just one month after setting its all-time national heat record, Germany tied that mark on Friday at the same location, as yet another multiway heat wave swept across much of Europe. The German meteorological agency (Deutscher Wetterdienst) confirms that the town of Kitzingen reached 40.3°C (104.5°F) on Friday, the same national record it reached on July 5. According to Michael Theusner (Klimahaus), more than 100 towns and cities in Germany either tied or broke their all-time record highs on Friday. Berlin's Kaniswall station hit 38.9°C (102.0°F)--the hottest temperature ever observed in the Berlin area, beating the old record of 38.6°C (101.5°F).  Record heat extended far across other parts of Europe on Friday. According to international weather records expert Maximiliano Herrera, who maintains a comprehensive list of extreme temperature records for every nation in the world on his website, Friday’s high of 38.3C (100.9°F] at Genoa, Italy, topped the all-time airport record by a full 4°F. Records at the airport extend back to 1962; the previous reporting site for Genoa was located further inland, with a warmer microclimate. Even at that location, the previous Genoa record was 37.8°C (100.0°F) in July 1952. We’ll continue to keep an eye on Europe this weekend, as several nationwide all-time records could be approached or toppled.

Statistics says the long-term global warming trend continues -  A new study has just been prepared for an upcoming climate meeting of the US Climate Variability and Predictability Program. This group has an annual summit and this year will have a special science session with papers and presentations devoted to the so-called “hiatus”. The “hiatus” has taken many meanings. In the popular press, it is often used to falsely claim that global warming stopped. As I’ve written many times, global warming has not stopped; the Earth has been continuing to gain energy because of human emissions of greenhouse gases.  In other cases, the “hiatus” refers to a reported slowdown in temperature increases. This too is not seen in the ocean data or in sea level rise. It is only seen in surface temperatures (temperatures of the surface of land and ocean regions).   What my colleague and I wanted to know was, is this slowdown real or not? Specifically, we wanted to know whether it passed mathematical tests for statistical significance. My colleague, who is an expert is statistics, and operates a climate website, downloaded the surface temperature data from NASA and detrended it (removed the long term increase in temperatures). The difference between the red trendline and the black dots is called the residual. We wanted to increase the odds that we would find a “hiatus” by stopping our analysis in 2013 (omitted the hottest year on record, 2014).

World Population to Hit 8.5 Billion by 2030 - The global population has now reached 7.3 billion. In the last 12 years, the world has added approximately one billion people, and in the next 15 years this is expected to occur again.The United Nation’s new global and regional population estimates and projections entitled “World Population Prospects: The 2015 Revision” predicts the population will reach 8.5 billion in 2030, a further 9.7 billion in 2050 and 11.2 billion by 2100. Nine per cent of the world’s population lives in the 21 “high-fertility” countries, where the average woman would have five or more children in her lifetime. Of these 21 countries, 19 are in Africa and two are in Asia. It is estimated that over half of this population growth will occur in Africa – even if there is a substantial reduction of fertility levels which population growth is highly dependent on. Africa also has the highest adolescent birth rate: 98 out of 1,000 women. Africa will “play a central role in shaping the size and distribution of the world’s population over the coming decades,” says the report. In the 48 least developed countries (LDCs), of which 27 are in Africa, the population is projected to double or even triple in most of the countries. Countries which are predicted to increase at least five-fold by 2100 include Angola, Burundi, Democratic Republic of Congo, Malawi, Niger, Somalia, Uganda, Tanzania, and Zambia.

The Population Bomb --In 1968, Paul Ehrlich released his ground-breaking book The Population Bomb, which awoke the national consciousness to the collision-course world population growth is on with our planet's finite resources. His work was reinforced several years later by theLimits To Growth report issued by the Club of Rome. Fast-forward almost 50 years later, and Ehrlich's book reads more like a 'how to' manual. Nearly all the predictions it made are coming to pass, if they haven't already. Ehrlich admits that things are even more dire than he originally forecasted; not just from the size of the predicament, but because of the lack of social willingness and political courage to address or even acknowledge the situation: The situation is much more grim because, of course, when the population bomb was written, there were 3.5 billion people on the planet. Now there are 7.3 billion people on the planet. And we are projected to have something on the order of 9.6 billion people 35 years from now. You've got to remember that each person we add disproportionately causes ecological damage. For example, human beings are smart. So human beings use the easiest to get to, the purest, the finest resources first. When thousands of years ago we started to fool around with copper, copper was lying on the surface of the earth. Now we have at least one mine that goes down at least two miles and is mining copper that is about 0.3% ore. And yet we go that deep and we refine that much. Same thing the first commercial oil well in the United States. We went down 69.5 feet in 1859 to hit oil. The one off in the Gulf of Mexico started a mile under water and went down a couple of more miles before it had the blow-out that ruined the Gulf of Mexico.Each person you add has to be fed from poorer land, drink water that has to be pumped from deeper wells or transported further or purified more, and have their materials sourced from other depleting resources.

Climate models are even more accurate than you thought -- Global climate models aren’t given nearly enough credit for their accurate global temperature change projections. As the 2014 IPCC report showed, observed global surface temperature changes have been within the range of climate model simulations.  Now a new study shows that the models were even more accurate than previously thought. In previous evaluations like the one done by the IPCC, climate model simulations of global surface air temperature were compared to global surface temperature observational records like HadCRUT4. However, over the oceans, HadCRUT4 uses sea surface temperatures rather than air temperatures. Thus looking at modeled air temperatures and HadCRUT4 observations isn’t quite an apples-to-apples comparison for the oceans. As it turns out, sea surface temperatures haven’t been warming fast as marine air temperatures, so this comparison introduces a bias that makes the observations look cooler than the model simulations. In reality, the comparisons weren’t quite correct. As lead author Kevin Cowtan told me, We have highlighted the fact that the planet does not warm uniformly. Air temperatures warm faster than the oceans, air temperatures over land warm faster than global air temperatures. When you put a number on global warming, that number always depends on what you are measuring. And when you do a comparison, you need to ensure you are comparing the same things. The model projections have generally reported global air temperatures. The observations, by mixing air and water temperatures, are expected to slightly underestimate the warming of the atmosphere.

World’s Glaciers Melting at Record Rate -- The world’s glaciers are melting fast—probably faster than at any time in recorded history, according to new research. Measurements show several hundred glaciers are losing between half and one meter of thickness every year—at least twice the average loss for the 20th century—and remote monitoring shows this rate of melting is far more widespread. The World Glacier Monitoring Service (WGMS), based at the University of Zurich, Switzerland, has compiled worldwide data on glacier changes for more than 120 years. Drawing on reports from its observers in more than 30 countries, it has published in the Journal of Glaciology a comprehensive analysis of global glacier changes. The study compares observations of the first decade of this century with all available earlier data from field, airborne and satellite observations and with reconstructions from pictorial and written sources. Dr. Michael Zemp, director of WGMS and lead author of the study, says the current annual loss of 0.5-1 meter of ice thickness observed on “a few hundred glaciers” through direct measurement is two to three times more than the average for the last century.

Earth now halfway to UN global warming limit - IT’S the outcome the world wants to avoid, but we are already halfway there. All but one of the main trackers of global surface temperature are now passing more than 1 °C of warming relative to the second half of the 19th century, according to an exclusive analysis done for New Scientist. We could also be seeing the end of the much-discussed slowdown in surface warming since 1998, meaning this is just the start of a period of rapid warming. “There’s a good chance the hiatus is over,” says Kevin Trenberth of the National Center for Atmospheric Research in Boulder, Colorado. “The slowdown in warming since 1998 was partly due to oceans taking up more heat. That could be over” Last year was the hottest since records began, but only just. With an El Niño now under way – meaning warm surface waters in the Pacific are releasing heat into the atmosphere – and predicted to intensify, it looks as if the global average surface temperature could jump by around 0.1 °C in just one year. “2015 is shaping up to smash the old record,” says Trenberth. The UN negotiations on climate change aim to limit warming to 2 °C above pre-industrial temperatures. There is, however, no agreement on how to define pre-industrial temperature, says Ed Hawkins of the University of Reading, UK. Because some global temperature records only begin in 1880, the period 1880 to 1899 is the easiest “pre-industrial” baseline for measuring warming. It is somewhat misleading, though, because the 1880s were particularly cold after the eruption of the Krakatoa volcano. The period 1850 to 1899 is a better baseline, says Hawkins.

What Caused An Emissions Decline In The United States?  --A recent paper which appeared in the journal Nature Communications has not gotten nearly the attention it deserves. This is not surprising in so far as the conclusions of those who wrote it are not compatible with human expansion on this planet. The paper is called Drivers of the US CO2 emissions 1997–2013, and one of the co-authors was quoted in a Climate News Network story as follows:  If we don’t understand the factors that led to this emissions reduction, we won’t know how to effectively reduce emissions in the future. That statement is touchingly naive, but is undoubtedly an accurate assessment of the situation. On the other hand, what if the real factors behind the emissions reduction can not be discussed? I will examine the Nature Communications paper below, but first let's look at the recent carbon dioxide emissions decline in the United States. I'll also look at the bullshit politicians and mainstream journalists come up with to explain that decline.

Obama to Unveil Tougher Climate Plan With His Legacy in Mind - — In the strongest action ever taken in the United States to combat climate change, President Obama will unveil on Monday a set of environmental regulations devised to sharply cut planet-warming greenhouse gas emissions from the nation’s power plants and ultimately transform America’s electricity industry. The rules are the final, tougher versions of proposed regulations that the Environmental Protection Agency announced in 2012 and 2014. If they withstand the expected legal challenges, the regulations will set in motion sweeping policy changes that could shut down hundreds of coal-fired power plants, freeze construction of new coal plants and create a boom in the production of wind and solar power and other renewable energy sources. As the president came to see the fight against climate change as central to his legacy, as important as the Affordable Care Act, he moved to strengthen the energy proposals, advisers said. The health law became the dominant political issue of the 2010 congressional elections and faced dozens of legislative assaults before surviving two Supreme Court challenges largely intact. The most aggressive of the regulations requires the nation’s existing power plants to cut emissions 32 percent from 2005 levels by 2030, an increase from the 30 percent target proposed in the draft regulation. That new rule also demands that power plants use more renewable sources of energy like wind and solar power. While the proposed rule would have allowed states to lower emissions by transitioning from plants fired by coal to plants fired by natural gas, which produces about half the carbon pollution of coal, the final rule is intended to push electric utilities to invest more quickly in renewable sources, raising to 28 percent from 22 percent the share of generating capacity that would come from such sources.

Who wins and loses under Obama's stricter power plant limits (AP) — President Barack Obama is mandating even steeper greenhouse gas cuts from U.S. power plants than previously expected, while granting states more time and broader options to comply. The tweaks to Obama’s unprecedented emissions limits on power plants, to be unveiled at the White House on Monday, aim to address a bevy of concerns raised by both environmentalist and the energy industry in more than 4 million public comments received by the Environmental Protection Agency. Opponents plan to sue to stop the rule, and on Monday, the National Mining Association wrote the EPA a letter requesting that the agency put the rule on hold while the legal challenges play out. If the EPA refuses, industry groups plan to ask the courts to take that step instead. Some of the changes Obama is making in the final version of the plan go even further in cutting the heat-trapping gases blamed for global warming. Other changes delay implementation and eliminate certain options that states could use to show they’re cutting emissions, making it harder to comply. All states are eagerly awaiting word of changes to the individual emissions reduction targets that Washington is assigning each state. Some states will be given a more lenient target than they were assigned under the proposed version, while others will have tougher targets to meet. The Obama administration has yet to disclose those state-specific targets.

Obama rolls out the final EPA plan to cut carbon emissions -- In the latest step of a saga that dates back to the Bush administration, the EPA issued its final rules on how the US will cut back on the carbon emissions created by electricity generation. During the long struggle over their formulation, however, President Obama decided to make climate change a central focus of his years in office. As a result, he was present to introduce the rules, portraying them as part of a large package of efforts meant to tackle climate change. Borrowing language that his political opponents frequently use when confronted with the topic of climate change, Obama started with an observation. "Now, not everyone here is a scientist, but some of you are among the best scientists in the world," he said. He went on to launch into a large number of figures about the changing climate, and he made the argument that these changes have severe implications for our health, economy, and national security. After saying climate change is "the reality that we're living with every day," President Obama also reinforced society's potential impact. "There is such at thing as being too late when it comes to climate change," he said. By 2030, the EPA's draft plan would cut power plant emissions by 30 percent compared to 2005 levels. The final version would boost that number to 32 percent. According to the EPA's analysis, the plan would reduce premature deaths due to power plant emissions by 90 percent, saving the average family $85 on their annual energy bill. States would be required to submit preliminary plans for achieving these reductions by late next year, but they can get extensions of up to two years. Implementation will be required to start in 2022, but there would be unspecified incentives for states to start earlier. These incentives are intended to drive adoption of energy efficiency measures and use of renewable energy.

Q&A: A look at climate change plan and its impact on states - President Barack Obama unveiled the final regulations in his plan to cut nationwide carbon dioxide emissions 32 percent by 2030. Obama touted it as a bold step to slow climate change, while opponents said it was federal overreach that will raise prices for electricity consumers. Here’s what you need to know about the impact of the new plan on the states: Sixteen states will have more stringent targets to reduce carbon dioxide than those in Obama’s original proposal last year. There are two main reasons, according to the Environmental Protection Agency’s Janet McCabe: Renewable sources such as wind and solar are getting cheaper and easier to build, and the EPA considered that states in some cases could easily source clean power from neighbors if they didn’t have the capacity to generate it themselves. Also, the states’ ongoing efforts to reduce energy demand won’t be included in their baseline measurements. “In the proposal, we looked at each state in isolation,” said McCabe, acting assistant administrator for the EPA’s office of air and radiation. “In the final rule, we have opened it up so we could look at capacity for renewables and natural gas across the region.” Thirty-one states’ targets were loosened, but the tougher goals for the others make the overall plan more ambitious than the original proposal.

Impact of EPA’s Emissions Rule on Industry to Vary - WSJ: A sweeping federal rule intended to slash carbon-dioxide emissions from power plants will have an uneven impact on the energy industry, boosting the outlook for some regions and companies while biting others. Companies that produce coal and electric generators that rely on it for their main fuel will suffer, as will the areas that produce it, analysts said Monday as the plan was formally released by the Environmental Protection Agency. The regulation appears likely to burnish the earnings of companies that own nuclear-power plants and modern natural-gas generators, which emit far less greenhouse gases than coal-fired plants. The rule calls for the nation to get 28% of its electricity from renewable resources by 2030, versus 13% last year. States will have to submit plans to cut their carbon output by 2018 and meet their first targets for reductions by 2022. EPA is targeting coal-fired electric generation as it produces about 80% of the industry’s carbon-dioxide pollution. But coal producers and users have already been under stress because many power producers have shifted to inexpensive natural gas and there has been little growth in demand for electricity. The coal giant Alpha Natural Resources filed for bankruptcy protection Monday, having lost money in 14 straight quarters. Its stock market value has fallen from $20 billion in 2011 to under $8 million on Monday. Rivals Patriot Coal Corp, Xinergy Ltd. and Walter Energy Inc. have also sought bankruptcy protection. Analysts said coal firms that operate in Appalachia, such as Alpha, with mostly underground mines have a bigger disadvantage than companies like St. Louis-based Peabody Energy with its open-pit mines in Wyoming’s Powder River Basin. “Companies with lower-cost assets out West will do better, but as far as the coal companies go, nobody wins,”

Top NASA scientist: "Power Plan is worthless" - The cheers from environmentalists are still ringing loud from President Barack Obama’s success in passing the nation’s most serious action against warming emissions. But scientists that have based their entire careers on the study of climate change have one thought about the latest rules: “practically worthless.” Those were the words of James Hansen, a climate researcher who headed NASA’s Goddard’s Institute for Space Studies for over 30 years and first warned congress of global warming in 1988.  “They do nothing to attack the fundamental problem,” Hansen stated. MSNBC reported that climate scientists like Hansen feel that Obama’s plan does not go nearly far enough. They claim that the legislation is meek and dangerously self-congratulatory, sapping the movement of urgency while doing almost nothing to maintain the future habitability of the earth. When asked if the plan would make continued climate activism unnecessary, Hansen replied, “You’ve got to be kidding. He added that Obama’splan and the proposed plan of Democratic front-runner Hillary Clinton, “is like the fellow who walks to work instead of driving, and thinks he is saving the world.” “As long as fossil fuels are allowed to (appear to be) the cheapest energy, someone will burn them,” he wrote in an email to MSNBC.  On Tuesday, Climate Action Tracker released a study that claimed Obama’s regulations would reduce America’s economy-wide emissions by “roughly 10 percent” beyond the current pace. While reduction of any kind is a cause for celebration, it’s not a call for mission accomplished. Slate’s meteorologist, Eric Holthaus, recently estimated that Obama’s plan cuts emissions only about a third of what researchers like Hansen say is necessary.

President Obama’s Clean Power Plan: All Cost, No Benefit -- On Monday President Obama announced the final “clean power plan” regulation for greenhouse gas emissions from electric generating plants, the centerpiece of the broader Climate Action Plan being implemented by the Environmental Protection Agency. Amid the many assertions about the looming climate crisis confronting “the planet,” about which more below, one central parameter was conspicuous by its absence. To wit: What effect on future temperatures—that, after all, is the supposed benefit of the rule—would this regulation provide?   It is no accident that the Clean Power Plan would raise energy costs disproportionately in red states, thus reducing their competitive advantages over blue ones? Do not underestimate the power of wealth redistribution as a force driving policymaking in the Beltway. The president repeatedly used the phrase “carbon pollution,” a propaganda term designed to end debate before it begins by assuming the answer to the underlying policy question. Carbon dioxide is not “carbon” and it is not a pollutant, as a minimum atmospheric concentration of it is necessary for life itself. By far the most important GHG in terms of the radiative (warming) properties of the atmosphere is water vapor; does the president believe that it too is a “pollutant”? Presumably he does not, because ocean evaporation is a natural process. Well, so are volcanic eruptions, but no one argues that the massive amounts of particulates and toxins emitted by volcanoes are not pollutants. The climate debate is desperately in need of honesty and seriousness, two conditions characteristic of neither the Beltway nor the climate industry.

Obama's Climate Fascism Is Another Nail In The Coffin For The U.S. Economy -- Is Barack Obama trying to kill the economy on purpose?  On Sunday, we learned that Obama is imposing a nationwide 32 percent carbon dioxide emission reduction from 2005 levels by the year 2030.  When it was first proposed last year, Obama’s plan called for a 30 percent reduction, but the final version is even more dramatic.  The Obama administration admits that this is going to cost the U.S. economy billions of dollars a year and that electricity rates for many Americans are going to rise substantially.  And what Obama is not telling us is that this plan is going to kill what is left of our coal industry and will destroy countless numbers of American jobs.  The Republicans in Congress hate this plan, state governments across the country hate this plan, and thousands of business owners hate this plan.  But since Barack Obama has decided that this is a good idea, he is imposing it on all of us anyway. So how can Obama get away with doing this without congressional approval? Well, he is using the “regulatory power” of the Environmental Protection Agency.  Congress is increasingly becoming irrelevant as federal agencies issue thousands of new rules and regulations each and every year.  The IRS, for example, issues countless numbers of new rules and regulations each year without every consulting Congress.  Government bureaucracy has spun wildly out of control, and most Americans don’t even realize what is happening.  In the last 15 days of 2014 alone, 1,200 new government regulations were published.  We are literally being strangled with red tape, and it has gotten worse year after year no matter which political party has been in power.

4 charts that show Barack Obama is right to be terrified of climate change, as US government unveils Clean Power Plan - Barack Obama has launched a huge plan to wean America off coal, warning that "no challenge poses a greater threat to our future, the future generations, than the changing climate". And the data show that threat might have already arrived. The release of greenhouses gases, and other forms of pollution, are already having their effect: the ten warmest years on record have all happened since 1998. And Obama has warned that the world must act quickly. "We're the first generation to feel the impact of climate change and the last generation that can do something about it," he said, launching the plan. "There is such a thing as being too late when it comes to climate change." The US is second only to China in coal use, and that is why Obama's plan focuses on slashing emissions from power stations. The plan aims to cut carbon dioxide emissions by 32 per cent by 2030.The industry to burn through fossil fuels and other products helps contribute to the US's huge output of carbon dioxide. The gas makes up 82 per cent of US greenhouse gas pollution, and comes from the burning of other fossil fuels, waste and trees and from chemical reactions, as well as the use of coal.

States Ask EPA To Hold Off On Carbon Emissions Plan - The Clean Power Plan hasn’t been out a week yet, and 16 states have already formally requested that the Environmental Protection Agency (EPA) delay the rule.  The states, led by West Virginia, filed a letter with the department Wednesday asking for an “administrative stay” of the rule that requires all states to cut carbon emissions from stationary power plants. The finalized EPA rule calls for state-submitted plans by September 2018 (with an extension) and reductions beginning by 2022.  The rule gave states two extra years to submit their plans and to begin cutting emissions, over initially proposed timelines. If implemented on schedule, the rule will result in a 30 percent decrease in carbon emissions from the electricity sector, which currently accounts for roughly a third of emissions in the United States.  Wednesday’s letter to EPA Administrator Gina McCarthy argues that the plan is not legal and that “absent an immediate stay, the [plan] will coerce the states to expend enormous public resources and to put aside sovereign priorities to prepare state plans of unprecedented scope and complexity.” The letter requests a response by Friday.  The EPA intentionally left broad flexibility in the implementation plans, which means the states must come up with their own ways of reducing carbon, but are allowed to use their discretion in how best to manage it — including a carbon tax, investments in renewable energy sources, and multi-state trading systems

How China's economy suffers when it tries to cut pollution: Sometimes, Chinese policy making seems to tug the economy in different directions. Take the past week. Premier Li Keqiang paved the way for fresh spending to lay drainpipes across the country's cities, a move that will help ensure the economy hits the annual expansion target of about 7 per cent.  That kind of fiscal spending is exactly the type of stimulatory action that analysts expect from the government as growth slows. On the other hand, authorities in Beijing are also willing to sacrifice growth when it comes to impressing visitors. When the Chinese government welcomes global visitors to Beijing, it doesn't just roll out the red carpet; it also brings on blue skies.It does this by temporarily shutting down surrounding steel mills and coal plants to clear the dense smog that blankets the city most of the time. For example, late last year heads of state from across the Asia Pacific region visited Beijing for the annual Asia Pacific Economic Cooperation summit. The resulting skies became known as "APEC Blue", only for the smog to return at the summit's end. While the smog-clearing tactics may have worked, the economic cost is starting to add up.  Beijing's hosting of the upcoming World Athletics Championships in August and a World War II Memorial in early September have the potential to hurt manufacturing and construction, Goldman Sachs has warned.  The likely disruption in production comes as the world's second-largest economy grows at its slowest pace in 25 years.

The Point of No Return: Climate Change Nightmares Are Already Here - Historians may look to 2015 as the year when shit really started hitting the fan. Some snapshots: In just the past few months, record-setting heat waves in Pakistan and India each killed more than 1,000 people. In Washington state's Olympic National Park, the rainforest caught fire for the first time in living memory. London reached 98 degrees Fahrenheit during the hottest July day ever recorded in the U.K.; The Guardian briefly had to pause its live blog of the heat wave because its computer servers overheated. In California, suffering from its worst drought in a millennium, a 50-acre brush fire swelled seventyfold in a matter of hours, jumping across the I-15 freeway during rush-hour traffic. Then, a few days later, the region was pounded by intense, virtually unheard-of summer rains. Puerto Rico is under its strictest water rationing in history as a monster El Niño forms in the tropical Pacific Ocean, shifting weather patterns worldwide. Even as global ocean temperatures rise to their highest levels in recorded history, some parts of the ocean, near where ice is melting exceptionally fast, are actually cooling, slowing ocean circulation currents and sending weather patterns into a frenzy. Sure enough, a persistently cold patch of ocean is starting to show up just south of Greenland, exactly where previous experimental predictions of a sudden surge of freshwater from melting ice expected it to be. Michael Mann, another prominent climate scientist, recently said of the unexpectedly sudden Atlantic slowdown, Since storm systems and jet streams in the United States and Europe partially draw their energy from the difference in ocean temperatures, the implication of one patch of ocean cooling while the rest of the ocean warms is profound. Storms will get stronger, and sea-level rise will accelerate.

"We're supposed to be smarter than lobsters" -- This is a short addendum to Monday's "destroy the town" post. To be clear, if I thought there was a way to unwind global civilization which minimizes human suffering and preserves a livable Earth, I would be all for it. But I don't see any way to do that. There's going to be a train wreck one way or the other. This Margaret Atwood quote is apropos here. Can we change our energy system? Can we change it fast enough to avoid being destroyed by it? Are we clever enough to come up with some viable plans? Do we have the political will to carry out such plans? Are we capable of thinking about longer-term issues, or, like the lobster in a pot full of water that’s being brought slowly to the boil, will we fail to realize the danger we’re in until it’s too late?Not that the lobster can do anything about it, once in the pot. But we might. We’re supposed to be smarter than lobsters. We’ve committed some very stupid acts over the course of our history, but our stupidity isn’t inevitable. Here are three smart things we’ve managed to do... Atwood lists a few examples of our non-stupidity, but none of them compares to the predicament humankind now finds itself in. "We're supposed to smarter than lobsters," but apparently we're not. Every large-scale trend of the last few centuries backs that conclusion up.If I had a magic button which would wake humans up, I would press that button. Maybe, as a result, we would stabilize CO2 in the atmosphere at ≤450 ppm. But there is no button, and virtually everything humans do, if you follow the chain of events back far enough, results in more carbon dioxide in the atmosphere (or results in more species extinctions, etc.). The global food system? More CO2 every time we eat. That's just the way it is.

What do We Learn from the Missing Piece in Hillary Clinton’s Energy Plan? -- This week Hillary Clinton rolled out an ambitious policy proposal on energy and climate change. It sets the goal of generating a third of US energy from renewable resources by 2027. It builds on the Obama administration’s Clean Power Plan, but regards that plan’s goals as a floor, not a ceiling. It calls for extensive federal investment in research and infrastructure. It proposes generous tax incentives for private industry. Yet one piece is conspicuously missing: There is no carbon tax or any other mechanism for putting a price on carbon emissions. Any energy policy that does not include a carbon price is deeply flawed. As her primary opponent Sen. Bernie Sanders put it in a Huffington Post op-ed last year, “A carbon tax is the most straight-forward and efficient strategy for quickly reducing greenhouse gas emissions.” The Clinton plan intentionally omits the best way to limit carbon emissions in favor of others that are both more complex and less efficient.  Clinton’s fact sheet pays lip service to leveling the playing field for clean energy, but the only way to really do that is by putting a price on carbon. A carbon tax puts pressure on both users and producers of all forms of energy that is proportional to their contributions to total emissions. It treats energy used for all purposes equally. At the same time, it allows users or producers to respond flexibly, cutting back use by a greater or lesser amount according to how easy it is technically to do so, and how valuable the foregone production or consumption is.

Cap and Trade and Polarization - Paul Krugman - One of the most obvious facts about the U.S. political scene is also a fact most pundits refuse to acknowledge: the extreme polarization we now experience, the complete disappearance of any kind of political center, is not a two-sided phenomenon. Democrats haven’t moved drastically to the left — if anything they inched right for a couple of decades, and are only now shuffling slightly back toward a more robust liberalism. But Republicans have barreled off to the right. This is, as I said, obvious — except that for those whose whole professional self-image involves standing between the supposed extremes, it’s too painful to acknowledge. So it’s worth pointing out specific policy areas where we can trace the positions of the parties explicitly. One prime example is, of course, health reform: yes, Obamacare is identical in all important respects to Romneycare, which in turn followed a blueprint originally propounded at the Heritage Foundation. Environmental policy may, however, be an even better case. Cap and trade began as a Republican idea — a corrective to command-and-control regulation. There was, in fact, a time when many Democrats disliked the idea of using market mechanisms to limit pollution, so this was a case of Republicans pushing policy in the direction of good economics. Bush the elder introduced cap and trade to control acid rain; John McCain even sponsored a climate change bill that relied on cap and trade.  But now Republican candidates for president are scrambling to declare themselves against the Obama administration’s proposals; Mitch McConnell is urging states to defy the feds and refuse to implement the regulations. 

Why Carbon Taxes Would Be the Ultimate Energy Game-Changer - Last on the list of investment imperatives, and usually least on investors’ minds, is the question of unpleasant side-effects, which Adam Smith called externalities. If you dump garbage on your neighbor’s yard, are you not liable for the cost to clean it up?  Does it matter if nearly everyone else is doing it, or at least playing along? The only reason many fossil fuel operations are ‘cost-effective’ is that their side-effects are socialized, i.e. the neighbors have to pay for cleaning up the garbage that comes their way. The greatest subsidy of all for fossil fuels is the emission of CO2 without having to pay for it. It is, therefore, arguable that the single greatest weapon in the battle to mitigate climate change would be to put a price on carbon. The IEA reckons the annual value of direct subsidies to the fossil fuel industry runs over $500 billion. An IMF working paper released this month (How Large Are Global Energy Subsidies?) figures that the “Post-tax energy subsidies are dramatically higher than previously estimated—$4.9 trillion (6.5 percent of global GDP) in 2013, and projected to reach $5.3 trillion (6.5 percent of global GDP) in 2015.”“The fiscal, environmental, and welfare impacts of energy subsidy reform are potentially enormous. Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 percent of global GDP), cut global CO2 emissions by more than 20 percent, and cut premature air pollution deaths by more than half. After allowing for the higher energy costs faced by consumers, this action would raise global economic welfare by $1.8 trillion (2.2 percent of global GDP).” Critics of renewable energy, seemingly blind to the massive subsidies devoted to fossil fuels and nuclear energy, complain that solar and wind energy depend upon subsidies. It is true that they have, in the past; it is also true that subsidies are no longer necessary.

Are all tax increases a bad thing? -- Not necessarily. And yet, Greg Mankiw: As long-time readers of this blog know, I have long advocated greater use of Pigovian taxes, such as taxes on carbon emissions. Skeptics of Pigovian taxes on the right sometimes argue that such taxes are good in principle but in practice the left will co-opt them and, rather than using the revenue to reduce other taxes, will use it to fund ever larger government. Sadly, that point of view is getting some support in Washington state.   Some environmentalists want to use the revenue from the proposed carbon tax to increase spending instead.  I believe that a carbon tax could someday win bipartisan support.  But before it does so, those on the left will need to convince those on the right that the tax would be a tax shift, not a tax increase.  The carbon tax needs to be evaluated on its own merits and should not be a stalking horse for a broader, big-government agenda. The standard textbook treatment of a Pigouvian tax is agnostic on what happens to the revenue. It could be used efficiently to finance other projects..., reduce distortionary taxes or reduce government debt... Mankiw's last paragraph strays far from the economics and is one-sided in its condemnation of those on the political left. A bipartison paragraph would read more like this: those on the left will need to convince those on the right that the tax would be a tax shift, not a tax increase.  And those on the right will need to convince those on the left that the tax is not trojan horse for a tax cut for the rich. The carbon tax needs to be evaluated on its own merits. Period. ...

More on what to do with carbon tax revenue, and etc.-- Yesterday I commented on Mankiw's post where he inexplicably linked carbon tax revenue to lower income taxes, as is his wont. We received a comment about the optimal Pigouvian tax. I think this excerpt summarizes well: Even in the simplest settings there's also a tax-interaction effect whereby a pigou tax, by causing substitution between output goods, somewhat increases the social costs of other distortionary taxes like income taxes. My thinking is that a carbon tax would generate positive net benefits and should be favored by economists. Indeed, most economists do favor higher energy taxes with no strings attached (according to a survey of AEA members and a survey of AERE members).  And this is where economists who wade into public policy mess things up really badly, in my opinion. Economists will seemingly argue against a Pigouvian tax if it is not "optimal" (where the tax rate is equal to the marginal external cost) or if it doesn't achieve their preferred "win-win" policy combination (e.g, a carbon tax paired with lower income taxes). Similarly, economists who argue, in a public forum, against cap-and-trade because it might be less efficient than a carbon tax are getting it all wrong.  Economists should focus on first-order effects when wading into a public policy debate. Second-order effects (e.g., what should be done with carbon tax revenue) should be debated amongst ourselves in the journals or other less public outlets. Debates about second-order effects make it appear as if we disagree about first-order effects (i.e., basic economic principles) and the public thinks that we don't agree about anything.

Campaign 2016: Where Are The Candidates On Energy?  - As the U.S. Presidential campaign starts its inevitable ramp up, one issue investors should consider is each candidate’s views on energy especially since energy policy has been consistently important in recent elections. For all of the talk about clean energy, the reality is that U.S. carbon dioxide emissions have come down primarily as a result of shale gas and oil displacing coal. Solar power is only just now getting to the point where it is cost effective versus conventional fossil fuels, and wind power is a bit further along, but still has a ways to go before it becomes a reliable generation source. Presidential candidates, especially on the left, prefer to talk more about clean energy than the benefits of fracking, but investors need to consider both aspects of energy policy. On the Republican side, there are so many candidates that the nuances of most individual views have been lost amongst the shuffle. Nonetheless, a few trends do stand out. For instance, from front-runner Jeb Bush on down through the pack, most of the Republican group is skeptical about the impact man-kind is having on the Earth’s climate. Just about all are in favor of the Keystone XL pipeline and presumably would be supportive of more domestic fossil fuel production in general. There are a few differences here and there, however.

Charles Koch Blasts Subsidies & Tax Credits, But His Firm Has Taken $195 Million Worth of Them -- Billionaire Charles Koch told a gathering of conservative donors Saturday that politicians must end taxpayer-funded subsidies and preferential treatment for corporations. That message, though, came from an industrialist whose company and corporate subsidiaries have raked in tens of millions of dollars worth of such largesse. “Where I believe we need to start in reforming welfare is eliminating welfare for the wealthy," said Koch, who along with his brother David are among the biggest financiers of conservative political causes. "This means stopping the subsidies, mandates and preferences for business that enrich the haves at the expense of the have nots." Yet, in the last 15 years, Koch's firm Koch Industries and its subsidiaries have secured government subsidies worth more than $166 million, according to data compiled by the watchdog group Good Jobs First. The group says since 1990, Koch-owned properties have received more 191 separate subsidies worth a total of $195 million. Koch Industries and its subsidiaries, which are a privately held, are involved in everything from oil refining to manufacturing to high finance. In 2012, Charles Koch issued a similar jeremiad against government-sponsored subsidies for corporations. In a Wall Street Journal op-ed, he said, “We are on dangerous terrain when government picks winners and losers in the economy by subsidizing favored products and industries.” He specifically derided tax credits -- yet even after the op-ed, Koch-owned properties accepted more than $77 million worth of such taxpayer-funded preferences from governments, according to Good Jobs First.Among the biggest subsidies Koch-owned properties has received is a $62 million property tax abatement from Louisiana for Georgia Pacific -- a paper and chemical conglomerate that was acquired by Koch Industries in 2005. Georgia Pacific also received a separate $11 million tax credit from Louisiana in 2014 to upgrade its facilities.

G20 countries pay over $1000 per citizen in fossil fuel subsidies, says IMF - Subsidies for fossil fuels amount to $1,000 (£640) a year for every citizen living in the G20 group of the world’s leading economies, despite the group’s pledge in 2009 to phase out support for coal, oil and gas. New figures from the International Monetary Fund (IMF) show that the US, which hosted the G20 summit in 2009, gives $700bn a year in fossil fuel subsidies, equivalent to $2,180 for every American. President Barack Obama backed the phase out but has since overseen a steep rise in federal fossil fuel subsidies. Australia hosted the most recent G20 summit, where prime minister Tony Abbott was forced to reaffirm the commitment to the phase out, but it still gives $1,260 per head in fossil fuel subsidies.  The UK, which is cutting renewable energy subsidies, permits $41bn a year in fossil fuel subsidies, which is $635 per person. In contrast, Mexico, India and Indonesia, where per capita subsidies average $250, have begun cutting fossil fuel support. The vast fossil fuel subsidies estimated by the IMF for 2015 include payments, tax breaks and cut-price fuel. But the largest part is the costs left unpaid by polluters and picked up by governments, including the heavy impacts of local air pollution and the floods, droughts and storms being driven by climate change.

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. “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. However, Kyte said that when it came to lifting countries out of poverty, coal was part of the problem – and not part of a broader solution. “If they all had access to coal-fired power tomorrow their respiratory illness rates would go up, etc, etc … We need to extend access to energy to the poor and we need to do it the cleanest way possible because the social costs of coal are uncounted and damaging, just as the global emissions count is damaging as well.”

Will Greece ignore the economic omens and go for new coal? - WWF CrisisWatch: In the current dismal economic setting, the construction of the new lignite power plant by Greece's Public Power Corporation constitutes a completely irrational move: the public energy utility will need to disburse 400 million euros for a project that has been proven to be economically non-viable. By insisting stubbornly on the construction of Ptolemaida V, the PPC threatens to entrap Greece in an outdated energy model, at a time when technological progress renders clean energy a cost-competitive basis for the reconstruction of the country’s production model. The construction of Ptolemaida V is currently at an advanced licensing stage. However, the start of the actual work requires a deposit of 400 million euros within 2015, which will come from PPC’s own funds, at a time when the company is in the worst possible financial state.The decision to construct Ptolemaida V was taken several years ago, when the status of the Greek economy, as well as that of the European and global climate and energy policy, were very different. During the last year and a half though, the data have changed dramatically, and hence the decision to construct Ptolemaida V requires careful reconsideration. If finally built, Ptolemaida V will be the country's largest lignite-fired plant, with a capacity of 660 MW and an installation cost of at least 1,4 billion euros. Approximately one half of this amount will be provided by a syndicated bond loan to PPC under the guidance of the German government-owned KfW-IPEX Bank and guaranteed by the German Export Credit Agency, Euler Hermes. This money will be used to purchase German-made equipment for the new plant. PPC has already commissioned the construction of Ptolemaida V to a consortium led by TERNA.

This Coal Mine Valued At $630 Million In 2011 Just Sold For One Dollar -- The following photos are from Australia's Isaac Plains coking-coal mine.  Why is Isaac Plains relevant? Well, in 2011 at the height of the Australian mining boom, Japanese conglomerate Sumitomo thought it has spotted a bargain, and a SMH reports, it approached Tony Poli, the founder of mid-tier miner Aquila Resources with an offer: it would buy its 50% stake in Isaac Plains, at the time Aquila's only producing mine, for $430 million.  Market participants thought Aquila's stake might fetch $300 million at best but Sumitomo was confident it would make a strong return, and offered almost 50% above fair value, especially since Brazil's legendary mining company Vale owned the other 50% stake.  Net, the total value of the Isaac Plains mine in 2011 just just about $630 million.  It turns out Sumitomo was very, very wrong, and within a few years the writing was on the wall. In September 2014, Sumitomo and Vale shuttered the mine citing the downturn in the international coal market. Sumitomo said it would also take a writedown worth ¥30 billion ($11 million) on its Australian coal investments. And as SMH tongue in cheekly adds, Isaac Plains was added to the long list of coal mines up for sale – but at a price. That price was finally revealed on Thursday: the princely sum of $1.

Ohio to fight Obama plan curtailing coal power plants -- Ohio and other states that rely heavily on coal for electricity will have to make major changes in how they power their homes and businesses over the next 15 years under President Barack Obama’s unprecedented plan to drastically curb greenhouse-gas emissions. Obama said on Monday that the average household would save $85 a year on energy costs, while dramatically reducing the types of greenhouse-gas emissions that lead to harmful climate change. Scientists overwhelmingly agree that manmade changes already are causing severe storms, droughts and rising sea levels. Coal-industry leaders and Ohio officials said they plan to sue to prevent the rules from taking effect. Obama’s Clean Power Plan includes more-stringent controls on carbon dioxide emissions than initial plans proposed in 2014. The finalized plan calls for a 32 percent cut in overall carbon dioxide emissions by 2030 from 2005 levels. Initial plans unveiled last year called for a 30 percent cut. Each state will have to make different cuts to meet that mark. Under the 2014 proposal, Ohio would have had to cut 28 percent of its greenhouse-gas emissions from power plants. It is unclear what the plan unveiled on Monday will mean for Ohio. But Ohio will have until September 2018 to create a plan, two years longer than last year’s proposal called for. Under the finalized plan, each state must hit its interim target by 2022 and its final target by 2030. Murray Energy, an Ohio-based underground coal-mining company, already had filed five lawsuits challenging last year’s proposal. Ohio and several other states joined Murray’s lawsuits.

Columbia Gas average 'budget' rate falls to $63 - The price of heating your home this winter is expected to be lower than last year. Columbia Gas of Ohio said on Monday that the typical budget-billing customer will pay $62.88 a month over the next 12 months for natural gas. That’s down from the $80 a month average last year. The decline reflects cheaper natural-gas prices as supplies have grown, the company said. Natural-gas prices that were averaging more than $4 per 1,000 cubic feet of gas in 2014 have now dipped to about $3, said Michael Anderson, Columbia’s gas supply and market expert. He credited the drop in price to the success of drilling in the nearby Utica and Marcellus shale areas, he said. “With the kind of phenomenal success of the Marcellus shale with the Utica shale, we have seen an enormous increase (in supply) in the U.S.,” he said. “Most of that increase is centered right here in the Appalachian basin.” Gas prices were at a record high as recently as 2008.

Nexus Pipeline names 91 in Summt County access lawsuit -- Jane Carl of New Franklin says she is convinced that natural gas pipelines are a risk and are dangerous. Tim Samples says he doesn’t want a large pipeline on his 31 acres in New Franklin. Judy Knapp and Bobby Geer of Green twice allowed surveyors for the Nexus Pipeline on one parcel they own off South Arlington Road but denied access to parcels they own off Koons and Thursby roads. “It became a push, push, shove kind of thing,” Knapp of repeated access requests.  They are among 91 residents of Green and New Franklin who were named defendants in a lawsuit filed Thursday  file by Texas-based Nexus Gas Transmission LLC over access to properties. The company is seeking a temporary restraining order in Summit County Common Pleas Court to force property owners tp allow surveyors access to their land. There was no hearing on Thursday on the company’s request. The case has been assigned to Common Pleas Judge Mary Margaret Rowlands. Attorney David Mucklow, who has been fighting the pipeline, filed a 16-pare response to the comapny’s request. The pipeline company notified residents on Wednesday that it intended to take the legal action. The company said it needs access to the private property for the purpose of building the proposed $2 billion Nexus Pipeline that would cross northern Ohio to carry natural gas from the Utica Shale.

Athens citizen protests county charter -- A protest was filed last Wednesday against placing on the Nov. 3 ballot a proposal to turn Athens County into a charter government, with an anti-fracking “community bill of rights.” After an opposition group declined to file a protest with the Ohio Secretary of State’s Office via the Athens County Board of Elections early last week, Athens resident Joanne Prisley, along with local attorney Michael. M. Hollingsworth, on Wednesday went forward with a protest of their own. While the opposition group claimed to have been told they could only object to the number of valid signatures in favor of the proposal, the filing from Hollingsworth and Prisley doesn’t address the signature issue. Rather, it raises issues of unmet deadlines, concerns that the charter reaches beyond its scope, and includes unauthorized zoning regulations. The Ohio Secretary of State’s office, which acknowledged receiving the protest on Friday, has 10 days to respond on whether or not to let the issue go to the voters. While the Secretary of State’s office did not return a call requesting comment Friday, a local elections board employee said the office had contacted them requesting a copy of Athens County Common Pleas Judge George McCarthy’s ruling ordering the proposal be placed on the ballot. McCarthy issued his ruling after the Board of Elections initially rejected the proposal, not because petitions for the ballot initiative didn’t have enough valid signatures (they did), but because board members felt the proposal did not meet the minimum standards for proposing an alternative charter government for the county.

Athens County charter protest one of three to be decided -  Ohio Secretary of State Jon Husted will not only rule on the validity of the proposed Athens County charter issue, but also similar issues from Fulton and Medina Counties. Husted has issued an advisory outlining the process that will be followed in reaching a decision on whether the proposed charters in the three counties will appear on the November ballot. Last month, the Athens County Commissioners unanimously voted — despite concerns voiced by Commission President Lenny Eliason — to send the proposed Athens County charter to the local board of elections for placement on the fall ballot. That prompted the filing of a protest with the elections board by Athens resident Joanne Prisley, which by law sent the matter to Husted to decide. The proposed charters in all three counties are nearly identical. All three seek to make it illegal in the counties to store, treat or dispose of waste from high-volume horizontal hydraulic fracturing (a type of fracking), including disposal by injection wells. Also, they seek to prohibit the use of water from the counties for high-volume hydraulic fracturing. However, the proposed charters in Fulton and Medina Counties include restrictions on oil and gas exploration, production and infrastructure not included in the proposed Athens County charter.

A response to a response...   athensnews.com: In response to Dick McGinn’s op-ed on this page, I wanted to make a few quick clarifying points, without being argumentative. When I criticized the Center for Environmental Legal Defense Fund in my column July 30, I was not suggesting that the local Bill of Rights efforts had been “hijacked” by the Pennsylvania-based CELDF, or questioning the motives of local folks sincerely worried about oil-and-gas fracking and injection wells. I raised issues about the CELDF’s tactics, motives and legal arguments because the city and county Bill of Rights laws, advocated by citizen committees in the city and county, are based on a template (almost word for word) provided by the CELDF. That template does not have a winning record in Ohio and other courts across the country. In fact, it has a winless record according to the Reuters report of June 29. Any future court will rule on the CELDF-inspired language in the Bill of Rights ordinances for Athens city and county, and not the worthy intentions of the local groups advocating those laws. On the other hand, raising serious issues about the Bill of Rights approach should not be confused with a lack of concern over drilling activities in Athens County, especially injection wells. An Ohio Supreme Court decision last February suggested there might be a legal way to use zoning to reduce drilling-related threats to local water supplies and other natural resources. If effectively restricting injection wells and fracking is the goal, local efforts should be redirected toward strategies designed to have a fighting chance in Ohio courts.

Rex Energy posts loss as revenue drops - Rex Energy lost $155.2 million during the second quarter as revenue from the sale of oil and natural gas dropped, the company announced Tuesday in a press release. The loss works out to $2.87 per basic share. Rex Energy will hold a conference call with analysts Wednesday morning. The State College, Pennsylvania-based driller produced the equivalent of 206.8 million cubic feet of natural gas a day. That was 6 percent more than the first quarter of this year, and an increase of 61 percent over the second quarter of 2014. Rex’s production mix was 131.1 million cubic feet of natural gas per day and 12,600 barrels of oil equivalent per day of liquids. Those liquids — condensate, oil and natural gas liquids — accounted for 37 percent of the company’s production. Even with production up, Rex had just $45.8 million in operating revenue from the sale of natural gas and liquids, a drop of 37 percent from the same period last year. With hedging, the company sold its oil and condensate for $56.99 per barrel and sold its natural gas for $2.53 per thousand cubic feet. Rex spent $26.8 million on Marcellus and Utica shale drilling. That included drilling five wells, fracking eight wells and placing four wells into production. The company has 31 Utica wells producing in Ohio, according to the state’s Department of Natural Resources.

Chesapeake is putting Ohio on hold - Chesapeake Energy Corp. has decided to cut back on its operations in Ohio until the pipeline that will deliver its Ohio natural gas to the Gulf Coast is completed. Last month, Chesapeake announced it would begin cutting back its Utica Shale gas production by 100 million cubic feet per day. According to Chesapeake executives, until November, when the Ohio Pipeline Energy Network is planned to be online, the company will up its cut backs to 275 million cubic feet per day. As reported by the Columbus Business First, the Appalachian region “is awash in natural gas because of the incredible production from the Utica and Marcellus shale plays, and that means drillers aren’t getting the prices they want when they try to sell it here. Chesapeake is choking or shutting-in wells instead of selling low.” It is no shock that Chesapeake has decided to cut back its production for now. As the company’s Executive Vice President for Exploration and Land Frank Patterson explained, the difference between this year and last year’s oil and gas production is “dramatic.” The downturn the industry has faced over the past several months is the main reasoning behind companies like Chesapeake cutting back. However, while putting a hold on much of its production, Chesapeake’s production did manage to grow 13 percent when compared to last quarter. Currently, the company has an estimated one million leased acres located in the Utica Shale formation. During 2014, Chesapeake ran eight rigs in the region and this year that number dropped to four. By the second half of this year, the company is expected to only have two rigs running.

Once Burned, Twice Shy? Utica Shale Touted to Investors As Shale Drillers Continue Posting Losses -- For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another. The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet. “This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement - and go beyond - what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University's Energy Institute, told the Associated Press. But those considering investments based on the Utica's potential may want to pause and consider the shale industry's long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn. “The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons. Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.

UTICA SHALE BULKS UP - -- Call it the Golden Triangle of natural gas. The region where southwestern Pennsylvania, southeastern Ohio and northern West Virginia mash up near the Ohio River is turning out to be the natural gas version of Fort Knox. Monster dry gas wells seem to be fulfilling the promise of geologists who claim Utica Shale production might end up being bigger than its Marcellus cousin.  That’s saying something, because the Marcellus already produces more than 17 billion cubic feet per day (Bcf/d) and is the largest producing gas field in the world. As a result, traditional Appalachian pipeline flows are changing for the first time since the 1940s, with gas and NGLs now set to flow south to the Gulf Coast, east to New Jersey and Maryland LNG export points, and west via the reversed Rockies Express Pipeline to Midwest markets.  Bernstein Research forecasts that by 2018, the Marcellus and Utica combined will produce 23 Bcf/d or a third of all U.S. gas production. About 3.7 Bcf/d of new and expanded pipeline capacity comes on line this year and another 6 Bcf/d comes on line in 2016.  Like other shale plays, the Utica offers a basket of opportunities via its wet, dry and condensate/oil windows. It is larger than the Marcellus in areal extent throughout the Appalachian region and is a thicker reservoir, but it’s found deeper, so is more expensive to drill. Its ultra-rich gas areas boast some of the lowest breakeven prices in the U.S.   Rice Energy Inc. claims its Utica dry gas breakeven price is $2.35/MMBtu; wet gas is $2.05. However, thanks to low oil prices that hurt condensate realizations, producers have been focusing on the Utica’s dry gas window, and that is turning up some huge prizes.  Most of the permits to date are east of Interstate 77. “The infrastructure is partly driving that and, of course, the geology is speaking,” said Rick Simmers, chief of the Ohio Department of Natural Resources, Division of Oil & Gas. “We believe when commodity prices recover, some exploration will go west of I-77 again.”

FBI investigating possible threats against PennEast employees - The FBI is investigating letters sent to PennEast, the company proposing a controversial natural gas pipeline that would span 114 miles from Wilkes-Barre to Mercer County, N.J., for possible threats against company employees. PennEast has received plenty of “spirited” comments since entering the public comment phase of the project last October, but several letters received in April caused enough concern that the company turned them over to authorities, said PennEast spokeswoman Patricia Kornick. She declined to specify the nature of the alleged threats contained in those letters, but said the company has since hired a private security firm to provide extra protection for employees. Kornick wasn’t certain how many letters the company received, but said the FBI has been investigating since April. “There is a strong organized movement of opposition regarding natural gas, so as a precaution, many firms will hire additional security for the safety of their employees and they will also step up security when there are public meetings,” Kornick said.

Marcellus permit activity in Pennsylvania, July 27th through August 2nd - The Marcellus Shale formation in Pennsylvania saw a little bit of action over the last week, but well activity isn’t the only area of the oil and gas industry in Pa. that has seen some action. Apparently employees of one Pennsylvania pipeline company has received death threats in conjunction with a current project. Since entering the public comment phase of its proposed 114 mile natural gas pipeline last October, PennEast has received numerous vocal comments from the public regarding the pipeline.  However, in April the company received several threatening comments and handed them over to authorities to investigate.  Patricia Kornick, PennEast’s spokesperson, did not go in depth as to what the comments contained, but she did say PennEast has hired a private security firm to supply its employees with extra protection. The FBI took over the investigation in April, and it has not been stated how many letters it has looked into. To read The Morning Call’s entire story regarding the FBI investigating threatening comments sent to PennEast, PennEast, click here. The following information is provided by the Pennsylvania Department of Environmental Protectionand covers July 27th through August 2nd.  New: 23 - Renewed: 1

The future of natural gas in America -- Natural gas, once the main part of the equation in the transition from coal to renewables, has been replaced by … nothing at all. The new climate change rule for power plants suggests instead a direct transition from coal to renewables. Now, this is not the way to make friends. Especially since the gas industry held different expectations based on last year’s proposed clean power plan. As reported by The Guardian, “Under the clean power plan as proposed by Obama in June last year, gas would have permanently overtaken coal as the largest energy source by 2020.” Enter 2015 and gas is the uncle with the noticeable toupee left out of the family photo. Obviously, the gas industry is up in arms about not having a place at the clean power table.As reported in The Hill, Frank Macchiarola, the top lobbyist for America’s Natural Gas Alliance, said “the president presented a ‘false choice’ between natural gas and renewables… The fact is that for a diverse fuel supply, you’re going to need both out into the future. The likely scenario is that natural gas will be part of the long term picture because wind and solar are intermittent power sources.” Since power sources behave differently and our energy appetite is unlikely to decrease in the near future, it seems wise to have a wide range of energy sources.On the other side of this debate are the environmentalists, who are quite frankly thrilled with leaving gas out of the picture.  According to The Hill, “We’re thrilled about any opportunity to replace coal directly with renewable energy, because the whole idea of natural gas as a bridge fuel has become debunked as we get more and more understanding of how bad natural gas is, and how ready to go renewable energy is,” said Julian Boggs, the global warming outreach director for Environment America. “Deploying as much renewable energy as possible is essential to solving global warming. Natural gas can’t solve global warming.”

Methane Leaks May Greatly Exceed Estimates, Report Says - The New York Times#: A device commonly used to measure the methane that leaks from industrial sources may greatly underestimate those emissions, said an inventor of the technology that the device relies on.The claim, published Tuesday in a peer-reviewed scientific journal, suggests that the amount of escaped methane, a potent greenhouse gas, could be far greater than accepted estimates from scientists, industry and regulators.The new paper focuses on a much-heralded report sponsored by the Environmental Defense Fund and published by University of Texas researchers in 2013; that report is part of a major effort to accurately measure the methane problem. But if the supposed flaws are borne out, the finding could also have implications for all segments of the natural gas supply chain, with ripple effects on predictions of the rate of climate change, and for efforts and policies meant to combat it. Almost all of the methane leakage calculated from the Texas research “could be affected by this measurement failure,” according to the paper; “their study appears to have systematically underestimated emissions.” The new paper describes a pattern of low measurements of leaks by the Bacharach Hi Flow Sampler, a device approved by the Environmental Protection Agency for its required monitoring of natural gas facilities and in use around the world.

13 Arrested at Crestwood Blockade While Reading Pope Francis’ Encyclical on Climate Change -- Early this morning, in a peaceful civil disobedience action against gas storage in Seneca Lake salt caverns, which took place the day after President Obama announced the Clean Power Plan to move the nation away from fossil fuels, 13 people from six New York counties were arrested while reading verses from Pope Francis’ recent encyclical letter on climate change. Just after dawn, the 13 formed a human blockade at the north and south entrances of Crestwood Midstream’s gas storage facility on Route 14, preventing all traffic from entering or leaving and began their reading. Joining the pontifical read-aloud was the Rev. John D. Elder, former pastor of the historic First Church in Oberlin, Ohio and present part-time resident of Schuyler County. Rev. Elder was not arrested.

Landowners unable to terminate aging pipeline contracts -- Sarah “Sally” Birkner stood on a hill of her property and watched as fire from a natural gas pipeline explosion 20 miles away near Cuero burned itself out. . Under her property was a 40-year-old pipeline she battled about in court for two years.  She feared if the pipeline under her land became operational again, it would destroy the place she and her family have shared for more than 100 years. About half of the state’s extensive network of oil and gas pipelines were built before 1970, according to Pipeline and Hazardous Material Safety Administration data. Some, like the one under Birkner’s property, haven’t had product sent through them for years. Three feet below the earth’s surface, they’ve been out of sight and out of mind. But Texas pipeline companies said landowners aren’t in the clear. Legal experts say the companies are using the law to redefine use to hold on to the pipelines and the thin strips of land that run over them. As a result, landowners are finding themselves battling over easements that they thought was rightfully theirs. Birkner’s family and neighbors have built their homes and livelihood on top of the 30-something mile pipeline, which they believed was abandoned. The landowners say the pipeline company didn’t keep brush and trees down or maintain signage posted above the line. The company also didn’t respond to requests to build or dig over the top of the pipeline, landowners say. Yet, two years ago, landowners were told because the company kept an electrical current on the pipeline to prevent corrosion, the company’s ownership of the line and the land over it remained intact.

Two companies continue cuts in Texas energy industry Two Houston-based oilfield companies have announced more job cuts on the horizon for Texas. National Oilwell Varco and Cal Dive International will cut a combined 276 jobs this month, according to state regulators on Monday. Fuel Fix reported that Cal Dive, which filed for Chapter 11 bankruptcy protection in March, told the Texas Workforce Commission it is closing two facilities on August 31. Its Houston and Port Arthur location closings total 126 employee layoffs. Over the next few months, National Oilwell Varco will begin the closing transition of its facility in Willis, Texas, sometime Mid-August. The company has stated that it will cut 510 jobs in the process. The firm stated that it had 63,600 employees at the end of last year. In related news, Chevron pulls nearly 1,000 jobs in Houston. According to Houston-based oil industry recruiter Swift Worldwide Resources, due to the unstable and low prices of crude, 176,100 jobs have been lost worldwide. The estimate rose by 10,000 in June and another 14,500 in July. Even worse, there’s no sign whatsoever that layoffs are over for the year. The industry can only hope that the worst is over. Fuel Fix stated that Cal Dive International’s main operations involved sending manned diving vessels to offshore oil-production sites to help with maintenance and inspection. National Oilwell Varco builds blowout preventers and other equipment for the oil industry.

Oklahoma regulators impose water injection cut to stem earthquakes - – Oklahoma regulators are imposing new restrictions on energy companies injecting wastewater underground, in the latest effort to stem a sharp increase in earthquakes. The new rules, announced by the Oklahoma Corporation Commission on Monday evening, require operators in parts of two Oklahoma counties to reduce the amount of saltwater they inject underground by 38 percent from current levels in the next 60 days. The reduction will bring injected volumes to about 2.4 million barrels below those in 2012, when the most dramatic spike in the area earthquakes began. The restrictions affect 23 wells run by 12 operators. The operators are mostly small companies, but one of the wells is run by Devon Energy Corp of Oklahoma City. The state has about 3,500 saltwater disposal wells. Oklahoma and several other central U.S. states have experienced a big increase in earthquakes since 2009. Scientists attribute this to increased underground injection since then of briny wastewater, a byproduct of booming oil and gas production. Noticeable quakes, above magnitude 3.0, now strike Oklahoma at a rate of two per day or more, compared with two or so per year before 2009.After three quakes of magnitude 4.0 or higher struck the state in a single day last month, the commission required operators of more wells to prove they are not injecting water below the state’s deepest rock formation, a practice believed to be particularly dangerous. Monday’s move goes beyond past restrictions by capping the amount of water operators in certain areas can inject at any depth. Many of Oklahoma’s most active oil and gas fields have high amounts of naturally occurring water, and a reduction in the amount of water that can be injected could mean lower production of oil and gas. Kansas, which has also had a spike in quakes, undertook a similar move in March.

Oklahoma Cracks Down on Disposal Wells To Reduce Earthquakes - Oklahoma is requiring energy companies to greatly reduce the amount of wastewater they inject below ground in an earthquake-prone part of the state to determine whether this step could reduce the number of quakes that have plagued the state in the past few years. Under new rules announced the night of Aug. 3 by the Oklahoma Corporation Commission, 12 companies operating in a 40-mile tract northeast of Oklahoma City must reduce by 38 percent the amount of wastewater they inject into 23 disposal wells over the next 60 days. The commission, whose Oil and Gas Conservation Division issued the regulations, said they will cut wastewater volume by about 2.4 million barrels below their level in 2012, when a sudden increase in earthquakes began in the area.  In fact, there’s been a marked increase in the number of earthquakes in Oklahoma and several other central states since 2009. Various scientific studies say they are caused by a corresponding increase in the underground disposal of salty wastewater, a byproduct of the recent boom in oil and gas drilling in the region. Producing oil and gas generates this wastewater whether it is extracted conventionally or by hydraulic fracturing, also called fracking. Scientists say this newly disposed wastewater finds its way into cracks in underground rock, loosening them until they slip under the pressure of weight of rocks above them.

Ruptured gas line causes large explosion in N Colorado - — A worker digging a trench on a northern Colorado ranch hit a high-pressure gas line, sparking an explosion that sent flames several hundred feet into the air and touched off a small grass fire. Sean Standridge, a spokesman for the Weld County Sheriff’s Office, tells The Greeley Tribune (http://goo.gl/UJiZAB ) an employee for DCP Midstream hit the 12-inch gas line at the Wells Ranch east of Lucerne on Thursday afternoon. The worker was not injured, but the trenching machine was destroyed. Fire crews recommended that residents within a 2-mile radius of the fire leave their homes. The fire is in an area with few homes. PDC Energy and DCP Midstream officials were at the scene Thursday.

Surrounded by frac mine, Blair couple put farm in conservation - The land around Mary Drangstveit’s farm is changing. Earth movers and graders have replaced farm tractors and combines. Hillside has been stripped bare, lowlands filled with yellow soil. A silica sand mine is moving in. “This was all farm fields,” she said, gesturing across the road. “It has become an unbelievable mess.” But Drangstveit, 72, is determined to make her 120-acre hobby farm and home of 42 years an oasis amid the sand piles. On Wednesday, she signed a conservation easement, ensuring the land can’t be developed. During the past decade, advances in a drilling technique known as hydraulic fracturing — or “fracking” — opened up vast stores of gas and oil in North America, spurring demand for fine-grained silica used in the process. With its ample supply of sand and access to rail lines, Trempealeau County has been at the center of a frac sand mining boom. As of 2014, there were more than two dozen proposed or operating mines. Leland Drangstveit said it was about four years ago that a neighbor drove up and told him a mine was coming and that the neighboring land would be annexed into the city. “I thought, ‘Who the hell are you?’ ” Drangstveit said. Then last fall, neighbors started selling — for big bucks. A one-acre parcel went for $300,000; one six-acre site fetched $850,000. A 70-acre farm: $3 million. All told, the Houston-based company paid out nearly $24.6 million for 1,152 acres, according to state property records — more than 4.5 times the statewide average value for farmland. Today, the Drangstveit farm is girded on three sides by mine property.

Minnesota Public Utilities Commission sets outline for Sandpiper pipeline route process - The Minnesota Public Utilities Commission on Monday released expected guidelines for the process for approving a route for Enbridge Energy’s proposed Sandpiper oil pipeline. The order will require the Minnesota Department of Commerce to study the cumulative environmental impact of locating two new pipelines in one new corridor — the Sandpiper line and the Line 3 replacement — as the company has proposed. The PUC order Monday won’t delay Enbridge’s expected schedule of having a route for the new oil line approved in 2016 and the line moving oil by 2017, said Loraline Little, Enbridge spokeswoman. “It’s restating the route process, laying it back out going forward,” she said. Opponents to the pipeline contacted Monday said they hadn’t had time to digest the PUC order. The all-new, 616-mile Sandpiper pipeline is proposed from Beaver Lodge in northwestern North Dakota’s Bakken oil field to Superior. About 300 of those miles are across northern Minnesota. The company hopes to begin work on the line in 2016 and have it moving oil by 2017 — about 375,000 barrels, or nearly 15.8 million gallons, across Minnesota each day. Opponents are concerned about any possible oil spills in the water-rich environment of northern Minnesota, noting it would cross many streams and wetlands. Enbridge company officials and other supporters said the $2.6 billion pipeline is a safer and less expensive way to move oil than by rail.

Bakken oil activity holding steady -- The Bakken’s rig count is maintaining a healthy level while overall production levels have seen a slight uptick, reports United Press International (UPI). As of Monday there were 74 active drilling rigs in North Dakota, a level relatively unchanged over the past month. According to the state’s oil and gas regulatory body the North Dakota Industrial Commission, during May, the last full month for which state data was published, production reached 1.2 million barrels per day. This level is only slightly below the record posted in December of last year. North Dakota is now the second largest oil producing state in the nation, and while the state economy is diversified, a large part is dependent on the oil and gas produced in the Bakken formation. As reported by UPI, Bentek, the forecasting branch of energy reporting agency Platts, says Bakken production for the Month of June increased by approximately 100,000 barrels per day. After oil prices dropped by in less than a year, many oil and gas companies began scrambling to find ways to reduce operating costs and annual budgets. As a result, energy companies are finding ways to do more with less, which is evident in both rig and production data. Analyst Sami Yahya told UPI, “Gains in efficiency have [entered] every facet of the drilling and production operations. Drill times have been reduced on average by three to five days in most of the major shale plays in the country.”  So far this year, the low point for North Dakota production was 1.16 million barrels per day in April when the rig count tallied in at 84. Overall, the rig count is down almost 70 percent from the record high. But, due to increases in efficiency and drilling methods, NDIC Director Lynn Helms reports that the rig count is about five less than what was expected with oil prices below $65 per barrel.

Marathon Oil production increases in the Bakken -  Increased production from the Bakken might be the saving grace for Marathon Oil after posting a $386 million loss for the second quarter. As reported by United Press International (UPI), the company said that for its North American operations, net production averaged 274,000 barrels of oil equivalent per day (boed). The increase is 21 percent greater for its year-to-year figures, but a 3 percent decline from the previous quarter. Marathon President and CEO Lee Tillman partly attributed the overall decline to decreased spending on exploration and production. In a statement, he said, “Capital spending in the quarter was down about 40 percent sequentially as we’ve moderated activity levels in the U.S. resource plays.” In other areas of operation, Marathon reported mixed results. In Texas’ Eagle Ford shale play, the company saw a 32 percent net production increase for the second quarter when compared to 2014, but an 8 percent decrease compared to this year’s first quarter. In its Oklahoma operations, production increased 33 percent from last year and remained mostly unchanged from this year’s first quarter. Rather than focusing on the market and fluctuating oil prices, the company focused on things within its control, such as well productivity and operational efficiencies. Tillman said, “Looking to the second half of the year, we expect to maintain production levels and achieve our year-over-year production growth of 5-7 percent for the total company and 20 percent in the U.S. resource plays.”

‘The Oil Project’ brings the Bakken boom to live theater -- To close the Plains Art Museum’s Bakken Boom! exhibit which came to Fargo earlier this year, the Museum collaborated with local acting troupe Theatre B to produce ‘The Oil Project.’ The 45-minute live production will chronicle the people and the pumpjacks of the Bakken oil fields. The production was conceived by Theater B ensemble members and guest artists who spent the past summer researching, generating, and developing the performance. ‘The Oil Project’ follows several characters through the beginning years of the boom and the transformations of the once sleepy rural communities to the present day, where the prospect of a bust pervades through the area’s consciousness. The production is part character exploration, part art installation, and incorporates the sights and sounds recounting Western North Dakota’s modern day gold rush.“It’s an incredible rush to create a piece of theatre from scratch,” said Theatre B Program Coordinator Brad Delzer in a statement. “Devising a play is a new experience for us. It’s a daunting idea, to expect a performance to be created from a company working and creating for several months. The artists have spent countless hours exploring what the boom means to those who live and work there through research, movement, music, and relationships.”

Sewage flow becomes Williston's oil bust indicator - The population of a U.S. oil boomtown that became a symbol of the fracking revolution is dropping fast because of the collapse in crude oil prices , according to an unusual metric: the amount of sewage produced. Williston, North Dakota, has seen its population drop about 6 percent since last summer, according to wastewater data relied upon heavily by city planning officials. They turned to measuring effluent because it was a much faster and more accurate way to track population than alternatives such as construction permits, school enrollment, tax receipts or airport boardings. U.S. Census Bureau figures are usually too old as a full-fledged population count only happens once a decade, with sporadic updates in between. That’s not going to catch any swift changes in the population of cities like Williston. “Here in Williston, the growth rate is not predictable,” said David Tuan, director of the city’s public works department. “Measuring wastewater flow tends to be the most-efficient way to track population.” The recent high-water mark for Williston’s population was 33,866 in August of last year, just before the oil price collapse. Crude oil has fallen more than 50 percent in the past year and hurt many companies’ finances, leading to massive cost cutting, including the cancellation of projects and lay offs. By June of this year, the town had shrunk to 31,800 people, according to the sewage data.

US Shale: How Smoke And Mirrors Could Cost Investors Millions - In this post I present what I found from applying R/P (Reserves divided by [annual] Production) ratios for Light Tight Oil (LTO) for 3 big companies in Bakken/Three Forks/Sanish. The companies are; Continental Resources, Oasis Petroleum and Whiting Petroleum, which operated 28% of total LTO extraction in the Bakken (ND) in December 2014. Undertaking oil and gas reserves assessments are just as much an art as a science. From previous work with LTO from Bakken I kept track of the R/P ratio for wells/portfolios and generally found it was in the range of 3 – 4 after their first year of flow. This suggested that 25 – 35% of the wells’ Estimated Ultimate Recovery (EUR) was extracted in their first year of flow.  Examining some big Bakken companies SEC 10-K (SEC; Securities and Exchange Commission) filings for 2014 I noticed that these had R/P ratios for Proven Developed Reserves (PDP) that ranged from 7 – 9.  That did not make sense and R/P ratios give away powerful and very valuable information about likely future extraction trajectories. About 50% of the companies’ total LTO extraction (flow) in Dec 2014 in Bakken (ND) were from wells started in 2014. In other words, the flow was dominated by “young” wells which decline rapidly. Therefore, whatever flow data (monthly, quarterly) that was annualized it should be expected a R/P ratio for total extraction around 4 for 2014. What I present is how PDP, extraction data and R/P data derived from the 3 companies SEC 10-K statements compares to what was derived from actual data. Further, what actual data now is projecting for EUR for the average well for these companies. For 2015 the chart is based on: WTI at $60/b and a type well at $8M was found to have a 0% return with a total first year LTO flow at about 90 kb. LTO in Bakken will now generally work profitably with an oil price (WTI) above $80/b.

FracTracker Alliance has data on 1.7 million wells in US - FracTracker Alliance has updated its national oil and gas wells count to 1.7 million - data now available for download and on a dynamic map. This new research digs deeper into the data to provide people with more accurate well counts and locations, and highlights the poor state of national oil and gas data. Learn more: http://www.fractracker.org/2015/08/1-7-million-wells/ For more information, please visit www.fractracker.org.

The Art of Deconstructing Rig Counts -- The major player in rig counting is the oil services company, Baker Hughes, which has been tallying rigs since 1944 and counting. The rig count as reported by Baker Hughes is “a weekly census of the number of drilling rigs actively exploring or developing oil or natural gas in the United States and Canada.” Just because a rig is included in the count, though, does not mean it is producing oil or gas. In fact, it might even end up with the status of a “dry hole,” meaning no production will take place at the well. Let’s start with what rig counts don’t tell us. Melissa Breener writes in the Louisiana DNR Rig Count that counts are unable to reveal production, drilling success rate and depth, cost, geology, location and economic potential. “Rig count can tell us that wells are being drilled, but not how many will actually produce once drilling is complete.” In fact, as Breener states, “The deeper a rig has to drill, the longer it will be on location and active.” Drilling cost is as important as it is complex. Breener points out that “Average costs are generally measured in cost per foot and vary by region and depth. The cost of drilling escalates with depth, both the average cost per foot to a total depth, and the incremental cost per incremental foot drilled. Also, with depth comes higher subsurface temperatures and pressures which can create the need for more costly safety measures and equipment.” Drilling deeper requires rigs with deep drilling capacity that are in limited supply. This leads to additional costs, as does the hardness of the rock being drilled and local flora and fauna in need of extra care and attention. Then of course, there is the information that rig counts do provide. Breener reports that “rig count succeeds in communicating drilling activity, modeling the petroleum job market, and predicting the demand for oilfield service.”

Refugio oil spill may have been costlier, bigger than projected - A Plains All American Pipeline oil spill off the Santa Barbara County coast this year may have been bigger and costlier than originally expected, the company said in its quarterly earnings update Wednesday. The May 19 spill could cost the Texas company as much as $257 million in response and cleanup costs, assessments and fines, and legal settlements, the company stated. Also, as many as 143,000 gallons of crude may have been spilled when the line ruptured, not 101,000 gallons, as Plains originally estimated. The company did not provide a new estimate on how much of that oil ended up in the Pacific; the original estimate was 21,000 gallons. The spill occurred when a corroded section of a 10.6-mile pipeline that runs parallel to U.S. 101 ruptured, sending crude flowing down a culvert to the ocean. Oil heavily coated a stretch of the Gaviota coast and forced the closure of Refugio and El Capitan state beaches. El Capitan reopened in June. Small tar balls from the spill made their way as far south as Redondo Beach in Los Angeles County. Hundreds of sea birds and mammals, many coated in crude, washed up in the spill area in the weeks following the spill. The company refined its estimate after flushing 26,500 barrels of oil (or 1.1 million gallons) from the pipeline and realized its initial calculation may have been too low. Plains has tapped an outside party to analyze the company’s data to get a more precise estimate of the spill’s total, according to Tuesday’s update.

Alberta Earthquakes Tied to Fracking, Not Just Wastewater Injection - Fox Creek, an oil town of nearly 3,000 residents in western Alberta, recently experienced its third earthquake of at least magnitude 4.0 this year. The difference between this one and many of the quakes felt in fracking country in the U.S., however, is that Canadian researchers are attributing the cause to fracking itself, not just the wastewater disposal process.  The reported 4.4-magnitude event that jolted the region in mid-June was the latest in a surge of seismic events that ramped up in December 2013, around the time fracking increased in this part of Alberta. There was no reported damage, but Chevron Corp. temporarily shut down its drilling operations nearby. In western Canada, similar to parts of the central United States, one of the emerging side effects of the fracking boom is what scientists call "induced seismicity" — the proliferation of suspected man-made earthquakes. In Canada, though, scientists and regulators now believe the dominant trigger of induced earthquakes affecting western Alberta, including Fox Creek, and parts of British Columbia, is the fracking itself—the pumping of huge amounts of chemicals, water and sand down a well to crack open bedrock to release oil and gas. "Even a year ago, there was a fairly widely held view that almost all of the induced earthquakes [across North America] were coming from wastewater disposal and that hydraulic fracturing has very limited potential to induce earthquake," Despite the growing awareness about fracking-caused quakes in Canada, "what's less clear is how much of the seismicity in the U.S. might be tied to hydraulic fracturing," said Atkinson. "I think there's so much of it from wastewater disposal, it may be masking an underlying signal from hydraulic fracturing."

LNG Exports DOA ? - A little background: a good petroleum reserve engineer – who estimate how much oil or gas is in the ground – is essential to a profitable oil or gas venture. Art Berman is a good one, maybe a great one given his iconoclastic stance on shale plays. Here’s his latest: No Joy in Mudville*: Shale Gas Stalls, LNG Export Dead On Arrival  Something unusual happened while we were focused on the global oil-price collapse–the increase in U.S. shale gas production stalled (Figure 1).  Marcellus and Utica production increased very slightly over May, 1.1 and 1.5 mmcf/d, respectively. The Woodford was up 400 mcf/d and “other” shale increased 300 mcf/d. Production in the few plays that increased totaled 3.3 mmcf/d or one fair gas well’s daily production. The rest of the shale gas plays declined.  The earliest big shale gas plays–the Barnett, Fayetteville and Haynesville–were down 25%, 14% and 48% from their respective peak production levels for a total decline of -4.8 bcf/d since January 2012.  The fact that Eagle Ford and Bakken gas production declined suggests tight oil production may finally be declining as well. To make matters worse, total U.S. dry natural gas production declined -144 mmcf/d in June compared to May, and -1.2 bcf/d compared to April (Figure 2). Marketed gas declined -117 mmcf/d compared to May and -1 bcf/d compared to April. Although year-over-year gas production has increased, the rate of growth has decreased systematically from 13% in December 2014 to 5% in June 2015 (Figure 3). This all comes at a time when the U.S. is using more natural gas for electric power generation. In April 2015, natural gas used to produce electricity (32% of total) exceeded coal (30% of total) for the first time (Figure 4). For now at least, the U.S. is producing less natural gas because shale gas is stalled and conventional gas production is in terminal decline at 10% per year. The country is consuming more gas for electric power generation thanks to government regulations, and we are poised to export more gas outside the country both as LNG and as pipeline gas to Mexico.

LNG and Site C aligned for perfect storm – This province is being ravaged by forest fires this summer, but there’s a good chance an entirely different kind of firestorm will be confronting B.C. by the time next summer comes along. Brace yourselves for a series of political protests that will undoubtedly include a massive amount of civil disobedience, but which may also in some cases drift to the extremes of sabotage and violence. Story continues below A number of major resource projects are getting closer to becoming actual work sites instead of conceptual ideas. And when that work begins, expect the protests to start in earnest. One of the major protest locations will undoubtedly be at the Site C dam construction sites in the Peace River Valley. There is widespread opposition to the project (although there is also strong support for it) and various opponents have vowed to do whatever it takes to stop construction from actually occurring. Some are calling for a moratorium on construction until various lawsuits against the project wind their way through the legal system. But there is a zero chance of that happening, and in fact work has already begun as a number of contracts have been awarded to contractors. There may be some protests this summer or fall, but it’s likely a more organized campaign begins next spring and summer. Don’t be surprised to see human blockades attempt to shut down any work being done, with the result being mass arrests. The rhetoric flowing from various Site C dam opponents suggests this is not going to be a case of a bunch of people waving placards and booing construction workers. No, something more serious is likely to occur. We’ve already seen the disquieting development of “Anonymous” (the shadowy group of computer hackers) vowing revenge over the fatal police shooting in Dawson Creek of someone who may or may not have been connected with a Site C protest group.  But the Site C dam is not alone in attracting opponents determined to shut something down. Add the Kinder Morgan pipeline to that list, as well as any LNG facility or pipeline, open pit mine, or expanded port facilities.

Hamm is certain the export ban will be lifted by October just as OPEC reduces output - The global oil market is in for some big changes this fall if oil tycoon Harold Hamm’s crystal ball proves accurate. During a quarterly update conference call on Aug. 6, the Continental Resources Chairman and Chief Executive Officer predicted an “energy paradigm shift will have profound long-term consequences worldwide starting with the U.S. crude export ban being lifted so America can finally compete freely in world energy markets.” He foresees the world demand growth and low oil prices rebalancing eventually; meanwhile, recent world events like the Iranian nuclear agreement and the Organization of Petroleum Exporting Countries (OPEC) actions have shifted momentum to an all-time high. “OPEC has announced plans to reduce production beginning in September and we think that may be the first of many,” Hamm said. OPEC output dropped in July by 362,000 barrels according to a Bloomberg survey, but it still continues to produce two million barrels per day above its quota, analysts say. U.S. oil production is also dipping. On Aug. 5, the Energy Information Administration showed that U.S. crude inventory fell 4.41 million barrels which is three times more than expected. Hamm said oil exports “make too much sense economically, especially as this administration moves to lift restrictions on Iranian oil exports.” He added that lifting the ban has bipartisan support in by both the House and Senate. Hamm was confident in his forward-looking statements, but he exhibited the same certainty in November when Continental chose to monetize nearly all of its oil contracts through 2016. Back then, Hamm said he felt oil prices were at “the bottom rung … and we’ll see them recover pretty drastically, pretty quick” only to watch prices fall even further over the past eight months.

‘Frack now, pay later,’ top services companies say amid oil crash – Business is so tough for oilfield giants Schlumberger and Halliburton that they have come up with a new sales pitch for crude producers halting work in the worst downturn in years. It amounts to this: “frack now and pay later.” The moves by the world’s No. 1 and No. 2 oil services companies show how they are scrambling to book sales of new technologies to customers short of cash after a 60 percent slide in crude to $45 (29 pounds) a barrel. In some cases, they are willing to take on the role of traditional lenders, like banks, which have grown reluctant to lend since the price drop that began last summer, or act like producers by taking what are essentially stakes in wells. At Halliburton, some of the capital to finance the sales will come from $500 million in backing from asset manager BlackRock, part of a wave of alternative finance pouring into the energy industry that one Houston lawyer said on Thursday allows companies to “keep the engine running.” When its second-quarter net profit tumbled by more than half a billion dollars to just $54 million, Halliburton’s Chief Executive Dave Lesar told analysts the company needed to find new revenue. The BlackRock money, he said, would allow Halliburton to “look at additional ways of doing business with our customers, different business models, push beyond where we have been today.” Halliburton declined to provide additional details, including how many customers it has for its financing programme, citing confidential dealings with clients. Schlumberger has said it has eight onshore refracking clients in North America. Another variant, which Halliburton has considered and Schlumberger has pushed, is one in which the companies cover up-front costs for a producer and then get a piece of a well’s performance.

Pumping on a prayer - We were hoping that as we turned the corner to August we would have at least seen something better, but so far nothing. We're all still riding on the back of the China woes and the high supply of oil production. That brings up an interesting point—why is it we’re so concerned about OPEC and their production, and we’re still not willing to cut back here? There’s been no talk about increasing costs at Cushing because we’re not getting it out of that storage area fast enough. We haven’t talked about why there’s still plenty of small to mid-cap producers pumping out oil on hope, a prayer and a deteriorating credit line. It’s because at the end of the day America still needs oil. If there’s one thing that we are consistent on in the United States it’s this “never enough” attitude. We’ve increased our domestic production in the United States from 5MM b/d to 9.6MM at its peak a few weeks back. That’s nearly a 100% increase. We managed to get to that number while oil prices had dropped from $90 to $45. Think about that, we doubled our domestic production and cut the price (and margins) in half. Oh, we were making changes everywhere. We cut OPEC oil practically out of the picture too since we hit the fracking boom. We increased oil from Canada from 1MM b/d to triple that to 3MM b/d. We were bringing in about 1.5MM b/d of oil from Nigeria and that’s been cut down to zero until recently. That’s now barely covering a few hundred thousand a day and I would imagine we’re getting it dirt cheap too. But as you’ll notice, it’s just not enough. This isn’t the “we can do better attitude," it’s the doomed, “I think we need a bigger boat” syndrome. From the top down it’s spreading. Yesterday President O and the EPA came down on coal and even nat gas to tighten the reins. We’re seeing stricter emission regulations for power plants and it’s not outside the realm of possibility that we see something like this for the oil industry soon too.

Oil industry frets about another lost decade: - Oil is an inherently cyclical business. The point is remarkably simple but it is amazing how often it gets forgotten by forecasters and investors. In the century and a half since the modern oil industry was founded with the drilling of Edwin Drake’s well in 1859, real prices have doubled in the space of three years on no fewer than six separate occasions, and halved on four.If prices remain around $50 for the rest of the year, 2015 will be the fifth time real prices have fallen more than 50 percent in the space of less than three years. Sharp price changes over short periods have therefore been the norm and the long period of relative stability between 1931 and 1969 was the exception. It follows that any attempt to predict where prices will go in the medium term (two to five years) or long term (beyond five years) based on current prices or recent changes is bound to fail. The cyclical, unpredictable nature of prices has not stopped an army of prognosticators from trying to guess where they will go, but most forecasts have an endearing backward-looking quality. When prices are high and have been rising, most forecasts predict they will rise even further on increasing scarcity. When they are low and have been falling, most forecasts predict a further slide on continued oversupply. In 2008, and again in 2011/12, as prices were peaking at more than $140 and $120 per barrel respectively, most forecasters were predicting prices would remain high more or less forever. Not one major forecaster saw prices sinking back to less than $60 per barrel but on both occasions it happened in less than three years. Now prices have fallen, it seems no major forecaster is predicting they will rise sharply again within the foreseeable future.

With crude at $50, oil firms fear deeper crisis than in 1980s – After slashing spending by $180 billion to deal with one of the worst industry downturns in decades, oil companies are still bleeding cash and slipping further into debt to maintain dividends to shareholders. Depressed crude prices – at below $50 a barrel Brent crude is half what it was a year ago – mean even more cuts are needed at new projects and existing operations. Companies trying to dispose of oilfields to raise cash could be forced to sell quickly and for less than they hoped. There is little sign that the oil price will come to the rescue as the Organization of the Petroleum Exporting Countries (OPEC) continues to pump hard into an oversupplied crude market in response to explosive growth in U.S. shale oil. Brent is expected to average $60.60 in 2015 and $69 in 2017, according to a Reuters poll of analysts. The International Energy Agency said in February it saw it recovering to $73 in 2020 as the supply glut slowly eases. Analysts at investment bank Jefferies say international oil companies lowered their break-even points by $10 a barrel after the latest round of spending cuts, but will still need a price of $82 a barrel in 2016 to cover spending and dividends, which have been the main investment attraction for the sector for decades. “In order to cover the shortfall, the sector will increase its borrowing. While leverage remains manageable within the sector, this is not a practice that can continue in perpetuity,” Jefferies

Continental Resources profit drops 99 percent on cheap oil - Continental Resources Inc, the second-largest oil producer in North Dakota's Bakken shale formation, said on Wednesday its quarterly profit fell 99 percent as crude prices plunged. The company posted net income of $403,000, or break-even on a per-share basis, for the second quarter, compared with $103.5 million, or 28 cents per share, in the year-before period. Average daily production increased 35 percent to 226,547 barrels of oil equivalent per day.

Rice Energy widens loss - Rice Energy Inc. recorded a loss of $69.7 million, or 51 cents per share, for the second quarter. During the same time last year, the Canonsburg-based oil and gas company posted a loss of $7.9 million, or 6 cents per share. Rice drills for oil and gas in the Marcellus Shale in southwestern Pennsylvania and in the Utica Shale in Ohio. It also owns infrastructure that gathers the gas it and other operators produce and pipelines that carry fresh water from the Mon River and other sources to well sites. Low natural gas prices have hammered all exploration and production companies operating in the area. Rice’s average realized natural gas price for the quarter was $2.98, after hedging. Its production division recorded an operating loss of $60 million for the quarter, while its midstream branch had income of $20.7 million. The company said it will continue to increase oil and gas production, placing an emphasis on selling it outside of Appalachia, where gas trades at a discount to the average national price. It also announced that it has drilled its first Utica well in Greene County, following similar announcements from EQT Corp. and Consol Energy Inc. Production from the well is planned for later this year.

Gulfport Energy reports 2Q record production, financial loss -- Gulfport Energy Corporation today reported financial and operational results for the quarter ended June 30, 2015 and provided an update on its 2015 activities. Key information for the second quarter includes the following: Net production averaged 473.9 MMcfe per day, an increase of 196% compared to the second quarter of 2014 and an increase of 12% as compared to the first quarter of 2015. Estimated July 2015 net production averaged 574 MMcfe per day, a 21% increase over the second quarter of 2015. Realized natural gas price before the impact of derivatives and including transportation costs averaged $2.23 per Mcf, a $0.41 per Mcf differential to NYMEX during the quarter. Net loss of $31.3 million, or $0.32 per diluted share. Adjusted net income (as defined below) of $250,000, or $0.00 per diluted share. Adjusted EBITDA (as defined below) of $84.6 million.

Rex Energy takes on the never ending industry downslide -  Rex Energy has a few ways it hopes will help the deal with the ongoing downturn in the oil and gas industry. The company plans on selling some of its assets and teaming up with other companies to develop the remaining acreage it has in the Appalachian region. To help battle the downturn, Rex Energy is also planning to continue drilling operations through 2016 with only one rig. This is a plan the company put in place at the beginning of the second quarter. By using the one rig program, the company plans on drilling an estimated 25 to 30 wells. This will allow the company to “hold by production” so its leases do not expire. As reported by the Pittsburg Post-Gazette, “Analysts at Moody’s Investor Services said it’s good that Rex is following through with its plans laid out earlier this year.” The firm gave Rex Energy a B3 negative rating and continues to maintain that rating. Vice President and Senior Analyst for Moody’s Sreedhar Kona made the following comment regarding Rex Energy’s plan: That shows us, at least from us on the credit analyst side, that they’re doing what they can do to protect their creditors.  However, while continuing to scale back, Rex Energy’s CEO Tom Stabley expresses that he believes natural gas production will increase 10 percent to 15 percent by the end of this year, year-over-year. Rex Energy has no plans to alter its operating budget, which currently sits at $135 million to $145 million.

Chesapeake Energy has quarterly loss, shares tumble (Reuters) - Chesapeake Energy Corp swung to a quarterly loss on Wednesday from a year ago and shares fell as much as 10 percent as worries about hefty debt and spending at the No. 2 U.S. natural gas producer linger amid low prices. The Oklahoma City, Oklahoma company's shares have been hammered in recent months as the more than 50 percent drop in crude oil and low natural gas prices sap cash flows. To narrow the gap, Chesapeake said on Wednesday it will sell assets or pursue partners to help shoulder drilling costs. But that wasn't enough to soothe investors, who sent the stock to its lowest level since April 2003. It was down 8 percent at $7.32 in midday New York Stock Exchange Trading. "While Chesapeake continues to pursue asset monetizations, until additional guidance or execution is consummated on this front, we suspect investor focus will remain on increasing leverage versus improving underlying operations," analysts at Houston based investment bank Simmons & Co said in a note to clients. Chesapeake's capital expenditures of $960 million in the second quarter exceeded some expectations and long-term debt was $10.66 billion, up slightly from the 2015 first quarter. The company, however, raised its oil and gas production forecast for 2015 to 667,000-677,000 barrels of oil equivalent per day (boepd) from 640,000-650,000 boepd.

Chesapeake Energy Takes $4 Billion Write-Down Amid Weak Oil Prices - WSJ: Chesapeake Energy Corp. CHK 1.59 % posted a deep loss in the second quarter as the U.S. shale driller took a $4.02 billion write-down on some properties following tumbling energy prices. “While we strive to remain flexible in the face of lower commodity prices, we continue to focus on driving our costs lower,” said Doug Lawler, Chesapeake’s chief executive. Earlier this week, the world’s benchmark oil price fell to less than $50 a barrel for the first time in six months signaling a renewed slide of crude markets brought on as record U.S. production has touched off an international price war. Amid the swoon in oil prices, Chesapeake has reduced rig operations and cut capital expenditures after failing to offset the plunge with higher production. Average operated rig count during the latest quarter fell 50% from the previous quarter to 26, a far cry from the 65 rigs in operation during the same three-month period in 2014. Drilling and completion costs were slashed 40% from both the previous quarter and the same quarter in 2014 to $787 million. Chesapeake’s daily production averaged around 703,000 barrels of oil equivalent, an increase of 13% over the same period in 2014. The company also reported its average realized oil price for the quarter was down to $67.91 from $85.23 in 2014. Overall, for the quarter ended in June, Chesapeake reported losses of $4.15 billion, or $6.27 a share, compared with a prior-year profit of $145 million or 22 cents a share. Excluding certain items, Chesapeake posted a per-share loss of 11 cents, down from earnings of 36 cents a share a year earlier.

SALE: Chesapeake assets will be on the market - While holding the number one spot in Ohio’s shale oil and gas drilling, Chesapeake Energy Corp. has decided it is going to sell off some of its assets. Chesapeake’s plan is to sell its assets to help battle the never ending low commodity prices. The company has yet to announce the exact locations of which assets it will be placing on the market, but it isn’t unknown that most of them are in Ohio. Chesapeake’s Chief Executive Doug Lawler explained how there are endless options of assets the company could possibly sell: At this point in time, we have not provided which exact assets … I will tell you we are working multiple options across the portfolio. We don’t see any one solution necessarily. We see several that are possible for us.Currently, Chesapeake’s portfolio is mainly located in eastern Ohio. The company has an estimated 1 million acres under lease in the state alone, which has the potential to be the home of thousands of wells. However, the company has shrunk to only two rigs operating in Ohio, which leaves the option of thousands of wells extremely far out of arms reach. As reported by the Columbus Business First, “Much of that Chesapeake’s acreage appears to be in valuable parts of the Utica shale play. The company alleges its former founder and CEO Aubrey McClendon took its research data on Ohio acreage when he formed his new company, which McClendon denies.”

U.S. shale drillers struggle amid slumping prices – North America’s shale drillers are struggling with the renewed slump in oil prices, despite cutting costs, boosting output, and in some cases employing hedging to improve realized prices. Stock prices for most of the main shale drillers have fallen faster than the price of U.S. light crude since the middle of April. Spot WTI has fallen 20 percent since mid-April but the share price of Pioneer Natural Resources has dropped 30 percent and Continental Resources is down almost 40 percent over the same period. Both companies increased production during the second quarter. Pioneer produced 197,000 barrels of oil equivalent per day (boepd) in April-June, up from 194,000 in January-March, while Continental reported output of 227,000 boepd, up from 207,000. Pioneer’s production is mostly from the Permian Basin and Eagle Ford in Texas, while Continental’s operations focus on North Dakota’s Bakken and Oklahoma. Both companies reported that drilling and completion costs had fallen by 20-25 percent compared with the end of 2014, they told analysts during conference calls held in the first week of August to discuss their earnings. Both companies are drilling wells faster than ever before, in the best case in just 13 days, which means they can squeeze out extra efficiencies by drilling the same number of wells with fewer rigs, or more wells with the same number of rigs. Both are speeding up drilling time and boosting output per well by focusing on the most prolific shale layers in the most productive areas. Both expect to grow their production this year compared with 2014, by 10 percent in Pioneer’s case and 19-23 percent for Continental. Yet neither company made money in the second quarter. Continental’s net income was basically zero while Pioneer posted a net loss of $218 million.

Oil Prices: Shale Producers Face Reality - Not long ago the oil industry looked like it had dodged a bullet. After the worst bust in a generation cut crude prices from $100 a barrel last summer to $43 in March, the oil market rallied. By June, prices were up 40 percent, passing $60 for the first time since December. Oil companies that had cut costs began planning to deploy more rigs and drill more wells. “We didn’t think we’d be quite this good,” Stephen Chazen, chief executive officer of Occidental Petroleum, told analysts in May. The runup was short-lived. Fears over weak demand from China, along with rising production in the U.S., Saudi Arabia, and Iraq pushed prices back below $50. In July, even as the summer driving season boosted U.S. gasoline demand close to record highs, oil posted its biggest monthly drop since October 2008.  “The much feared double-dip is here,” . The largest oil companies are reporting their worst results in years. ExxonMobil’s second-quarter net income fell 52 percent; Chevron’s fell 90 percent. ConocoPhillips lost $180 million. Billions of dollars in capital spending have been cut, and more layoffs are likely. Part of the problem facing the majors is that they’re producing in some of the most expensive places on earth: deep water and the Arctic. With their healthy cash reserves the majors can hold out for higher prices, even if they’re years away. The same can’t be said for many of the smaller companies drilling in the U.S. shale patch. Shale producers had bought themselves time by cutting costs, locking in higher prices with oil derivatives, and raising billions from big banks and investors. Many cut drilling costs by as much as 30 percent, fired thousands of workers, and renegotiated contracts with oilfield service companies. “That postponed the day of reckoning,”

The Impending Oil Reserve Write-Down: Each year in their annual reports, companies report on their future cash flows, net of costs, based on their proved reserves. This is referred to as the Standardized Measure (SM), which must be calculated according to specific guidelines set by the U.S. Securities and Exchange Commission (SEC). The SM is the present value of the future cash flows from proved oil, natural gas liquids (NGLs), and natural gas reserves, minus development costs, income taxes and existing exploration costs, discounted by 10%. All oil and gas firms that trade on a U.S. exchange must provide the Standardized Measure in their filings with the SEC. This is an important metric for valuing oil and gas companies. In theory, a company should be worth at least its SM. So if a company is trading at less than the value of its SM-in other words, if its enterprise value to SM ratio is less than 1-the company is in theory trading at less than its worth.  It is important to understand that the SM is based on year-end proved reserves. So let's review the difference between a proved reserve and a resource. An oil resource describes the total amount of oil in place, most of which typically can't be technically or economically recovered. The portion of the resource that is technically AND economically recoverable at prevailing prices is the proved reserve. Because of the requirement that the oil be economically recoverable, proved reserves are a function of commodity prices and available technology. Oil and gas resources that became proved reserves as prices rose will no longer be considered as such should lower prices make them uneconomic to produce.

Oil trader Hall's fund down $500 mln after July market rout  -- Renowned oil trader Andy Hall suffered his second-biggest monthly loss ever in July in a “brutal month” that left his hedge fund about $500 million poorer, telling investors he failed to anticipate a sudden market shift that roiled crude. Hall’s Astenbeck Capital Management in Southport, Connecticut, was the latest commodity fund to be hit by plummeting crude oil prices, following two funds closing last week. Astenbeck posted a 17 percent loss for last month and a 15 percent decline on the year after the July selloff triggered by record pumping of oil by Middle East producers, higher U.S. crude stockpiles and China’s stock market collapse. Oil prices are currently around $40 a barrel, down from about $100 a year ago. In July alone, U.S. crude fell 21 percent, its most since the 2008 financial crisis, while Brent , the global benchmark, dropped 18 percent. “Last month was brutal for most commodities and anyone investing in them,” Hall said in a letter sent to investors and seen by Reuters on Thursday.

A True Jobs Massacre Spreads in US Oil & Gas - It’s been tough for US oil companies. And even tougher for their investors. The hero du jour is Marathon Oil. Wednesday afterhours it reported an eye-popping 48% plunge in revenues in the second quarter and a net loss of $386 million. To stem the bleeding, it slashed capital expenditures by 40% from the prior quarter. “Importantly,” as it said in the press release, it was able to reduce production costs in North America by over 30% per barrel of oil equivalent from a year ago. And it cut is general and administrative costs by more than 20%. The key to survival in this environment of plunging revenues is conserving cash and slashing expenses, including “workforce reductions,” as the company calls them. And something else…. Marathon proudly said that its global production from continuing operations (excluding Libya) rose 6% from a year ago, with its US production soaring “nearly 30%.” And it’s not backing down either: Total company production would increase 5-7% year-over-year, with a 20% jump in production in the US. Thus it joined the cacophonous chorus of oil and gas companies that have been bragging about production increases despite the oil glut, despite the oil price plunge, despite the mayhem in the oil markets, just when investors are desperately waiting for the ever elusive production cuts.

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

U.S. refiners find the oil market's sweet spot  - (Reuters) – Low crude prices and strong demand for gasoline are creating near-perfect conditions for oil refineries across the United States, especially those geared towards maximizing gasoline production.  Valero, the country’s largest independent refiner, made a gross margin of more than $13 on every barrel of oil processed in the second quarter, and a net margin of almost $8.50, both the highest since 2007. Little wonder then that Valero’s share price has climbed to the highest level since December 2007. The enormous profitability of turning crude into gasoline has incentivized refiners to run flat out since the start of the year. The volume of crude processed by U.S. refineries last week hit a record 17.1 million barrels per day (bpd), 680,000 bpd above the prior-year level and almost 1.5 million bpd above the 10-year seasonal average. But strong consumption has absorbed all the extra gasoline production, and motor fuel stockpiles remain moderately tight. Gasoline consumption has averaged more than 9.5 million bpd over the last four weeks, according to the U.S. Energy Information Administration, which is almost half a million barrels above the 2014 level. Stocks are just 217 million barrels, less than 3 million barrels, or 1.3 percent, above last year’s level. But if stocks are adjusted for the higher rate of consumption in 2015, they stand below both the prior-year level and 10-year average. Gasoline stocks are currently equivalent to just 22.7 days worth of consumption, the lowest seasonal level since 2008. Low stocks explain why the gross margin for turning crude into gasoline remains at 50 cents per gallon or more, some of the fattest margins in the last decade.

EIA Capitulates Under Cover Of Darkness - Many investors know that when a company wants to mitigate media coverage of bad news, they typically release data on a Friday after the close. Well last Friday, that is exactly what the EIA did, admitting the very thing I and Cornerstone Analytics have been arguing all year: EIA was and still is overstating U.S. production. The amount that they admitted to so far, as of Friday afternoon, was 254,000 barrels per day (b/d) or 1,778,000 barrels per week, 7,112,000 per month or 14,224,000 for June and July alone. This is the most incredible cover up I have ever witnessed in my decade-long investment career and I have not seen one major media outlet even mention it so far. Instead China demand & Iran output are front and center as per prior posts in an attempt to divert attention (I call it moving the goal posts) away from the fact that both U.S. production and inventories were about to fall. The chart below speaks for itself on what is occurring:   To be clear, the EIA, on a weekly basis, uses a proprietary model to estimate U.S. oil production and then on a monthly basis uses actual data to revise those figures. Thus, what we were witnessing from Texas RRC data and Bakken output appears to be spot on in estimating that actual production was well below EIA estimates. As a result, the EIA made the correct choice to revise their figures. As time passes, I suspect both June and July will be revised even lower, rendering the analysis of a 14 million barrel overstatement for June and July too conservative.

WTI is retesting $45 -- Izabella Kaminska -- And we’re probably going lower due to a glut of Saudi and Middle Eastern crude entering the market. Here’s the latest from JBC Energy: Total OPEC crude production remained at elevated levels in July as Middle Eastern heavyweights such as Saudi Arabia and Iraq continue to pump near record levels. According to our SuDeP assessment, July production stayed largely on par with our revised June figures at 31.4 million b/d. That is about 1.1 million b/d more than in the same month last year, with Saudi Arabia and Iraq contributing the most to y-o-y growth (see chart).  Also worth putting into the mix are reports (from fringe media) of Opec nations shorting the oil market directly, with the Kuwait Investment Authority and Saudi Arabia’s SWF SAMA cited specifically.  What to make of this? Well, first, it’s not unheard of for these institutions to short. It’s also necessary to differentiate from outright shorting and curve plays, which exploit spread differentials. Going short the paper market for a producer can simply mean hedging, a.k.a selling oil forward because you can get a better price for selling tomorrow’s oil than today’s. Selling forward AND selling physical? Well, that arguably puts a producer entity in a coordinated strategic assault position. Why? Because it naturally suppresses the contango which would otherwise emerge on the back of mass oil dumping in the spot market. If there’s no super-contango, there’s less of an incentive for opportunists to buy and store oil in ways that balances the market and keeps shale and non opec producers in business.

OPEC oil output hits three-year high in June on Iraq - Reuters survey -- OPEC oil supply in June has climbed to a three-year high due to record or near-record output from Iraq and Saudi Arabia, a Reuters survey found, underlining the focus of the group's top exporters on market share. The boost from the Organization of the Petroleum Exporting Countries puts output further above its target of 30 million barrels per day (bpd) and comes despite outages in Libya and Nigeria that curbed supplies. OPEC supply has risen in June to 31.60 million bpd from a revised 31.30 million bpd in May, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. The group has raised output by more than 1.3 million bpd since it decided in November 2014 to defend market share rather than prices. A final deal between world powers and Iran over Tehran's nuclear work could add to supplies. "If sanctions were to be eased, additional oil from Iran would flood onto the already oversupplied oil market," If the total remains unrevised, June's supply would be OPEC's highest since it pumped 31.63 million bpd in June 2012, based on Reuters surveys. The biggest increase in June has come from Iraq, which has helped push OPEC output higher this year.Exports from southern Iraq have jumped to 3 million bpd after Iraq split the crude stream into two grades, Basra Heavy and Basra Light, to resolve quality issues.

Crude Prices Fall to Six Months Low on Record OPEC Output -- The price of crude oil monday hit a six-month low as the Organisation of Petroleum Exporting Countries (OPEC) pumped at record levels in July, thus creating oversupply, while data from China fuelled concerns about slower growth by the world’s second largest oil consumer. Oil output by OPEC reached the highest monthly level in recent history in July, according to a Reuters survey, with Saudi Arabia and other key members showing no sign of wavering in their focus on defending market share instead of prices. The price of Brent yesterday fell to $51.71 a barrel, after touching an intraday low of $51.50, the lowest since February 2, exactly six months ago. With this drop, Brent is on its longest weekly losing streak since late 2014. Similarly, United States’ West Texas Intermediate (WTI) crude oil fell to $46.73 a barrel after hitting the lowest in four months at $46.35. The front-month prices loss of 20.8 percent in July was the biggest monthly drop since October 2008. It is feared that Brent could fall further towards $50 in the near term while WTI could head to lows of around $42.03 if it breaks a support level at $46.40, Barclays analyst Lynnden Branigan said in a note.

Oil hit multi-month lows on record OPEC output – Oil extended losses on Monday on worries of oversupply as the Organization of the Petroleum Exporting Countries pumped at record levels in July, while weak China data stoked concerns about slower growth at the world’s second largest oil consumer. Saudi Arabia and other key members of OPEC show no sign of wavering in their focus on defending market share instead of prices, as the group’s oil output hit the highest monthly level in recent history in July, a Reuters survey showed. The lack of a plan by OPEC to make room for the return of more Iranian oil fueled supply worries. Iran expects to raise output by 500,000 barrels per day (bpd) as soon as sanctions are lifted and by a million bpd within months, Oil Minister Bijan Zanganeh said in remarks broadcast on Sunday. “The market seems to again focus on the supply situation … one of the difficulties is that Iran may be coming back and there is no obvious sign that OPEC will make room for them,” Ric Spooner, chief market analyst at CMC Markets in Sydney said.

Oil Re-Bloodies the “Smart Money”  -- Oil plunged again on Monday, with West Texas Intermediate down over 4%. At $45.17 a barrel, it’s just a hair away from this year’s oil-bust low. During 8 weeks in a row of relentless declines, WTI had plunged 26%. July’s 21% drop was the largest monthly decline since the Financial Crisis collapse in 2008. There’s a laundry list of perceived reasons: The rig count has been rising again. Shale oil companies, like Whiting Petroleum, are bragging about “record” production to prop up their shares. Production in Russia has been strong. And OPEC, powered by Saudi Arabia and increasingly Iraq, raised production in July to 32 million barrels per day. There’s the dreaded surge of Iranian oil onto the world markets. Just this weekend, Iran’s oil minister mused that his country could raise oil production by 500,000 bpd within a week of when the sanctions would be lifted and by 1 million bpd within a month. It gave oil markets the willies. They were already fretting over the slowdown in China, the crude oil inventories in the US, at a record for this time of the year, the oil inventories in other developed markets, and even oil stored in leased tankers. Oil everywhere, it seems. Whatever the perceived reasons, the price of oil has gotten re-crushed, and so has the hope a few months ago that this would be over by now.

US crude falls below $45 for first time since March  - Oil prices fell to a fresh March low on Wednesday after a surge in U.S. gasoline stockpiles as the summer season, the country's biggest demand period for motor fuels, nears its end. U.S. crude for September delivery closed down 59 cents, at $45.15 a barrel—its lowest since March 19. September Brent crude futures were flat at $49.50 a barrel after hitting a fresh six-month low earlier in the session. U.S. crude stocks fell last week, while gasoline and distillate inventories rose, data from the Energy Information Administration showed Wednesday. Crude inventories fell by 4.4 million barrels in the last week, compared with analysts' expectations for a decrease of 1.5 million barrels. EIA also reported Wednesday U.S. refiners ran at their highest rates last week since 2005. The utilization rate for U.S. refiners was 96.1 percent, the highest since August 2005. Growing oversupply, slowing demand from China and the prospect of crude flooding onto the market from Iran after Tehran's deal with the West over its nuclear program have knocked 21 percent off the oil price this quarter.

Oil Prices Fall to Multi-Month Lows - WSJ: —Oil prices fell to new multi-month lows Wednesday after weekly inventory data showed a small increase in U.S. crude production and President Barack Obama urged lawmakers to support the Iranian nuclear deal. Light, sweet crude for September delivery settled down 59 cents, or 1.3%, to $45.15 a barrel on the New York Mercantile Exchange, the lowest settlement since March 19. It briefly dropped below $45 a barrel. Brent, the global benchmark, slid 40 cents, or 0.8%, to $49.59 a barrel on ICE Futures Europe. Oil prices have slumped in recent weeks on concerns that persistently high production in the U.S. and elsewhere could keep the market oversupplied through the end of the year. Output remains near multiyear highs in the U.S., Saudi Arabia and Iraq, and the Iran nuclear deal could lift sanctions on Iranian crude exports, allowing the country to sell more oil onto the already-glutted market. In the U.S., government data show that production peaked in March before falling slightly in April and May. However, the latest weekly estimate for production released Wednesday showed that output rose by 52,000 barrels a day to 9.5 million barrels a day in the week ended July 31. U.S. crude-oil inventories fell more than expected last week, the U.S. Energy Information Administration said Wednesday, as refineries ran at the highest rate in years to process the glut of crude oil into petroleum products. But stockpiles of gasoline and other fuels rose in the week, suggesting that consumption isn’t high enough to absorb the oversupply in the market.

Oil trades close to multi-month lows, Brent below $50 – Oil traded near multi-month lows on Thursday with Brent under $50 a barrel as a supply glut persisted despite record U.S. refinery runs, and little sign of any reduction in production. Brent crude futures were down 35 cents at $49.24 a barrel at 1319 GMT after dipping to $49.02 on Wednesday, the lowest since Jan. 30. U.S. crude was down 64 cents at $44.51 a barrel, just off an intraday low of $44.46. “Prices are likely to consolidate or weaken further,” Carsten Fritsch, an oil analyst at Commerzbank, said. “The perception is that over-supply will be there for much longer.” Analysts at Goldman Sachs said in a note that because U.S. shale oil had dramatically reduced the time between when capital is committed and when oil is produced, prices needed to remain lower for longer to “keep capital sidelined and allow the rebalancing process to occur uninterrupted.” Although U.S. crude oil inventories fell by more than expected last week, gasoline stocks unexpectedly rose.   This raises the question as to what will happen when the peak gasoline demand season is over. Some U.S. refiners are running at record high rates to take advantage of strong refining margins. But U.S. crude stocks remain at much higher levels than the long-term seasonal average, Fritsch said.

The Oil Crash Has Caused a $1.3 Trillion Wipeout -  It’s the oil crash few saw coming, and few have been spared as it erased $1.3 trillion, the equivalent of Mexico’s annual GDP, in little more than a year. Take billionaire Carl Icahn. When crude was at its peak in June 2014, the activist investor’s stake in Chesapeake Energy Corp. was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor’s 500 Index and Icahn has a paper loss of $1.3 billion. The S&P 500, by contrast, is up 6.9 percent in that time. State pension funds and insurance companies have also been hard hit. Investment advisers, who manage the mutual funds and exchange-traded products that are staples of many retirement plans, had $1.8 trillion tied to energy stocks in June 2014, according to data compiled by Bloomberg. “Everybody was thinking that oil would stay in the $90 to $100 a barrel range.” The California Public Employees Retirement System, a $303 billion fund that provides benefits to 1.72 million people, owned a $91.8 million slice of Pioneer Natural Resources Co. in June 2014. At the time, Pioneer was a $33 billion company and one of the biggest shale producers in Texas. Today, Pioneer is worth $19 billion and Calpers’ stake has lost about $40 million in market value. Since June 2014, the combined market capitalization of 157 energy companies listed in the MSCI World Energy Sector Index or the Bloomberg Intelligence North America Independent Explorers & Producers Index has lost about $1.3 trillion.

Carnage in Junk-Rated Energy Bonds Returns With Plunging Oil -  Bond investors that lent to the riskiest energy companies have seen $4 billion of market value evaporate this week as oil trades at a four-month low. SandRidge Energy Inc.’s $1.25 billion of 8.75 percent securities maturing in 2020 issued in May have fallen to 71.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Prices on $1.3 billion of notes sold in 2010 by Chesapeake Energy Corp., an energy producer that halted its stock dividend last month, have fallen to 82 cents on the dollar to yield 11.4 percent. Up until June, the riskiest energy companies had tapped investors for a record $26.9 billion of debt this year. WPX Energy Inc.’s $1 billion issue in July was one of only four debt sales since then. Plunging commodities prices enabled investors to extract concessions from the energy explorer, which sweetened the terms on its bonds and reduced the size of its offering, according to four people with knowledge of the matter. “Oil is dictating how the rest of the market is shaking out,” West Texas Intermediate crude dropped to $44.38 a barrel at 9:45 a.m. in New York, pushing prices down more than 25 percent since it reached a five-month high in May. Natural gas traded at $2.814 per million British thermal units, down from a 2015 closing high of $3.194. Concern is mounting that companies that issued secured debt to repay borrowing-base credit line obligations may continue to burn cash if oil and gas prices fail to recover. Excess supply and sluggish demand will prolong a global rout that’s pulled the price of crude into a bear market, according to estimates by Goldman Sachs Group Inc., which maintained a near-term target for crude of $45 a barrel. The extra yield investors demand to hold junk-rated energy company debt rather than government securities surged to 10 percentage points, or distressed levels, on Friday in New York.

Crude Carnage Continues As Goldman Warns "Storage Is Running Out" -- WTI Crude is back below $45 again this morning - pressing towards 2015 and cycle lows -after Goldman Sachs' Jeffrey Currie warns 'lower for longer' is here to stay, with price risk"substantially skewed to the downside." His reasoning are manifold, as detailed below, but overarching is oversupply (Saudi Arabia has a challenge in Asia as it battles to maintain mkt share, the Russians are coming, and other OPEC members want a bigger slice) and, even more crucially, storage is running out. As Currie concludes, this time it is different. Financial metrics for the oil industry are far worse. As Goldman Sachs' Jeffrey Currie explains... Although spot oil prices have only retraced to the lows of this winter, forward oil prices, commodity currencies and energy equities/credit (relative to the broad indices) have now all retraced to levels not seen since 2005, erasing a decade of gains. This creates a very different economic environment as the search for a new equilibrium resumes: financial stress is higher, operational stress as defined below is more extreme and costs have declined further due to more productivity gains, a substantially stronger dollar and sharp declines in other commodity prices. These differences reflect not only a further deterioration in fundamentals, but also the financial markets’ decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than what was previously priced into the market. This is all in line with our lower-for-longer view. While we maintain our near-term WTI target of $45/bbl, we want to emphasize that the risks remain substantially skewed to the downside, particularly as we enter the shoulder months this autumn.

Energy Credit Risk Hits 1000bps As WTI Crude Nears $43 Handle --As the USDollar surges post-payrolls, WTI Crude futures are re-tumbling (but but but energy stocks were up yesterday!!!). With a $43 handle, WTI does not have far to fall to new cycle lows... and that has spooked professionals in the credit markets (as opposed to the machines and amateurs in the momo stock markets) as Energy credit risk surges back to 1000bps once again...Energy Credit risk is soaring once again...As WTI tumbles near $43 handle...Charts: Bloomberg

U.S. refineries are running at record-high levels - (EIA) -   Gross inputs to U.S. refineries exceeded 17 million barrels per day (b/d) in each of the past four weeks, a level not previously reached since EIA began publishing weekly data in 1990. The rolling four-week average of U.S. gross refinery inputs has been above the previous five-year range (2010-14) every week so far this year. The record high gross inputs reflect both higher refinery capacity and higher utilization rates.  Lower crude oil prices and strong demand for petroleum products, primarily gasoline, both in the United States and globally, have led to favorable margins that encourage refinery investment and high refinery runs. Refinery margins are currently supported by high gasoline crack spreads that reached a peak of 66 cents per gallon (gal) on July 8, a level not reached since September 2008.  For the past several years, distillate crack spreads have consistently exceeded those for gasoline, but since May, this trend has reversed. From 2011 to 2014, distillate crack spreads (calculated using Gulf Coast spot prices for Light Louisiana Sweet crude oil, conventional gasoline, and ultra-low sulfur distillate) averaged a 24 cents/gal premium over gasoline crack spreads. Since May 20, Gulf Coast gasoline crack spreads have averaged 17 cents/gal higher than for distillate crack spreads.  Higher demand for gasoline is supporting these margins. Total U.S. motor gasoline product supplied is up 2.9% through the first five months of 2015, and trade press reports indicate that demand is also higher in major world markets such as Europe and India so far this year compared with 2014. Total U.S. petroleum product supplied (a proxy for demand) is up 2.5% through the first five months of the year compared with 2014. Much of the refinery output is reaching global markets, as net exports are 19% higher this year through May.

Feds: Petroleum refineries running at record levels  -- American refineries are handling a higher volume of oil than at any point on record, government researchers said Friday. According to the U.S. Energy Information Administration (EIA), gross inputs at U.S. refineries totaled more than 17 million barrels per day each of the last four weeks, a level not seen since EIA began tracking the metric in 1990. The rolling four-week average is higher than any time in the last five years, EIA reported. EIA attributed the bump in refining to low crude oil prices and a high demand for gasoline worldwide, as well as an increase in refinery capacity and utilization rates. It's the second summer in a row EIA has observed record high processing levels. Overall, demand for gasoline in the United States is up almost 3 percent for the first five months of 2015, and it jumped similarly around the world. The U.S. has supplied 2.5 percent more petroleum so far this year than last, and net exports are up 19 percent through May. Taken together, the profits refiners can make by processing crude oil into fuel — a metric called the “crack spread” — are higher now than they've been since September 2008. Refinery volume peaks during the summer months when demand is high, EIA said. Last month, the administration projected refinery runs to drip toward the end of summer and into the fall, but officials expect new highs around the 17-million barrel per day mark next year.

U.S. Oil-Rig Count Rises for Third Week - WSJ: The U.S. oil-rig count rose for the third straight week—this time by six to 670—in the latest week, according to Baker Hughes Inc. BHI -1.49 % The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, had fallen sharply since oil prices headed south last year. The rig count had dropped for 29 straight weeks before rising for two weeks, falling, then rising again. Oil prices fell nearly 60% from June 2014 to a six-year low in March, as soaring production from the U.S. and other countries overwhelmed global demand. There are still about 58% fewer rigs working since a peak of 1,609 in October, though the pace of declines has slowed considerably recently. In late May, several U.S. shale-oil companies said they were ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices. According to Baker Hughes, gas rigs were up by four to 213 this week. The U.S. offshore rig count was up four to 38 in the latest week, though it is still off 24 from a year earlier. For all rigs, including natural gas, the week’s total was up 10 to 884, which is down 1,024 rigs from the same period last year.

BHI: Boosted by another gain in oil rigs, total US rig count rises 10 units - The overall US drilling rig count gained 10 units during the week ended Aug. 7 to reach a total of 884 rigs working, according to data from Baker Hughes Inc. A total of 27 units has now gradually come online since the week ended June 19. Six of the units in this week’s rise target oil, adding to their rebound over the past several weeks. Since June 26, the oil-directed count has added 42 units. BHI also reported that the average US rig count for July was 866, up 5 from June and down 1,010 from July 2014. Last week 857 new well permits were issued, compared with 950 new permits issued the previous week, Raymond James & Associates indicated this week in an energy update. Utilizing a 4-week average, weekly permits issued were lower by 43 permits week-over-week. “This is not surprising, given the current oil price environment we have found ourselves in,” RJA said. “With WTI closer to $45[/bbl] than $50[/bbl] right now operators are likely taking a step back to see what happens.” RJA reiterated what it said last week in that if prices fall further or even remain flat, more declines are possible. US drilling edges up Oil-directed rigs now total 670 units working, still down 918 compared with this week a year ago. Gas-directed rigs gained 4 units to 213. Land rigs increased 5 units to 840. Rigs engaged in horizontal drilling jumped 8 units to 672. They’ve added 22 units since hitting a 5-year low on July 17. Directional drilling rigs edged down a unit to 83. Offshore rigs jumped 4 units to 38, representing their biggest rise since the week ended Dec. 5, 2014. Rigs drilling in inland water edged up a unit to 6. In Canada, meanwhile, a trend of 5-straight and 9 out of 10 weeks of gains hit a snag with a 7-unit drop in its overall rig count to 208 rigs working. Losses were led by a 12-unit drop in oil-directed rigs, which had jumped 14 units a week ago. They now total 100.  Gas-directed rigs rose 5 units to 108. Canada has 179 fewer rigs working overall compared with this week a year ago.

Liquefied Natural Gas Makes Qatar an Energy Giant - The temperature hovered around 100 degrees on the jetty here, where a set of pipes were connected to a giant red-hulled ship. But the moisture in the air froze on the pipes and flaked off, creating snowlike flurries on the early summer evening.The incongruous sight is common on the Qatari ship, the Al Rekayyat, which carries a frigid fuel known as liquefied natural gas.Natural gas, when chilled to minus 260 degrees, turns into a liquid with a fraction of its former volume. The process has reshaped the natural gas business, allowing the fuel to be pumped onto ships and dispatched around the world.After investing tens of billions of dollars, Qatar is at the forefront. Part of the emirate’s fleet, the Al Rekayyat, run by Royal Dutch Shell, goes to Fujian in China and Yokkaichi in Japan, as well as Dubai and Milford Haven in Wales.Once a poor nation whose economy depended on fishing and pearl diving, Qatar is a relatively new giant in the global energy trade. In the 1970s, Shell discovered the world’s largest trove of natural gas, called the North field, in Qatari waters. But there was no market for the fuel. Potential customers in Europe were too far to reach via pipeline, the usual method. Shell walked away. Looking to the example of Malaysia and Indonesia, Qatar and Hamad bin Khalifa al-Thani, who was then its emir, started promoting L.N.G. in the mid-1990s. Qatar and its energy partners took the business to a new level, developing far bigger and more efficient plants. Last year, Qatar produced about a third of all liquefied natural gas, although Australia and the United States have big export ambitions.

China, Qatar and Ukraine top IMF fossil fuel subsidy leagues -- Fossil fuel subsidies in China, Qatar and Ukraine are some of the highest in the world according to new data from the International Monetary Fund (IMF). China spends $2,271 billion a year backing the oil, gas and coal sector, the largest supporter in dollar terms on the planet, followed by the US with $700m and Russia on $335m. Ukraine spends 61% of its GDP on subsidies – 49% on coal and 8% on gas, while tiny gas giant Qatar tops the per capita index, spending nearly $6,000 a head each year in support of fossil fuels. Support among the world’s G20 is worth $1,000 per person a year, despite repeated pledges by the group of the world’s top economies since 2009 to phase out fossil fuel subsidies. The data shows the UK spends $41 billion a year on subsidies, Japan $157bn, Korea £72bn and Germany $55bn. The hosts of this year’s UN climate conference – France – spend $30bn.  Green groups, UN officials and the World Bank have long called for governments to get a grip on subsidies, which are blamed for boosting fossil fuel-linked carbon emissions by 20%.

Global energy subsidies to reach $5.3 trillion, KSA 4th - Global energy subsidies are projected to reach $5.3 trillion in 2015, nearly 6.5 percent of the global GDP, according to a recent study by the International Monetary Fund (IMF). The new data is more than double the IMF’s own post-tax subsidy analysis just a few years ago. In Saudi Arabia, a citizen and expatriate’s per capita share of energy totals $3395 annually, meaning the country ranks fourth globally for energy subsidies per capita out of 135 countries.  The population in Saudi Arabia totals 31 million people meaning the government’s total energy subsidies are close to $105 bln per annum. This figure equals nearly 14 percent of the local total production levels, and equals to 29 percent of the Gulf Arab Kingdom’s income from oil. The IMF says such high numbers of energy subsidies cause massive financial losses that could have gone to the global fund. They added that “most of this arises from countries setting energy taxes below levels that fully reflect the environmental damage associated with energy consumption.”

Arab Monetary Fund publishes study on shale oil and gas: The global economy has been witnessing a decline in crude oil prices from the beginning of the second half of 2014. This has been attributed to several factors, including the fall in global economic growth rate in 2014 and the shale oil boom. The US has recorded an increase in shale oil production, which affected crude oil markets. These developments led the Arab Monetary Fund to undertake research and prepare a study on the growing shale oil and gas production and their impact on global oil markets, as well as on the world’s production and consumption of crude oil. The study covers principally issues on the shale oil and gas extraction process from underground sedimentary rocks, elaborating on water resources and chemicals used in the process. It highlights the environmental impact caused by the extraction process, alongside the US strategy on energy security. Furthermore, the study addresses the changes in global reserves of fossil oil and shale oil and gas, and the ranking of countries according to global reserves. It also presents data on global production and consumption of fossil oil, shale oil, and the world and US consumption of energy resources by economic sectors. The study concludes that the production process of shale oil and gas results in high emissions of carbon dioxide and other gases that contributes to global warming and pollution of the environment and groundwater, potentially causing underground rock slides. Given the prevailing conditions in global oil markets, the cost of shale oil and gas production are relatively high at the currently prevailing low crude oil prices. The study shows the impact of water consumption during the extraction process of shale oil and gas on water resources. Thus, shale oil and gas production in countries with limited water resources may prove to be not feasible. In addition, fossil oil extracted from land is available in large quantities in the Middle East and Russia, and is considered a global competitor in terms of production and transportation costs compared to shale oil.

Shale oil, gas production lead to pollution, global warming: Study: Production process of shale oil and gas results in high emissions of carbon dioxide and other gases that contributes to global warming and pollution of the environment and groundwater, potentially causing underground rock slides, says a study conducted by the Arab Monetary Fund (AMF), a regional Arab financial organisation, established by Arab countries in 1976. Furrther, given the prevailing conditions in global oil markets, the cost of shale oil and gas production are relatively high at the currently prevailing low crude oil prices, according to the research note on the growing shale oil and gas production and their impact on global oil markets as well as on the world’s production and consumption of crude oil. The research, propelled by the fact that the global economy has been witnessing a decline in crude oil prices from the beginning of the second half of 2014, shows the impact of water consumption during the extraction process of shale oil and gas on water resources. Thus, shale oil and gas production in countries with limited water resources may not be not feasible. This has been attributed to several factors, including the fall in global economic growth rate in 2014 and the shale oil boom. The United States has recorded an increase in shale oil production, which affected crude oil markets. In addition, fossil oil extracted from land is available in large quantities in the Middle East and Russia, and is considered a global competitor in terms of production and transportation costs compared to shale oil, it says.

Caught in the cross-fire - non-OPEC, non-shale producers - The biggest losers from the current price war between OPEC and the shale producers seem set to be producers outside the Middle East and North America caught in the cross-fire. Expensive production from the North Sea, Canada’s oil sands, offshore megaprojects, weaker African and Latin American members of OPEC, and frontier exploration areas around the world are all being squeezed hard by the price slump. According to oilfield services company Baker Hughes, the number of rigs drilling for oil outside North America has fallen by over 200, or about 19 percent, since July 2014. Rig counts have fallen in every region, with 28 fewer active rigs in Europe, 47 fewer in the Middle East, 33 in Africa, 66 in Latin America and 34 in Asia Pacific. Proportionately, the hardest hit regions have been Europe and Africa, where more than 30 percent of rigs operating in the middle of last year have since been idled. But the slowdown is broad-based, with big downturns in countries as far apart as Mexico, India, Turkey, Brazil, Iraq, Colombia and Ecuador. Major drilling contractors including Transocean, Schlumberger and Baker Hughes have all reported a sharp drop in international business. Schlumberger told investors in July it expects exploration and production spending outside North America to fall by 15 percent in 2015.

Russia is world's largest producer of crude oil and lease condensate -- U.S. Energy Information Administration (EIA): Russia is the world's largest producer of crude oil (including lease condensate) and the second-largest producer of dry natural gas, after the United States. Hydrocarbons play a large role in the Russian economy, as revenue from oil and natural gas production and exports accounts for more than half of Russia's federal budget revenue. However, recent international sanctions on Russia, coupled with low oil prices, have put pressure on the Russian economy. Russia exported more than 4.7 million barrels per day (b/d) of crude oil and lease condensate in 2014, based on data from the Federal Customs Service of Russia. Countries in Asia and Europe received more than 98% of Russia's crude oil exports. Asia accounted for 26% of Russia's crude oil exports, and Europe—which depends on Russia for more than 30% of the region's oil supply—accounted for 72% of Russian crude oil exports. Russia's economy largely depends on energy exports: oil and natural gas revenues accounted for 68% of total export value in 2013. Much of Russian crude oil production comes from the West Siberia and Urals-Volga regions in central and western Russia, but production in East Siberia and Russia's Far East regions has increased, and oil fields in eastern Russia and in the Russian Arctic stand to play a larger role in the country's future production. However, new projects may be delayed or otherwise affected by economic sanctions currently in place.

Russia resubmits claim for energy-rich Arctic shelf - – Russia said on Tuesday it has resubmitted a claim to the United Nations for some 1.2 million square km of the Arctic shelf, a drive to secure more of the mineral-rich region where other countries have rival territorial interests. The Russian economy is overwhelmingly reliant on natural resources and the Arctic’s estimated huge oil and gas reserves are expected to become more accessible as climate change melts and ice and technology advances. This prospect has attracted other nations, including Norway, the United States, Canada and Denmark while international energy companies are planning large drilling campaigns. “The Russian bid covers underwater area of some 1.2 million square km extending for more than 350 nautical miles from the coast,” the Russian Foreign Ministry said in a statement. “A vast array of scientific data collected during many years of Arctic research serves to justify Russia’s rights to this area.” The Arctic rush carries considerable climate risks, campaigners say. Greenpeace, which is calling for a protected sanctuary in the uninhabited area around the North Pole, said on Tuesday Russia’s move was “ominous.” “The melting of the Arctic ice is uncovering a new and vulnerable sea, but countries like Russia and Norway want to turn it into the next Saudi Arabia,”

Shell eyes new Brazilian assets ahead of BG deal - – Royal Dutch Shell is considering investing billions in Brazil, set to become a focal point after the planned acquisition of BG Group, even as it prepares to sell huge chunks of its business to pay for the $70 bln deal. Despite a broad drive to cut spending in the face of persistently low oil prices, Chief Executive Ben Van Beurden remains steadfast in his plans to buy BG, which will transform Shell into the world’s biggest liquefied natural gas (LNG) supplier. The company has announced plans to sell around $30 billion in assets between 2016 and 2018 to improve its balance sheet and focus on its core deepwater oil and LNG business. The BG deal will make Shell the largest foreign investor in Brazil’s coveted deepwater oil fields. According to several sources familiar with the company, it has earmarked up to $5 billion for new acquisitions, mainly in Brazil where state-run oil company Petrobras is selling assets worth nearly $14 billion amid a vast corruption scandal that has engulfed the company and the government. Shell, which expects oil prices to return to $90 a barrel by the end of the decade, is also looking at acquisitions in other future key regions including East Africa, which has huge reserves and where BG is developing several gas fields in Tanzania, the sources said.

Saudi Arabia to tap markets for $US27b as low oil strains finances -- Saudi Arabia is returning to the bond market with a plan to raise $US27 billion by the end of the year, in the starkest sign yet of the strain lower oil prices are putting on the finances of the largest oil exporter. Bankers say the kingdom's central bank has been sounding out demand for an issuance of about 20 billion Saudi riyals ($US5.3 billion) a month in bonds - in tranches of five, seven and 10 years - for the rest of the year. Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, said in July that Riyadh had already issued its first $US4 billion in local bonds, the first sovereign issuance since 2007. But the latest plans represent a significant expansion of that programme, which bankers believe could even extend into 2016, given the outlook for the oil price. Saudi Arabia's resort to further domestic borrowing highlights the challenges facing the region's largest economy amid one of the steepest falls in the oil price in recent decades. Brent, the international benchmark, has dropped from $US115 a barrel in June last year to about $US50 this week. Oil's decline accelerated last November when OPEC, the producers' cartel, decided not to cut output, a significant departure from its traditional policy of trimming production to prop up prices. Saudi Arabia said it was an attempt to defend market share. But the decision to ride out a sustained period of lower prices has put a huge strain on the finances of leading oil exporters, including Saudi Arabia, which requires an oil price of $US105 a barrel to balance its budget.

Saudi Arabia will need deep pockets if it is to win its oil war with US -- News this week that the Saudi government is to raise more than $27bn from bond sales is a sign that the strain of getting involved in a spending battle with the world’s biggest economy is taking its toll. Saudi Arabia is an expensive country to run for the House of Saud. Fearful of Iran, it has imported the latest military kit to show that it is the Middle East’s regional superpower. Higher defence spending has also been needed to fund action in Yemen and to counter the threat from Islamic State. In addition, Saudi Arabia has an unemployment problem that it fears may become a social unrest problem. Two-thirds of the population is under 30 and the unemployment rate for the 16-29 age group is 29%. As the CIA puts it in its World Factbook: “Over 6 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors, while Riyadh is struggling to reduce unemployment among its own nationals. Saudi officials are particularly focused on employing its large youth population, which generally lacks the education and technical skills the private sector needs.” The Saudi royal family decided the way to ensure that it was not toppled by the Arab spring was to throw money at millions of potentially angry young men. That, too, is expensive for a country where there is no income tax and petrol costs less than 10p a litre. All this was affordable while oil prices were well above $100 a barrel. The sums don’t add up when a barrel of Brent crude is changing hands for less than $50, and this explains why the International Monetary Fund estimates that Saudi Arabia is on course to run a budget deficit of 20% of national income this year. To put that figure into perspective, at its worst following the deep recession of 2008-09, Britain was running a budget deficit of 11% of GDP.

Saudi Arabia may go broke before the US oil industry buckles - If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade. The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states. The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn. Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money. If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report.  "The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.  By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.  Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.  The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.

Gulf Countries Now Back Iran Deal; Buchanan Explains Republicans' No-Win Situation -  It was already difficult to imagine Congress mustering up enough support to override a presidential veto of a bill to kill the Iran deal, but it will be impossible now that Kerry Secures Gulf SupportGulf Arab countries gave cautious backing on Monday to the nuclear deal with Iran, giving the White House an important diplomatic card as it seeks to gain congressional support for the agreement. Speaking alongside US secretary of state John Kerry after a meeting in Doha, Qatari foreign minister Khalid al-Attiyah said that the agreement which the Obama administration helped negotiate with Iran would make the “region safer and more stable”. “This was the best option amongst other options in order to try to come up with a solution for the nuclear weapons of Iran though dialogue,” With that, some Democrats on the fence will likely be convinced. Republicans should too, but most won't. Pat Buchanan is one of few republicans thinking clearly about Iran. Buchanan explains The GOP’s Iran DilemmaIt appears that Hill Republicans will be near unanimous in voting a resolution of rejection of the Iran nuclear deal. They will then vote to override President Obama’s veto of their resolution. And if the GOP fails there, Gov. Scott Walker says his first act as president would be to kill the deal. But before the party commits to abrogating the Iran deal in 2017, the GOP should consider whether it would be committing suicide in 2016. For even if Congress votes to deny Obama authority to lift U.S. sanctions on Iran, the U.S. will vote to lift sanctions in the U.N. Security Council. And Britain, France, Germany, Russia and China, all parties to the deal, will also lift sanctions. A Congressional vote to kill the Iran deal would thus leave the U.S. isolated, its government humiliated, unable to comply with the pledges its own secretary of state negotiated. Would Americans cheer the GOP for leaving the United States with egg all over its face?

After Deal, Europeans Are Eager to Do Business in Iran - Before the ink was even dry on the Iran nuclear deal, European leaders and executives were heading to the airport to restart trade with an Iranian market described in almost feverish terms as “an El Dorado” and potential “bonanza.” Germany sent a delegation five days after the signing of the accord in Vienna on July 14. The French foreign minister, Laurent Fabius, arrived in Tehran on Wednesday. Italian government ministers will get there on Tuesday. Business leaders are to follow soon. They will include 70 to 80 top executives of France’s largest companies in September. Despite the hints of a gold rush, however, the probable opening of Iran’s market holds substantial risks for businesses, and makes it more complicated diplomatically to pull back anew if Iran again pursues the capacity to make a bomb. Perhaps most important, the United States — virtually alone — is largely missing as an economic player. The nuclear agreement does little to lift a raft of American sanctions stemming from Washington’s listing of Iran as a state sponsor of terrorism and violator of human rights. Europe has far lower bars, raising the prospect that the United States and its allies will quickly have vastly divergent levels of investment in Iran that could make the Europeans reluctant to reimpose sanctions if the deal is violated. In addition to the hard-won terms of the accord, the lure of the Iran market was no doubt one factor that European nations and the United States weighed in deciding to support a deal.

Iran Refuses UN Inspector Access To Scientists, Caught Trying To "Clean Up" Suspected Nuclear Site --  In what must be the most predictable geopolitical event in recent days, WSJ reportsthat Iran has refused to let United Nations inspectors interview key scientists and military officers to investigate allegations Tehran maintained a covert nuclear-weapons program. This comes hours after CNN reported that the intelligence community believes Iran has been attempting to clean up the suspected nuclear site at Parchin prior to the arrival of international inspectors based on new satellite imagery. While the administration attempts to 'clear up' any misunderstandings, Senate Foreign Relations Committee Chairman Bob Corker told reporters. "It was not a reassuring meeting...I would say most members left with greater concerns about the inspection regime than we came in with."  For now, the landmark nuclear agreement forged between world powers and Iran on July 14 in Vienna is on hold. As The Wall Street Journal reports, Iran’s stance complicates the International Atomic Energy Agency’s investigation into Tehran’s suspected nuclear-military program—a study that is scheduled to be finished by mid-October, as required by the treaty.

Israeli Military Brass Support Iran Deal -- Haaretz reports that an impressive list of top Israeli military brass support the deal with Iran. These military leaders wrote a letter to Netanyahu urging him to support the Iran deal. Because it’s hard to read names jammed together without any organization, here’s a list of some of the military bigwigs (all now retired) who signed the letter:

  • Shlomo Gaza, Chief of Intelligence, Major General
  • Carmi Gillon, Director of Israel Security Agency
  • Ami Ayalon, Vice Admiral, Director of Israel Security Agency
  • Itamar Yaar, Colonel Deputy Israeli National Security Council
  • Arie Pellman, Israeli Security Agency official
  • Amiram Levin, deputy of the Mossad director, Major General
  • Itzhak Barzilay, Mossad official
  • Nathan Sharony, Major General, head of planning for the armed forces

Numerous admirals and generals signed the letter as well:

Nazi-Fighter Grynberg Girds for Swiss Last Stand Against Big Oil - U.S. courts have been good to Jack Grynberg, netting him hundreds of millions of dollars in disputes with some of the world’s largest oil and gas producers since 1984. Despite that fortune, the 83-year-old oilman says he’s fed up with America’s legal system and has taken his biggest suit yet -- a battle over profits from Kazakhstan’s most valuable oil fields -- to Switzerland. Grynberg is suing a consortium led by BP Plc, saying the oil giant backtracked on a 1991 deal promising him 20 percent of the profits from Kazakh fields he helped find. Instead, Grynberg says in the lawsuit that BP cut him out and struck deals directly with the Kazakh government, greased with bribes paid by a CIA agent who was arrested in 2003. There are more than $900 billion of profits at stake, based on the price of oil and the estimated 66 billion barrels of crude in the Kazakh fields, according to Grynberg’s Swiss lawyer, Adrian Buergi. Grynberg isn’t yet seeking a specific amount in the latest cases, Buergi said. Grynberg is suing BP and the other members of the group -- Exxon Mobil Corp., Royal Dutch Shell Plc, Statoil ASA and Phillips 66 in Zurich and nearby Zug, where the companies have subsidiaries. He has paid more than 2 million Swiss francs ($2.1 million) in court deposits and his lawyer says the first court hearings could take place as soon as next month.

Commodities Are Crashing Like It's 2008 All Over Again -- Welcome back to 2008! The meltdown has pushed as many commodities into bear markets as there were in the month after the collapse of Lehman Brothers Holdings Inc., which spurred the worst financial crisis seven years ago since the Great Depression. Eighteen of the 22 components in the Bloomberg Commodity Index have dropped at least 20 percent from recent closing highs, meeting the common definition of a bear market. That’s the same number as at the end of October 2008, when deepening financial turmoil sent global markets into a swoon. A stronger U.S. dollar and China’s cooling economy are adding to pressure on raw materials. Two of the index’s top three weightings -- gold and crude oil -- are in bear markets. The gauge itself has bounced off 13-year lows for the past month. Four commodities -- corn, natural gas, wheat and cattle -- have managed to stay out of bear markets, due to bad weather and supply issues. Hedge funds are growing more pessimistic as the year has gone on. Money managers have slashed bets on higher commodity prices by half this year, anticipating lower oil and gold prices.

China factory activity falls to weakest in two years - BBC News: Factory activity in the world's second largest economy, China, shrank the most in two years in July as new orders fell more than expected. The private Caixin/Markit manufacturing purchasing managers' index (PMI) dropped to 47.8 in July from 49.4 in the previous month. It is worse than a preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector. A figure below 50 shows contraction in the sector and one above means growth. The reading was the lowest since July 2013, when it fell to 47.7. The disappointing results, which focus on small to mid-sized companies, come after the official survey over the weekend also showed signs of a slowing Chinese economy. The official PMI, which focuses on larger companies, fell to 50 in July from 50.2 in June as growth stalled unexpectedly.

China manufacturing at its weakest in three years - Manufacturing activity in China is looking worse for wear, with revisions showing the sector is in its weakest shape in three years. Caixin/Markit's final purchasing managers' index fell to 47.8 in July, down from 49.4 in June. But the bigger disappointment was that this was revised lower from the preliminary reading, released 10 days ago, of 48.2, and below market expectations of 48.3. The final reading is now the lowest the index has been since August 2012, when it was 47.6. A reading below 50 indicates the manufacturing sector is contracting, and this is the fifth consecutive month the index has been below that mark. And for what it's worth, economists initially expected the preliminary reading to come in at 49.7. Caixin said in its release that manufacturers cut production at the fastest rate since November 2011, on account of renewed falls in both total new work and new export orders. Softer client demand and reduced output requirements contributed to further job shedding and lower purchasing activity, with the latter declining at the sharpest rate since January 2012. Meanwhile, deflationary pressures persisted, with both input costs and output charges declining in July and at faster rates than in the previous month.

Slowest growth since 2008, recovery signs showed - China's machinery sector is facing headwinds. The sector posted the slowest growth in the first half year since the 2008 financial crisis. But the silver lining is, the industry is showing signs of rebound. China's machinery industry continued last year's weak performance in the first half of 2015. Data released by the China Machinery Industry Federation showed that its total revenue stood at 10.7 trillion yuan from January to June, up 3.5 percent on a yearly basis. Compared with the two-digit growth rate in the same period last year, the latest reading hit its lowest level since 2008. At the mean time, profits in the machinery sector only inched up 0.13 percent, the lowest in five years. Fortunately, China's machinery sector is actually showing little sparks of recovery. The growth of fixed asset investment speeded up for two consecutive months, while the profits from private owners jumped more than 9 percent. Policy favors designed at stabilizing growth including the "Made In China 2025" have started to pay off, and will help the factory sector gather pace through the year.

Government debt grows by 20% to $9 trillion: -- Chinese government debt totaled more than 56 trillion yuan ($9 trillion) by the end of 2013, an increase of nearly 20 percent, which exceeds the 10 percent growth of total assets to 111.9 trillion yuan, according to a top government think tank. The National Academy of Economic Strategy (NAES), a unit under the Chinese Academy of Social Sciences, said the term "government" used in the report refers to central and local government as well as entities, institutes or funds sponsored by state funding. The 56 trillion figure lumps together different types of liabilities. A breakdown of the debt structure shows government owes 20.7 trillion yuan to creditors, state-owned financial institutions have non-performing assets of 3.8 trillion yuan, policy banks float bonds of 9 trillion yuan, part of foreign debts account for 3 trillion yuan, and that the social security fund is short 10 trillion yuan. Yang Zhiyong, a NAES researcher, said the debt scale is massive but manageable and sufficient enough to deal with the problem. He added that the debt surge of 20 percent is mainly due to an increase in debts at a local government level.

China’s Cities Keep Mum in Deep Fog of Debt - One of the murkiest aspects of China’s public finances is the extent of its local-government debt. It’s not just that most Chinese cities refuse to venture a public estimate, one of the country’s most prestigious think tanks said in a recent report. The actual number itself may be lost in a statistical Tower of Babel among local-government accounts. According to the survey by a research institute in Beijing’s Tsinghua University, local-government debt was the worst-performing indicator in terms of public transparency among 294 major Chinese cities. Only six cities – Beijing, Shanghai, Guangzhou, Tianjin, Ningbo and Xiamen – disclosed their debt levels, the report said. “Among many city governments, even the most basic financial information is not disclosed,” the report said. The depth of local-government debt gives a clue to the extent of China’s financial worries, as it measures one key aspect of the systemic risk to China’s broader financial stability. China’s thousands of local governments, extending well beyond the cities in the Tsinghua survey, have been racking up large amounts of debt since the 1990s, when the central government in Beijing began moving to take control of vast swathes of local revenue collection. This recentralization of finances forced localities to turn to debt as a means to sustain local spending and investment. It also kicked off an addiction to loans. The level of local debt shot up when Beijing unleashed its four trillion yuan ($586 billion) stimulus in late 2008 to stave off the effects of the global financial crisis. This stimulus, as with most of local-government debt in China to date, was largely funded by bank loans.

China's top bank regulator says bad loans surge, profit growth slows in cooling economy (Reuters) - Bad loans at Chinese banks rose 35.7 percent during the first half of 2015 as economic growth remained sluggish and manufacturers struggled, the chairman of the banking sector regulator said. Shang Fulin, chairman of China Banking Regulatory Commission (CBRC), told an internal meeting last week that non-performing loans (NPLs) at banks rose 322.2 billion yuan in the first six months of the year to 1.8 trillion yuan ($289.9 billion), according to a transcript of the meeting seen by Reuters. He also said the banks' profit growth in the first-half slowed by 13.03 percentage points from a year ago, with total net profits amounting to 1.1 trillion yuan in the first six months. "In the bigger context of (China's) economic slowdown, the whole truth of the banking sector's credit risks is beginning to emerge," Shang said, according to the transcript. Lower profit growth will "reduce shareholder return, weaken banks' capability to supplement capital and prevent risks", he added, saying it was now the "new normal". The proportion of NPLs rose 0.22 percentage points from the beginning of the year to 1.82 percent of all loans at end-June, Shang said.

Downward pressure on China economy to persist in 2015 | Arab News: Downward pressure on China’s economy will persist in the second half of the year as growth in infrastructure spending and exports is unlikely to pick up, a senior central bank official was quoted as saying. Chinese companies are not optimistic about business prospects according to the central bank’s second-quarter survey, Sheng Songcheng, the director of the statistics division of the People’s Bank of China (PBOC), was quoted as saying by the National Business Daily on Saturday. Pressured by uneven domestic and export demand, cooling investment and factory overcapacity, China’s economic growth is expected to slow to around 7 percent this year, the lowest in a quarter of a century, from 7.4 percent in 2014. A plunge in the country’s share markets since mid-June has added to worries about the economy, and reinforced expectations that policymakers will roll out more support measures in coming months to avert a sharper slowdown. The PBOC has already cut interest rates four times since November and repeatedly loosened restrictions on bank lending in its most aggressive stimulus campaign since the global financial crisis. Sheng warned about the risks of local government debt, saying that 2 trillion yuan ($322.08 billion) in bond swaps may not be able to fully cover maturing debt, according to the report. Sheng said the PBOC needs to step up the monitoring of local government financing vehicles given the current downturn in property market and limited local government revenues.

China’s Stock Market Collapse -- The recent rout in the Chinese stock market – and the Chinese authorities’ increasingly panicky responses to it that temporarily halted the decline – may not seem all that important to some observers. . After all, the Chinese economy is still much more state-controlled than most, the main banks are still state-owned and stock market capitalization relative to GDP is still small compared to most western countries, with less than 15 per cent of household savings invested in stocks. But this relatively benign approach misses some crucial points about how the Chinese economy has changed over the past few years, as well as the dynamics of this meltdown and its impact in the wider Asian region. Since the Global Recession, which China weathered rather well, there have been changes in the orientation of the Chinese government and further moves towards financial liberalization, which were rather muted before then. And these resulted in big changes in borrowing patterns as well greater exposure to the still nascent stock market, in what have turned out to be clearly unsustainable rates. The export-led strategy that had proved so successful over two decades received a big shock in 2008 and pointed to the need to generate more domestic sources of demand. But instead of focussing on stimulating consumption through rising wage shares of national income (which could eventually have threatened the export-driven model) the Chinese authorities chose to put their faith in even more accumulation to keep growth rates buoyant.

China central bank vows to stabilize market expectations | Reuters: China's central bank promised to "stabilize financial market expectations" on Tuesday, saying it will head off risks in the latest show of official resolve to keep the economy on an even keel. Without referring to the shakeout in China's stock market  which has slumped about a quarter since early June, the People's Bank of China (PBOC) said it would improve its warning system for risk. Authorities would "pay attention to stabilizing financial market expectations", the central bank said in an online statement after Governor Zhou Xiaochuan met the heads of the bank's provincial offices. It was not immediately clear whose expectations it wants to stabilize or how it would do it, but the comment follows the slump in the market and drastic measures to stop the sell-off. The central bank would use various policy tools flexibly to sustain appropriate growth in liquidity and credit and keep policy "prudent", the statement said.

China state margin lender injects $32 billion into new mutual funds - China Securities Journal | Reuters: China Securities Finance Corp, the state margin lender tasked with stabilizing the stock market, has injected 200 billion yuan ($32.21 billion) since July into five newly-launched mutual funds, the official China Securities Journal reported on Tuesday. The five funds, managed respectively by China Asset Management Co, Harvest Fund Management Co, China Southern Asset Management Co, China Merchants Fund Management Co and E Fund Management Co, each raised 40 billion yuan from CSFC, according to the newspaper. CSFC is also managing a 120 billion yuan bailout fund formed by 21 brokerages, and last month provided 260 billion yuan in credit lines to brokerages to help them buy stocks via proprietary trading, after obtaining liquidity support from the central bank.

China has spent $147 billion to prop up stocks: Goldman Sachs - US investment bank Goldman Sachs has estimated the Chinese government has spent up to 900 billion yuan ($147 billion) in the last two months to try to prop up stock prices and halt a market rout. After the Shanghai market peaked in mid-June and then fell 30 per cent in three weeks, the government intervened with a rescue package that included funding the state-backed China Securities Finance Corp. (CSF) to buy stock. Goldman said the government spent 860-900 billion yuan to support the stock market in June and July, according to a research report issued on Wednesday. The report put the total war chest of potential funds available for market support at around 2.0 trillion yuan - including funds already spent. Bloomberg News on Thursday reported that the CSF - previously a largely unknown institution that helped provide financing to brokerages - was seeking an additional 2.0 trillion yuan, which would bring its total market support funds to 5.0 trillion yuan. Worries the government is preparing to exit the market, despite repeated denials, were the trigger for the biggest one-day fall in eight years of 8.48 per cent last month.

China agency seeking additional 2 trillion yuan to prop up markets: Bloomberg -- The Chinese government agency tasked with buying stocks to prop up China's wobbling markets is seeking an additional 2 trillion yuan ($322 billion) in funds, Bloomberg reported on Thursday. The additional funding would increase the war chest available to China Securities Finance Corp. (CSF) to 5 trillion yuan -- a figure that could still change depending on market conditions, according to Bloomberg, citing unidentified sources. The CSF has been thrust into the spotlight since shares plummeted in June as a conduit for China's central bank to inject funding directly into the market. China initially made 3 trillion yuan of funding available for CSF in July to offer liquidity support to brokers and to buy stocks and mutual funds. The agency is seeking to borrow money for three to 12 months and at rates of up to 4.4 percent, Bloomberg reported, citing sources with knowledge of the agency's plans.

Firm global growth amid doubts about Chinese data - According to the latest results from Fulcrum’s “nowcast models”, the global economy has continued to perform adequately in July, despite considerable doubts in the financial markets about a possible hard landing in the Chinese economy, and rising concerns about weakness in the emerging world, especially in commodity-driven, and smaller Asian, economies. The latest growth rate in global activity is estimated to be 3.2 per cent (PPP weighted), which is roughly the same as last month’s estimate. The advanced economies are estimated to be expanding at an annualised rate of 1.7 per cent, which is very close to trend. Meanwhile, the major emerging economies are growing at a rate of 4.6 per cent, which is about one percentage point below trend, but better than recorded a few months ago. The gap of 2.9 percentage points between the growth rate in the emerging and advanced economies is far smaller than the 3.8 percentage point gap in the estimated long term growth rates in the two blocs, reflecting the continuing cyclical downswing in most emerging economies. The continuing weak state of the emerging bloc remains a major headache for the world economy and global financial markets, though the risk of a global hard landing does seem to have diminished since the first quarter. The main conundrum this month concerns the growth rate in China. On our models, which are based on a mix of official economic data and other series (like electricity and cement production, car sales, freight traffic and trade flows through harbors), China is growing at close to its 7 per cent trend. But other factors, like the weakness of commodities and of industrial production in the rest of emerging Asia, seems consistent with much weaker growth in China.

China wants no talk of South China Sea at ASEAN meeting | Reuters: Chinese Vice Foreign Minister Liu Zhenmin said on Monday the disputed South China Sea should not be discussed at a meeting of the Association of Southeast Asian Nations (ASEAN). Liu, speaking to Reuters on the sidelines of the 48th ASEAN Foreign Ministers Meeting, which kicks off in Kuala Lumpur on Tuesday, said the meetings should avoid all talk on the sensitive issue, adding that countries outside ASEAN should not interfere. "It should not be discussed," said Liu. "This is not the right forum. This is a forum for promoting cooperation. If the U.S. raises the issue we shall of course object. We hope they will not." But in Washington, State Department Deputy spokesman Mark Toner said tensions in the South China Sea would be discussed as part of regional security concerns. "This is a forum in which critical security issues need to be brought up and discussed, and frankly, ... we believe that the developments in the South China Sea meet that criteria," Toner told a daily briefing. The issue was not on the official agenda, but expectations were high that it would be discussed against a backdrop of increasing tensions and overlapping claims in the potentially energy-rich South China Sea.

Beijing may question the yuan peg as the Fed prepares for liftoff  - Today's ISM non-manufacturing report showed US services sector expansion considerably stronger than economists had anticipated. The strength of services sector expansion however has diverged materially from what we see in US manufacturing.  The reason for the divergence is the strength of the US dollar, which on a trade-weighted basis is at the highest level in over a decade. Strengthening US currency has generated a significant drag on growth in the manufacturing sector. We've all read the headlines. But haven't we seen this divergence between the services and the manufacturing sectors elsewhere? Indeed just yesterday Markit published a similar chart for China. This of course is more than a coincidence. China's currency tie to the US dollar resulted in a similar dynamic of manufacturing sector significantly underperforming. Unlike the US however, China's manufacturing is more sensitive to exports, making the slowdown far more pronounced and resulting in an outright contraction (PMI below 50 in the chart above). In recent months the yuan has been firmly pegged to the dollar. There are a number of reasons for this linkage, including China's wish to make the yuan part of the so-called Special Drawing Rights (SDRs), a basket of currencies constructed by the IMF and held by various central banks. Beijing reasoned that the yuan's stability would help them with that cause. However, yesterday we got this headline. Source: Reuters Time to give up the peg? There are of course other reasons China may want to maintain the link to the dollar - one of them is to continue "rebalancing" the economy.This policy however could prove to be too costly, as competitors whose currencies have been devalued may take market share from China. Here is how the yuan has appreciated against the Mexican peso for example (chart below). With margins tightening in a number of industries, when a manufacturer decides where to build a factory, Mexico (and a number of other countries) may now be a cheaper solution.

IMF signals doubts on renminbi as reserve currency - FT.com: The International Monetary Fund has hailed China’s progress on financial reform but said the renminbi still lags behind rivals on key metrics that determine whether the fund will formally endorse the redback as a reserve currency. The fund’s executive board will make a final decision on the renminbi late this year as part of its regular five-yearly review of the currency composition of its special drawing rights, a global reserve asset comprising the dollar, euro, pound and yen. China’s leadership has been pushing for the addition of the renminbi, which would serve as recognition of the currency’s rising global status and a signal to the world’s central banks that renminbi assets are a solid investment. Christine Lagarde, IMF managing director, has said the renminbi’s inclusion is a “matter of when, not if”. A judgment about whether the renminbi is “freely usable” is crucial to the IMF’s final decision. As part of the review process, the board recently held an “informal meeting” to discuss the staff report. “Across a range of indicators, the renminbi is now exhibiting a significant degree of international use and trading. At the same time, the four freely usable currencies (already in the SDR) generally rank ahead of the renminbi,” the IMF staff said in the report. “The report signals that the decision about the renminbi’s inclusion in the basket hinges on financial market development, further opening of the capital account, and greater exchange rate flexibility,” said Eswar Prasad, former IMF country head for China. In particular, the report calls on China to increase foreign access to its onshore stock and bond markets, especially government bonds. It does not reference China’s recent interventions to support its volatile stock market. Ms Lagarde recently said these actions shouldn’t influence the fund’s SDR review.

Japan's Monetary Base Stands at Record High - Japan’s monetary base stood at a record-high 325.74 trillion yen ($2.63 trillion) at the end of July, up 33.9 percent from a year earlier, as the Bank of Japan continued to provide more liquidity to raise the inflation rate to its targeted 2 percent, BOJ data showed Tuesday. The monetary base reached an all-time high for the 12th straight month. The central bank took additional monetary easing steps last October to raise the pace of supplying funds. The balance of financial institutions’ current account deposits at the BOJ, the biggest part of the monetary base, came to 230.07 trillion yen, up 51.3 percent. Under the current stimulus measures, the BOJ aims to boost the monetary base at an annual pace of about 80 trillion yen, up from 60 trillion to 70 trillion yen under its previous policy. The BOJ has been trying to get rid of lingering deflationary pressure on the economy with its drastic quantitative easing.

U.S., Japan Eye Their Lost Slice of Asia Trade - Remember when the U.S. and Japan dominated trade in the Pacific? It wasn’t so long ago, and the memory is front and center as officials from Washington and Tokyo work on a trade agreement that could give their countries a shot at clawing back some of the trade they lost to China in recent decades. Beijing’s rise came quickly. The share of Asian countries’ imports from China more than doubled from 2000 to 2014, while the share of Japan and the U.S. in Asian imports approximately halved, according to a study by Third Way, a centrist think tank in Washington that backs trade liberalization. The world’s highly developed economies did boost their shipment of goods to 15 countries in East Asia in absolute terms, but not as fast as China did. Overall, Asia’s total imports jumped to over $1 trillion in 2014, compared with $262 billion in 2000, according to the study. To slow or reverse their losses, the U.S. and Japan are working with 10 Pacific countries on an agreement known as the Trans-Pacific Partnership that officials say would boost economic growth and spur trade for the countries involved—not including China. “It’s very fair to say that the TPP is going to increase the U.S. market share,” said Gabe Horwitz, director of the economic program at Third Way. “It’s going to make sure American companies can compete better overseas.”

Outlook Mixed After TPP Talks End: — There was no consensus Monday on how soon talks to conclude the Trans-Pacific Partnership trade pact could be revived after the 12 parties failed to reach a deal at what was intended to be the concluding round last week in Hawaii. “The timing really is a challenge at this point, really driven by electoral politics,” Asia Trade Center executive director Deborah Elms told VOA via Skype. A Canadian general election is scheduled for October 19 and campaigning began Sunday. For the Canadians “to make a concession on dairy this close to the election I think is going to be even harder,” Elms told VOA. The U.S. presidential primaries begin in January 2016. Due to legally binding Congressional rules on trade, even if the negotiators are able to reach agreement late this month, Elms predicts, via Skype, that would leave U.S. lawmakers only a handful of days before they leave for the Christmas recess. “When they come back they are in full election mode and no one is going to want to vote on trade in an election cycle,” Elms said.

Negotiators push ahead with TPP talks as elections loom - Some of Canada's most memorable elections have been about governments campaigning for free-trade deals. This time a Canadian government will be negotiating one. The next few weeks could play a determining role in the fate of the Trans-Pacific Partnership, a 12-country plan to create the world's largest trade zone.Some countries are adamant they want a deal this month. "I think there is probably a window of two or three weeks," said Mike Petersen, New Zealand's special trade envoy for agriculture. "There's a window where we could get this deal done. It's going to be really tight. There's going to have to be a lot of movement in the next two or three weeks." He said this while preparing to board a plane out of Hawaii over the weekend, after negotiators got close to an agreement but couldn't finish it. Japan's envoy described a similar timeline as he left the meeting. Economy Minister Akira Amari was quoted in different Japanese media as having told reporters that he expects ministers to meet this month to finish a deal. That means that after rushing to the hustings a little sooner than expected, the Harper government might now have to simultaneously campaign, complete a trade deal, and prepare to sell the deal to voters on Oct. 19. The government can argue that it still has a mandate to negotiate for Canada.

Key: TPP talks likely to resume - Trans-Pacific Partnership free trade negotiations could resume within three weeks and New Zealand has much to gain from a successful conclusion, Prime Minister John Key says. The 12 TPP countries have just ended an intense session in Hawaii, where they couldn't reach a final agreement. A dispute over access for dairy products, auto parts and drug patents were the main sticking points. Mr Key is confident they'll be overcome. "There are a few challenging issues remaining," he said at his post-Cabinet press conference today. "I'm confident we will reach an agreement that's in the best interests of New Zealand in the coming weeks." Mr Key says a TPP free trade agreement will give New Zealand exporters access to more than 800 million customers in 11 countries, including the huge economies of the United States and Japan. He expects there will be some hard negotiating behind the scenes before the next formal meeting "potentially within the next two or three weeks". Earlier on Monday Mr Key said US President Barack Obama had invested a lot of time and capital into the deal, which may help push it through. "I don't know when but there's a narrow window of opportunity so we're going to have to keep working on it." New Zealand wouldn't get everything, but would get something beneficial to exporters, Mr Key said.

Conservatives were sure Trans-Pacific Partnership deal would be signed - The Conservative government was so confident in recent weeks it would sign a Trans-Pacific Partnership trade deal that it was asking business groups to loudly support the conclusion of an agreement, reasoning their voices would drown out those of unhappy milk producers – the one sector Ottawa expected would be sorely disappointed. During a May meeting, a very senior Conservative government official encouraged representatives of a manufacturing association to “be vocal” in backing a Trans-Pacific agreement “because there’s going to be one group that’s going to be very disappointed by the time we’re done here’ – and [they] were talking about the dairy farmers,” an official with the lobby group recalled. But the turn these Pacific Rim trade talks took in Hawaii last week revealed that Canada’s automotive sector is also facing possible risk from a deal. As The Globe and Mail has reported, Canada and Mexico only learned when they arrived at the Hawaii round of Trans-Pacific talks in late July that the United States and Japan had brokered a deal on vehicle imports that could hit the NAFTA partners’ auto sectors hard.  Ottawa and Mexico City discovered in Hawaii that Japan and the United States had cut a side deal lowering the threshold for how much of an automobile would have to come from Trans-Pacific signatory countries in order for it to avoid hefty tariffs. The remainder of the auto could come from low-cost suppliers outside Trans-Pacific countries, such as Thailand, and are a major source of parts for Japanese auto makers.

The TPP Copyright Chapter Leaks: Canada May Face Website Blocking, New Criminal Provisions & Term Extension --KEI this morning released the May 2015 draft of the copyright provisions in the Trans Pacific Partnership (copyright, ISP annex, enforcement). The leak appears to be the same version that was covered by the EFF and other media outlets earlier this summer. As such, the concerns remain the same: anti-circumvention rules that extend beyond the WIPO Internet treaties, additional criminal rules, the extension of copyright term, increased border measures, mandatory statutory damages, and expanding ISP liability rules, including the prospect of website blocking for Canada. Beyond the substantive concerns highlighted below, there are two key takeaways. First, the amount of disagreement within the chapter is striking. As of just a few months ago, there were still many critical unresolved issues with widespread opposition to (predominantly) U.S. proposals.  Second, from a Canadian perspective, the TPP could require a significant overhaul of current Canadian law. If Canada caves on copyright, changes would include extending the term of copyright, implementing new criminal provisions, creating new restrictions on Internet retransmission, and adding the prospect of website blocking for Internet providers. There is also the possibility of further border measures requirements just months after Bill C-8 (the anti-counterfeiting bill) received royal assent. Given the extensive debate on copyright during the 2012 reforms, the TPP upsets the balance the Canadian government struck, mandating reforms without public consultation or debate. 

The Trans Pacific Trade Deal Stumbled. Now Is the Time to Walk Away -- After more than five years of negotiations, trade ministers meeting last week failed again to reach an agreement on the Trans Pacific Partnership (TPP), a secret trade agreement between 12 countries in the Pacific that make up 40% of the global economy. This is a major opportunity for governments to now walk away entirely from this trojan horse deal that is bad for people and for the planet. The latest round of failed talks, which took place in Hawaii, was anticipated to 'seal the deal' with government officials stating that "it was 98 per cent complete." Yet the TPP trade agreement has stalled again because of a range of important disagreements over pharmaceutical patents, market access for agricultural products and the corporate rights to sue governments for public policy. The New Zealand Prime Minister John Key admitted that the TPP would increase the price of medicine. For many countries this means a choice between life and death for their citizens, and negotiators refused to budge on the issue. Growing public pressure has put the agreement into the spotlight. It is harder for ministers to agree to something disastrous for their country on a beach in Hawaii when they know people back home are watching. A wide range of people voiced their opposition to TPP, including US trade unions, Malaysian state-owned enterprises, Australian environmentalists, Japanese rice farmers and Chilean health advocates. Social movements and civil society are campaigning to hold their governments accountable and raise public awareness about this deal, and it is making a difference.

Credit card holders gouged more than $2 billion since 2011, research shows: Credit card holders have been ripped off more than $2 billion dollars in nearly half a decade because of the banks' failure to pass on official interest rate cuts, research shows. Since November 2011, when credit card providers stopped moving interest rates in line with the official cash rate, Australians have been gouged $2.07 billion, say consumer group Choice and comparison website Mozo. "The fact is an average credit card holder has paid an extra $281 because of unnecessarily high interest rates. Worryingly, this comes at a time when one-in-five Australians are living off their credit card to get through to payday," said Choice's campaigns manager Erin Turner. "The findings point to a systemic issue with Australia's banking system. Because the big banks control over 80 per cent of the credit card market, they aren't competing on price and are keeping consumer costs high even though their costs for providing credit have dropped," she said ahead of the Reserve Bank's meeting on Tuesday.

Enclaves swapped in landmark India-Bangladesh border deal -  India and Bangladesh have swapped control of some 160 small pockets of land on each other's territory. The enclaves, home to some 50,000 people, were created through local peace treaties in the 18th Century. New national flags were to be hoisted as a landmark accord between the two countries came into effect at midnight local time on Friday. Residents were asked to choose where they wanted to live and which nationality they would prefer. Most of the people living in the enclaves - 111 in Bangladesh and 51 in India - will stay where they are, but change nationality. The enclaves endured through British colonial rule and the independence first of India and more recently Bangladesh. After the partition of India in 1947, their inhabitants remained where they were - residents of one country but located inside the other, the BBC's Sanjoy Majumder reports. For six decades they have been treated as in effect stateless, but the agreement between India and Bangladesh means they will now finally gain a proper identity. Hitherto residents have had difficulty getting access to basic facilities such as education.

India's planned resettlement of Hindus in Kashmir Valley won't be smooth: "Not a day goes by when we do not miss our home," said Pandita, sitting in his two-room apartment in Jagdi Township, a poorly maintained Indian government-run housing complex with about 4,200 apartments for Hindus who fled Kashmir 25 years ago after deadly attacks by radical Islamists. Several men around him nodded in agreement. Now Indian officials have offered a plan to allow Pandita and tens of thousands of Kashmiri Hindus, known as Pandits, to return to their homeland. Prime Minister Narendra Modi's conservative government, which has close ties to Hindu nationalist groups and has championed the Pandits' cause, has proposed resettling them in dedicated townships in the portion of Kashmir that India controls, which Indians refer to as the valley. Most of the estimated 60,000 Pandit families that fled their homes have sold their property in the valley, which is predominantly Muslim and, although under Indian control, claimed in its entirety by India and rival Pakistan. Despite the Indian government proposal, many are not prepared to return to the area, which is beset by insecurity and unemployment. "Kashmiri Muslims are terrorists," said Pandita, who was 26 when he fled the valley with his family. "They killed and terrorized our brethren, drove us out of our homes, captured our lands and are now roaming freely." The exodus of Pandits was one of the bloodiest chapters of the decades-long battle over the ruggedly beautiful Kashmir Valley. An Islamist uprising against Indian control in the late 1980s put the Hindu minority under siege, and one night in January 1990, with extremist Muslim leaders egging them on, militants killed more than 700 Pandits, destroyed countless homes and accelerated the flight of Hindus.

Land folly in India - Can a policy be a devastating failure, a tiny improvement, and a bitter pill all at the same time? In India, the answer seems to be yes. This month’s variant of a new land law, offered by the Bharatiya Janata Party (BJP)-led government, may be the maximum change that can pass an angrily divided national legislature and is a tiny bit better than the existing land law. It’s also a terrible result that could keep India poor. The previous Congress Party-led government enacted a land law in 2013 that ostensibly protected Indian farmers and made it (even) harder to acquire land for new projects. The BJP wanted to make land acquisition easier but has given ground before serious political opposition. That’s an old song; the core issue is much stranger. The political battle is portrayed as Congress protecting farmers versus BJP helping business, but the current law actually harms farmers and the now-minor modifications to it will do almost nothing to help business. This is because India remains fundamentally collectivist in its view of land (and some other matters). Even the original differences between the Congress and BJP approaches, while much debated, are trivial. The foundation of both is the government negotiating with a group that is supposed to represent people living on the land. In both approaches, neither the group nor the individuals composing it clearly and fully own the land, rather they have tenuous and partial rights the government can alter.

Indian consumer sentiment lowest since March: MNI Indicator - The MNI India Consumer Sentiment Indicator fell for the third straight month to 118.6 in July -- the weakest level since March -- amid weakening personal finances, said a Deutsche-Boerse survey. Consumer sentiment which was on a downtrend since early 2014, had levelled off in recent months but the July out-turn showed "renewed weakness", the report said. In June, the MNI India Consumer Sentiment Indicator stood at 119.5. "This was a very disappointing result with consumer sentiment the weakest since March and not that far from the record low set in 2013. So far the rate cuts have had little impact, with consumers the most concerned about their finances since the survey began," MNI Indicators Chief Economist Philip Uglow said. The Reserve Bank today kept its policy rates unchanged, with Governor Raghuram Rajan saying that the headline inflation is at elevated levels and banks are yet to pass on the full benefits of previous rate cuts. Accordingly, the repo rate at which the RBI lends to the system, will continue to be at 7.25 per cent and the cash reserve ratio, which is the proportion of deposits banks have to park with the central bank, will remain 4 per cent. "Weaker overall sentiment was probably down in part to higher inflation," the report said adding that the CPI inflation is likely to turn upwards over the coming months.

Bad debts in Thailand spread on falling consumption and exports - Hopes that bad debts in the Thai financial system may have peaked this year are fading as more small companies and medium-sized enterprises default on their bank loans, hit by slowing domestic consumption and falling exports, particularly to China. The rising tide of non-performing loans (NPLs) is spurring analysts to downgrade their outlook for Thai banks. Both the sector and individual banks such as Bangkok Bank and Siam Commercial Bank have been downgraded at least twice this year as souring loans and a stuttering economy eat into their profits. Thailand’s central bank has already twice lowered its forecast for the country’s economic growth, and is expected to cut its estimate for the third time in September. “NPLs will continue to rise in the second half and they should peak in late Q3 or early Q4. We hope the government can do better to stimulate the economy next year, but we are quite worried about that,” said Weerapat Wonk-Urai, an analyst at Bangkok-based CIMB Securities. “The drought and declines in agricultural products are adding more pressure to the economy because that affected loan demand in the SME sector ... small and medium companies will be the main contributor for rising NPLs in the second half,” Weerapat said.

Plunging like it’s 1998 - The Economist: NOT since Bill Clinton was president and Barack Obama was a law professor with a sideline in local politics have the beaches of Bali and Langkawi looked so inviting to Americans. Four years ago, a dollar fetched just over 8,500 Indonesian rupiah, and just under three Malaysian ringgit. Today a dollar is worth nearly 14,000 rupiah and almost four ringgit. Both currencies hit 17-year lows this summer, and kept falling (see chart). In one sense, Indonesia and Malaysia are far from unique: declining commodity prices, the slowdown in China and the growing likelihood of an interest-rate rise in America have combined to make 2015 a miserable year for emerging-market currencies. Brazil and Russia are in recession, sending the real and the rouble falling. Turkey, with its slowing economy, huge current-account deficit and growing political instability, has seen the lira decline steeply; the Chilean, Colombian and Mexican pesos have all drooped.  But in Asia the rupiah and ringgit lead the race downwards, having fallen by 8.4% and 9.8% against the dollar this year—much further than the Thai baht (6.4%) and the Philippine peso (2.2%). Their problems are exacerbated not just by the Indonesian and Malaysian economies’ heavy dependence on commodities, but also by political ructions in both countries.

Ringgit and real lead emerging currency rout - FT.com: The plight of emerging market currencies deteriorated this week, driven by growing concern about the impact of falling commodity prices and exposure to China’s slowing economy. As Malaysia’s ringgit fell to a fresh 17-year low against the dollar, the country’s foreign currency reserves plummeted below the $100bn level to their lowest level in five years. The slide comes in lockstep with the double-dip in crude prices, with oil revenue accounting for 30 per cent of the government’s revenue.  Concerns over stagnating growth in China and its potential to keep pressure on crude prices intensified after Beijing published the weakest manufacturing data since 2012. Adding to the jitters were ructions in the Malay stock market and uncertainty relating to a political crisis in which Malaysia’s prime minister, Najib Razak, has been linked to a scandal surrounding allegations of corruption relating to a state investment fund. The country’s currency weakened by 2.7 per cent over the week, with as many as 3.924 ringgits required to buy a single dollar, taking the currency’s losing streak since June to 7.1 per cent. “With political risk rising and fundamentals deteriorating, we think ringgit underperformance will likely continue. We also remain bearish on oil and commodity prices,” warned analysts from Brown Brothers Harriman. Hak Bin Chua at Bank of America Merrill Lynch said the ringgit could have further to fall: “Markets may be too complacent about growth risks, not pricing in any probability at all of a policy rate cut for 2015 and 2016. “We are more worried and expect a material deterioration.” Brazil’s real weakened by 2.2 per cent over the week with R3.4941 needed to fetch a single dollar. Russia’s rouble wilted by 2.2 per cent, with Rbs63.94 required for a single unit of the world’s reserve currency.

Low Cost Private Schools in the Developing World - Private schools for the poor are growing rapidly throughout the developing world. The Economist has a review:   Private schools enroll a much bigger share of primary-school pupils in poor countries than in rich ones: a fifth, according to data compiled from official sources, up from a tenth two decades ago (see chart 1). Since they are often unregistered, this is sure to be an underestimate. A school census in Lagos in 2010-11, for example, found four times as many private schools as in government records. UNESCO, the UN agency responsible for education, estimates that half of all spending on education in poor countries comes out of parents’ pockets (see chart 2). In rich countries the share is much lower. Overall, there is good evidence that private school systems tend to create small but meaningful increases in achievement (e.g. here, here, here, here) and especially good evidence that they do so with large costs savings. The large costs savings suggest that with the right institutional structure, which might involve vouchers and nationally comparable testing, an entrepreneurial private sector could create very large gains. Karthik Muralidharan who has done key work on private schools and performance pay in India puts it this way: Since private schools achieved equal or better outcomes at one-third the cost, the fundamental question that needs to be asked is “How much better could private management do if they had three times their current level of per-child spending?” The Economist notes that another promising development is national chains which can scale and more quickly adopt best practices:…Bridge International Academies, which runs around 400 primary schools in Kenya and Uganda, and plans to open more in Nigeria and India, is the biggest, with backers including Facebook’s chief executive, Mark Zuckerberg, and Bill Gates. Omega Schools has 38 institutions in Ghana. (Pearson, which owns 50% of The Economist, has stakes in both Bridge and Omega.) Low-cost chains with a dozen schools or fewer have recently been established in India, Nigeria, the Philippines and South Africa.

Is the World Bank’s ‘Doing Business’ Report at Odds With How Business Is Done in the Developing World? - The World Bank’s ”Doing Business” report, an influential survey of the operating environment for companies in nearly 200 countries, doesn’t accurately reflect the experience of companies actually doing business in developing nations, a new study has found. The annual publication from the development lender assesses the ease of compliance in 10 facets of private enterprise, from starting a business to getting electricity to paying taxes. The results are used to generate a much-publicized country ranking, which governments around the world take as a yearly checkup on their economic stewardship. Singapore flaunts its top spot, while laggards turn improving their rank into national priorities. Retaking the Russian presidency in 2012, Vladimir Putin vowed to vault Russia to 20th by 2018 from 120th in 2012. The country came in at No. 62 this year. India’s prime minister, Narendra Modi, testifies to his business-friendliness by promising to take his nation, 142nd in this year’s report, into the top 50 by 2017. But Mary Hallward-Driemeier, a World Bank economist, and Lant Pritchett, a Harvard University economist, find “almost zero correlation” between the Doing Business findings and those based on surveys of business enterprises that the World Bank helps conduct around the world. On average, the amount of time companies tell surveyors they spend on three tasks—obtaining construction permits, getting operating licenses and importing goods—is “much, much less” than the times recorded in the Doing Business report. The divergence, the authors hypothesize, stems from the gulf in poor countries between the laws and policies that exist on the books and the ones that prevail—or perhaps don’t prevail—in reality.

America is on the wrong side of history -  Joseph Stiglitz -- The Third International Conference on Financing for Development recently convened in Ethiopia’s capital, Addis Ababa. The conference came at a time when developing countries and emerging markets have demonstrated their ability to absorb huge amounts of money productively. Indeed, the tasks that these countries are undertaking – investing in infrastructure (roads, electricity, ports, and much else), building cities that will one day be home to billions, and moving toward a green economy – are truly enormous. At the same time, there is no shortage of money waiting to be put to productive use. Just a few years ago, Ben Bernanke, then the chairman of the US Federal Reserve Board, talked about a global savings glut. And yet investment projects with high social returns were being starved of funds. That remains true today. The problem, then as now, is that the world’s financial markets, meant to intermediate efficiently between savings and investment opportunities, instead misallocate capital and create risk.  There is another irony. Most of the investment projects that the emerging world needs are long term, as are much of the available savings – the trillions in retirement accounts, pension funds, and sovereign wealth funds. But our increasingly shortsighted financial markets stand between the two.  Much has changed in the 13 years since the first International Conference on Financing for Development was held in Monterrey, Mexico, in 2002. Back then, the G7 dominated global economic policymaking; today, China is the world’s largest economy (in purchasing-power-parity terms), with savings around 50% larger than that of the US. In 2002, western financial institutions were thought to be wizards at managing risk and allocating capital; today, we see that they are wizards at market manipulation and other deceptive practices. 

The Seventh-Largest Economy in the World Spirals Down | Wolf Street: The seventh largest economy in the world in 2014, according to the World Bank, is spiraling down, with private sector output, as Markit put it, falling at the “sharpest pace since March 2009.” This is how Markit titled its Brazil Services PMI report on Wednesday: “Service sector activity drops at joint-fastest rate in survey history.” The index hit 39.1 in July (50 is the dividing line between contraction and expansion), the fifth month in a row of contraction, with all sub-sectors in the survey “registering substantial falls in business activity.” To add to the toxic mix, costs soared, with the rate of increase reaching an 81-month high, third fasted in survey history, due to “inflationary pressures, exchange rate factors, and client fee adjustment.” No green shoots in the immediate future: new orders fell for the fifth month in a row. The “deteriorating operating environment” caused the pace of job losses to accelerate “to a survey record.” Some companies still nurtured glimmers of hope: 29% of them expected activity to be higher in one year, based on the notion that the economy would somehow recover “in the coming months.” This gloomy report on the service sector came on the heels of Markit’s Manufacturing PMI report, which had inched up to a less dreadful 47.2 in July, but remained “among the lowest since 2011, reflecting a slumping economy.”

Brazil inflation rate hits 12-year high -  Inflation in Brazil has hit a 12-year high of 9.56%, official figures have shown. The rising cost of electricity, in particular, has pushed the rate to its highest level since November 2003. The country's central bank targets an inflation rate of 4.5% and has raised interest rates to 14.25% - among the highest of major economies - to combat rising prices. High inflation is compounding Brazil's economic woes. According to the International Monetary Fund, the country's economy is set to shrink by 1.5% this year. Weaker demand for Brazil's commodities, particularly from the slowing Chinese economy, is the main reason behind the slowdown. The country's President, Dilma Rousseff, is also trying to force through measures to cut the country's deficit by cutting spending and raising taxes. Brazil is currently the world's seventh largest economy.

Global Inflation Remains Stubbornly Low - WSJ: Global inflation rates were unchanged in June, and well below desired levels in developed nations, even as some central banks prepare to raise their key interest rates for the first time since the global financial crisis. The Organization for Economic Cooperation and Development said Tuesday the annual rate of inflation in its 34 members was unchanged at 0.6% in June, well below the 2.0% regarded by most central bankers in developed economies as consistent with healthy economic growth. The Paris-based research body said inflation across the Group of 20 largest economies was also unchanged at 2.6%. The G-20 accounts for 85% of estimated global economic output. The persistence of very low rates of inflation is a worry for central bankers, since it threatens to permanently alter consumer expectations and makes it more difficult to attain 2% targets in the future. Over recent decades, policy makers have placed great store by “anchoring” inflation expectations at their target rates as a means of ensuring shocks to the economy—such as sharply rising or falling commodity prices—don’t prove disruptive. The OECD’s figures indicate that a wave of fresh stimulus measures enacted by central banks around the world since late last year has yet to achieve its main goal—minimizing the risk of a slide into deflation. Very low inflation rates make economies vulnerable to a slide into deflation, an outcome that policy makers regard as unlikely, but highly damaging should it occur.

Russian rouble's fall reaches 30 per cent since May - The devaluation of the Russian rouble since May reached 30 per cent versus the US dollar on Thursday, with the decline expected to continue through the summer. The rouble surpassed 64 per dollar in Moscow trading, compared with 49 on May 18, as oil prices tumbled. Oil is one of Russia‘s main exports, and the rouble‘s value is tightly linked to the commodity, which has experienced a boom in supply over the past year pushing prices down. "There is no longer any intention to rally the rouble," said Chris Weafer, a senior partner at the consultancy Macro Advisory, which advises hedge funds and foreign companies with interests in Russia. Weafer said the Russian government has wanted a weak ruble to balance the federal budget and support domestic industry, but he predicted that the Central Bank will soon reintervene - around 65 per dollar - to keep the decline manageable. He warned that a level of 70 per dollar would be detrimental as it would undermine confidence in the Russian economy and spur inflation. The Central Bank intervened last week, halting its purchases of hard currency as part of a programme it began in May after the rouble had strengthened to 50 per dollar.

Extreme working hours have radically increased in many western European countries since the start of the 1990s -- With the recent debates over the reform of the EU’s Working Time Directive, the topic of working time has received renewed interest in Europe. The academic literature defines extreme working hours as individuals’ actual working hours going beyond 50 hours per week. Using harmonised survey data from the Multinational Time Use Study and the Luxemburg Income Study, I have analysed trends in extreme working hours in sixteen western European countries, the United States and Canada between 1970 and 2010. The results suggest that extreme working hour patterns of many European countries have been converging toward the US-American pattern: an increasing ratio of European workers, particularly those with high-skills, have become overworked since the beginning of the 1990s. The ratio of workers with extreme working hours gradually increased in Austria, Belgium, Germany, Italy, Ireland, Luxembourg, the Netherlands, Norway, the United Kingdom, Canada, and the United States. At the same time, the ratio remained remarkably low in France and the Scandinavian states. The increasing trends are surprising, and at the same time disappointing, as they suggest that the fruits of technological advancements have not been used in a labour friendly way.

Bailout talks gain pace amid tensions  - Government officials and envoys representing Greece’s international creditors are to continue with tough negotiations on Monday in a bid to hammer out the outlines of a third bailout program even as opposition to further austerity is creating turmoil in SYRIZA. Officials indicated that the talks were still at an “early stage,” with negotiations expected to delve into the thorny issues of fiscal adjustment, privatizations, bank recapitalization and structural reform, including pension overhauls, over the coming days. The aim of both sides is for a new memorandum to have been drafted by August 11 so that a Eurogroup summit planned for that day can give its approval and the blueprint can be ratified by the parliaments of Greece and other eurozone countries. Ultimately Greece must secure fresh loan funding by August 20 when it must meet a 3.2-billion-euro debt repayment to the European Central Bank or again face default. So far the biggest point of contention is over a third set of so-called prior actions that creditors want Greece to pass through Parliament this month. The government counters that the July 12 eurozone summit agreement does not stipulate the need for any further measures to be enforced. But creditors appear to want another indication of good will and commitment to reforms before handing out any more money.

Greece may seek up to 24 billion euros in first new aid tranche: paper | Reuters: Greece may seek 24 billion euros in a first tranche of bailout aid from international lenders in August to prop up its banks and repay debts falling due at the ECB, a pro-government Greek newspaper said in its early Sunday editions. Athens is now in talks with the European Commission and the International Monetary Fund to secure up to 86 billion euros ($94.48 billion) in bailout aid. It will be its third bailout since 2010. Avgi newspaper, which is close to the leftist Syriza government, said Greek authorities expected to conclude talks with lenders by mid-August. The first tranche of 24.36 billion would be used to channel 10 billion euros as an initial recapitalization to Greek banks, 7.16 billion euros to repay an emergency bridge loan, 3.2 billion euros toward Greek bonds held by the European Central Bank and other payments, Avgi said. It has been estimated that Greek banks may require up to 25 billion euros to be recapitalized, a shortfall exacerbated by an outflow of deposits when a stalemate with lenders threatened Athens' place in the euro zone. The flood of money leaving the country culminated in authorities imposing capital controls on June 29 to prevent a financial meltdown.

Stocks Plunge in Greece as Athens Exchange Reopens - Investors issued a vote of no confidence in Greece’s economy on Monday, dumping stocks as trading on the Athens exchange resumed for the first time in five weeks.A plunge of more than 16 percent for the main Greek index and a 30 percent sell-off for bank stocks were the latest signs of Greece’s shattered economy. But the resumption of trading was a necessary step as Greece tries to emerge from controls on financial activity that the government, confronted with a bank run, imposed at the end of June.Analysts said stock prices could begin to recover in the weeks to come, bringing much-needed capital into the country, as investors with an appetite for risk look for bargains.In yet another sign of trouble, though, new survey data on Monday showed a fall in Greek manufacturing activity since the government imposed controls in late June on the flow of money out of Greece.Much depends on the outcome of negotiations between government officials and representatives of the country’s international creditors on a multibillion-euro bailout, Greece’s third in five years. The talks entered a second week on Monday.“If the new deal with creditors is struck and ratified, Greek stocks could rebound nicely,”

Greek businesses left gasping as capital controls bite - FT.com: After the Greek government imposed capital controls to prevent the country’s banks from collapsing, businessman Athanassios Savvakis feared exports of apricots, peaches and tomatoes would be the country’s next economic casualty. “I was seriously worried,” said the chief executive of National Can Hellas, a private company that makes 300m cans a year for local fruit and vegetable processors. “The canning companies operate for only three months in the summer and controls were applied just as the season was getting under way.” Mr Savvakis must import all of his raw materials, but he was hamstrung by rules severely restricting the funds he could transfer to foreign suppliers. The company ended up adopting what Mr Savvakis called a “triangular” payment system. “We have plenty of exporters with bank accounts abroad among our customers. Instead of paying us they transfer funds they hold abroad to pay our regular metal suppliers in Spain, the Netherlands or the UK,” he explained. The ruse has spared National Can Hellas. But for many other Greek companies, there is little relief from the suffocation of capital controls that have made it difficult to conduct business abroad and are unlikely to be lifted before next year. The effect has been particularly dramatic on Greece’s small, family-owned manufacturers — many of which rely on imported materials and have little clout with banks. “Good and healthy companies that survived the crisis have been rendered helpless because they can’t import raw materials,” said Constantine Michalos, president of the Athens Chamber of Commerce and Industry. Figures released this week by the Markit survey of purchasing managers — a commonly used index of manufacturing activity — indicated a sharp drop in factory production with the index for Greece falling from 46.9 to 30.2, its lowest ever reading. July also saw the steepest drop in factory employment recorded for Greece during more than 16 years of data collection by Markit.

Greece’s banking sector on track for biggest weekly loss ever - There are selloffs—and then there’s the recent flight from Greek bank stocks. Greece’s stock market reopened after a five-week hiatus on Monday and the country’s banking-sector index DTR, +17.78% shaved off a whopping 64% in first three days of trading, in increments of almost 30% a day — the daily loss limit. This comes as the wider Athex Composite Index GD, +3.65% “only” lost 19% those days, as investors grappled with what’s next for the country’s stock market after the government averted an 11th hour default in July. “Investors have to reassess the risk in terms of Greek banks and the risk of their holdings. It is obviously not a pleasant scenario and the selloff has been quite considerable,” said Richard Perry, market analyst at Hantec Markets. And here a few stats to go with the “considerable” selloff: For the banking index, the weekly loss is on track to be 59%, the biggest ever and far exceeding a 40% wipe out in May 2013, when angry workers took to the streets in Athens in anti-austerity protests. For the benchmark Athex, it’s on pace to suffer 16%, its fourth-worst week ever, after putting in its biggest one-day slide in the index’s history on Monday. Those losses come even after both the banking index and the Athex staged a rebound in Thursday’s trade, up 13% and 3.7%, respectively.

Greece needs €100bn debt relief as permanent depression looms - National Institute of Economic and Social Research says Greek debt write-off must be much larger than IMF demands, as think-tank warns VAT hikes and budget targets are asphyxiating economy.  Greece needs a debt write-down of almost €100bn (£70bn) if the country is to stand a chance of clawing its way out of a “prolonged and severe depression”, according to a leading think-tank. In a stark analysis, the National Institute of Economic and Social Research (NIESR) laid bare the impact of VAT hikes and strict budget targets that it said could become “self-defeating”. As Greek bank shares saw a third of their value wiped-off for a second day, NIESR’s analysis showed Greece’s economy will slump back into recession this year and next. By the end of 2016, the economy is forecast to be 30pc smaller than at its peak in 2007 and 7pc smaller than before it joined the euro in 2001. “We don’t see Greece getting back to the level it was when it joined the euro in 2001, let alone anywhere near where it was before this crisis struck, so this is a prolonged and severe depression for Greece,” said Jack Meaning, research fellow at NIESR.

Greece’s Debt Burden Can and Must be Lightened Within the Euro - naked capitalism Yves here. Despite all the noise in the media about the IMF sticking to its guns about debt reduction, the agency has already conceded on what could have been an outtrade, the question of whether “debt reduction” takes the form of haircuts. Despite leaked staff memos that express doubt in the sternest terms available in bureaucrat-speak that anything other than haircuts would offer enough relief, IMF managing director Christine Lagarde has made two points consistently since the row broke out: that Greece needs to make serious reforms, and that debt reductions need to be deep. It was always expected that the so-called third bailout being negotiated now would include debt relief, and Merkel has stated that a deal will include debt reduction. So all the two sides are arguing over is numbers, not principles. Moreover, the IMF can fudge if it wants to via its assumption of growth rates for Greece. So the IMF has the ability to make any deal work on paper. But given that this round of debt reduction will pretty much reach the end of the road for what can be accomplished by the politically painless ruse of maturity extensions, interest rate cuts, and debt deferrals, if this bailout does not get Greece on track, or at least keep it from going into an even deeper depression, it’s hard to see how Greece will be money good on its next round of lending. And it’s the IMF that has the most to lose, institutionally, from a default. The Fund would have to go hat in hand to member states to make up the shortfall, a hugely unpopular step which would seem likely to lead to governance changes. And continuing to run a highly visible, failing program won’t help agency morale or its ability to attract staff.  This Bruegel post describes a way to make Greece’s debt math work better than having the IMF create new spreadsheet fantasies. And note in passing that the new program evidently anticipates that Greece will achieve 3% growth. What are the people who come up with these numbers smoking?

Greece and lenders strike upbeat tone, deal seen on bailout  - Both Greece and its lenders said on Tuesday they were optimistic they could broker a deal within days on a multi-billion euro bailout, striking a surprisingly upbeat tone on a process previously fraught with bitterness. A bailout worth up to 86 billion euros ($94.5 billion) must be settled by Aug. 20 -- or a second bridge loan agreed -- if Greece is to pay off debt of 3.5 billion euros to the European Central Bank that matures on that day. Wrapping up a day of talks in Athens, Greek Finance Minister Euclid Tsakalotos said negotiations were going better than expected. In Brussels, a Commission official said they were 'encouraged' by progress. "We are moving in the right direction and intense work is continuing," Commission spokeswoman Mina Andreeva told Reuters. It will be the indebted nation's third bailout since 2010, designed to stave off bankruptcy and keep the country from toppling out of the euro zone.

Greece's Tsipras says loan deal with lenders close  - Prime Minister Alexis Tsipras said on Wednesday that Greece was close to concluding a deal with lenders on a multi-billion-euro bailout, which he said would end doubts over its place in the euro zone. The comments were the latest in a series of unusually upbeat assessments by Greek and European officials of progress in talks towards up to 86 billion euros (£60 billion) in fresh loans to stave off the country's financial ruin and economic collapse. "We are in the final stretch," Tsipras said. "Despite the difficulties we are facing we hope this agreement can end uncertainty on the future of Greece." An accord must be settled -- or a bridge loan agreed -- by Aug. 20, when a 3.5 billion euro debt payment to the European Central Bank falls due. Both sides have said such a deal is possible, although the European Commission described the target as ambitious, suggesting much remains to be done.

Tsipras sees talks in final stretch; Juncker hopeful of deal in August - There are at least three key issues that Greece and its lenders have to resolve in the coming days, otherwise preparations will have to begin for a new bridge loan to ensure that Athens does not miss a payment to the European Central Bank on August 20. “We still have to settle three or four issues at a technical level,” Finance Minister Euclid Tsakalotos said on Wednesday after a new round of talks with representatives of the European Commission, European Central Bank, European Stability Mechanism and International Monetary Fund. “These matters will require a little more time.” The main obstacles to an agreement at the moment are the timeline for reforms, privatizations and the recapitalization of Greek banks. On the first issue, Greece and its lenders have yet to decide when specific reforms will have to be implemented. It is thought some prior actions will be passed through Parliament at the same time as the agreement for the third bailout but others will be adopted later in the year. With regard to privatizations, there is no agreement yet on how the new fund that Greece has to set up will operate. It appears the creditors are insisting that the current sell-off fund complete the projects it had lined up rather than transfer them to the new body. The details of the planned recapitalization of Greek banks has not been finalized either. The institutions favor completing the process by the end of the year and seem to want to avoid a bail-in of depositors, as does the government.

Germany has growing doubts about quick deal on Greek aid - Bild | Reuters: The German government has growing doubts a deal on a multi-billion-euro bailout for Greece can be agreed in the next two weeks, meaning Athens would need to secure a bridge loan, Bild daily reported on Thursday. "That is not achievable," the newspaper quoted a government source as saying of the Aug. 20 deadline for agreeing the new bailout. A 3.5-billion-euro (2.44 billion pounds) debt payment to the European Central Bank falls due on Aug. 20 and without a bailout deal, Athens will need bridge financing. On Wednesday, Greek Prime Minister Alexis Tsipras said Greece was close to concluding a deal with lenders on the bailout, which he said would end doubts over its place in the euro zone.

Germany protests against 'half-finished' Greek bail-out deal -  Germany will not rush talks over an €86bn rescue package for Greece as it seeks further guarantees before providing its taxpayer money to keep the cash-strapped country in the eurozone. Opening up a potential rift with its creditor partners, finance ministry officials in Berlin are said to favour providing another €5bn bridging loan to Greece, buying time to extend talks with the Leftist Syriza government. "It is better to negotiate [with Greece] for two or three weeks longer and then have a sensible programme… A further bridge loan is better than just a half-finished programme," officials told Germany's Süddeutsche Zeitung. A spokeswoman for the ministry added that "a range of issues remain to be settled, especially around future conditionality". The position is at odds with comments made by France's Francois Hollande and Greek prime minister Alexis Tsipras, who have insisted that talks over a new three-year "Memorandum of Understanding" can be concluded by August 15. Athens faces a €3.3bn bond payment to the European Central Bank on August 20.  "We know it's difficult but we must make sure that the conditions are met, in a good spirit," President Hollande said during a visit to Egypt's Suez canal on Wednesday. The Greek parliament could vote on a new agreement as early as August 18, according to a government official on Friday. Both sides are set to spend the weekend negotiating the budget targets Athens will have to meet to continue receiving rescue cash, according to deputy prime minister Yiannis Dragasakis. He added that a deal was "nearly ready".  But German finance minister Wolfgang Schaeuble has repeatedly demanded assurances from Athens that it can implement a series of punishing austerity measures or face an exit from the eurozone.

Greek civil servants scramble to retire over fears of pension cuts - Fears that reforms demanded by Greece’s international creditors will see retirement benefits plunge further have prompted hundreds of civil servants to apply for their pensions, a report by Ethnos daily said on Friday. According to Ethnos, more than 5,500 public workers have submitted the paperwork needed to be pensioned off in the last few weeks, while it also estimated that 60,000 civil servants will become eligible for retirement by the end of the year. From 2009, when the Greek economy started to crash, and until the present, the Greek civil service has shrunk by 340,000 workers, the report said. The first year of implementation of the first bailout deal with international creditors, 2010, saw the biggest wave of departures, with 53,335 civil servants retiring. While their number declined in following years, it remained above 30,000 on an annual basis. The departure of thousands of civil servants has reduced state payroll costs by 35 percent compared with 2010, Ethnos said, though there are concerns about how pension funds will cope with the spike in payouts.

Varoufakis Tells All: Tsipras Was "Dispirited" With "No" Vote, Referendum Was Meant As "Exit Strategy" --  In the wake of Greek PM Alexis Tsipras' seemingly inexplicable decision to disregard a referendum outcome he had aggressively campaigned for on the way to accepting a deal with Athens' creditors that looked far worse than the proposal that 62% of Greek voters indicated was unacceptable just a week prior, some began to question whether Tsipras intended to win the referendum at all.  That is, some wondered if, seeing no way out, Tsipras had secretly hoped that a "yes" vote would have given him an excuse to either accept creditors' proposals and say he was simply doing the bidding of the Greek populace, or else simply resign in feigned disgust at his people's willingness to accept a bad deal. Indeed, the Telegraph's Ambrose Evans-Pritchard reported early last month that the Greek prime minister who decisively and unexpectedly pushed for a plebiscite on the last weekend of June, "never expected to win the referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control."  Now, in an interview with Christos Tsiolkas for the Australian magazine Monthly, ex-FinMin Yanis Varoufakis tells the story of what took place in the minutes and hours after the referendum "no" vote and details what he calls "The Schaueble Plan". Most notably, Varoufakis says Tsipras was "dispirited" by the "no" vote and that many in the Greek government were indeed depending on a "yes" vote to give them a way out of what seemed like an intractable situation.

Businesses Flee Catalonia, Foreign Investment Plunges, as Confrontation with Spain Comes to a Boil - Don Quijones - As the countdown begins to Catalonia’s plebiscite-style elections, scheduled for September 27, cracks are already beginning to show in Spain’s most important economic region (at least pound for pound). A few days ago, a study by Axesor showed that since the region’s pro-independence premier, Artur Mas, took office in 2011, 3,800 companies have upped sticks and left Catalonia for other regions of Spain. By contrast, just 2,547 companies have relocated from other regions to Catalonia during the same period. Of the 3,839 companies that abandoned Catalonia, almost half ended up relocating to Madrid. Indeed, during the same period Madrid has seen a net inflow of 1,766 companies while Spain’s third largest city Valencia registered a net influx of 361 companies. While some of those companies were lured away from Catalonia by the prospect of lower taxes – Catalonia is currently the highest-taxed region of Spain – fears are growing that more and more local companies are voting with their feet against Catalonian independence. These fears were compounded by recent tweaks Rajoy’s government made in Spain’s corporate governance law to make it much easier for the country’s biggest publicly listed companies to move the location of their headquarters. It’s not just local companies that are getting the jitters. In March of this year Spain’s Ministry of Economy released data showing that in 2014 foreign direct investment in Catalonia plunged 16%, while in Spain as a whole it increased 9.2%. In Catalonia’s neighboring province, Valencia, overseas investment grew by a staggering 300% in the space of just one year.

Italy's industrial output falls more than expected - Italy's industrial production fell more than expected in June, as it contracted in almost all sectors, reversing the rise seen in the previous month, in a sign that the recovery from the country's worst postwar recession is still fragile. Industrial output in the euro zone's third-largest economy fell 1.1% on the month in seasonally adjusted terms, national statistics institute Istat said Wednesday. A more modest fall of 0.2% had been the average forecast of 11 economists polled earlier by The Wall Street Journal. The monthly fall was led by a 1.7% monthly contraction in the production of intermediate goods, while consumer goods fell 0.8% and energy goods' output contracted 1.0% over the period, Istat said. Italian industrial production fell 0.3% on the year in June in workday-adjusted terms, Istat said. In May, Italy's industrial output had risen 0.9% on the month and 3.1% on the year.

Italy says to seek budget leeway from EU | Reuters: Italy will ask the European Union to grant it greater budget flexibility in the light of its efforts to pass structural reforms, Economy Minister Pier Carlo Padoan said on Tuesday. Speaking to reporters in Rome, Padoan said Italy would fund tax cuts promised by Prime Minister Matteo Renzi with a mix of spending cuts, improved economic growth, and by seeking increased budget flexibility from the European Union. "There are all the conditions to request flexibility," Padoan said, arguing that this would be justified by Italy's efforts to reform its sluggish economy. Padoan declined to confirm that Italy would raise its budget deficit goal for next year of 1.8 percent of gross domestic product, saying the request would refer to the so-called structural deficit, adjusted for fluctuations in economic growth.

Eurozone retail sales fall sharply in June - Retail sales in the eurozone fell more sharply than expected in June, a fresh sign that the currency area's economic recovery remains too weak to quickly bring down very high rates of unemployment, or raise inflation to the European Central Bank's target. Separately, the final results of surveys of purchasing managers at businesses around the eurozone recorded a slowdown in activity during July, although it was less marked than first estimated. The European Union's statistics agency said Wednesday retail sales in the 19 countries that use the euro fell 0.6% in June from May, but were up 1.2% from the same month last year. It was the largest month-to-month fall since September 2014. Economists surveyed by The Wall Street Journal had estimated sales fell 0.2%, having seen figures from Germany that recorded a large drop. Eurostat said sales in Germany were down 2.3% from May. That's a blow to hopes that low unemployment and rising wages in its largest member would boost the recovery in the eurozone as whole, as Germans purchased more goods and services from weaker parts of the currency area. But the weakness in retail sales wasn't confined to Germany, and is also a setback to the ECB's goal of raising the annual rate of inflation to its target of just under 2%.

Germany just got some shockingly bad industrial production news -- German industrial production tanked in June, against expectations. June's figures showed the worst month-on-month performance for Europe's largest industrial base since August last year. Production fell 1.4% from May, against the 0.4% rise analysts had expected. That leaves production on the year up just 0.6%, a pretty meagre expansion, compared to the 2.2% increase that was expected. The particularly strange element of the decline is that June factory orders numbers released on Thursday for Germany were extremely strong — the best monthly rise in over a year, in fact. The two figures aren't mutually exclusive — factory orders could be followed up in the months ahead by higher production. But it is a bit harder to say which way a sector is going when nothing points in the same direction.

Europe Moves to Cut Risk in $505 Trillion Derivatives Market - Banks and investors in the European Union will have to send trades of some interest-rate swaps to a third party under new rules intended to make financial markets safer. The banks and major investors that hold the derivatives will have to use a third party called a clearinghouse to process their trades, the European Commission, the EU’s executive arm, said in a statement on Thursday. “There’s been quite a long delay in getting the European Union to the end point in mandatory clearing,” said Emma Dwyer, a partner at law firm Allen & Overy LLP in London. “People should be reasonably content with this. It hasn’t changed the scope of contracts that are covered and the compromises that were worked out along the way have been largely observed.” The Group of 20 nations in 2009 mandated clearing for many swaps contracts in an attempt to reduce the damage that would be caused by a major financial institution defaulting on its payments. “Today we take a significant step to implement our G-20 commitments, strengthen financial stability and boost market confidence,” said Jonathan Hill, the EU commissioner for financial services. “This is also part of our move toward markets that are fair, open and transparent.” Banks have traditionally traded interest-rate swaps between themselves in over-the-counter, or off-exchange, transactions. By redirecting these transactions to a clearinghouse, the derivatives market should become safer. If a counterparty goes bust, the clearinghouse will spread the losses incurred between all its member firms. Companies have to post collateral with clearinghouses to use them.

Europe approves rule mandating central clearing for derivatives - The European Commission adopted new rules Thursday mandating central clearing of certain over-the-counter interest rate derivatives contracts. Phased in over three years, the mandate, which can begin in April of next year at the earliest, covers interest rate swaps with certain features denominated in euros, pounds sterling, Japanese yen or U.S. dollars. Central clearing of derivatives was first agreed to by world leaders at the G-20 Pittsburgh Summit in 2009. It began in the US in 2013, followed by a requirement in 2014 that certain swaps begin trading on swaps execution facilities (SEFs). The lack of coordination in the way derivatives markets reforms have been implemented in different jurisdictions has long led to complaints about cross-border fragmentation. As far back as January 2014, when the US has implemented central clearing but before US mandates for trading on SEFs had kicked in, the International Swaps and Derivatives Association (ISDA) had already published a research note titled "Cross-Border Fragmentation of Global OTC Derivatives: An Empirical Analysis."

ECB's economic hitmen: "The independence of central banks", Naomi Klein explained to me a few years ago, "is the mechanism by which markets explain to the politicians that they cannot play with their toys. It is the most important evidence that the markets are in an open war with democracy." The European Central Bank not only could not be an exception in this situation but soon became the most ruthless "economic killer" who acted on behalf of commercial banks of countries such as Germany. Using the central bankers of member countries as a "fifth column", ECB managed to impose its positions in parliaments of weak countries when needed to overrule the governments that did not cooperate. The fact that the European Union lacks political control mechanisms on such institutions, leaves ECB completely uncontrolled. In the US, where the FED enjoys the same "independence", would be considered unthinkable for the central banker to come into conflict with the interests of the federal government, for example by refusing to buy Treasuries to help the national economy to emerge from a crisis. Unlike in Europe, the ECB has refused several times to listen to the wishes of even the Eurogroup, declaring allegiance only in Berlin, or, in specific financial institutions.

Plans for Euro Zone Tax Take Shape in Berlin and Paris - History has shown that when a government wants to solidify its power, it has to turn its subjects into taxpayers. The unnerving bargaining over the latest Greece bailout program has led the leaders of the monetary union to conclude that the euro zone has to become more tightly joined together politically. European Central Bank (ECB) President Mario Draghi wants stricter rules for the banking union. French President François Hollande is calling for a separate economic government for the monetary union. And in Brussels and Berlin alike, financial experts are devising plans to provide the Euro Group with the same tool that has proven to be so successful throughout history: its own tax. If the plans were implemented, it would constitute the breaking of a taboo for the Continent. The people are used to the fact that some powers are shifted to Brussels as part of European unification. But there is one thing even the most devoted proponents of Europe had shied away from until now: giving the EU the right to impose taxes, a power many felt the member states should retain. It had long been a given that this was something the European people would never accept.

Is Germany's Trade Surplus a Problem? - Ben Bernanke's recent post "Germany's Trade Surplus is a Problem" got me thinking about "global imbalances" again. I'm still not sure what to make of the issue. The word "global imbalance" sounds ominous. If you export more than you import--so that your net exports are positive--you are running a trade surplus and I am running a corresponding trade deficit. This is the definition of "imbalanced" trade.  There is the question of how goods are paid for and how any imbalance is financed. Suppose we live in a common currency area. One possibility is that is that we pay for our shipments fully with money. At the end of the day, your trade surplus implies that you acquired more money from me than I acquired from you. Putting things this way leads us to question the notion of "imbalanced" trade. Sure, I acquired more goods from you--but you acquired more money from me in exchange. It all balances out, doesn't it? Yes, it does. But it's still true that you exported more goods than you imported. And that extra money you acquired...what do you plan to do with it? Sit on it forever? (Actually, I explore this possibility here.) More likely than not, you are planning to spend it one day. When that day comes, I will be induced to sell you more goods than I buy from you.  But what if the pattern of trade just described persists? What if you just keep sending me more goods than I send you? Then you are running a persistent trade surplus and I am running a persistent trade deficit. You are acquiring more money and securities, while I am depleting my money and possibly issuing debt. So what is the problem with Germany's trade surplus? Let's say you're Germany and I'm a country in the periphery--e.g., one of the so-called PIGS. Both you and I are wobbled by the 2008 financial crisis, but me (a debtor) relatively more so than you (a creditor). And because my market is flooded with your goods, there is no real opportunity (or maybe even desire) for me to work harder--it's tough to compete with you. Your trade surplus translates into a lack of demand in the periphery.

Greece Gets Sudden Influx of 50,000 Refugees in July (More Than 2014 Total) Seeks Help From EU -- The already high misery index in Greece is about to get worse. Greece has shortages of food and medicine already thanks to capital controls, and now it has to deal with a massive influx of unwanted refugees. As a result, Greece Pleads for Help From EU.   Greece faces “a crisis within a crisis” as Athens struggles to cope with the sudden influx of refugees and migrants, sparking fears of a humanitarian disaster at Europe’s border. Almost 50,000 people entered Greece in July alone – more than the country received during all of 2014 – according to Frontex, the EU’s border agency.   Meanwhile, the UN refugee agency UNHCR described the migrants’ situation on Kos, Chios and Lesbos, three Greek islands traditionally popular with tourists, as “total chaos”, with arrivals sleeping rough. “Greece faces a crisis within a crisis,” said Alexis Tsipras, the prime minister, who held an emergency cabinet meeting on Friday to accelerate the disbursement of more than €400m in emergency EU funds for refugees. “The migrant flows exceed the capacity of our state infrastructure,” he added. “We’re making every effort to provide humanitarian aid, but we need the EU to respond immediately.” Officials in both Brussels and Athens have given warning that Greece is in dire need of support to handle the arrivals, who now number 130,500 since the start of the year — a fivefold increase on 2014, according to Frontex.Greece has overtaken Italy as the main point of arrival for people fleeing countries such as Syria and Eritrea. In total, Greece has accounted for roughly half of the 224,000 asylum seekers and migrants who have entered the EU so far this year, according to the UNHCR.

Europe Migrant Crisis: Britain, France Call For EU Action To Curb Migration: British and French ministers have warned the the world is facing a “global migration crisis,” and urged other EU nations to help address its root causes. The call comes after thousands of migrants have made repeated attempts to cross from France to Britain via the Channel Tunnel. In an article in Britain's Sunday Telegraph, British Home Secretary Theresa May and her French counterpart Bernard Cazeneuve said: "This situation cannot be seen as an issue just for our two countries. It is a priority at both a European and international level. "Many of those in Calais and attempting to cross the Channel have made their way there through Italy, Greece or other countries.That is why we are pushing other member states, and the whole of the EU, to address this problem at root." The pair also suggested that one step towards a long-term solution to the crisis was convincing would-be migrants that "our streets are not paved with gold". In a bid to reduce the lure of the U.K. to migrants, many of whom hail from conflict-stricken countries like Afghanistan, Syria and Iraq, the British Home Office announced plans to cut the weekly cash allowances that support thousands of failed asylum seekers with families, the paper reported. The ministers' call comes as the two countries began a program of improving security at the Channel Tunnel facility at the French port of Calais, which is a major conduit for trade. It includes private security guards,  funded by the U.K., an increased French police presence and additional fencing and CCTV, according to a BBC report.

We can't stop the flow of migrants to Europe. Rehousing them is our only option - Rarely since 1558, when Queen Mary lost the town to the French, can Calais have ruffled as many British feathers as it has this July. British lorry-drivers, British holidaymakers, and British booze-runners – they’ve all had their journeys wrecked by a recent rise in refugees attempting to break into the Calais end of the Channel tunnel. Without wanting to entirely dismiss their experiences, it is nevertheless useful to remember that the Calais crisis is just a tiny part of a wider one. Of the nearly 200,000 refugees and migrants who have reached Europe via the Mediterranean this year, only 3,000 have made their way to Calais. This means that the migrants at Calais constitute between 1% and 2% of the total number of arrivals in Italy and Greece in 2015. Far from the UK being a primary target for refugees, the country is much less sought-after than several of its northern European neighbours, notably Sweden and Germany. And while the chaos at Calais may seem unique, many more migrants arrive every week on the shores of Italy and Greece than will reach northern France all year. Debunking this Anglo-centrism is not an academic exercise. It is crucial to understanding how the Calais crisis can be better managed.  Britain’s responses to the phenomenon are based on the assumption that it is a local problem. They include building more fences (Theresa May’s proposed recourse), sending in the army (Nigel Farage’s), or clearing the camp entirely (the default reaction in years gone by). Such solutions presuppose that the crisis is a one-off event peculiar to the British-French border, and that these migrants – once cordoned-off and forgotten about – won’t come back and try again. But such short-termism ignores a vital fact: the migrants at Calais are merely the crest of the biggest global wave of mass migration since the second world war. Others will keep coming in their wake, whether we like it or not. Previous camp clearances over the past decade have ultimately not stopped the flow at Calais. Why would they work now?

David Cameron will publish the financial details and viewing habits of all UK porn-watchers - Let's start by saying that this will be totally, absolutely ineffective at preventing kids from seeing porn. Never underestimate the power of a kid who is cash-poor and time-rich. The Chinese government has the power to harvest your organs and give them to party members if you mess with their Great Firewall, and they make all the networking equipment and they have the world's largest supply of talented network engineers -- and they can't even stop their residents from accessing hippie mystical tai-chi-plus-plus religious cult woo. We're talking about sex, here. We have a name for organisms that aren't obsessed with reproduction: extinct. David Cameron vs four billion years of evolution: I give long odds on the reigning champ. Like, four billion to one.  But this isn't just totally ineffective at preventing bad outcomes: it creates even worse problems. Censorware is like regexps for politicians: now you have two problems. Because everything leaks. I don't just mean these fools. I also mean these delightful fellows.  There is exactly one gold standard for not leaking user data: not gathering or retaining it in the first place.

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